This page has been archived and commenting is disabled.

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.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 06/03/2014 - 13:22 | 4820583 fonzannoon
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".

Tue, 06/03/2014 - 13:35 | 4820622 Hippocratic Oaf
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. 

Tue, 06/03/2014 - 13:36 | 4820629 fonzannoon
fonzannoon's picture

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

Tue, 06/03/2014 - 13:46 | 4820648 Oracle of Kypseli
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. 

Tue, 06/03/2014 - 13:57 | 4820696 max2205
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.   

Tue, 06/03/2014 - 14:11 | 4820745 Pinto Currency
Pinto Currency's picture

 

Fer sure there is no private sector credit bubble.

http://research.stlouisfed.org/fred2/series/CMDEBT/

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

Tue, 06/03/2014 - 14:28 | 4820791 Vampyroteuthis ...
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!

Tue, 06/03/2014 - 14:56 | 4820885 SafelyGraze
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

hugs,
merriam webster 

Tue, 06/03/2014 - 15:23 | 4820951 Al Huxley
Al Huxley's picture

LOL - yes, thanks for clearing that up.

Tue, 06/03/2014 - 23:21 | 4821869 Muppet Pimp
Muppet Pimp's picture

LOL

Tue, 06/03/2014 - 16:42 | 4821209 Squid Viscous
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...

Tue, 06/03/2014 - 19:21 | 4821543 shovelhead
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.

Tue, 06/03/2014 - 21:02 | 4821772 Freewheelin Franklin
Freewheelin Franklin's picture

Wellesley lesbian? Is that like Wicksellian Rot? 

Tue, 06/03/2014 - 19:25 | 4821550 MrFailSauce
MrFailSauce's picture

LoL, No.

"meme" rhymes with "phoneme"

but same number of syllables as "gene"

 

 

Wed, 06/04/2014 - 02:17 | 4822352 disabledvet
disabledvet's picture

So we really are all "hooked on phonics" now. Why bother with meaning when you can just have wordplay instead!

Anywho...you 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 expediency...is there anyone who can prosecute a war here?

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

Tue, 06/03/2014 - 18:51 | 4821485 Stoploss
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!!!

Wed, 06/04/2014 - 00:30 | 4822253 PT
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
http://en.wikipedia.org/wiki/Hyman_Minsky

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. 

Tue, 06/03/2014 - 13:55 | 4820657 Al Huxley
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.

Tue, 06/03/2014 - 14:11 | 4820743 Panafrican Funk...
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?

Wed, 06/04/2014 - 00:29 | 4822251 Hulk
Hulk's picture

Yer killin me here fonz !!!

Wed, 06/04/2014 - 01:06 | 4822294 Seek_Truth
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

Tue, 06/03/2014 - 13:40 | 4820642 813kml
813kml's picture

Today is considered a selloff?

Tue, 06/03/2014 - 13:56 | 4820690 F0ster
F0ster's picture

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

Tue, 06/03/2014 - 14:39 | 4820831 Headbanger
Headbanger's picture

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

Tue, 06/03/2014 - 15:07 | 4820912 NoDebt
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.

Tue, 06/03/2014 - 15:27 | 4820965 Carpenter1
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.

Tue, 06/03/2014 - 16:15 | 4821136 RaceToTheBottom
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.

Tue, 06/03/2014 - 18:12 | 4821391 teslaberry
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. 

Tue, 06/03/2014 - 19:23 | 4821547 MrFailSauce
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.

Wed, 06/04/2014 - 01:01 | 4822286 Al Huxley
Al Huxley's picture

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

Wed, 06/04/2014 - 01:15 | 4822305 checkessential
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!?" 

Tue, 06/03/2014 - 13:28 | 4820597 HpDeskjet
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.

Tue, 06/03/2014 - 15:59 | 4821079 Dr Benway
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

Wed, 06/04/2014 - 00:10 | 4822223 PT
PT's picture

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

http://www.tic.com.au/

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.

Wed, 06/04/2014 - 04:23 | 4822367 Dr Benway
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:

http://drbenway.blogspot.com/ncr

Wed, 06/04/2014 - 00:10 | 4822228 buyingsterling
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.

Wed, 06/04/2014 - 00:49 | 4822278 PT
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.

