China and The Minsky Moment.

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International observers watching the recent Chinese Communist Party Congress were surprised by a comment made by a central bank official. The official used the phrase "Minsky moment," a reference to economist Hyman Minsky's theory that after prolonged periods of prosperity and rises in the value of assets, which lead to greater speculation and higher leverage, a sudden collapse in asset values occurs. Immediately, attention turned to the fact that in recent months, ten-year Chinese government bond yields have been steadily rising.

In general, Chinese officials of late have offered a confusing message: On the one hand, they want to open up capital markets. On the...

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