Talk to the Fabian Forum: The Global Finan­cial Cri­sis: How bad will it get?

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Broad­cast on March 11 2009 by ABC Radio National Big Ideas

A blog mem­ber has kindly pro­duced a tran­script of the off-the-cuff talk I gave at this forum. I’ve made minor cor­rec­tions to the punc­tu­a­tion below, but the text is oth­er­wise as deliv­ered on the night with­out speak­ing notes–so there are some gram­mat­i­cal slips. For those who want to lis­ten to this alone–without also lis­ten­ing to Bernie Fraser beforehand–here is a link to the MP3 of my talk.

I might start with when I started issu­ing the warn­ings. That was in Decem­ber of 2005. I’d started research­ing what I’d call the debt defla­tion the­ory of great depres­sions in my PhD, work­ing on the advances done by a guy called Hyman Min­sky, who’s some­body who the eco­nomic stu­dents in the back row should def­i­nitely start look­ing up as soon as they get back to the library. Because answer­ing one of the ques­tions Bernie posed, “Who saw this com­ing?”, the only answer is Hyman Min­sky in the most recent his­tory, and before him, Irv­ing Fis­cher dur­ing the Great Depres­sion.

Those two men, and the the­o­ret­i­cal his­tory they are part of, really gives us a far bet­ter expla­na­tion of what we’ve got our­selves into. Indeed if they’d been heeded, we wouldn’t be hav­ing this meet­ing.

So, I think one of the rea­sons we’re hav­ing the cri­sis now is not entirely caused by the eco­nom­ics pro­fes­sion; but I believe by the direc­tion eco­nom­ics took after the sec­ond world war and was ampli­fied after the period of stagfla­tion in the 1970’s is a major con­trib­u­tor to the scale of the cri­sis we’re in and why I don’t believe pol­icy mak­ers have any idea of how to get us out of it. In fact what I think we’re going to have to wait on is basi­cally the cur­rent set of pol­icy mak­ers aban­don­ing all hope and cer­tainly the polit­i­cal lead­ers aban­don­ing hope in them before we’re going to see any sort of change around out of this cri­sis.

Now as to how bad it’s going to get — you have to know what caused it in the first place to have any idea there. And this is again why you tend to get, “I don’t know” type answers from most economists—and that goes right up to and includ­ing peo­ple like Joseph Stiglitz and Paul Krug­man.

The rea­son they don’t know is that their eco­nomic the­ory is the wrong one. They’ve got a model of how the econ­omy oper­ates and it’s got no rel­e­vance to the real world, you’re not going to under­stand what’s hap­pen­ing in the real world when some­body asks you a ques­tion about it. So I, for some years, have been argu­ing that eco­nomic the­ory as it’s being taught in uni­ver­si­ties and as is com­monly believed, is an utterly fal­la­cious view of how the world oper­ates. I pub­lished a book called Debunk­ing Eco­nom­ics to make that case back in 2001. And the rea­son that econ­o­mists can’t under­stand what’s hap­pen­ing in the econ­omy is, and I know this is going to sound ludi­crous to any­body who hasn’t actu­ally stud­ied eco­nom­ics, is that econ­o­mists con­vinced them­selves when they were about 18 years old that nei­ther money nor debt mat­ter.

Now, if you start from that men­tal posi­tion, how are you going to under­stand the real world in which we have man­i­festly clear now money and debt are cru­cial.

Now the rea­son they have their par­tic­u­lar mythol­ogy incul­cated into them is that early in their first year courses, back when I did eco­nom­ics, and now in sec­ond year because the courses have been dumbed down so much in the last 30 years, they learned what’s called the money illu­sion. And they get shown a model which has a propo­si­tion made that you can sep­a­rate a consumer’s taste from their income. And then con­sumers are all sup­posed to know exactly what they desire in any par­tic­u­lar com­bi­na­tion of rel­a­tive prices. And if you say, well let’s say we dou­ble all rel­a­tive prices and dou­ble your income what com­bi­na­tion are you going to choose? And the stu­dent does the men­tal exer­cise or the math­e­mat­i­cal or graph­i­cal one and says, “Well, duh, the same com­bi­na­tion.”