Wed, 06/04/2014 - 03:00 | 4822374 Dr Benway
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.

 

Wed, 06/04/2014 - 06:07 | 4822440 buyingsterling
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.

Tue, 06/03/2014 - 13:28 | 4820598 i_call_you_my_base
i_call_you_my_base's picture

What about corporate debt?

Tue, 06/03/2014 - 13:31 | 4820608 Winston Churchill
Winston Churchill's picture

Covenant lite although it must still have demand clauses..

Tue, 06/03/2014 - 14:06 | 4820718 Imminent Crucible
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.

Tue, 06/03/2014 - 14:11 | 4820747 SheepDog-One
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.

Tue, 06/03/2014 - 19:22 | 4821546 stopthejunk1
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.  

Tue, 06/03/2014 - 19:56 | 4821613 GernB
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.

Wed, 06/04/2014 - 13:49 | 4823813 Imminent Crucible
Imminent Crucible's picture

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

Tue, 06/03/2014 - 22:05 | 4821925 Imminent Crucible
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.

Tue, 06/03/2014 - 23:53 | 4822196 SAT 800
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.

Wed, 06/04/2014 - 00:19 | 4822234 buyingsterling
buyingsterling's picture

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

Wed, 06/04/2014 - 01:37 | 4822321 Surging Chaos
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.

Tue, 06/03/2014 - 14:16 | 4820606 Mercury
Mercury's picture

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.

 

And I thought that all common sense had been coined already.

How is this materially different from boom/bust?

In that case, here’s the definition of a “Mercury Moment”:

When public debts and obligations created during a period of state largess and central planning euphoria become so great as to be obviously and transparently unserviceable or undeliverable in full, subsequent government panic leads to spasms of private asset seizure, capital controls and official coercion in an effort to keep the existing apparatus afloat and to protect its (their) own franchise, at all costs.

 

Yes, I will consider a gig at PIMCO, no I am not willing to move to California.

 

Tue, 06/03/2014 - 23:36 | 4822158 El Vaquero
El Vaquero's picture

Yes, and that big database tha FHFA and CFPB are compiling is going to be used as a list of assets to snatch.  Even if that is not the intent today, it will be the use in the future.  Good thing I am waaaaaay off of their radar. 

Tue, 06/03/2014 - 13:34 | 4820619 ParkAveFlasher
ParkAveFlasher's picture

My opinion has changed.  The emperor knows he is naked.  It is the peasants who do not acknowledge the unspeakable things that the emperor is demonstrating in broad daylight literally beneath their noses.

Tue, 06/03/2014 - 13:53 | 4820674 t0mmyBerg
t0mmyBerg's picture

Agree.  Like when the State Department says: 

“We would characterize him (the fucktard who walked away from his unit because he did not like the way we were fighting in Afghanistan, looking for whom several other US Soldiers died, and for whom we traded 5, count 'em, 5 US Soldier killing mysogynist towel headed scumbag Taliban detainees from Guantanamo - WTF!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!) as a member of the military who was detained while in combat,”

Just fukin' lie right in our faces and dare us to call them on it.  Of course those present, the MSM, will not call them on it.

 

We are lost, no matter whether the bubble is in private or public debt.

 

Tue, 06/03/2014 - 14:22 | 4820786 kurt
kurt's picture

I am willing to bet: the administration traded the Guano-prisoners for the soldier and were prepared to welcome him back in a heartfelt media event full of reunion tears. Then some jackhole said "It's illegal!" so now they flipped the script and, suddenly, the rescued soldier is a dirty turncoat murderous traitor and they're preparing an alternate media event, perp walk, hate-filled circus...to muddy the water and deflect the opposition.

Jeepers, Walley, they would despitefully use and abuse a soldier would they?

Now imagine you were the guy rescued only to be fucked over in a world class shit storm.

Tue, 06/03/2014 - 15:01 | 4820895 t0mmyBerg
t0mmyBerg's picture

Perhaps, and one can never know.  I saw Enemy of the State too.  I know they can create a narrative and feed it out to justify whatever they want.  So preface thre whole comment in a hypothetical.  Still if he did walk away and if he did write the note the NYT says he wrote, then wtf is the admin doing?

On the other hand, if he is just a grunt being used for political posturing, then that sucks.  But I doubt that is the real story.

