Minsky moment

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A Minsky moment is the point in a credit cycle or business cycle when investors have cash flow problems due to spiraling debt they have incurred in order to finance speculative investments. At this point, a major selloff begins due to the fact that no counterparty can be found to bid at the high asking prices previously quoted, leading to a sudden and precipitous collapse in market clearing asset prices and a sharp drop in market liquidity.^[1]

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. The Minsky moment comes after a long period of prosperity and increasing values of investments, which has encouraged increasing amounts of speculation using borrowed money.

Some, such as Paul McCulley, have dated the start of the financial crisis of 2007–2009 to a Minsky Moment, and called the following crisis a "Reverse Minsky Journey"; McCulley dates the moment to August 2007,^[3] while others date the start to some months earlier or later, such as the June 2007 failure of two Bear Stearns funds.

The concept has some parallels with Austrian Business Cycle Theory, although Hyman Minsky himself was known as a "radical" Keynesian, and is identified as a post-Keynesian.

[edit] Notes

[edit] Further reading

• What's a Minsky moment? – Seattle Post-Intelligencer
• Minsky has his moment – Financial Reality
• Housing Minsky moment – Doctor Housing Bubble
• Have we reached a Minsky moment? – MoneyWeek
• The Minsky Moment, by John Cassidy – The New Yorker

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