Keep Eye on Sovereign Debt for Next Minsky Moment

In his theory on financial markets' fragility and instability, the late Hyman Minsky argued that "from time to time, capitalist economies exhibit inflations and debt deflations which seem to have the potential to spin out of control." Following the 2008 crisis, he inspired the term "Minsky moment" to describe a sudden market collapse that follows the exhaustion of credit.

Today, we may be approaching a second Minsky moment. After the 2008 debt crisis, central bankers reacted with unconventional tools. If the problem was excess debt, the remedy applied was to lower interest rates and buy large quantities of it. Quantitative easing helped to avoid an even deeper recession, but it didn't solve the root causes of the crisis. Global debt levels are up 276 percent in the last decade to $217 trillion, or 327 percent of GDP, according to the Institute of International Finance.