Are we about to have a "Minsky Moment"?
We seem to be celebrating all things Canadian today, so will discuss the recent musings of the most famous Canadian export since Keanu Reeves, Bank of England governor Mark Carney. He tells Damian Carrington of the Guardian that “companies and industries that are not moving towards zero-carbon emissions will be punished by investors and go bankrupt.”
Carney notes that coal companies have lost 90 percent of their value, and that others, like the banks that invest in what he calls “sunset industries”, will follow. Instead, he calls for investment in companies that deal with climate action.
Mark Carney also told the Guardian it was possible that the global transition needed to tackle the climate crisis could result in an abrupt financial collapse. He said the longer action to reverse emissions was delayed, the more the risk of collapse would grow.
There is a need for [action] to achieve net zero emissions, but actually it comes at a time when there is a need for a big increase in investment globally to accelerate the pace of global growth, to help get global interest rates up, to get us out of this low-growth, low-interest-rate trap we are in.
Carney worries that the world economy is at risk of a climate-driven ‘Minsky moment’ – "the term we use to refer to a sudden collapse in asset prices.” I had to look that up:
A Minsky Moment is based on the idea that periods of bullish speculation, if they last long enough, will eventually lead to crisis, and the longer the speculation occurs, the more severe the crisis will be. Hyman Minsky's main claim to economic theory fame was centered around the concept of the inherent instability of markets, especially bull markets. He felt that extended bull markets always end in epic collapses.
Also according to the Guardian, the top investment banks have provided $700 billion to expand the fossil fuel sector since the Paris Climate Change Accord was signed. On its own, JPMorgan Chase, which calls itself sustainable, “has provided $75bn (£61bn) to companies expanding in sectors such as fracking and Arctic oil and gas exploration.” They say on their website that “business must play a leadership role in creating solutions that protect the environment and grow the economy.” I wonder if these hypocrites are about to have their Minsky Moment.