Minsky Moment

A Minsky Moment is an economic event marked by a sudden collapse in financial markets, typically following a period of rapid growth and increasing debt levels. It is named after economist Hyman Minsky, who argued that financial crises are inherent to capitalism due to periods of speculative excess.

In simple terms, it occurs when investors and businesses take on too much debt during a period of economic growth, and eventually, the system becomes unstable. When investors begin to doubt the value of their investments and try to sell them, the market can suddenly and rapidly collapse, leading to a financial crisis.

One example of a Minsky Moment is the 2008 financial crisis, which was triggered by a collapse in the US housing market after years of risky lending practices and excessive borrowing.

There isn't a specific formula to predict a Minsky Moment, but Minsky's financial instability hypothesis suggests that during periods of economic growth, there are three stages: hedge financing, speculative financing, and Ponzi financing. As the economy moves from the first stage to the last, the risk and instability increase, ultimately leading to a Minsky Moment.