Tue, 06/03/2014 - 15:02 | 4820901 codecode
codecode's picture

They are probably just trying to get everyone's mind off the marine jailed in Mexico...

Tue, 06/03/2014 - 14:28 | 4820800 CH1
CH1's picture

Just fukin' lie right in our faces and dare us to call them on it.

Can't argue, but, dude, that ain't new.

Tue, 06/03/2014 - 14:58 | 4820887 t0mmyBerg
t0mmyBerg's picture

No, but it is more brazen than ever

Tue, 06/03/2014 - 20:00 | 4821616 GernB
GernB's picture

Because too many people think it can't be a lie or thier favorite news outlet would call them on it if it was.

Tue, 06/03/2014 - 13:55 | 4820688 Oracle of Kypseli
Oracle of Kypseli's picture

The Emperor knows it but the sheeple are blind

Tue, 06/03/2014 - 14:05 | 4820725 Jumbotron
Jumbotron's picture

I think the sheep know too.....but they're sheep.....that's why they follow the sheperd (Emperor).  They don't know what else to do.

Tue, 06/03/2014 - 14:29 | 4820803 CH1
CH1's picture

Exactly. They're kept in confusion for a reason.

Tue, 06/03/2014 - 22:21 | 4821954 Wild Theories
Wild Theories's picture

My opinion has changed.  The emperor knows he is naked.

Logging in just to +1 this.

Tue, 06/03/2014 - 13:35 | 4820621 ebworthen
ebworthen's picture

"The Fed has successfully pushed everyone into buying riskier assets than they would otherwise prefer to do."

So...everyone reaching for yield in risky assets is not a debt bubble?

How did 2007-2008 happen then?

End the FED.

Tue, 06/03/2014 - 13:36 | 4820627 gdiamond22
gdiamond22's picture

I'm quite sure there is a private debt problem with student and car loans here in the USSA, but yes, I do agree with most of this.

Tue, 06/03/2014 - 13:37 | 4820632 kchrisc
kchrisc's picture

Can the "Exlax moment" be far off?!

Tue, 06/03/2014 - 13:37 | 4820635 SheepDog-One
SheepDog-One's picture

LMAO....and no matter what, stawks zombie march higher daily.
That's not how this works! That's not how ANY of this WORKS !
Uh, yea it is.

Tue, 06/03/2014 - 13:38 | 4820637 q99x2
q99x2's picture

Use the right hand thumb rule when determining the poles of a planet. That's from my grade school days on Q99x2

Tue, 06/03/2014 - 13:39 | 4820640 williambanzai7
williambanzai7's picture

Tue, 06/03/2014 - 16:45 | 4821221 Squid Viscous
Squid Viscous's picture

+1000 for another hendrix ref, his gift to us was amazing

Tue, 06/03/2014 - 13:41 | 4820644 Kprime
Kprime's picture

what about the student loan bubble,  private or public?

borrowed by private, paid for by public?

Tue, 06/03/2014 - 14:34 | 4820809 centerline
centerline's picture

It is a private debt bubble the author of the article missed... staring him right in the face.

 

edit:  however, for the record, I agree with this author on more points than I disagree.  Particularly about the current circumstances not having been experienced in quite some time... in fact, never, if one considers the extent of globalization and modern, electronic banking/finance.

Tue, 06/03/2014 - 13:44 | 4820652 bbq on whitehou...
bbq on whitehouse lawn's picture

You aut to know. Thats what the lawyers are going to say when your clients sue you for taking unreasonable risk. Or worse.
Why are you investing in a company that can't grow; sales, overhead, and every other reasonable measure of company performance is in the sink. There is no market, so why invest client funds into somthing that doesn't exist.
Really you're baked. The Lawyers will eat you alive, and Yellen woun't save you.

Tue, 06/03/2014 - 13:48 | 4820665 Peak Finance
Peak Finance's picture

Ok after this line I stopped reading and just skimmed:

But none of them create a private debt bubble

Student Loans   = 1 Trillion, default rate 30%, "Minsky Monment" can come at any time

Car Loans + Revolving = 1 Trillion (about, please correct me if I am wrong) 

Corporate Debt

 

Unless you argue that since it's all government backed now in the TBTF (To Big To Fail) world, that all private debt is public debt? 

