risk
Stability breeds instability
The rule
A long calm makes people take more risk with more borrowed money. Quietly, that builds the weakness that finally breaks.
Where it flips
Not every calm stretch is a Minsky trap. Some calm reflects truly sound balance sheets. The signal is rising debt and looser terms hiding inside the quiet, not the quiet by itself.
Minsky saw that when nothing goes wrong for a while, lenders and borrowers both relax. Debt then drifts from safe, to risky, to downright fragile. The very calm that feels reassuring is what invites the borrowing that ends it. Calm is not the absence of risk. It is often risk piling up out of sight.
A worked example
A reader watches an Indian NBFC growing fast through several quiet years. It funds long loans with short borrowings, because rolling them over has always been easy. That ease itself is the trap being set, not the safety. [illustrative]
How to spot it
- ·borrowing rising during good times
- ·lending standards getting looser
- ·short borrowings funding long loans
- ·risk called safe just because nothing has broken
Hyman Minsky · Stabilizing an Unstable Economy