Demystifying Investing: Crucial Insights on the Minsky Moment

In this series, we demystify complex investing terms and concepts. Today, we’ll dive into the Minsky Moment.

What is the Minsky Moment?

The Minsky Moment refers to the late economist Hyman Minsky’s theory that stability in financial markets ultimately leads to extreme instability.

According to Minsky, investors, both private and institutional, become complacent during stable periods and take on more debt. Eventually, they reach a point where they can’t repay their borrowings with their revenues and are forced to sell their least speculative assets. This selling pressure leads to a sharp decline in share prices, causing a bubble to burst.

Although Minsky set out his thesis in a 1993 paper titled “The Financial Instability Hypothesis,” the term “Minsky Moment” was coined by Paul McCulley, chief economist at Pimco, during the Russian debt crisis in 1998.

When did the term gain popularity?

The term gained widespread usage in 2007 during the US sub-prime mortgage scandal, which triggered the global financial crisis. Bankers, brokers, and columnists started using the term extensively as they tried to explain the market turmoil.

Minsky, who passed away in 1996, was relatively unknown during his lifetime. However, the global financial crisis elevated his reputation posthumously. The Economist magazine has even argued that the term “M

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