As hypothesised in a recent paper,2 the increasing incidence of financial instability arises from the coincidence of three secular trends. The first is liberalisation of global markets for goods and services. Together with advances in technology, and technology transfer to such giants as China and India, this has contributed to disinflationary pressures globally over an extended period.
The second is the liberalisation of financial markets, which, again together with advances in technology, has increased the likelihood of justified optimism (favourably affecting credit and resource allocation) turning into unjustified optimism which breeds boom-bust cycles. The principal manifestations of this have historically been rates of growth of credit, asset prices and fixed investment well above historical norms; in effect, imbalances.