ABSTRACT
This chapter explains that Minsky analysis of the financial instability of an economic unit operating in a national economy is based on a debt repayment profile given the balance sheet position of a private firm with income-generating capital investments on the asset side. The most conservative financing profile, which Minsky called hedge finance, is one in which in every future period the firm has a large cushion of expected cash flow receipts over debt service. The proportion of firms with particular financing profiles then indicates the potential for a financial crisis. An economy with the most firms showing hedge profiles requires the largest changes in receipts or commitments to transform the economy into speculative profiles; but once speculative profiles become dominant, Ponzi financing profiles may start to spread into the system with a much smaller variation in internal or external conditions, since its margin of safety represented by the excess of expected receipts over certain commitments is lower.
