The Minsky Moment Meme

Tyler Durden's picture

Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,


That’s not how it works. That’s not how any of this works.
Esurance “Beatrice” commercial

There’s a wonderful commercial in heavy rotation on American television, where three women of a certain age are discussing one of the friend’s use of Facebook concepts such as “posting to a wall” or “status updates”. The protagonist of the scene, Beatrice, takes these concepts in an entirely literal way, attaching actual photographs to an actual wall and delivering an un-friending message in person, at which point her more hip friend says, “That’s not how it works. That’s not how any of this works.”

I have exactly the same reaction to today’s overuse and misuse of the phrase “Minsky Moment”, originally coined by PIMCO’s Paul McCulley to describe how economist Hyman Minsky’s work helped explain the market dynamics resulting from the 1998 Russian financial crisis, such as the collapse of investment firms like Long Term Capital Management. Today you can’t go 10 minutes without tripping over an investment manager using the phrase “Minsky Moment” as shorthand for some Emperor’s New Clothes event, where all of a sudden we come to our senses and realize that the Emperor is naked, central bankers don’t rule the world, and financial assets have been artificially inflated by monetary policy largesse. Please. That’s not how it works. That’s not how any of this works.

Just to be clear, I am a huge fan of Minsky. I believe in his financial instability hypothesis. I cut my teeth in graduate school on authors like Charles Kindleberger, who incorporated Minsky’s work and communicated it far better than Minsky ever did. Today I read everything that Paul McCulley and John Mauldin and Jeremy Grantham write, because (among other qualities) they similarly incorporate and communicate Minsky’s ideas in really smart ways. But I’m also a huge fan of calling things by their proper names, and “Minsky Moment” is being bandied about so willy-nilly these days as a name for so many different things that it greatly diminishes the very real value of Minsky’s insights.

So here’s the Classics Comic Book version of Minsky’s financial instability hypothesis. Speculative private debt bubbles develop as part and parcel of a business/credit cycle. This is driven by innate human greed (or as McCulley puts it, humans are naturally “pro-cyclical”), and tends to be exacerbated by deregulation or laissez-faire government policy. Ultimately the debt burdens created during these periods of market euphoria cannot by met by the cash flows of the stuff that the borrowers bought with their debt, which causes the banks and shadow banks to withdraw credit in a spasm of sudden fear. Because there’s no more credit to be had for more buying and everyone is levered to the hilt anyway, stuff either has to be sold at fire-sale prices or debts must be defaulted, either of which just makes the banks withdraw credit even more fiercely. The Minsky Moment is this spasm of private credit contraction and the forced sale of even non-speculative assets into the abyss of a falling market.

Here’s the kicker. Minsky believed that central banks were the solution to financial instability, not the cause. Minsky was very much in favor of an aggressively accommodationist Fed, a buyer of last resort that would step in to flood the markets with credit and liquidity when private banks wigged out. In Minsky’s theory, you don’t get financial instability from the Fed massively expanding its balance sheet, you get financial stability. Now can this monetary policy backstop create the conditions for the next binge in speculative private debt? Absolutely. In fact, it’s almost guaranteed to set up the next bubble. But that’s a problem for another day.

If you don’t have a levered bubble of private debt you can’t have a Minsky Moment. Do we have one today? Sorry, but I don’t see it. I see crazy amounts of public debt, a breathtaking level of nitroglycerin-like bank reserves, and a truly frightening level of political fragmentation within and between every nation on earth. All of these are problems. Big problems. HUGE problems. But none of them create a private debt bubble. To be sure, we can all see worrisome examples of speculative excess popping up in every financial market. But that’s a far cry from a bubble, even a garden-variety tech bubble or LBO bubble, much less something like the housing bubble of 2004-2007 where private Residential Mortgage-Backed Securities (RMBS) went from practically nothing to a $4 trillion debt asset class. Maybe a private debt bubble is building somewhere, but it ain’t here yet. The one place I see a potential private debt bubble is in China around infrastructure construction (which looks suspiciously like American railroad financing in the 1870’s), but even there it’s far from clear how levered this effort is, and it’s perfectly clear that the debt is inextricably intertwined with public and pseudo-public financing.

