Minsky Moment

A Minsky Moment is the sudden collapse of asset prices after a long period of growth fuelled by increasing speculation and debt. Named after economist Hyman Minsky, the core insight is that stability breeds instability: during long expansions, participants take on progressively more risk because recent history suggests safety. Borrowing shifts from hedge (cash flow covers debt), to speculative (cash flow covers interest but not principal), to Ponzi (cash flow covers neither — relying on rising asset prices). When the music stops, forced selling cascades and prices collapse. For founders, the model warns against confusing a benign environment with a permanent one. Long periods of easy funding, rising valuations, or stable growth should increase caution, not decrease it, because the conditions for a Minsky Moment are building beneath the surface.

Track the cycle: are participants taking on more risk because things have been calm? Is leverage rising? Are people relying on asset appreciation rather than cash flow? These are Minsky indicators. Increase reserves and reduce leverage during long booms, not long busts. The time to build margin of safety is when everything feels safe.

Minsky Moment: stability breeds instability as participants take on more risk during calm periods. When the cycle reverses, the unwinding is sudden and violent. Build margin of safety during booms — that's when the next Minsky Moment is being created.