Tag Archives: The Minsky Cycle


Dreamboat Senior Lecturer in Economics in the Kemmy Business School, University of Limerick, Ireland Stephen Kinsella and Professor of Geography at NUI Maynooth Rob Kitchin joined Colm Ó Mongain yesterday on RTÉ’s This Week.

A Daft report released this morning which shows that asking prices in Dublin rose 10.6% last year while, outside of Dublin, asking prices fell in every other county at an average 5.9% over the same period.

Colm Ó Mongain: “[To Stephen Kinsella] You wrote recently about your fears that another bubble will be allowed to inflate. Tell us on that scheme, tell us what the Minsky Cycle is.”

Stephen Kinsella: “Well the basic idea of the Minsky Cycle is that, following a collapse, like we’ve just experienced, things tend to calm down and people forget, essentially, that things have gone so spectacularly wrong. And, eventually, banks begin to start lending out again. And once they’ve lent out a bit and got a bit more back in interest, then they increase their amount of lending, the credit cycle takes off, asset prices rise, people get euphoric again, we start to see the kind of ridiculous stuff that we saw during the boom: people queuing outside of half-finished housing estates, all that sort of stuff. Eventually something goes wrong and the whole system collapses and this cycle is just part of developed economies, it’s just what has happened for at least the last 200 years.
My big fear is that we’re gonna forget just how bad things were four or five years ago and we’ll kick off again, because we haven’t put in place any of the regulatory changes to forestall the next crisis when the kids Rob [Kitchin] was just talking about there, grow up and want to start buying houses again.

Ó Mongain: “One of the key conditions though, in terms of inflating a bubble, you would think would be credit, when we’re talking about mortgage lending being at 40-year lows, it doesn’t really seem to be a factor. I mean estate agents are now talking about half of the property market being made up of people paying cash?”

Kinsella: “Yeah, I mean one of the biggest worries actually is that the rate of credit expansion which used to be a really, really good indicator of how strong a boom was, that’s no longer such a good indicator because so many people are buying in cash. I’d like to talk to some of these people actually, I don’t know any of them but the question is: where is this cash coming from? Is it being driven by an expectation that prices are just about to rise.
So, in other words, if you thought that the price of houses was gonna increase by 10% in Dublin next year, would you buy a house right now? Yeah you would of course. You’d like to do that. It would also explain why the supply is so low, because obviously nobody wants to sell, if the thing’s on the floor.”

Ó Mongain: “Will the market, left to its own devices simply sort that out or should we be looking at some sort of intervention? And if so, I guess, is that going to be very difficult to do when you have essentially a market running at two speeds in Dublin and the rest of the country?”

Kinsella: “The core lesson of the boom is that the market left on its own creates massive crises which the taxpayer has to eventually recoup. That’s the core lesson here. So, what we need to realise is that, left to their own devices, markets boom and bust and the bust generally lands on the taxpayer.
So we need to put in place a situation where we never see 100% mortgages again, where we never see the crazy kind of speculation that happens again, where we never see the kinds of incentives that are still there in the system, that are incentivised by the policy structures that we have, to buy houses, hold them for a while and flip them on. The idea of housing, housing as the primary investment, needs to go away, or at least we need to understand that there’s a large risk associated with it.”


OptimismbetterFull Eurobarometer study here

Dublin’s housing market well ahead of the regions (Irish Times)