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Financial system = Leverage * Economy

when is Financial system helpful or harmful for 'real economy'?

Interactions of complex systems means NO simple answer

Financial system = Leverage * Economy

how to deal with complexity?

  • Liquidity

Liquidity is inversely related to volatility ( and tail risk of irreversible losses)
Liquidity spans from illiquid small business to very liquid financial markets (up to Treasuries). Liquidity is a map of feedback loops and complexity

The Financial Instability Hypothesis by Hyman P. Minsky