Why is the distinction between a public debt bubble (which we have) and a private debt bubble (which we don’t) so important? Because a private debt bubble is always ultimately popped as Minsky suggests, with current cash flow concerns and a surprise default prompting private lenders to turn off the spigot of credit. It doesn’t work that way with a public debt bubble. It doesn’t work that way because current cash flow is only a minor part of the sovereign debt purchase calculus, at least when it comes to a major country. It doesn’t work that way because central banks can purchase a government’s debt securities, either directly as in Japan or indirectly as in the US. It doesn’t work that way because public debt is always and in all ways a massive confidence game, dominated by the Common Knowledge Game. Put simply, sovereign debt does not have the same meaning as private debt, and that makes all the difference in the world in how our current market environment ultimately plays out.

It’s why I am negatively inclined towards investment managers that use fundamental economic rationales as the basis for some can’t-miss trade that Country ________ [fill in the blank] will inevitably implode. Just look at the difference between Spanish or Portuguese sovereign debt yields in the summer of 2012 (trading like a distressed corporate credit about to go BK) and those same bonds today (trading close to all-time highs). Did the Spanish and Portuguese economies experience some miraculous renaissance, some explosion of real economic growth to support enormously tightened spreads at a fundamental level? Yeah, right. No, what happened was that Mario Draghi and Angela Merkel made a political statement – “whatever it takes” – to create an informational structure where everyone knows that everyone knows that the European Powers That Be will not allow Spain and Portugal to default. That’s it. That’s all it took. Just words. Words that have no place in Minsky’s theory (or any economic theory), but are the beating heart of the Common Knowledge Game.

Can a public debt bubble pop? Of course it can! But the dynamic process that leads to a public debt bubble popping has very little to do with Minsky’s theory and a whole lot to do with game theory, very little to do with economics and a whole lot to do with politics. It’s this game theory piece that last week’s Epsilon Theory note, “When Does the Story Break?” tried to explain.

To recap … no money manager I know thinks that the real economy is off to the races, which is why the long end of the yield curve remains so depressed and no one trusts these stock market highs. US GDP was negative in Q1 of this year! I don’t care what the weather was like, that’s nuts. And global growth is even more anemic. But at the same time, no money manager I know thinks that the Fed will allow financial markets to crack. The QE genie is out of the bottle, and there’s no putting it back in regardless of whether the Taper gets all the way back to zero monthly purchases or not. There is an unbelievably strong Common Knowledge informational structure around the unlimited power of central banks to control market outcomes – what I call the Narrative of Central Bank Omnipotence – and until that confidence game is broken this public debt bubble will not be popped.

Look, I totally understand why so many investors, particularly dyed-in-the-wool value investors, are so frustrated with the repercussions of Zero Interest Rate Policy (ZIRP). When the risk-free rate is nothing, of course you are forced to reach for yield. The Fed has successfully pushed everyone into buying riskier assets than they would otherwise prefer to do. But just because you’re frustrated is no reason to believe that the situation must change. Just because you have personal experience with private debt bubbles and a catchphrase (Minsky Moment!) to describe those experiences does not mean that you are looking through the right lens at today’s market environment of a coordinated public debt bubble throughout the Western world. This is a different animal, unseen since the 1930’s, and it requires a different vocabulary and perspective. That’s what I’m trying to provide with Epsilon Theory.

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fonzannoon's picture

People who are not in the business can't understand days like today. It's these days where you really earn your keep. You gotta be on the horn all day and all night holding hands. Reminding clients that selloff's like today can and will happen. It's not a one way ticket up and you have to be able to put up with these days where the screen filled with red. Like the bernak says "the market takes the escalator up and the tiniest fucking infant step that you can barely even notice down".

