"A Minsky moment is the economic phenomenon that occurs when over-indebted investors are forced to sell good assets to pay back their loans, causing sharp declines in financial markets and jumps in demand for cash.[1][2] In any credit cycle or business cycle it is the point when investors begin having cash flow problems due to the spiraling debt incurred in financing speculative investments. At this point no counterparty can be found to bid at the high asking prices previously quoted; consequently, a major sell-off begins 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.
Some, such as McCulley, have dated the start of the financial crisis of 2007–2010 to a Minsky moment, and called the following crisis a "reverse Minsky journey"; McCulley dates the moment to August 2007,[3] while others date the start to some months earlier or later, such as the June 2007 failure of two Bear Stearns funds.
The concept has some parallels with Austrian business cycle theory[4] although Minsky himself was known as a Keynesian and is identified as a post-Keynesian.[5] "
OK. So the availability of "easy money" causes "speculation"- and that at some point the debt spirals and cannot support the investment. A sell off begins...perhaps leading to a crash of the financial instrument itself.
Hi there and thanks for trying to understand the "greed based" world we live in.
When I read the above, I immediately realized that this was a but a "shell" of the answer to what lies ahead for most of the industrialized world - and on a personal level...what lies ahead for your retirement account and for those of millions."Easy Money" as described in the article above, is not what you might think. It was not money created out of thin air, or money created out of some profit from past dealings.
No.
The money the writer was talking about is money that came from retirement accounts, pension funds and the life's work of thousands.
Money you spent your life obtaining from working 9 to 5 at some place you would rather not be at...perhaps doing work you became good at, but not your passionate dream. Maybe it was, but no matter.
No. The money is the collection of the life's work of thousands, maybe hundreds of thousands. It's all stored production - and its all being used to "speculate" for the benefit of the fund manager and his firm. The system always wins. Money managers risk your money on your behalf, not theirs. If it all comes apart, they might lose in the long run and even be replaced if the trend continued, but in the short run it is you that loses personally in the transaction.
So the lesson here is; the system always wins in bull and bear markets. You win when it rises and loose when it falls. In the fall, the money is absorbed and transferred to the Fed and to those who shorted the fund. For you to win, you must not play...or at least pull out when it is up. But few people really have the tools and the timing to sell when the market is up. Instead they "let it ride."
The ride ends when you have no principal left. The ride ends when the currency it is based on inflates away to nothing. The ride ends when those with greed absorb your life's work.
You would have been better off to bury gold in the back yard. At least you would be in control and protected from greed. If you had done that with each dollar you had earned over your lifetime, today your portfolio would be worth some 70 times its value. For most that would mean millions in value.
Get off the roller coaster and buy gold or silver. It's the only true real money that has stood the test of time for thousands of years.
