Economist Hyman Minsky proved that long periods of economic stability inherently build the conditions for future financial crises, a framework known as the Financial Instability Hypothesis.
The Three Tiers of the Debt Spectrum
Minsky established that during prolonged economic expansions, corporate financial structures evolve through three distinct capital profiles, increasing systemic risk:
[1. Hedge Financing Tiers] ---> Operating cash flows comfortably cover both principal and interest payments
  |- [2. Speculative Finance] --> Cash flows cover only ongoing interest; must roll over the underlying principal debt
       |- [3. Ponzi Financing] ---> Cash flows cannot cover interest; relies on rising asset prices to fund debt service

As the economy shifts toward Ponzi financing, the corporate sector becomes highly vulnerable to interest rate hikes or asset price corrections. A minor adjustment can trigger a sudden panic, known as the Minsky Moment, where credit lines freeze and asset values drop rapidly.
 
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