{"id":51031,"date":"2020-02-08T11:10:56","date_gmt":"2020-02-08T16:10:56","guid":{"rendered":"https:\/\/olduvai.ca\/?p=51031"},"modified":"2020-02-08T13:48:03","modified_gmt":"2020-02-08T18:48:03","slug":"macroview-the-next-minsky-moment-is-inevitable","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=51031","title":{"rendered":"MacroView: The Next \u201cMinsky Moment\u201d Is Inevitable"},"content":{"rendered":"\n

MacroView: The Next \u201cMinsky Moment\u201d Is Inevitable<\/a><\/h3>\n\n\n\n

In 2007, I was at a conference where Paul McCulley, who was with PIMCO at the time, was discussing the idea of a \u201cMinsky Moment.\u201d  <\/em>At that time, this idea fell on \u201cdeaf ears\u201d<\/em> as the markets, and economy, were in full swing.<\/p>\n\n\n\n

However, it wasn\u2019t too long before the 2008 \u201cFinancial Crisis\u201d<\/em> brought the \u201cMinsky Moment\u201d<\/em> thesis to the forefront. What was revealed, of course, was the dangers of profligacy which resulted in the triggering of a wave of margin calls, a massive selloff in assets to cover debts, and higher default rates.<\/p>\n\n\n\n

So, what exactly is a \u201cMinskey Moment?\u201d<\/em><\/strong><\/p>\n\n\n\n

Economist Hyman Minsky argued that the economic cycle is driven more by surges in the banking system, and in the supply of credit than by the relationship which is traditionally thought more important, between companies and workers in the labor market.<\/p>\n\n\n\n

In other words, during periods of bullish speculation, if they last long enough, the excesses generated by reckless, speculative, activity will eventually lead to a crisis. Of course, the longer the speculation occurs, the more severe the crisis will be.<\/p>\n\n\n\n

Hyman Minsky argued there is an inherent instability in financial markets.<\/strong> He postulated that an abnormally long bullish economic growth cycle would spur an asymmetric rise in market speculation which would eventually result in market instability and collapse. A \u201cMinsky Moment\u201d<\/em> crisis follows a prolonged period of bullish speculation which is also associated with high amounts of debt taken on by both retail and institutional investors.<\/strong><\/p>\n\n\n\n

One way to look at\u00a0\u201cleverage,\u201d<\/em>\u00a0as it relates to the financial markets, is through\u00a0\u201cmargin debt,\u201d<\/em>\u00a0and in particular, the level of\u00a0\u201cfree cash\u201d<\/em>\u00a0investors have to deploy. In periods of\u00a0\u201chigh speculation,\u201d<\/em>\u00a0investors are likely to be levered (borrow money) to invest, which leaves them with\u00a0\u201cnegative\u201d<\/em>\u00a0cash balances.<\/p>\n\n\n\n

\u2026click on the above link to read the rest of the article\u2026<\/p>\n","protected":false},"excerpt":{"rendered":"

MacroView: The Next \u201cMinsky Moment\u201d Is Inevitable In 2007, I was at a conference where Paul McCulley, who was with PIMCO at the time, was discussing the idea of a \u201cMinsky Moment.\u201d  At that time, this idea fell on \u201cdeaf ears\u201d as the markets, and economy, were in full swing. However, it wasn\u2019t too long before the 2008 \u201cFinancial Crisis\u201d brought […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[175,195,1675,10597,8511,3018],"class_list":["post-51031","post","type-post","status-publish","format-standard","hentry","category-economics","tag-credit","tag-debt","tag-economic-cycles","tag-hyman-minsky","tag-lance-roberts","tag-minsky-moment"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/51031","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=51031"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/51031\/revisions"}],"predecessor-version":[{"id":51032,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/51031\/revisions\/51032"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=51031"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=51031"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=51031"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}