Hippocratic Oaf's picture

Um, I wouldn't call this a selloff.

When stawks took a killing and bonds screwed the pooch to cover margins, THAT was a selloff.

At the time a veteran broker told me, 'take advantage of this once in a hundred year buy signal'.

May not take 100 yrs to see the next one. But I've been wrong for 3 fukin years. 

fonzannoon's picture

I can't talk right now I am completely bombarded with calls. It's complete panic.

Oracle of Kypseli's picture

<<<<When the risk-free rate is nothing, of course you are forced to reach for yield.>>>>>

But who is forcing you to reach for yield? Why can you not stay put for a while? At least you know you will get some erosion but you will have no risk. 

max2205's picture

Really. ...after 6 years of this BS you don't need a PhD to know this market, govt, politics and society in general is totally in denial.   

Pinto Currency's picture


Fer sure there is no private sector credit bubble.

When you suppress gold and falsify CPI measures, it only causes government debt to increase and NO bubbles anywhere else.

Vampyroteuthis infernalis's picture

But at the same time, no money manager I know thinks that the Fed will allow financial markets to crack.

In the short term, I disagree with this statement. Our dear leader is so intent upon convincing his flock that the ecnomy is good through elections to (hopefully) get reelected on the meme, "look I saved the economy". Obummer and the blue team are forcing gov't to throttle short term new spending to nothing and even cut back on QE. When you have a debt filled economy, when the credit creation spigot runs dry the wheels stop turning. This is what we are going to see over the next month. When elections are over, it will be ctrl-p to the infinity!

SafelyGraze's picture

jftr .. 

the word "meme" is pronounced "me-me", like "mimi"

all those msm pundits are such dolts

be sure to say it right when you are talking to an economist (or talking like an economist)

say "this minisky-moment mimi is really getting under my craw"

they will nod like they get it, but actually they are just pretending

merriam webster 

Al Huxley's picture

LOL - yes, thanks for clearing that up.

Squid Viscous's picture

I would like to kick that word in the nuts, and bury it under 6 ft. of soil... it's so metrosexual, PMSNBCCNNCBS, etc...

shovelhead's picture

Still doesn't beat 'disenfranchised' and 'empowered' for gorge-raising potential.

If you see them used together you know one thing...

Wellesley lesbian.

Freewheelin Franklin's picture

Wellesley lesbian? Is that like Wicksellian Rot? 

MrFailSauce's picture

LoL, No.

"meme" rhymes with "phoneme"

but same number of syllables as "gene"



disabledvet's picture

So we really are all "hooked on phonics" now. Why bother with meaning when you can just have wordplay instead! follow Minsky at your peril. The 70's stuck that clown in the dustbin of history in my book...and there is no better example than now where "license to print"="license to spend."

We've had an epic increase in Government the last ten years...and simply put "only North Dakota" (and maybe Texas) on the other side of the ledger.

So I say again "crowding out effect" (public debt replacing private) plus a huge inflation shock in energy (and now food)=Sudden Recesion Syndrome.

The USA simply can't get out of its own way right now...and if Putin really gambles on taking Kiev you could really see some echoes of World War II erupt.

The irony of course is that USA Inc doesn't need to issue a lot of debt here given the truly stupendous rise in equities.

"Simply issue more"(equity) "if there's a problem." Really quite extraordinary. This in spite of the fact there is no recovery even!

If gasoline prices shoot up over five bucks the recovery will crumble and I think the Dems will get slaughtered in the Fall for it.

But I really fail to see anyone Pom-pomming "go right wing! Go right wing!" either.

Again...leaving aside the service folks who have been pretty much sacrificed on the alter of political there anyone who can prosecute a war here?

If Petraeuz were to throw his hat in the ring I think he win by acclamation.

