**Is This The Tipping Point?**
Is This The Tipping Point?
_Authored by Peter Reagan via__Birch Gold Group_ (https://www.birchgold.com/) _,_
After almost 15 years of Fed-fueled cheap money offered at near-zero rates that was leveraged into overinflated speculative bubbles (https://www.birchgold.com/news/deflating-bubble/), the lights are on, the crowd is dispersing – and the party might finally be over (https://www.birchgold.com/news/less-bad-news/).
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At an _actual_ party, it’s easy to know when it’s time to say your goodbyes. The hosts turn the music off, start looking at their watches and taking away the snacks.
In this _metaphorical_ party, though, how do you know when it’s over?
Analysts describe the end as a “Minsky Moment (https://www.investopedia.com/terms/m/minskymoment.asp),” defined as:
> the onset of a market collapse brought on by the reckless speculative activity that defines an unsustainable bullish period. Minsky Moment is named after economist Hyman Minsky and defines the point in time where **the sudden decline in market sentiment inevitably leads to a market crash**. \[emphasis added\]
The two most important words there, I think, are “sudden” and “inevitably.”
Experts from JP Morgan (https://finance.yahoo.com/news/jpmorgan-kolanovic-sees-increasing-chances-201003489.html) think the moment is now:
> Bank failures, market turmoil and ongoing economic uncertainty as central banks battle high inflation have increased the chances of a “Minsky moment,” according to JPMorgan Chase & Co.’s Marko Kolanovic.
In the past week, investors have contended with several U.S. bank bailouts, market volatility, the collapse of Credit Suisse and the European Central Bank’s 50 basis-point rate hike.
The Fed’s decision to increase rates this week will likely provide yet another concern to Kolanovic and his team.
Obviously, this isn’t the first time that a Minsky Moment has happened in the U.S. The U.S. has experienced a handful (https://www.washingtonpost.com/business/2023/03/21/explainer-what-s-a-minsky-moment-and-why-markets-worry-about-one/6aec648c-c7d3-11ed-9cc5-a58a4f6d84cd_story.html) in the past, some of which you’ll remember if there’s enough gray in your hair:
> In 1998, following the bursting of asset bubbles in Asia, Russia defaulted on its domestic debt and devalued the ruble. (It was during that crisis that Paul McCulley, then an economist at Pacific Investment Management Co., coined the term “Minsky moment.”)
>
> The global financial crisis of 2007-2008 is considered another Minsky moment, since it was caused by the implosion of the U.S. subprime mortgage market.
Since 2008, we’ve talked a lot about a “Lehman moment” – referring to the collapse of white-shoe Wall Street investment bank Lehman Brothers, which notably wasn’t bailed out by the Fed or the Treasury Department. It’s the same thing.
It doesn’t matter what we _call_ that tipping point, that event or that day when everyone finally recognizes the party’s really over, tries to leave at the same time and gets jammed at the exits.
When you read the context above, take note of the common elements in both prior Minsky Moments; debt and bubbles. It looks as though both of those elements are making a return appearance right now.
All Minsky Moments have one thing in common
I discussed the “everything bubble” and its consequences in May of last year (https://www.birchgold.com/news/deflating-bubble/). (It didn’t really take a crystal ball to see it coming, though – all you need is a grasp of how financial markets work and a little history).
Like those before and, presumably, future Minsky Moments, the one thing they have in common is **debt** (https://www.washingtonpost.com/business/2023/03/21/explainer-what-s-a-minsky-moment-and-why-markets-worry-about-one/6aec648c-c7d3-11ed-9cc5-a58a4f6d84cd_story.html):
> Massive borrowing around the world since the financial crisis – much of it in response to the coronavirus pandemic and its aftermath – has prompted warnings of another Minsky moment to come. **The surge was made possible by ultra-easy monetary policy –** central banks slashing interest rates – **and governments turning on the spending taps**. Rising interest rates over the past year as the Federal Reserve and European Central Bank battled inflation have made debt burdens heavier. \[emphasis added\]
_(If you’re a regular reader, you know all this already.)_
When ultra-easy monetary policy makes credit and borrowing overabundant, a bubble forms. Instead of being incentivized to save money, the combination of inflation and rising asset prices sends money flooding into increasingly speculative gambles.
When rates go up, like the…