Minsky moment

Sudden collapse of asset values which generates a credit or business cycle

Different phases leading to Minsky Moment

A Minsky moment is a sudden, major collapse of asset values which marks the end of the growth phase of a cycle in credit markets or business activity.

## Description[edit]

According to the hypothesis, the rapid instability occurs because long periods of steady prosperity and investment gains encourage a diminished perception of overall market risk, which promotes the leveraged risk of investing borrowed money instead of cash. The debt-leveraged financing of speculative investments exposes investors to a potential cash flow crisis, which may begin with a short period of modestly declining asset prices. In the event of a decline, the cash generated by assets is no longer sufficient to pay off the debt used to acquire the assets. Losses on such speculative assets prompt lenders to call in their loans. This rapidly amplifies a small decline into a collapse of asset values, related to the degree of leverage in the market. Leveraged investors are also forced to sell less-speculative positions to cover their loans. In severe situations, no buyers bid at prices recently quoted, fearing further declines. This starts a major sell-off, leading to a sudden and precipitous collapse in market-clearing asset prices, a sharp drop in market liquidity, and a severe demand for cash.[1][2]

> As recovery approaches full employment ... soothsayers will proclaim that the business cycle has been banished [and] debts can be taken on ... But in truth neither the boom, nor the debt deflation ... and certainly not a recovery can go on forever.

Hyman Minsky, John Maynard Keynes[3]

The more general concept of a "Minsky cycle" consists of a repetitive chain of Minsky moments: a period of stability encourages risk taking, which leads to a period of instability when risks are realized as losses, which quickly exhausts participants into risk-averse trading (de-leveraging), restoring stability and setting up the next cycle. In this more general view, the Minsky cycle may apply to a wide range of human activities, beyond investment economics.

## Context[edit]

The term was coined by Paul McCulley of PIMCO in 1998, to describe the 1998 Russian financial crisis,[2] and was named after economist Hyman Minsky, who noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze.[4] Minsky opposed the deregulation that characterized the 1980s.

Some, such as McCulley, have dated the start of the financial crisis of 2007–2010 to a Minsky moment, and called the following crisis a "reverse Minsky journey"; McCulley dates the moment to August 2007,[5] while others date the start to some months earlier or later, such as the June 2007 failure of two Bear Stearns funds.

## See also[edit]

* Austrian business cycle theory, which faults excessive credit expansion as the cause of collapse events
* Debt deflation, the ensuing collapse of asset prices and falling overall private indebtedness.
* Economic bubble
* Financial crisis of 2007–2010, historical example
* Financial economics#Departures from rationality, overview of various theoretical approaches to market crises
* Hedge (finance), underlying concept (preventative)
* Margin (finance)
* Ponzi scheme, underlying concept (causative)
* Sub-prime mortgage crisis, somewhat generalized example

## Notes[edit]

1. ^ "In praise of ... Hyman Minsky", The Guardian, London, 22 August 2007
2. ^ a b Lahart, Justin (18 August 2007), "In Time of Tumult, Obscure Economist Gains Currency—Mr. Minsky Long Argued Markets Were Crisis Prone; His 'Moment' Has Arrived", The Wall Street Journal, archived from the original on 12 May 2008
3. ^ Hyman Minsky (1975). John Maynard Keynes. McGraw-Hill Education. ISBN 0071593012.
4. ^ "The Minsky Moment". The New Yorker. 28 January 2008. Archived from the original on 14 July 2023.
5. ^ Global Central Bank Focus Archived 6 February 2010 at the Wayback Machine, by Paul McCulley

## Further reading[edit]

* What's a Minsky moment? – Seattle Post-Intelligencer
* Housing Minsky moment – Doctor Housing Bubble
* The Minsky Moment, by John Cassidy – The New Yorker (2008)

* v
* t
* e

Financial crises

* Banking panic
* Commodity price shocks
* Credit crunch
* Credit cycle
* Currency crisis
* Debt crisis
* Energy crisis
* Financial contagion
* Social contagion
* Flash crash
* Hyperinflation
* Liquidity crisis
* Minsky moment
* Social crisis
* Stock market crash

Pre-1000|

* Crisis of the Third Century (235–284 CE)

Commercial Revolution
(1000–1760)|

* Great Bullion Famine (c. 1400–c. 1500)
* The Great Debasement (1544–1551)
* Dutch Republic stock market crashes (c. 1600–1760)
* Kipper und Wipper (1621–1623)
* Tulip mania crash (1637)
* South Sea bubble crash (1720)
* Mississippi bubble crash (1720)

Industrial Revolution
(1760–1840)|

* Amsterdam banking crisis of 1763
* Bengal bubble crash (1769–1784)
* British credit crisis of 1772–1773
* Dutch Republic financial collapse (c. 1780–1795)
* Panic of 1785
* Copper Panic of 1789
* Panic of 1792
* Panic of 1796–1797
* Danish state bankruptcy of 1813
* Post-Napoleonic Irish grain price and land use shocks (1815–1816)
* Panic of 1819
* Panic of 1825
* Panic of 1837

