What Effect Would A “Minsky Moment” Have On the Price Of Gold?

What Is A Minsky Moment?

A “Minsky Moment”, named after economist Hyman Minsky, is a theory that centers around the inherent instability of stock markets and refers to a point in time when a period of bullish speculation leads to a spectacular market crash.

The original article by Richard Mills that has been edited ([ [) and abridged (…) by munKNEE.com for the sake of clarity and brevity to provide a faster and easier read.

According to The Levy Economics Institute of Bard College, a “Minsky held that, over a prolonged period of prosperity, investors take on more and more risk, until lending exceeds what borrowers can pay off from their incoming revenues. When over-indebted investors are forced to sell even their less-speculative positions to make good on their loans, markets spiral lower and create a severe demand for cash.”

What Effect Would A Minsky Moment Have On the Price Of Gold?

Mills asks: “Is the current U.S. stock market, and global economy, approaching a Minsky Moment?” If so, precious metals gold and silver…[would] surely go ballistic in the aftermath of the collapse.

What Catalysts Would Lead To a Minsky Moment?

The intellectual challenge is identifying the metaphorical pin that pops the bubble, which investors, banks and governments have been happily inflating, says Mills, and he pinpoints some catalysts that could lead the global, and U.S. economy down a road of economic ruin, namely:

1. A collapse in ocean freight shipping rates;
2. “Fake” good news that is masking serious problems in the U.S economy, like a lack of business investment;
3. Record share buybacks that enrich management not companies nor their shareholders;
4. Any number of “white swan” geopolitical risks – hotspots that could at any time boil over into a conflagration that destabilizes the fragile global economy;
5. U.S. tariffs on all the products its domestic industries can’t compete against;
6. The U.S. loses its “exorbitant privilege” as the reserve currency.

Mills maintains, however, that the truth of the matter though, is that these are all symptoms of a bigger, much more insidious disease, and that is paper money – more specifically, piles and piles of consumer, business and government debt that has been allowed to accumulate, without consequences, under our fiat/ paper monetary system.

Conclusion

Gold’s Minsky Moment will come when everyone realizes that the paper monetary system, and its reserve currency, the U.S. dollar, has no intrinsic value, and therefore can no longer be trusted – when money is worth nothing but the paper it’s printed on, and previously rejected gold and silver re-emerge as currency backstops.