Stoploss's picture

Here’s the kicker. Minsky believed that central banks were the solution to financial instability, not the cause. Minsky was very much in favor of an aggressively accommodationist Fed, a buyer of last resort that would step in to flood the SMALL BUSINESS markets with credit and liquidity when private banks wigged out. In Minsky’s theory, you don’t get financial instability from the Fed massively expanding its balance sheet, you get financial stability. Now can this monetary policy backstop create the conditions for the next binge in speculative private debt? Absolutely. In fact, it’s almost guaranteed to set up the next bubble. But that’s a problem for another day.


Holy fuck, that might work!  LOL!!!

PT's picture

I feel the author should have devoted one or two extra words when defining Minsky's moment.  For any newbies who stumble across this site, and can't be bothered looking at

Under the heading of "Understanding Minsky's financial instability hypothesis"
Which appears directly under the heading, "Minsky's theories and the subprime mortgage crisis".
The short version is this:


Minsky identified three types of investment borrowers that he called Hedge, Speculative and Ponzi.

Hedge:  Income from their investments pay enough money to cover both principal and interest on their loan, plus profit.

Speculative:  Income from their investments cover interest payments, but profit can only come from capital gains.

Ponzi:  Income from investment is not enough to cover interest payments on the loan, but as long as the capital gains increase faster than the debt increases, the "investor" is still ahead and the venture is "profitable".

Minsky Moment:  Ponzi borrowing where capital gains increases at a lesser rate that debt increases, to the point where income plus capital gains is less than interest due on the loans. 


That is the Minsky Moment, and from then on, the investor is toast and the longer the toast is under the grill, the more burnt it gets.

I imagine that, with a co-operative bankster, a co-operative "valuer" and infinite bailouts, the Minsky Moment can be "ignored" for a long time.  But anyone with an honest set of figures should be able to calculate it quite easily. 

Al Huxley's picture

Hang in there man, just tell your clients not to participate in the madness, and when things eventually calm down and bounce back at 3:30 they'll be glad they kept their cool.

Panafrican Funktron Robot's picture

IKR?  Thank the lord for headsets, it's been brutal today.  At this point I'm not even sure we're going to hit green at the 2:30 ramp.  What the fuck, Yellen?

Hulk's picture

Yer killin me here fonz !!!

Seek_Truth's picture

"'They will throw their silver into the streets, and their gold will be treated as a thing unclean. Their silver and gold will not be able to deliver them in the day of the LORD's wrath. It will not satisfy their hunger or fill their stomachs, for it has caused them to stumble into sin." - Ezekiel 7:19

813kml's picture

Today is considered a selloff?

F0ster's picture

If today is a considered a selloff, then we have truly entered the metric fuctard phase.

Headbanger's picture

Damn!  And here I was thinking it's entered the SI fucktard phase!

NoDebt's picture

Fonz is being sarcastic (or just trying to stay in practice for the inevitable).  Obviously, it's not a selloff and nobody is panicing.  But with volatility this low and stocks ramping inexorably upward, dropping 30 dow points is about as close as you come to a "sell-off" these days.

Carpenter1's picture

I don't think this guy has seen the other side of corporate balance sheets. No debt bubble my aunts petunia.

Either way, there's always smart people saying it will go on, with great rationale, just before it ends.

Anyone wanna buy stocks at 26 PE's? Not including all the "non GAAP" accounting fraud? Be my guest. History is not on your side, FED or no FED. And if the FED tries to continue this for 5 more years, the invisible hand will eventually smash the FED.
The FED is not omnipotent, the invisible hand is, it always wins.

RaceToTheBottom's picture

Eventually the implications of debased Accounting will be realized.  


Then the morons that gave it no credence will give it too much credence.  All the while pontificating and counting their cut of the transactions.

teslaberry's picture

if today is a sellof , what was 2008/9?


the fed will pump till the next major war...ww3. or until the whole u.s. market collapses and hyperinflates. 


fat tail is coming. 

