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America’s Minsky Moment Approaches

America’s Minsky Moment Approaches


Named after American economist Hyman Minsky, the idea behind a Minsky moment is that a financial markets crisis (especially in credit markets) is caused by a sudden and systemic collapse in asset prices, usually after a sustained period of speculative investment, excessive borrowing, and widespread financial risk taking. In other words, it’s the moment when the music stops playing, investors stop buying, and the Ponzi game ends abruptly. It’s a hard crash.

America may be on the brink of its Minsky moment.

This process, which moves from slowly, slowly, to suddenly and now, goes back decades.

The confrontation with reality that was required to put America’s economic house back in order after the global financial crisis of 2008–09 was deferred to a later date by politicians, central bankers, and government officials alike, presumably when they would no longer be around.

Instead of taking the painful but necessary steps of liquidation—i.e., allowing more over-levered and risk-heavy banks and financial firms to fail, and for the economy to take the short-term pain, then move on—the U.S. government and the Federal Reserve kicked the can down the road by massive money-supply expansion and unproductive government spending.

The same playbook from the financial crisis (i.e., money printing and fiscal excess) was used again in 2020 in response to the pandemic. As the monetary authorities had but one instrument in their toolbox—the blunt-force cudgel of money-supply growth—it was the go-to solution.

As the saying goes, when the only tool available is a hammer, every problem looks like a nail. In both instances—the financial crisis and COVID periods), the U.S. Congress went on a massive spending spree, not realizing (or, as political animals with short time horizons, not caring) that excess and repeated deficit spending, and the debt creation needed to fund it, would eventually spiral out of control and doom future generations.

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Olduvai IV: Courage
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Olduvai II: Exodus
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