Financial Crises and the Future of the Real Economy

Current research on the connection between financial markets and real economy is inconclusive. We look at this relationship by analyzing statistical interconnections between stock prices, the potential for growth in companies and macroeconomic aggregates. Such analysis shows weak bond between real economy and financial markets in Poland between 1997 and 2012, thus corroborating other recent research. Further we investigate the causes of such weak relationship and find that research showed a strong relationship a few decades ago, but not in the last 30 years, indicating a structural change in the last 50 years. We believe that the cause may be connected with the abolition of the Bretton Woods Agreement, the propagation of fiat money, and the following rise of the debt-driven capital markets, as well as the steady decline in labor share connected with sharp increases in labor productivity in the First World. We investigate the possible results of this and find not only a possibility of an abundance of crises in the future but also a possible limit to economic growth. We also review the possible answers to the problem, and find that the answer lies in disincentivizing the speculative nature of modern financial markets and reforming current monetary system, i.e. fiat money.