Are the Central Banks Trapped In a Minsky Meltup Moment?

The following graph depicts why we appear once again to be at a Minsky moment in the credit or business cycle. The Minsky moment is named after the Russian economist Hyman Minsky. Periods of prosperity and a perceived increase in the value of investments all to often leads to increased speculation using borrowed capital and all to often beyond the means of the people doing so. The upturn in the markets is then followed by spiralling debt and consumers who have borrowed too much are compelled to liquidate their viable assets to settle their loans or if they have no assets available to meet their debt obligations they will default.

Of course this scenario has been exacerbated by QE, ZIRP and latterly by central bank intervention in the form of sovereign and corporate bond buying on a monumental level. If that was not bad enough we are now seeing the buying of equities thrown into this equation. This is yet another indication as to why the economy policies of central banks is utterly flawed in every conceivable way.

 

 

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