Saturday, September 20, 2014

Could be a Minsky Moment, Ultra low volatility

"Stability is destabilising" is the idea given by the Hyman Minsky,American economist who died in 1996, grew up during the Great Depression, an event which shaped his views and set him on a crusade to explain how it happened. 
Idea of Minsky, which was largely ignored till 2008 credit crisis, is very simple and it challenges the external shock theory, only external shock can disturb economic equilibrium. 
Minsky who long ago wrote – paraphrased – that if and when markets are perceived as being stable, it’s that very perception will make them unstable, because stability, i.e. low volatility, will drive investors into riskier asset purchases. The Fed’s manipulation-induced ultra-low rates have achieved just that, and now they’re surprised? Now fed ants uncertainty and for this rates needs to be increased.
Market is all about people and there has to be certain uncertainty, if you take uncertainty from their life than how are they going to react to  it definitely taking more and more risk as they believe nothing can't happen to them.Free market now looks like distant past as we are now living in controlled economy.
Minsky discussed more ideas such as Minsky Moment, when the whole house of cards falls down, Three stages of debts and preferring words to math and models. 

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