More from Minsky

US Consumer Spending: America the “Ponzi unit”

America has become what Hyman Minsky calls a “Ponzi unit.” In other words, there sometimes comes a point where an economic unit has to rely upon asset sales to satisfy its interest payments and debt repayment. That’s America!

The writings of Hyman P. Minksy, particularly his 1986 book, ‘Stabilizing and Unstable Economy,’ ...identify three distinct income-debt relations for economic units: hedge, speculative and Ponzi finance:

1) Hedge-financing units can fulfill all of their contractual payment obligations by their cash flow.

2) Speculative units can meet the interest bill on their liabilities from their income, but are unable to repay the principal out of cash flow from operations. They need to roll over their liabilities.

3) Ponzi units are unable to fulfill repayment of principal and to pay the interest due on outstanding debts by their cash flow from operations. They depend on borrowing or selling assets even to meet their interest bill.

It is a reasonable conclusion that the U.S. economy and its financial system on the whole have become one huge Ponzi financing unit.”]