Embrace the Inevitability of Economic Cycles

Economic boom-bust cycles are an inevitable aspect of market behavior, not indicative of irrationality or mistakes by policymakers. Hyman Minsky's financial instability hypothesis posits that prolonged periods without recessions foster optimism, leading to increased debt, which in turn creates economic fragility. This fragility sets the stage for future recessions. Similarly, in asset markets, a lack of volatility drives up valuations to unsustainable levels, resulting in inevitable future volatility. Understanding these dynamics highlights the importance of recognizing that economic fluctuations are natural occurrences, and can arise independently of crises or errors.