Being naive enough not to have credit cards at that stage, cer­tainly when I was going through Uni­ver­sity, most of the stu­dents accept this and go on to believe that it isn’t absolute prices and money that mat­ter but it’s rel­a­tive prices. And they end up build­ing math­e­mat­i­cal mod­els of how the econ­omy oper­ates that leave out of the equa­tions, out of their vari­ables, both debt and money.

Then along comes the real world, after 40 years of that and I’m sorry sud­denly you real­ize your mod­els don’t make any sense what­so­ever. So a model that does make sense is Minsky’s. And it comes out of the work of Irv­ing Fis­cher orig­i­nally.

And the argu­ment that Min­sky made was that we live in an uncer­tain world and the math­e­mat­i­cal world that econ­o­mists swal­low when they are at University—which is largely known as neo­clas­si­cal economics—teaches them that you don’t need to know absolute prices, you only need to know rel­a­tive ones. That all trans­ac­tions are rel­a­tive, that absolute mag­ni­tudes don’t mat­ter and that credit can be for­got­ten about.

Well, it can’t in the real world. And that’s the les­son Irv­ing Fisher learned the very hard way in the 1920’s and early 1930’s.

Min­sky put it together quite effec­tively to say, “In the uncer­tain world with finan­cial oblig­a­tions, absolute prices are the links between the debts you accu­mu­lated in the past and your capac­ity to ser­vice them now.” And if you have a world where you bor­row money to finance activ­ity, and that’s the world we live in, then those absolute prices are cru­cial and so to is the level of debt.

As the level of debt rises, you have an increas­ing need to devote part of your cur­rent mon­e­tary income to ser­vic­ing those mon­e­tary charges. And if you have debt and you’re try­ing to repay it, then the lit­tle math­e­mat­i­cal model the stu­dent use that got shoved down their throats in first year before they are mature enough to bite the hand of the lec­turer that’s feed­ing it to them, don’t work.

Because if you do dou­ble all prices and dou­ble incomes you do not get back to the same sit­u­a­tion because it’s a non-lin­ear process of repay­ing your debt.

You might get 1.73 times as much con­sump­tion. You might get 2.03, 2.07. You can’t say. So the argu­ment that says you don’t need to worry about absolute prices is false as soon as you allow the exis­tence of a world which debt exists and in which peo­ple have some need to pay their debt off over time.

So that men­tal con­struct that aca­d­e­mic and then ulti­mately reserve bank econ­o­mists use is on entirely the wrong track and it’s why they missed this whole process hap­pen­ing.

Now Min­sky argues that the world you’ve got to look at is the one which is mod­eled from the point of view, not of the barter econ­omy, which is the men­tal model that econ­o­mists adopt in first year and don’t real­ize they’ve done it, but a Wall Street model. He said that in the Wall Street world it’s a world of credit dri­ven sys­tems with finan­cial oblig­a­tions being absolutely para­mount, an uncer­tain future and peo­ple try­ing to spec­u­late and invest to make money.

In that world they will bor­row money, in a par­tic­u­lar stage of the trade cycle. And here come two more terms that don’t turn up in con­ven­tional eco­nomic think­ing: his­tory and time.

Now I don’t need to ask the eco­nom­ics stu­dents here, “Have you stud­ied eco­nomic his­tory?” because I know the answer to the question—they haven’t. Eco­nomic his­tory is abol­ished from most uni­ver­sity courses around the world. So stu­dents don’t actu­ally learn his­tory when they are doing eco­nom­ics.

And I have often see peo­ple who haven’t had the mis­for­tune of hav­ing an edu­ca­tion in eco­nom­ics, say­ing, “Haven’t cen­tral bankers learned about this stuff? Don’t they apply the lessons of his­tory of the 1930s and the 1890s? The 1870s?” For those who actu­ally know their his­tory, the answer is no they don’t. They don’t study eco­nomic his­tory. Well, that’s one thing they’d bet­ter change.