Tue, 06/03/2014 - 14:03 | 4820720 SheepDog-One
SheepDog-One's picture

'Govt backed debt', and the only thing the govt can do is take money from other people, in other words it can only be public debt.

Tue, 06/03/2014 - 19:17 | 4821533 stopthejunk1
stopthejunk1's picture

Well thank God SOMEONE has the ability to "take money from other people."  Because some of those "people" have appropriated way, way too much of it.

And no, they did not "earn" it.  Not by any sensible definition of the word "earn."  To "earn" something, you must have created something or done some work that has actual social utility, not just economic utility.  Wealth that is accumulated without producing social goods is in fact stolen, not earned.  Therefore 99% of wealth is actually stolen.  The 1% of wealth held by the approx bottom 40% in America might be earned, at least in part.  Not that it's enough for them to eat off of.

Tue, 06/03/2014 - 14:09 | 4820734 SofaPapa
SofaPapa's picture

"Unless you argue that since it's all government backed now in the TBTF (To Big To Fail) world, that all private debt is public debt? "

Ding, ding, ding...

This was the decision made in 2008 / 2009.  "Systemically important" private debts were moved to the public realm.  Whether those debts are technically called private or public no longer matters.  Look at how the government has worked to reflate the housing bubble.  Similarly, the student loan debt is most definitely now a de-facto public debt, because the government will never allow it to pop either.  Print to the end.  It's all they have left.

Tue, 06/03/2014 - 14:09 | 4820738 CHX
CHX's picture

...and then there's Detroit et al. too... 

Tue, 06/03/2014 - 13:49 | 4820667 Spungo
Spungo's picture

Article starts with false premise. There is gigantic private debt right now. Margin debt in the stock market is at or near an all time high. Lots of home owners still have underwater mortgages. The few individuals buying houses are paying almost no down payment, meaning the mortgage is highly leveraged. Eventually this credit bubble will pop.

Tue, 06/03/2014 - 13:52 | 4820677 kevinearick
kevinearick's picture

Perspective, Intelligent Discernment, and Discrimination

It’s easy to get into the something for nothing, artificial supply and demand casino. All you have to do is ignore the nothing for something cost in the future, with the disjointed mythology of money as an excuse.

Parenting is about showing children the feedback loop between priorities and outcomes over time. Public housing, public education and law enforcement attempt to replace parents with fiat, removing equity and responsibility from parents to feed government replication.

The resulting real estate price inflation has all but wiped out the purchasing power of Social Security, and government is directly confiscating the rest with more arbitrary debt assignments. The education complex, built by the military, is exceeding its parent, with debt acceleration. And Homeland Security is systematically liquidating the middle class by shutting down all unregulated commerce supporting it.

Any theory that involves stealing from one individual to give to another as a means of employing another is going to fail, as all have failed for centuries. If you join, the virus grows. If you resist, virulence grows. Let the virus run its course, as the DNA return line.

Digital currency control is no threat to labor. Without intelligent labor, there is no capital adaptation. Public education splits intelligence from labor, creating the middle class consumption gradient as a means of control, inserting the assumptions that life begins with capital, and is to be redistributed by peer pressure. As a result, the automatons are replacing themselves with technology they don’t understand, growing opportunity cost exponentially.

The so-educated middle class consumes itself into slavery, assuming that labor is stupid, which it turns out to be, but it’s not labor. The economists have no idea what is going on outside the bubble they are confirming, or whether they are going to get the technology they need to live another day.

Peer pressure dependency can only produce automatons. The magic of replacing purchasing power lost to fiat inflation with more inflation, to produce the illusory wealth effect of money, is running its usual course, undermining all currencies. The planet always wins.

International trade is quite simple. I trade natural resources under my control for slave labor under your control, and vice versa, swapping disaffected immigrants. We issue debt as money backed by resource control and assign the debt to the slaves, baking inflation into their prices. We blame each other for scarce resource outcomes in an artificially closed system and pit our slaves against each other in war.

International trade is all about bullying, from the top down, to get natural resources flowing from the bottom up, greased by inflation and reset by deflation, like a global combustion engine. That ‘works’ for the big city voters and the small town tyrants, until it doesn’t.