MrFailSauce's picture

Fat tail came and went.  Maybe again?  But if fat tails come too often they're not tails at all, they're the central tendency.

Al Huxley's picture

There are already more than enough fat tails in this country.

checkessential's picture

A 46 point fluctuation in the DOW required you to be on the phone all day calming nerves?  Now that would be funny if it wasn't so sad.   "Markets only go up, right.  Right!?" 

HpDeskjet's picture

There is both a private AND a public debt bubble... People talk about deleveraging, but this has only happened very mildly in 1 (households) specific group in 1 big country (US)... Corporates in US are at all time high leverage, same for the government. In Europe nobody has delevered. The only thing that happened so far is that accepting defaults on unpayable promises are postponed and we got deflation in exchange for that => a worldwide japan scenario.

Dr Benway's picture

It total debt that matters, not whether it's classified as private or public or pseudo or whatever.

This is an idiotic article. The idea that public debt bubbles do not inevitably lead to collapse is patently ludicrous.

Just shaking my head

PT's picture

Hi Dr Benway.  Just curious, have you ever figured how these guys "make money" for their clients?

Someone explained it to me once and for some reason it reminded me of a character from Happy Days, but maybe something was lost in the translation.

Dr Benway's picture

Thank you for tipping me off on this one, PT, it looks very very promising. Like a citrus-based Japanese sauce. I assume you have seen my blog on Australian financial crime, if not please check it out:

buyingsterling's picture

He said they collapse. It's a brilliant article that you should read again.
His point is that sentiment, which moves the market, is widely convinced that the Fed will not allow the market to plunge (until they can't any more, which is a ways off). It isn't imminent, so there's hay to be made in the meantime. Because the Fed appears to be making stocks risk-free investments, money will flow there from other asset classes and from all over the world, particularly as other regions go south. The US will be the last domino to fall, and will fall from much more inflated heights than we're seeing now.

PT's picture

See my comment above, 4822253.
The rot sets in at Ponzi Finance.  The game should end at the Minsky moment.
I think the author's point is that govts can continue the game beyond the Minsky Moment via magic money printing and all sorts of legislative nonsense, whereas private debt will be held to account at the Minsky Moment or not long after.  Not sure it is so clear cut in the real world.

Dr Benway's picture

The author states that private debt bubbles by mathematical necessity collapse. The author state that public debt debt bubbles do not by themselves inevitably collapse, but that other political impulses are needed. It is you that needs to read the article again. Also, given the increasingly fascist economies of the West, the distinction between public and private is yet more meaningless. I'll state again: what matters is total debt, not how it is classified.


buyingsterling's picture

The author says public debt bubbles pop, but they do so not because of hard numbers the way that private bubbles pot. They long outlast any sane meltdown point if they are a major currency and it is politics that pops them (they are ripe for financial reasons long before they burst, but politics props them up). That sounds right to me. We're already way past the point most of us thought this charade would last. And both parties are in on it. We'll just do what Japan did.

i_call_you_my_base's picture

What about corporate debt?

Winston Churchill's picture

Covenant lite although it must still have demand clauses..

Imminent Crucible's picture

"What about corporate debt?"

Yeah, he kind of glosses over that, doesn't he? Nearly $8 trillion in debt on the big corpos, versus abt $2 trillion in cash and an unknown level of OBS liabilities, since FASB Rule 157 remains suspended.

And the brain-dead zombie consumer continues to take on debt as fast as he can.  Not to mention well over $1 trillion in student loans.

This guy makes some good points, BUT....I think he makes a fundamental error, and it's here: "Money managers know the economy is sick, and so they know that the ongoing record highs in the stock market are phoney, a result of Fed juicing of the money supply" and therefore, since everyone knows that stocks are in a phony bubble, IT CAN'T COLLAPSE.

Wanna bet?  It's going to collapse, for certain. Not today, probably not tomorrow. But the Myth of Central Banker Omnipotence is going to crack, and when it does, the dead will be piled up in the exits.