They also don’t study the his­tory of their own dis­ci­pline. So they have no idea where the ideas come from. I’m proud to say that the Uni­ver­sity of West­ern Syd­ney, where I teach, is the only uni­ver­sity in the coun­try with a com­pul­sory course in the his­tory of eco­nomic thought.

And his­tory itself is not part of eco­nomic the­ory, nor is time. Again, most eco­nomic mod­els work on what’s called com­par­a­tive sta­t­ics. Or what they laugh­ingly call gen­eral equi­lib­rium. And all these ideas leave out of exis­tence the very func­tion of time.

So, Min­sky starts from his­tory and time. And he says, let’s imag­ine a time in his­tory where there was a pre­vi­ous finan­cial cri­sis. And you’re all think­ing that must be 1990, maybe the younger ones are think­ing 2000. So, 1990–1991 we had a finan­cial cri­sis in the past. Bernie was part of that expe­ri­ence and remem­bers it well. And as a result of that cri­sis, every­body is con­ser­v­a­tive about the amount of debt they are going to con­sider tak­ing on. That applies both to lenders and bor­row­ers.

Because every­body is con­ser­v­a­tive, the only projects that are put for­ward for fund­ing are projects that actu­ally are likely to have a cash flow that’s going to exceed their finan­cial com­mit­ments. And because the econ­omy has recov­ered from that cri­sis, how­ever that might have hap­pened, most of those projects suc­ceed. Because they suc­ceed, every­body thinks, “Ah, we were too con­ser­v­a­tive last time around. If we’d actu­ally bor­rowed more money, been more lever­aged, we would have made a larger profit.” So, as a result of that, peo­ple start to relax their risk pre­mi­ums so they become more adven­tur­ous.

As Min­sky put it, quite clas­si­cally, “Sta­bil­ity, in a world with an uncer­tain future, and com­plex finan­cial instru­ments, is desta­bi­liz­ing.” So the expe­ri­ence of a period of sta­ble growth, leads to ris­ing expec­ta­tions, and sets off the next bub­ble. When the next bub­ble begins, you sud­denly have a period of self-fufill­ing expec­ta­tions for awhile –where that high level of invest­ment and a larger growth in the money sup­ply, which is not under the con­trol of the reserve bank, but caused by the will­ing­ness of bor­row­ers to take on debt. That expan­sion of the money sup­ply dri­ves the big eco­nomic activ­ity and makes it prof­itable once more to spec­u­late on asset prices. You then get caught in another bub­ble for awhile where partly pos­i­tive feed back sys­tems are good which boosts invest­ment and spend­ing and improve con­fi­dence, that illu­sive word, rise and cause a boom in the real econ­omy to take place. But you also have a boom in the arti­fi­cial econ­omy –the spec­u­la­tive world. And that often comes to dom­i­nate the real world. I remem­ber one, Robert Holmes a Court I think, one of the clas­sic spec­u­la­tors from the end of the last bub­ble, say­ing he didn’t like to invest in real projects because he could only expect a rate of return of only 5 or 10 per­cent and he was much hap­pier with 20.

A twenty per­cent rate of return is a recipe for cat­a­stro­phe in the future. It can’t be sus­tained.

So, you get this bub­ble going on and then out of that bub­ble come peo­ple like those spec­u­la­tors: the Bonds, the Skases and so on of the 1990s, the “Fast Eddies” of the most recent period, who only make money because asset prices are ris­ing. They buy assets on a ris­ing mar­ket, they pay amounts of money for those assets which are beyond debt ser­vic­ing of the debt exceeds cash flow from the busi­nesses.

