First off, Minsky divides borrowers into three categories: "hedge", "speculative" and "ponzi". Hedge borrowers have ample cash flows which they can use to pay the interest and principal on their debts, so they are low risk borrowers. Speculative borrowers are those who can cover the interest on their debts, but cannot pay the principal from income and therefore need to roll-over their debts by re-issuing new debt to replace maturing debt. I would submit that today, at minimum all developed nations are speculative borrowers. None of the debt the U.S. government issues at this point in time is amortizing, meaning that it pays off maturing bonds by issuing new ones. The same applies for most other developed countries. Lastly, of course, is a Ponzi borrower who must issue additional new debt to not only pay the maturing principal, but also pay the interest on existing debt. A Ponzi borrower's debts of course are non-amortizing and growing inexorably larger over time. Again, I submit that today the vast majority of developed nations are Ponzi borrowers which of course is the riskiest type of borrower. As proof I offer the fact that for example, the U.S. growth rate is ~2%, whereas the deficit is ~5% of GDP. The deficit represents new borrowings. In the context of Minsky's definitions, what would happen to GDP if the deficit (ability to borrow) is removed and therefore the GDP is negatively impacted i.e. would the government still be able to cover the interest on its debt? What about all of the other contractual obligations that could affect the U.S. credit rating, could they be covered? Likely not. That is a scenario that could get tested in just a few weeks if the debt ceiling is not lifted. Still , the U.S. is "fortunate" in being able to monetize its deficits, because most nations are not as fortunate in their ability to print money (which is an asinine strategy to rely upon long-term).
The Gift that Keeps on Giving
Five years after the financial crisis, these OECD countries are still borrowing large chunks of their economy on a recurring basis. In reality none of these countries ever came out of recession. Only econo-dunces would deem borrowing 10% of GDP to generate a 2% growth rate as an "expansion". If any of these countries are shut out of debt markets it's game over: http://www.oecd-ilibrary.org/economics/government-deficit_gov-dfct-table-en
One Eyed Man in the Land of the Blind
Why I am still willing to own short-term (1-3 year) U.S. Treasuries at this juncture, despite the 5% deficit and the buffoonery in Washington:
We are told that Japan's debts and deficits are low risk because it's money they owe themselves. First I would point out that the charts above show via Japan how much debt can be accumulated when the economy is in a constant state of deflation aka. zero growth AND when the country can monetize its own debt to keep interest rates low. If both those conditions are NOT met, the borrow-to-oblivion strategy will fail sooner rather than later (e.g. Greece, Cyprus etc.). Secondly, it's asinine to assume that borrowing and spending one's own savings is a low risk strategy. At some point, those savings will need to be tapped for retirement, at which point the Japanese will realize that they spent their savings and left behind nothing but worthless IOUs. Only Econo-dunces can consider that to be a low risk strategy.
Back to Minsky...