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.
The concept has some parallels with Austrian Business Cycle Theory, although
Hyman Minsky himself was known as a "radical" Keynesian.
[edit] Notes
1. ^ In praise of ... Hyman Minsky, The Guardian, August 22 2007,
http://www.guardian.co.uk/commentisfree/2007/aug/22/comment.business
2. ^ Lahart, Justin (2007-08-18), "In Time of Tumult,Obscure Economist Gains
Currency", The Wall Street Journal,
http://online.wsj.com/public/article/SB118736585456901047.html
[edit] References
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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
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