The Minsky Moment Meme
June 8, 2014·0 comments
Everyone is invoking Minsky to explain why markets must collapse. But they're applying a theory about private debt bubbles to a world drowning in public debt instead. These operate by fundamentally different rules, which means the crisis narrative everyone is waiting for may never arrive in the way they expect.
• The catchphrase has become meaningless. Investment managers throw "Minsky Moment" at every market wobble as shorthand for inevitable collapse. The phrase originally described something specific: when private lenders suddenly stop funding speculative debt. Using it for everything else just obscures what's actually happening.
• Private debt bubbles and public debt bubbles follow different physics. When private borrowers can't pay, lenders cut off credit and assets get fire-sold. But governments aren't private borrowers. Central banks can purchase their debt. The cash flow math that kills private bubbles simply doesn't apply.
• A single political statement rewrote market reality in 2012. Spanish and Portuguese bonds crashed as distressed assets. Then Mario Draghi said "whatever it takes." The economies didn't improve. Growth didn't accelerate. Nothing changed except the collective belief that these countries wouldn't be allowed to default. That belief alone tightened spreads and saved the system.
• Money managers are looking through the wrong lens. They're frustrated with zero interest rates forcing them into risky assets. They point to negative GDP growth and weak global expansion as proof of instability. But no one in the market actually believes the Fed will let things break. That confidence, not economic fundamentals, is what's holding everything together.
• The real question is about narrative collapse, not economic collapse. Markets could still blow up, but it would happen through the breakdown of the "Narrative of Central Bank Omnipotence," not through Minsky mechanics. That's a game theory problem, not an economics problem. And game theory runs on politics and psychology, not balance sheets.
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