What is Minsky moment?
Minky Moment is a phrase that is named after the philosophy of Hyman Minsky, the American economist of the 20th century, who held a pessimistic view of the stability of financial markets. Minky believed that free markets are essentially unstable because speculation increases prices to an unnaturally high level that inevitably leads to catastrophic collapse. The idea is based on the assumption that speculation only creates the illusion of growth known as the bull market, which will later prove unsustainable when liquidity is pressed. By pressing liquidity, the growth of the prevailing perception between creditors who will culminate in the moment of Minsky, where faith in the lack of available investment money on the market leads to tightening loans by banks. This also acts as a feedback mechanism for increasing interest rates in the economy and credit requirements of banks, where it generally reduces the flow of capital.
While the concept of the Minsky moment is named after the economic philosophy of Hyman Minsky, it was first created in 1998 Paul McCulley, globalThe investment manager who used it to refer to the Asian financial crisis of that time. The Asian crisis occurred because speculators increased the value of currencies on the Asian markets that were tied to the US dollar to the extent that the value of such currencies eventually dropped. The basic principle of such trends is that the risk of liquidity increases to the point where trading in currency or actual securities reaches a point where the market itself cannot maintain sufficient volume of trading to maintain current prices. When this happens, it is inevitable at a certain point in which a sudden shift in the perception known as the liquidity of liquidity occurs.
As a valuation of securities and increasing the currency on markets, investors are advised to use their assets to get a larger stake to increase prices, allowing greater profits if prices continue to rise. Hymen Minsky believed that the longer this trend is maintained and the more global it will happen, the greater the subsequent accident or repair on the markets. When Minsky's Moment becomes soIt is often necessary to enter a serious that the liquidity is influenced by the overall economy that central banks in many countries enter and try to reverse the trend by drawing capital to the market from the national treasures.
After the period of decrease in markets, it was dominated by the landscape, it is common for investors to fall into a reverse type of poor investment trend known as bulls. Bull trap occurs immediately after Minsky, when a company or safety that falls in value suddenly considers the direction of direction and heads up, which supports heavy investments to achieve a great profit of growth. Most of the time, however, the decline in Continues unfortunate and any new investment loses additional value.
The example of how the Minsky moment is to melt the subprime in the housing market that occurred in the United States 2007 to 2008. Speculators in the area of real estate increasingly invesTni to take advantage of the provision of loans with the belief that the economy will continue to grow and loans would repay large profits. However, as households' closure began to increase, credit procedures were tightened, causing compression of liquidity and suddenly the opposite of the trend of perceived rapid growth in the housing market. This caused devaluation in the housing sector overall and losses for banks and investors who strongly used their assets to buy.