What Is a Minsky Moment?

Minsky Moment refers to the moment described by American economist Hyman Minsky, that is, the moment when the value of assets collapses. Minsky's view is mainly that long-term economic stability may lead to increased debt and increased leverage, which in turn breeds the risk of an internal financial crisis and a long deleveraging cycle.

Minsky moment

Minsky always points to a turning point between market prosperity and recession. Minsky's point is simple and clear: in good times, investors dare to take risks; the longer the good days, the more investors take risks, until they take excessive risks. Step by step, investors will reach a tipping point, and the cash generated by their assets is no longer sufficient to pay the debts they used to obtain the assets. The loss of speculative assets prompted lenders to recover their loans. "The result is a collapse in asset value."

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The financial crisis and "Great Recession" that began in 2007 were widely interpreted as a Minsky crisis, and the ensuing

Minsky's analysis focused only on "exclusive financial markets" and did not explain the relationship between economy and finance well. Although he surpassed others in describing the cyclical nature of the financial crisis, the relationship between this description and long-term economic trends is not clear after all. Although Minsky clearly realized that the fickleness of finance is becoming a reality, he did not examine the long-term growth of finance. Actual empirical research is rare in his writings. Therefore, he failed to develop what could be called an economy. The theory of "financialization" is the shift of the economic center of gravity from production to finance. He did not examine the problem of economic stagnation, that is, the slow growth of the capitalist economy in the center of the system, and Magdoff and Sweezy were the reason why economic stagnation was the focus of the economy from production to finance. After the stock market crash in 1987, Minsky did mention that "capitalism has changed again" and evolved into a new stage of "currency management capitalism" that is very prone to financial crises. However, this assertion never expanded into a coherent analysis.

The lack of financialization theories to study long-term trends, along with Minsky's repeated assertion that debt-type deflation like the 1930s will not happen again (by virtue of the function of the big government and the central bank's ultimate lender) , Has become a major stumbling block in trying to apply his model to the financial collapse and depression of recent years. At the same time, Minsky's assumption of financial instability is almost entirely a short-term cyclical phenomenon, just a "Minsky moment", not a development trend. This fact makes his analysis more accessible to mainstream theorists-their main concern is to prove that the economy will rebound quickly under the nudge of the government.