All politics is local because the local tyrant is the weak link, which is why small towns with resources remaining are heavily occupied by the State. Make-work jobs are defined by the material possessions associated with them, not skill. That’s what certification is all about. Develop the skill and throw away the piece of paper.

The certified compliant majority works in the part of the economy running exactly backwards, toward legacy, incrementally forward only relative to their entitlement duration frames of reference, until the planet responds with increased variability. The landlords are raising rents because the last time they raised rents the Fed printed away the losses, for the corporations, and China printed, massively, all assuming that the empire real estate scam is all powerful.

Labor builds the economy with an open system, splits, and legacy liquidates the economy, once recognized, employing the middle class, positive feedback serving as negative feedback to positive feedback, across a transformer and back. The middle class relying on rent for income is demolishing houses to maintain artificial demand for excess housing, assuming re-ignition of demographic acceleration.

Legacy has an army of expendable entitlement slaves volunteering to protect the status quo of dependency. You have you. Your advantage is the ability to do. Your immediate priorities are your spouse, boss and landlord, adjusting the wage/rent ratio to provide for your children.

The majority wants you to sort according to its priorities, fear and extortion. That’s the point of peer pressure. Put yourself in a position to practice intelligent discernment and you will see the bridge forward. Let the majority complain about discrimination, while you develop a consistent perspective.

We are talking about a weak force and a strong force, and a gas exchange translating the fulcrum until the system spins on its axis, creating a magnetic pole, essentially circuits separated by gas equilibriums. Whether you employ them as a switch, signal, memory, or an economy depends upon your purpose. (The solar system is a sub-fulcrum of fulcrums)

The percentage capable of serving well as spouse, parent, boss and landlord is quite small, and getting smaller, because most want the benefits without the responsibility, as promised by agency. You might want to tread lightly, or not and be priced into healthcare extortion, racing from artificial paper deadline to artificial crisis and back again.

Public education only increases your debt as income if you expand the ponzi with conspicuous consumption as an example to increase participation, liquidating the productive assets of all. The majority doesn’t need you so much as it needs your children, and it will take them to feed the ponzi. If you are recognized as non-compliant, you are a threat to all.

That’s why you throw your baby into the deep end from the get-go, to awaken the instinct, to turn mistakes into blessings. Let me get this right; you are going to throw my child into the briar patch for non-compliance?

Parenting is all about providing for an ignorant majority, and government fills the vacuum. Don’t send your kids to school looking for an example of make-work compliance and expect them to return with skills. If you can keep them from killing each other until they find their own way, you have done pretty well.

Distance is a perspective, of the transformer employed. Build your own, or increase price on falling artificial infrastructure demand and increase price on increased demand, floated by bonds, paying interest on interest to infinity, until you can’t. History isn’t a well-trodden path by accident.

Tue, 06/03/2014 - 14:41 | 4820836 Headbanger
Headbanger's picture

Whatever.

Tue, 06/03/2014 - 19:12 | 4821525 stopthejunk1
stopthejunk1's picture

Was this post written by an SEO script?

Tue, 06/03/2014 - 13:53 | 4820678 kevinearick
kevinearick's picture

..

 

Tue, 06/03/2014 - 14:40 | 4820830 what's that smell
what&#039;s that smell's picture

I named my penis "The Market".

if The Market's up, i'm happy; if The Market's down, i might diddle it.

sometimes The Market is strong (spores illustrated), sometimes The Market is weak (janet yellen covered in poop).

sometimes The Market surges, sometimes The Market droops.

morning strength is the best.

banging the close is pretty good to.

Tue, 06/03/2014 - 18:11 | 4821387 are we there yet
are we there yet's picture

Nancy Pilosi or Wookie makes my market go down....

Tue, 06/03/2014 - 14:03 | 4820713 Jaka98
Jaka98's picture

test

Tue, 06/03/2014 - 14:07 | 4820728 putaipan
putaipan's picture

yeah well ,,,, a little above my pay grade, but i think sam keen would beg to differ.