The only way they can get out of trou­ble is by re-lever­ag­ing later for a larger level of debt or sell­ing the asset on a ris­ing mar­ket which is what they do. Now, of course, ulti­mately that momen­tum has to break down because even though asset prices are ris­ing, debt is ris­ing faster. And that is the thing which as been left out of reserve bank visions around the world, includ­ing Aus­tralia. Debt rises faster than the asset prices rise, the ser­vic­ing costs rise faster. Ulti­mately, you may have a boom com­ing out of that as we did back in the 1970s and the 1990s, that changes income rel­a­tiv­i­ties as well, and that can shock the sys­tem inter­nally and turn it around. So that wage demands get to be higher than peo­ple antic­i­pated, raw mate­r­ial prices go through the roof and under­cut prof­itabil­ity, and so on. You then reach a cri­sis. The asset bub­ble bursts, and you are back where you started again in a debt induced reces­sion.

Now that’s the process we’ve been going through in the West­ern economies since the mid ‘60s. The first major finan­cial was 1966. If you go back and take a look at the Dow Jones then and see the col­lapse that hap­pened then, it was at that stage that the biggest stock mar­ket crash since 1929. I rec­om­mend going and look at Robert Schiller’s home page where Robert has done an excel­lent job of assem­bling long term data series on asset prices, par­tic­u­larly share mar­kets and houses in Amer­ica. And you will see that bub­ble in price to earn­ings ratio where the earn­ings are over a ten year period. And that price to earn­ings ration points out two major bub­bles in the past, the 1929 bub­ble and the 1966. We are now well above that level and so is the dri­ving fac­tor which is the level of debt.

Now to give you an idea of how much debt has grown dur­ing this whole process, again what Min­sky talked about was the ten­dency for the ratio of debt to income ratio to ratchet up over time. The rea­son for that is that you bor­row money dur­ing a boom and you have to repay it dur­ing a slump. You don’t quite have the cash flows you thought you would to ser­vice the debt, so when you’ve got it down to a rea­son­able level, it’s not quite back to as low a level as before the last bub­ble began.

So, you get a series of ratch­et­ing up of the level of debt. And the more you over­lay spec­u­la­tive lend­ing, where you bor­row money not to invest in real projects, but to gam­ble on asset prices, the more you drive that level up. That’s cer­tainly been the case in the Aus­tralian sit­u­a­tion, and the Amer­i­can. If we go back to 1945, the ratio of debt to GDP was roughly 45%. So, it owed less than half a year’s income to pay all it’s debts off if it ever wanted to do that. It now owes 290% of it’s GDP. That’s not fac­tor­ing in the obvi­ous net­table out­come of all the mon­strous deriv­a­tives that have been pumped around the sys­tem. The most irre­spon­si­ble of them in this most recent cri­sis is some­thing we’ve never seen in his­tory before. For those who want to see how bad that is and go to the Bank of Inter­na­tional Set­tle­ments page and look for the data there on over-the-counter trans­ac­tions deriv­a­tives. You’ll see that as of July 2008, there was $683 tril­lion worth of out­stand­ing deriv­a­tive con­tracts out there. Now, when that gets net­ted out we’re going to see a fairly sub­stan­tial increase in even that astro­nom­i­cal level of debt.

Putting 290% of GDP in con­text, in terms of debt lev­els, that is 60% higher than the peak debt reached dur­ing the Great Depres­sion in Amer­ica and about 120% higher than it reached when the Depres­sion began. The rea­son the ratio was that high dur­ing the Great Depres­sion was because the level of debt caused a period of defla­tion. And that defla­tion and col­laps­ing out­put meant that even though Amer­i­cans reduced their nom­i­nal debt lev­els from 1929 to 1932, their indebt­ed­ness rel­a­tive to their income rose from about 175% of GDP to 235% of GDP. Now, we’re start­ing this cri­sis at 290% of GDP.

In that sense I’m say­ing that debt is the actual cause of the dis­ease and and the cause in the Amer­i­can case is pretty close to 1.5 to 2 times as bad as the Great Depres­sion. So, I think it’s going to be… we’ll be lucky to come out of things as well as the Great Depres­sion. We’ll cer­tainly come out worse than 1990. Peo­ple who believe we’re going to stop at less than dou­ble digit rates of unem­ploy­ment are, I think, delud­ing them­selves. And that’s unfor­tu­nately what econ­o­mists nor­mally do.