1840–1870|

* European Potato Failure (1845–1856)
* Great Irish Famine
* Highland Potato Famine
* Panic of 1847
* Panic of 1857
* Panic of 1866
* Black Friday (1869)

Second
Industrial Revolution
(1870–1914)|

* Panic of 1873
* Paris Bourse crash of 1882
* Panic of 1884
* Arendal crash (1886)
* Baring crisis (1890)
* Encilhamento (1890–1893)
* Panic of 1893
* Australian banking crisis of 1893
* Black Monday (1894)
* Panic of 1896
* Panic of 1901
* Panic of 1907
* Shanghai rubber stock market crisis (1910)
* Panic of 1910–1911
* Financial crisis of 1914

Interwar period
(1918–1939)|

* Early Soviet hyperinflation (1917–1924)
* Weimar Republic hyperinflation (1921–1923)
* Shōwa financial crisis (1927)
* Wall Street Crash of 1929
* Great Depression (1929–1939)
* Panic of 1930

Post–WWII expansion
(1940–1972)|

* Kennedy Slide of 1962
* 1963–1965 Indonesian hyperinflation

Great Inflation
(1973–1982)|

* 1970s energy crisis (1973–1980)
* 1973 oil crisis
* 1973–1974 stock market crash
* Secondary banking crisis of 1973–1975
* Steel crisis (1973–1982)
* Latin American debt crisis (1975–1982)
* 1976 British currency crisis
* 1979 oil crisis
* Brazilian hyperinflation (1980–1982)

Great Moderation
(1982–2007)|

* Brazilian hyperinflation (1982–1994)
* Souk Al-Manakh stock market crash (1982)
* Chilean crisis of 1982
* 1983 Israel bank stock crisis
* Black Saturday (1983)
* Savings and loan crisis (1986–1995)
* Black Monday (1987)
* Dissolution of the Soviet Union (1988-1991)
* 1988–1992 Norwegian banking crisis
* Japanese asset price bubble crash (1990–1992)
* Rhode Island banking crisis (1990–1992)
* 1991 Indian economic crisis
* 1990s Swedish financial crisis
* 1990s Finnish banking crisis
* 1990s Armenian energy crisis
* Cuban Special Period (1991–2000)
* Black Wednesday (1992 Sterling crisis)
* Yugoslav hyperinflation (1992–1994)
* 1994 bond market crisis
* Venezuelan banking crisis of 1994
* Mexican peso crisis (1994–1996)
* 1997 Asian financial crisis
* 1998 Russian financial crisis
* 1998–1999 Ecuador economic crisis
* 1998–2002 Argentine great depression
* Samba effect (1999)
* Dot-com bubble crash (2000–2004)
* 2001 Turkish economic crisis
* South American economic crisis of 2002
* 2002 Uruguay banking crisis
* 2003 Myanmar banking crisis
* 2004 Argentine energy crisis
* 2007 Chinese stock bubble crash
* Zimbabwean hyperinflation (2007–present)

Great Recession
(2007–2013)|

* 2007–2008 financial crisis
* Subprime mortgage crisis
* U.S. bear market of 2007–2009
* Global financial crisis in September 2008
* Global financial crisis in October 2008
* Global financial crisis in November 2008
* Global financial crisis in December 2008
* 2008 Latvian financial crisis
* 2008–2009 Belgian financial crisis
* 2008–2009 Russian financial crisis
* 2008–2009 Ukrainian financial crisis
* 2008–2011 Icelandic financial crisis
* 2008–2011 Irish banking crisis
* 2008–2014 Spanish financial crisis
* Global financial crisis in 2009
* Blue Monday Crash 2009
* European debt crisis
* Greek government-debt crisis
* 2009 Dubai debt standstill
* Venezuelan banking crisis of 2009–2010
* 2010–2014 Portuguese financial crisis
* Energy crisis in Venezuela (2010–present)
* Syrian economic crisis (2011–present)
* August 2011 stock markets fall
* 2011 Bangladesh share market scam
* 2012–2013 Cypriot financial crisis
* 2013 Chinese banking liquidity crisis

Digital Revolution
(2013–present)|

* Venezuela economic crisis (2013–present)
* 2014–2016 Brazilian economic crisis
* Puerto Rican government-debt crisis (2014–2022)
* Russian financial crisis (2014–2016)
* 2015 Nepal blockade
* 2015–2016 Chinese stock market turbulence
* 2015–2016 stock market selloff
* Brexit stock market crash (2016)
* Venezuelan hyperinflation (2016–present)
* 2017 Sri Lankan fuel crisis
* Ghana banking crisis (2017–2018)
* 2018–2023 Turkish currency and debt crisis
* Lebanese liquidity crisis (2019–present)
* 2019–present Sri Lankan economic crisis
* COVID-19 pandemic
* Financial market impact
* 2020 stock market crash
* Recession
* 2020–2023 Chinese property sector crisis
* 2021–2022 inflation surge
* 2022 Russian financial crisis
* 2022 stock market decline
* 2023 United States banking crisis

* List of banking crises
* List of economic crises
* List of sovereign debt crises
* List of stock market crashes and bear markets

*[v]: View this template
*[t]: Discuss this template
*[e]: Edit this template