When Minsky said the fundamental instability is upward, he didn’t mean that it never went down! Instead, most critics of capitalism hypothesise some tendency to stagnation; Minsky sees instead a tendency to take on too much debt during a boom.

The commodities thing today is to some extent a one-off: the entry of China (and also India) into the market system at a time when we’re reaching resource constraints on the planet. So while the easy credit cycle added to the upswing, the circumstances today are also unique.

That said, a lot of debt would have been taken on to finance the attempt to fill these resource orders. If the leading OECD nations then go in to a financial crisis and their economies tank, then that investment in resources will become unprofitable rapidly, and the bubble in resource prices will reverse.

This is my nightmare scenario: that even though we’re having inflation forced now by Global Warming and Peak Oil, a serious downturn now could lead to a collapse in commodity prices and therefore a switch from them causing inflation to deflation. Then the global economy would really be up #*&% creek without a paddle!

“It follows that the fundamental instability of a capitalist economy is upward. The tendency to transform doing well into a speculative investment boom is the basic instability in a capitalist economy.””

The obvious and much-taled-about manifestation of the speculative investment boom in OECD countries has been/is housing bubbles.

Now my questions: Do you also see the Australian resources boom as another bubble/instability? Also, since early last year, there has been a lot of speculation about a “worldwide commodities bubble”, and now a “t-bills bubble” in the USA as investors “flee to safety”. So can the instability in capitalism also be downward? I mean it seems like most western economies are tanking at the moment, and yet there are new “instabilities forming in commodities and treasuries and other things. Or is this just the left-overs from the same easy credit cycle…?

Hope my question makes sense! Would love to hear your thoughts on this.