We also have defla­tion hit­ting us. In 1930–1931 the rate of falling prices in Amer­i­can was roughly 10% per annum. The max­i­mum rate of fall of prices in any par­tic­u­lar month occurred in 1932 or 1933 and it was about 2%. The sec­ond largest rate of fall in con­sumer prices in recorded his­tory was in Novem­ber of last year. Already. So there’s all sorts of sig­nals that this could be a worse cri­sis than the Great Depres­sion.

Now, how much con­fi­dence do I have in pol­icy mak­ers today to get us out of it? None. There are sev­eral rea­sons for that. First of all, the peo­ple in charge at the moment did not see this com­ing. Again, Bernie was talk­ing about how econ­o­mists were think­ing about how they’d abol­ished the trade cycle.

They actu­ally had a whole debate going in Amer­i­can, par­tic­u­larly Amer­i­can jour­nals, but also Eng­lish ones, called the Great Mod­er­a­tion. And their descrip­tion, up to and includ­ing the begin­ning of 2007 of what was hap­pen­ing in the macro econ­omy was a reduc­tion in the volatil­ity in the trade cycle: more con­sis­tent growth, less bouts of infla­tion, more sta­bil­ity. And one of those many fool­ish eco­nomic com­men­ta­tors in the news­pa­pers, for the Lon­don Times, had a piece pub­lished in the begin­ning of 2007 called the “Great Mod­er­a­tion” which began with the line, “His­tory will mar­vel at the sta­bil­ity of our era.” I don’t think he was being ironic. He actu­ally believed it.

Even though I sup­port the stim­u­lus the Rudd gov­ern­ment has given, why I don’t think it’s going to work is because of the nature of this par­tic­u­lar turn around. We had a cycle in ’73, we had a cycle in ’89, each time the recov­ery from that cycle involved, not restora­tion of true sta­bil­ity, but a restart­ing of the engine of pri­vate bor­row­ing. If you go back to 1973 in Aus­tralia, I think the debt to GDP ratio then was about 45%. It slumped slightly, and then it took off again. We got to 1983 or ’84, another bub­ble, a super bub­ble in debt occurred at that stage, took out debt ratio to about 90%. It slumped to about 85% by ’92-’93, then took off again. It’s now, in Australia’s case, peaked at about 165% of GDP. If you fac­tor in cor­po­rate bond issues, it’s about 177% of GDP. That is 7 times the ratio of debt to GDP we had back in the 1960s.

Now, we don’t have to have a period of ever accel­er­at­ing debt. A lot of fringe thinkers in eco­nom­ics believe that’s the case. Prob­a­bly the best period of eco­nomic per­for­mance in Australia’s his­tory was the post war period from 1945 to 1965 even though it includes the credit crunch Bernie talked about a moment ago. Across that whole period, that 20 to 25 year period, the ratio of debt to GDP was sta­ble at about 25% of GDP. Now, at that stage, debt was doing what debt should, and that’s pro­vid­ing work­ing cap­i­tal to cor­po­ra­tions, invest­ment funds for those who don’t have enough retained earn­ings to do it and a small amount of money for peo­ple to buy houses who wanted to own their own houses rather than rent­ing. That’s the legit­i­mate func­tion of the finan­cial sys­tem.

In Australia’s case, in mid-1964, the ratio of debt to GDP started to accel­er­ate, and from that stage on, debt was grown 4.2% faster than GDP on aver­age for the next 45 years. Now, that’s unsus­tain­able. I know that, again hav­ing some con­ver­sa­tions with Reserve Bank staff, their atti­tude was, and this in print from the cur­rent Gov­er­nor in a hear­ing before the House of Rep­re­sen­ta­tives com­mit­tee about 3 or 4 years ago, that there’s an inverse rela­tion­ship between debt ser­vic­ing and inter­est rates. So, when inter­est rates fall, debt will rise. And when inter­est rate rise, debt will fall.

