The Financialisation of Shipping Markets

In the 1950s and 1960s, business cycles in the US and other industrialised countries were demand-led. The stabilisation of the economy around potential output was, on the whole, successful through demand management (fiscal and/or monetary policy). In the following twenty years business cycles turned from demand- to supply-led, following abrupt changes in the price of oil. Three of these shocks were adverse or negative and one, in the mid-1980s, was fortuitous or positive. The shocks in the early and late 1970s were permanent, while the shock in the early 1990s was transient. Adverse supply shocks cause the rise of inflation and unemployment (stagflation), increase the amplitude of the cycles relative to demand-led ones and create a short-term trade-off for policymakers. From the early 1990s onwards cycles turned into asset-led ones, driven mainly by liquidity. The amplitude of asset-led cycles is even larger than that of supply-led cycles. The upswing of the cycle is usually long and pronounced, creating prosperity and euphoria, but the downswing leads to deep and protracted recession. Therefore, asset-led cycles exhibit the largest amplitude of all cycles.