Anyway i’ll go back and read your old blogs but I have to say, everytime in the past I hear you on this I think “Steven, you can’t be serious?”

I know inflation will postpone the evil day, but as per your own prognostications, postponing the evil day just makes it worse in the end.

On the other issues, you’d better read some old blog posts. High interest rates also compound the outstanding debt–adding fuel to the eventual fire. And living costs are only painful now across the board because of high debt levels. It isn’t just the gamblers who will go broke as a result of this.

George Negus is a fine journalist, but he was clearly out of his depth. It would be good if he could be educated and persuaded that this topic deserved more attention.

I’m far from sure what a “somewhat Austrian post-Keynesian” is, but I’d sure like to hear more on the subject. I’m a firm believer that markets are the best way to set prices but they may get other things badly wrong, making politics and regulation necessary evils. A blog on that topic would have my interest.

Keep up the good work!
dy

There always seems to be a lot of analysis on what is likely to happen, but not a lot on what actions one should take to navigate the storm. In terms of investment and apart from keeping your job, what does one do to maximise their position through the coming financial turmoil?

Thanks for your contribution.
bb

Steve Keen: “The key point is the attitude to how money is created.”

I agree with this, Peter seems to think that the US will monetarize debt (ie. print) in a substantial way. This is a low probability I feel as it would mean the destruction of the USD and an instant collapse in the US bond market.

On the role of governments. First thing to realize is that out system comprises a number of key components:

- Interest bearing debt based monetary system (no printing)
- With fractional banking determining the leverage; approximately 10 to 1 on average
- With democracy as the political system driving fiscal policy

Next thing to realize is that democracy has flaws which include:

- The masses will vote for the public purse, the Greeks and people like Thomas Jefferson knew about this

- Monopolies/cartels form as in Coles/Woolworths in Australia

I feel that the system works well when adequate limited regulation is enforced. Your equations Steve simulates nicely the behaviour of the system as a function of base variables. With time however almost all the rules are bent and eventually broken. In Australia the majority wants house prices to increase and politicians carry out their wishes. They unknowingly, it would seem, corner the market and turn the younger generation into their debt slaves. Related to this, is the study done at UWS that showed governments are voted out when they try to reduce debt – I think Steve you had this article on your debt watch once with some nice plots. Leverage is also greater than 30 to 1 thanks to the unregulated shadow banking system; the idea that loans can be made against loans is obscene.

Steve Keen said
>The key redefinitions I’d like to see relate >to ownership of capital assets–changing the >nature of shares and the valuation of houses

In the end I don’t think that any system can be devised that is full proof but I have little doubt your efforts would be superiour to any politican’s. I feel the best means to guard against corruption is education in the principles of our system and at school. Indeed I have been ignorant most of my life.

I enjoyed the session but I notice that you made one comment which went totally unnoticed by, and over the heads of George Negus and Peter Schiff, you said that Australia has been “de_industrialised”. This statement was way too deep for them. Even though this has occurred to a lesser extent in the US where military imperatives have reduced the severity.

The overlooking of this event is of particular significant to me as an engineer. It is part of the big picture which is overlooked by the Austrians, Keynseyans, and Neo-Classicals . It has resulted in a shift in real wealth creating capabilities to Japan, China and India.

Also this illustrates how little the significance of technology is understood by these “small picture” economists. Particularly in the way it affects even their small picture perspective.

They have for a long time thought that technology is of no particular value and can be “transferred” not built on or valued, and does not need to be nurtured and maintained. But throughout history the wealthiest countries have always been those which owned the current leading edge technology. This point was even made by Adam Smith in his seminal work.

Yes Australia’s technological capabilities have been ruined completely. This goes right through industry and education and now threatens our ability to manage our own infrastructure. After this coming depression we will need to become a “developing country” before we can recover the position that we occupied in the sixties. Otherwise we will need to learn to live as we did in the nineteenth century. Small picture economists will never be able to see this.

But there are analytic ways in which Austrians and (some) Post Keynesians differ too, in addition to differing on policy recommendations.

On that front by the way, I’d now describe myself as a somewhat Austrian Post Keynesian! I am much more sceptical about the benefits of regulation and government intervention than I was before analysing this crisis. But I certainly don’t believe in “handing it over to the free market”, as Peter does, because that begs the question of what the “free market” is. All markets are determined by legal structures and laws to some extent–they can’t be otherwise–and therefore we can design the laws surrounding those markets more intelligently than we have in the past.

The key redefinitions I’d like to see relate to ownership of capital assets–changing the nature of shares and the valuation of houses. But that’s a topic for a future blog.

Here I’ll just emphasise the ways in which Peter and I differed analytically on the night. The key point is the attitude to how money is created. Notice the time that Peter began to argue that for every debt there had to be a saver somewhere? That’s where I differ: that is a “fractional banking, deposits create loans” analysis. As I have intimated, I have a “credit market, loans create deposits” analysis that argues that this innate balance Peter (and other Austrians) perceive doesn’t exist.

There were other analytic differences as well–it doesn’t all come down to differing degrees of scepticism about the benefits of government. And as I concede, there’s much less difference between me and the Austrian position on that than there once was.