Minsky Moment

Written By Michael Reign on Tuesday, October 2, 2012 | 9:18 PM



A concept based on the premise that sustained periods of speculative investments within the prevailing financial market system culminate in fiscal entropy.
Named after Hyman Minsky, a renowned economist and professor best known for his contention of an inherent instability present within the global market system, especially those evincing an upward trend. Paul McCulley coined the “Minsky Moment” phrase in 1998 as a reference point to emphasize the severity of the Asian Debt Crisis of 1997 - a crisis brought about through the actions of speculators who put increasing pressure on Asian currencies intertwined with the intrinsic market value of the U.S. Dollar (The World Reserve Currency), a sequence of events that culminated in the collapse and permanent devaluation of those nation’s financial holdings. It is a crisis that occurs primarily as a result of the actions of investors who take on unnecessary risk during prosperous economic trends or bull markets. The Minsky Moment alluded to the presence of ‘bubbles’ within the prevailing trend that camouflage the market’s inherent tendency toward instability.
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