That’s not at all what hap­pened, unfor­tu­nately. A good look at the data shows sim­ply an expo­nen­tial take off of debt to GDP, inde­pen­dent of what inter­est rates were doing. If you sim­ply look at the ratio of debt to GDP, and do a regres­sion on that, using an expo­nen­tial func­tion, you’ll find a cor­re­la­tion between a sim­ple expo­nen­tial growth of that ratio and the actual data of .9912.

Now, I know most peo­ple don’t know what I’m talk­ing about, but I’m say­ing 99% of the increase in the debt ratio can be explained by sim­ply say­ing debt grows 4.2% faster than GDP. Now, that is an impos­si­ble sit­u­a­tion to main­tain indef­i­nitely because ulti­mately your debt is going to be a hun­dred times your GDP and of course you can’t ser­vice that amount no mat­ter what inter­est rates are. It’s going to have to change direc­tion.

It’s chang­ing direc­tion now. In Australia’s case the level of debt to GDP, is almost 3 times what we had prior to the Great Depres­sion. And there I come to a strong crit­i­cism of how our Reserve Banks have behaved. Because they have ignored the actual dynam­ics of the cap­i­tal­ist econ­omy, because they haven’t under­stood them, they fol­lowed the wrong the­o­ries. I might actu­ally add, with­out know­ing that there are alter­na­tive the­o­ries. Because they’ve done that, they’ve ignored the actual prob­lem as it’s run away from us.

And there­fore their deci­sions have actu­ally encour­aged the finan­cial sys­tem to get back on the spec­u­la­tive band wagon when they should have been kick­ing them off it in the first place. If you look at the data, I think it’s fairly con­vinc­ing if we hadn’t had cen­tral banks then in 1987 we would have had a cri­sis about the same size or smaller than the Great Depres­sion. It would have been atten­u­ated by the scale of gov­ern­ment. That would have turned us around. We’ve gone another 20 years and we there­fore, I think, face a cri­sis which is big­ger than the Great Depres­sion and of which our man­agers of the econ­omy have less of an idea of how the econ­omy func­tions, than we had back in 1929.

It’s going to be a long one. Thank you.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • Frank

    Hi guys

    I have to refer you to this post by a truly won­der­ful char­ac­ter, call­ing him­self “MrTweedy”, on the BBC eco­nom­ics editor’s blog:

    http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/04/the_short_and_long_game.html#P78720176

    He seems to know his stuff, and I feel that post is much in line with the Keen-sian view­point over here 🙂

  • Mike Stasse

    GSM, peak cheap oil IS peak oil.…

    I would def­i­nitely not put KSA, Rus­sia and Alaska in the “viable sources” pigeon hole.

    Lifestyle chal­lenges, what chal­lenges? We thor­oughly enjoy our lifestyle, wish­ing we’d done years ago…

  • Mike Stasse

    Chiswick, re Williams, even IF abi­otic oil was real, it is plain to see the Earth does not pro­duce it at a rate suf­fi­cient to meet mod­ern man’s hunger/thirst for the stuff…

    Besides, sci­en­tists can now tell WHICH kind of marine organ­isms were the source of the oil they extract.… I don’t know how they do this, and it’s pretty amaz­ing, but it puts paid to any the­o­ries of abi­o­tism IMO.

  • Chiswick

    Lind­say Williams claims revolve around sup­pressed oil finds in Alaska and a NWO agenda.…not abi­otic oil. He cor­rectly called for $50 oil when it was $147.
    I sound like a con­spir­acy nut/tin hat now myself.
    Inter­est­ingly though, Brian Wilshire of 2GB believes his claims.

  • Mike Stasse

    Ah well that’a a new one on me, last stuff I saw of hime he was going on about abi­otic oil.… such a kooky ides he imme­di­ately got short shrift from me.

    It would be very odd any­one sup­press­ing an oil find last year when it was fetch­ing over $100.…. and I’m pre­pared to bet my house it does it again, though I won’t bet when… but I’d be VERY sur­prised if it takes more than 12 months.