Tue, 06/03/2014 - 14:14 | 4820758 kurt
kurt's picture

"Those who overly rely on history are terrified of the present." Alan Watt "Cutting Through the Matrix"

Tue, 06/03/2014 - 14:22 | 4820787 TimmyM
TimmyM's picture

Nice try Ben, but there ain't no free lunch private or public. Just a matter of time. The cost of servicing public debt is still subject to market discipline, it just manifests itself politically-same mechanism, same group think, same consequences. The political delay you recognize may force an "extralegal" solution.

 

Tue, 06/03/2014 - 14:38 | 4820827 Vidar
Vidar's picture

The reality behind the "Minksy Moment" meme:

 

http://www.economicpolicyjournal.com/2014/06/the-financial-system-is-sat...

Tue, 06/03/2014 - 15:04 | 4820905 Misean
Misean's picture

Yes. Mises described this as either letting the gov't inspired (to use your terms) private debt bubble implode, or continue to expand the issuance of unbacked credit by the state leading finally to a hyper-inflationary crack up boom.To whit:

"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."

Eventually that quatity of printed money doth begin to slosh around in the real world.

Tue, 06/03/2014 - 19:43 | 4821579 shovelhead
shovelhead's picture

I was going to bring that up.

Private debt is subject to a Minsky point because they can't print their way out.

Govt. debt merely becomes a Zimbabwe point.

Wed, 06/04/2014 - 06:34 | 4822450 Singelguy
Singelguy's picture

I was thinking the same thing. I do not understand his differentiation of private and public debt bubbles. The only difference I see is the length of time it takes for the public debt bubble to burst. Governments can print money to service the debt they have accumulated whereas the private sector cannot. At some point, the public debt becomes so large that the tax revenue and money printing to service the debt becomes so onerous that the markets lose faith in the country's currency. Interest rates for securities in that currency begin to rise; slowly at first, and then exponentially, resulting in hyperinflation and eventual collapse. It is abundantly clear that it can take a very long time and anyone who thinks they can predict the "Minsky Moment" of the public debt bubble bursting doesn't know what he is talking about. Just look at Japan. With a debt to GDP ratio of almost 250% you would think their collapse is imminent but Abe and his crew just keep printing. In the USA and the EU the inflation is already there despite the fudging of the numbers. The Minsky moment is when real inflation reaches a point where the common man fully appreciates it and no amount of manipulation and hedonics can hide it.

Tue, 06/03/2014 - 15:30 | 4820975 I Write Code
I Write Code's picture

Very good article, OK he's trying to be way too literal about the Minsky part of the Minsky Moment, broadly construed the Minksy insight is that shit happens because people are not rational, or are locally rational at the expense of quite forseeable global disasters. Well, we are certainly headed for that.  When the globe pops and we are all falling into the abyss we can cry, "Minsky, from hell's heart I stab at thee!"  It will be very dramatic and not entirely inappropriate although after all he was only describing it, he did not make it happen!

Tue, 06/03/2014 - 15:31 | 4820981 MrTouchdown
MrTouchdown's picture

Ben doesn't see any private debt bubbles? I guess $1T in student loans that can't be bankrupted don't exist then! Or how about all those old people about to retire and collect the social security checks that aren't there? 

Tue, 06/03/2014 - 17:28 | 4821293 Kreditanstalt
Kreditanstalt's picture

Or the massive borrowing going on to fund share buybacks.

Tue, 06/03/2014 - 15:33 | 4820990 paddyirishman
paddyirishman's picture

and of course Minsky belonged to a certain 'tribe' that like being dual citizens, man they're good they coontrol both sides.

Tue, 06/03/2014 - 20:28 | 4821688 intric8
intric8's picture

Precisely. Members of the tribe conceptualize monetary theory, instruct it at highest levels of academia, cause the cycles, dictate policy after bubble blow ups and its their names used to coin terms that get give them credit for identifying the potential crashes too? They've created a nice little racket for themselves, no

Tue, 06/03/2014 - 16:20 | 4821095 RaceToTheBottom
RaceToTheBottom's picture

This article is thin.

Really thin.

Then you see the real goal of the article in the last sentence.  "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."

 

The link goes no where but a signup sheet.  So all of this diatribe, while interesting, was a build up to a solution that requires you to sign up to read.

ZH, please stop with the used car salesmen.  How did this guy get off the weekend printing?

Tue, 06/03/2014 - 17:11 | 4821268 withglee
withglee's picture

If you don't know that money is "a promise to complete a trade", you're going to write clueless articles like this.

