The economy strikes back
Hyman Minsky, the noted American economist, linked an economy’s life cycle with speculative investment bubbles which are endogenous to it. He stated that during prosperous times when the economy booms, corporate cash flows rise higher than corporate debts, and this leads to speculative euphoria.
This euphoria continues to develop, allowing borrowers to borrow more until their income streams become inadequate to service their debts, creating a financial crisis. This speculative borrowing bubble then causes banks and financial institutions to reduce lending, which in turn causes a further contraction in the overall economy.
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