Question

is there a possibility of Minsky Moment in such an environment or in the aftermath of Covid-19 in general?

Answer 1

In Economics and Finance, Minsky Moment refers to the possibilities of a potential stock or financial market collapse mainly due to unregulated and erratic speculative assumptions and conducts by the financial investors. Minsky Moment has been named after economist Hymen Minsky who originally coined this phenomenon. It can be appropriately described as an undesirable phenomenon in the financial market characterized by a sudden and unexpected decline of the stock market which can lead to a comprehensive stock or financial market crash. Minsky moment can evidently arise during the onset of any major global economic, political or other events which creates a widespread uncertainty and panic in the market inducing the speculators and investors to undertake reckless and aggressive speculative trading activities which essentially causes unpredictable and unrestrained fluctuations of various respective stock or share prices in the market. Now as predicted under the Minsky moment, such a high level of market volatility and uncertainty can subsequently lead to a comprehensive market crash.

In this context, as evident from the current ongoing trends or patterns in the financial market situation in multiple countries across the world, the massive and pervasive outbreak of COVID-19 all over the world have caused a widespread global economic uncertainty. Many of the private business organizations or firms across the world are understandably expected to reduce their existing workforce and employment of other productive resources as part of the broader cost-reduction plan to ensure a retaliatory measure against any potential revenue loss due to business or commercial stagnancy caused by the concerned viral outbreak. Furthermore, general uncertainty about the sustainable supply and expectations of higher prices of the productive raw materials and factors/inputs of production have also significantly contributed to conservative operational and business decisions of many of the companies and business organizations across the world. In this context, predictions of lower potential revenue generation and profitability have also affected the market value of many of the company shares or stocks. The overall market index for the major stock or financial markets in the world such as NYSE or Bombay Stock Exchange has declined significantly. Such a widespread commercial and financial uncertainty and downturn have caused the market value of many of the stocks or shares to decline sharply dismantling the initial speculations and hedging expectations of the investors and financial traders across the world. This has essentially led to erratic and aggressive speculative trading activities by global investors and speculators and such sudden and unexpected panic created by the alteration of the market situation has compelled many of them to reconsider and alter their original or initial investment decisions promptly and unexpectedly. This undesirably leads to erratic and aggressive buying and selling of stocks or shares thereby causing high levels of market volatility and unpredictability. It evidently replicates the stock market or financial collapse during the onset of the and following the Great Depression of 1929 or the Recession of late 2010s. Hence, the aftermath of the COVID-19 actually does signify some of the prominent symptoms of Minsky Moment and as the extent of the outbreak consolidates around the world, the financial and economic uncertainties and the conservative or preventive conducts of various international business organizations or firms are expected to increase. This could even exacerbate the existing financial or stock market uncertainties and volatility thereby, inducing the investors and traders to engage in more potentially aggressive and uncertain speculative behaviors or actions that could possibly lead to a comprehensive crash in many of the stock/financial markets across the world.