Spectrum Insights – Our double Minsky risk

Our double Minsky risk

The good times have long rolled on for both China and Australia.  Both have enjoyed continuous economic growth for over twenty years.   The concern is, as the famous U.S. economist Hyman Minsky said, “the longer things are stable, the more unstable they will be when the crisis hits”1.  A common theme for countries of the past was a build-up of private sector debt to record levels.

In Australia, the leverage villains come mainly from households. In China, it is the business sector that has piled on the loans.  As the graph below shows, private sector debt to GDP in both countries is at around levels that came before other countries had financial calamities. While this does not mean a crisis is assured or near, the risks are elevated.  For both China and Australia, these risks also look to be rising.

To read the full report please click here: Spectrum Insights – Our double Minsky risk