Video:
Take our online poll:
AI Analysis:
The term "Minsky moment" in financial economics refers to a sudden and severe market collapse or financial crisis. It is named after the American economist Hyman Minsky, who is known for his work on financial instability and the dynamics of speculative bubbles in financial markets.
Minsky's theory suggests that during prosperous times, when the economy is doing well and asset prices are rising, investors and market participants become increasingly optimistic and take on more risk. They may accumulate debt or leverage to invest in assets, assuming that the good times will continue. As this optimism and risk-taking behavior continue, they can lead to a buildup of fragility in the financial system.
A Minsky moment occurs when this bubble of optimism and risk-taking suddenly bursts, typically triggered by a shock or a specific event. When it happens, asset prices collapse, debt becomes unsustainable, and the financial system experiences a sharp downturn, often leading to a severe economic recession or crisis.
The term "Minsky moment" is used to describe the point at which this financial instability turns into a crisis. It highlights the idea that periods of stability and prosperity can ultimately sow the seeds of their own destruction if risk-taking behavior goes unchecked.
Notable examples of Minsky moments include the bursting of the dot-com bubble in the early 2000s and the global financial crisis of 2007-2008. During these events, speculative excesses and financial fragility led to significant market crashes and economic turmoil.
Chart:
References:
Comments