Tue, 06/03/2014 - 17:26 | 4821285 Kreditanstalt
Kreditanstalt's picture

Bet this guy would LOVE it if public debt really WERE a Perpetual Motion Money Machine.

Fortunately for us peasants, retail bottom lines are imploding and soon the economic dominoes in the REAL economy will start falling...

Tue, 06/03/2014 - 18:15 | 4821396 blindman
blindman's picture

central this and that, minsky epsilon
stochastic whatnot .. i don't know 'bout all
that. hear this, i hope we learn something together.
something about bloodthirst and the least respectable
institutions required to make a public farce display
of cultivation and refinement; the facade built in
front of no thing, claiming your soul as their property.
same as it ever was .....
.
UROKO: The True History of the Banking Cartels and the Federal Reserve
https://www.youtube.com/watch?v=bNCsH92ZeM0

Tue, 06/03/2014 - 18:44 | 4821466 blindman
blindman's picture

Talking Heads: Once in a lifetime
https://www.youtube.com/watch?v=kvM6TxUnCDE&feature=kp

Tue, 06/03/2014 - 18:21 | 4821414 are we there yet
are we there yet's picture

All politicians should campaign and officiate in the nude. Then we would have term limits as Nancy Pelosi and friends mummify. All lobbyists nude as well. Admittedly this has a problem, no pockets for bribe money.

Tue, 06/03/2014 - 19:04 | 4821492 stopthejunk1
stopthejunk1's picture

"Sorry, but I don’t see it."

Then you are either blind, or out of your mind.  Or, as is increasingly common these days, you're edumacated beyond your ability to think.

The shadow banking system, which is 100% private debt, has created an enormous credit bubble out of whole-cloth financial techniques that in 2014 is even larger than it was in 2007, at its peak before the last crash.  And crash again it will.

Also, you miss the entire point of the term 'Minsky Moment.'  Clearly you cannot "see it" before the "Minksy Moment," unless you have a crystal ball, since the "Minsky Moment" is by definition the moment when everyone, simulaneously, "sees it," thereby causing the market to undergo a phase shift, sort of like what happens when the eggs suddenly scramble in your ruined hollandaise sauce.

There is probably no bigger dumbass than the one that continues to believe that economics is a "science."  Dumbasses of this type are forever getting degrees, formuating theories and trying to use mathematics, reason, charts, definitions, etc. to elucidate a problem that is not at all amenable to these techniques.  The very term "economics," which was coined specifically with the -ics ending to sound like "physics" and "mathematics" so that it would be taken seriously, is a misnomer or even outright propaganda. The economics have no idea what they're talking about, and they never have, which is why economics today is a vast echo chamber.

Tue, 06/03/2014 - 19:31 | 4821558 doggis
doggis's picture

MY FRIEND - YOU EXPLAINED THAT PERFECTLY. I AM IN FULL AGREEMENT WITH YOU!

BRAVO!

************************************************************

NOW QUICK, HOLD THIS GUY DOWN WHILE I KICK HIM HARD IN HIS 'NUT' !!!!! - AND THAT MY FRIEND WOULD BE A REAL LIFE EXAMPLE OF A 'MINSKY MOMENT!

Tue, 06/03/2014 - 19:18 | 4821537 MrFailSauce
MrFailSauce's picture

Dangerously well argued for ZH.

Tue, 06/03/2014 - 19:51 | 4821601 shovelhead
shovelhead's picture

"Relax...have fun.

Here, at the Coconut Grove, we have a lovely evening of entertainment planned for you..."

Tue, 06/03/2014 - 20:22 | 4821674 sangell
sangell's picture

Interesting situation for sure but the Eurozone cannot operate like the Fed or the BoJ and here is where you public debt minsky moment is going to occur. They have a RULES based system. A Fiscal Compact e.g. that while it may be fudged cannot be ignored without Draghi having to produce his OMT. They also have some very weak banks stuffed with 'risk free' sovereign bonds that are simply not risk free. Italy is has a 134% debt to GDP ratio and Ireland's is even worse. If those nations, for example, simply blow off the Fiscal Compact and let their fiscal deficits climb precipitously or worse, in the case of Italy, a big bank blows up and the government is forced to a 10 or 20% of GDP bailout then reality starts shining through the cracks. Draghi's OMT is limited by the size of the two stability funds Germany has agreed to. It is not 'whatever it takes sized' its not even as big as the nominal fund size but more the size of the German contribution or roughly 30% the advertised size.

