Stability Is Destabilizing

“There is a tide in the affairs of men, Which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures.” ~William Shakespeare

Hyman Minsky summed up the problem of modern economics very succinctly, when he stated that “stability is destabilizing.” He noted that bankers, traders and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Periods of stability lead to excesses in speculative investments which ultimately leads to instability, when the de-leveraging phase in the economic cycle ultimately takes hold.  If there are too many pro-cyclical factors in the economy, cyclical fluctuations are magnified and there is excessive optimism during the period, accumulating contradictions that could lead to the so-called Minsky Moment.

Asian markets are facing the very real threat of a pending Minsky Moment. Is the outcome inevitable?

Nikkei 225 daily

Shanghai Composite daily

Hang Seng daily

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