Commentary
As China’s economy continues to implode, there are important lessons to be learned. One, in particular, is the negative impact and calamitous long-term effect of an artificial economy based on low-cost money policies and deferred risk. Another is that no nation is immune from either one.
A brilliant concept by economist Hyman Minsky explains how extended periods of low-risk capital reduce the perception of risk, which can eventually lead to a crisis as investors take on too much risk. Minsky theorized that an overextended bullish economic growth cycle could spur excessive speculation, eventually resulting in market instability or even economic collapse. Furthermore, the longer the period of bullish speculation lasts, the more severe the crisis will likely be.