Any honest stress test of Europes bank will set off this Minsky moment as banks will be shown to be woefully undercapitalized and the national governments even with ESF assistance will not be able to recapitalize them without blowing the Fiscal Compact to pieces.

Tue, 06/03/2014 - 20:37 | 4821705 gdpetti
gdpetti's picture

Well, game theory is everywhere these days of psychopathic glory, so as last call is heard from the bar, let's hoist our glasses high and prepare for the last hand in this game called FU Buddy!

Gamesters know how that ends, winner takes all and in the end there can be only one.

Who will it be? It's been friendly among the club members so far, but in the last hand, anything goes.

Tue, 06/03/2014 - 20:39 | 4821713 explosivo
explosivo's picture

The business cycle is not caused by laissez-faire. It's caused by artificial expansion of credit resulting from fractional reserve banking. 

Tue, 06/03/2014 - 21:35 | 4821846 stopthejunk1
stopthejunk1's picture

Eh.  That theory, like all the others, is mostly wrong.

 

See, everybody thinks they want an economic system without credit expansion, but then, when they lose their jobs and houses, they don't all.

Tue, 06/03/2014 - 23:52 | 4822190 El Vaquero
El Vaquero's picture

If you have an economic system where there is some form of money, you will have some form of credit.  I would like to see one where money creation is not tied into credit.  The idea that ten people can have a simultaneous claim on one gold coin at the same time is ludicrous. 

Wed, 06/04/2014 - 01:19 | 4822308 Duke Dog
Duke Dog's picture

I hate commercials and very, very rarely listen or watch them. Having said that, after being exposed to this sum'bitch at least 100 times over a couple of weeks, I actually paid attention - I love it:) The only other ones I will watch are those with that damned green lizard - he's a funny bastard.

Wed, 06/04/2014 - 04:09 | 4822399 spqrusa
spqrusa's picture

The article lights a few trees but fails to burn down the forest. 

So this Minsky is some kind of jeenious or not? Not. Minsky is no different than the rest of the bootlicking lapdogs called Economists. The fish wrap mind of a so called economist who has spent his life licking the Fed boot. How this Fed is the "lender of last resort" - god help us - we have the Fed!! Lapdog. Makes me puke. It's guys like these with their smooth talking and large souding words that lead the guillable into thinking they (economists) matter. It's all CRAP! All their theories and their .gov Fed bullshit. Makes me puke.

You know Ponzi was the original guy behind the Fed but they kicked him out because he couldn't keep his f'ing mouth shut. That rat fink Ponzi. But I digress. Minsky takes on the obvious - financial speculation moves markets into fragile states. No shit. That's why they call it speculation. If the "people" would wake up and stop blathering on about Minsky, Mises, the Fed and taking their (Fed) shit coin we could actually make some progress.

 

Wed, 06/04/2014 - 05:05 | 4822419 Raging Debate
Raging Debate's picture

There is a Minsky Moment going on. As another commentator put it PE at 23. Everybody and there cousin know the market is overvalued and due for correction. The Fed can't stop people from selling but they can stop panic selling like what we saw with Apple the other day. That said, I believe we will see a 10% correction and likely before the elections. It doesnt matter if the blue team gets slaughtered. It is a left, right jig.

The tapering is ending because China is the new reserve currency. Our days of printing will end because hyperinflation ends the Fed franchise in America. In the boom/busy cycle after inflation comes _______. It is the inflation-deflation cycle not either or. Time to short oil this fall, look at stocks in 2016 (2017) for China stocks they will correct with a lag) and continue investing in real-estate for rental income, slowly continue growing my small data business by adding a part-timer (cent hire full time Obamacare). Gotta factor in 10% of spending on tax and other attorneys as government taxes more direct than inflation. Budget cuts are happening with the social programs and in a year or two on defense. No global reserve, no need to police the world that is becoming China's job. Same deal as what Britain did in the early 1930's when they handed the baton to America.

I hope this helps.

Do NOT follow this link or you will be banned from the site!