SheepDog-One's picture

Of course it can all collapse no problem, all they have to do is say 'no one could have possibly seen this coming' and then get bailed out by the taxpayer. Very easy, works every time in fact.

stopthejunk1's picture

I don't think the "myth of the central banker" is going to "crack."  After all, the Great Depression didn't crack it, and that was far worse than this.  In fact, the Great Depression led to a vast increase in power of (and public faith in) central banks.


No, quite the opposite... the next sea change that will come is that the public will actually demand re-regulation of finance, because the public will finally understand that hyperfinancialization of everything is what is causing the problems.  And the deregulation mania of the last 35 years (since Reagan) will be rolled back.  

And maybe, just maybe, we will actually tax the rich again like we did in the 1950s, with a top tax rate of 92%.  Anybody remember that?  And heck, the 50s was a huge boom decade.  So much for that "trickle down" bullshit.  

GernB's picture

Get with the times. It's not called trickle down economics these days. The term CNBC uses is "the wealth effect." They just haven't figured out yet the two are the same thing and they can't deny one and praise the other.

Imminent Crucible's picture

10 thumbs up--that's the sharpest observation I've seen in a long time.

Imminent Crucible's picture

"the Great Depression didn't crack it, and that was far worse than this."

Well, yes and no.  The Great Depression began (1929) when the Fed was only sixteen years old, smaller and less powerful, and there was no widespread myth of central bank omnipotence to be cracked.  As for "far worse than this", not exactly.  The actual hardships of the common people in the 1930's were indeed worse than what we see today, but that's only because we've deferred the pain by spending trillions on EUC, EBT cards, SNAP benefits, giant bank bailouts, corporate paper buying facilities, etc.  Trillions that we don't have, to be blunt.

I say "deferred" because these are not sustainable policies, nor are they cures for anything.  The Fed is already rolling back QE because (a) it didn't do anything for the economy or employment markets and (b) its effects on headline inflation and market distortions are now being seen as too dangerous to continue.  When these unaffordable policies end, as they must, you will see the real effects of Fed policies out in the open.  When EBT and SNAP benefits run out, when there is no more unemployment compensation to be collected, when gasoline is $6/gal, come back and tell me the Great Depression was "far worse than this".

People think the Great Depression was worse because of widespread unemployment, soup lines and thousands of banks failing.  But the worst unemployment was about 25% in 1934, and if we stop lying about the size of the labor force we already have something very close to 25% of people of working age without a job.

SNAP benefits hide the soup lines. As for thousands of failed banks, the total amount of bank assets lost in the Great Depression is tiny compared to the aggregate losses of the banks in 2008. The value of the five major Wall Street banks that failed--and were then bailed out by their Fed puppet--in 2008 far exceeds the total value of the countless small banks that went under in the Depression.  Banks are fewer today, and much, much larger.  The truth is that we're only beginning the Greater Depression; it's likely to be far worse than most people imagine when the smoke clears and the real losses become evident.

The economy already slipped into contraction ( minus 1% growth) in the first quarter of 2014. That's despite the massive financial stimulus and market-propping that's been going on.  By the second half of the year, I think the real direction of the economy will be plain for everyone to see.  What will also be plain is that the man behind the curtain is a fraud with no miraculous powers at all.

SAT 800's picture

Agreed. I'm a little over $8,000 out of the money on  my S&Pshorts; but waiting patiently. Every symptom known to man of a topping out has occured and is occuring.

buyingsterling's picture

He has one miraculous power, money printing, which inflates all 'favored' asset classes.

Surging Chaos's picture

I think TPTB will do absolutely everything possible to make sure the next quarter has some positive growth. Even if it's 1%, they'll take it. Since the technical definition of a recession is two consecutive quarters of negative GDP, they don't want the dreaded "R" word to pop up again despite all the ZIRP and money printing.