  • Chiswick

    Hi Mike google him

  • Mike Stasse

    pass…

  • Mike Stasse

    http://www.smh.com.au/world/wests-access-to-iraqi-oil-in-doubt-20090418-aasd.htm\
    l?page=-1

    EXPECTATIONS that for­eign com­pa­nies can cash in on Iraq’s oil riches are in
    doubt after a key par­lia­men­tary body in Bagh­dad pledged to “push Shell out” and
    halt a forth­com­ing licens­ing round.

    The warn­ing from the sec­re­tary of the Iraqi parliament’s oil and gas com­mit­tee,
    Jabir Khal­ifa Jabir, was seen by finan­cial ana­lysts yes­ter­day as a seri­ous
    threat to West­ern invest­ment oppor­tu­ni­ties in a coun­try that holds the
    sec­ond-largest oil reserves in the world.

  • Chiswick

    Mike that is inter­est­ing about Iraq.

    What do you believe is the rea­son the US in is in Iraq?

  • Mike Stasse

    Well it’s not WMD’s! And it’s not opium either, so it could only be one other thing…

  • Chiswick

    Its oil alright, my Iranian/Russian hair­dresser informs me that Iraq has 500 years worth of oil. He just ‘knows’ this is true.

    let me put it this way, for the US to spend so much money and send so many peo­ple (sac­ri­fice so many peo­ple), what are they try­ing to achieve exactly, in your opin­ion?

  • ned

    Iraq has 1000 years worth of oil, if you only use half of that in your pre­vi­ous esti­mate per year.

  • Mike Stasse

    From theage.com.au

    Allan Fels and Fred Bench­ley
    April 18, 2009

    AUSTRALIA’S abun­dant endow­ment of nat­ural resources has pro­vided a cush­ion against the need for energy secu­rity poli­cies. No longer.

    Declin­ing domes­tic oil pro­duc­tion, refin­ery isrup­tions, extended sup­ply lines, geopo­lit­i­cal tur­moil and the car­bon con­strained future are all send­ing warn­ing
    sig­nals: Australia’s easy energy ride is over, and moves to encour­age renew­able trans­port energy sources are long over­due.

    It is a mes­sage the Howard gov­ern­ment ignored. Rudd so far has shown lit­tle inter­est.

    Given Australia’s increas­ing reliance on oil imports, and our rel­a­tive iso­la­tion, such polit­i­cal apa­thy is a mys­tery.

  • Mike Stasse

    Look guys, if you’re going to use one cup of oil a day, Iraq has enough to last FOREVER!

    Claims like that are worth­less unless two things are taken into con­sid­er­a­tion: usage rate, PLUS growth in antic­i­pated extrac­tion. THEN you need to fac­tor in when peak pro­duc­tion occurs.

    In truth, all the world’s oil will NEVER be extracted. I actu­ally think as much as half to one third of all of what’s left will never be extracted, because even­tu­ally it takes more energy to pull it out than it con­tains.

    There’s an oil pump in Penn­syl­va­nia USA which is about 165 years old. It’s housed under its own roof as part of a museum dis­play. It still pumps all day every day for.…. wait for it.…. CUPFULS OF OIL!

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  • Jono

    I can­not believe this.
    Steve Keen seems to be an intel­li­gent per­son, with some good fore­cast­ing abil­ity.

    Why then is his polit­i­cal the­ory so utterly wrong ?
    He rec­om­mends Fisher and dis­par­ages Hayek. His­tory proves him wrong:
    —————————-
    1929 Feb­ru­ary — Friedrich von Hayek:
    “…the boom will col­lapse within a few months.”

    1929 Sep­tem­ber — Irv­ing Fisher. :
    “Stock prices are not too high and Wall Street will not expe­ri­ence any­thing in the nature of a crash.” “Stocks are now at what looks like a per­ma­nently high plateau.”

  • Jim

    Jono,
    You must be new. Steve has pre­vi­ously gone over this by acknowl­edg­ing that Fisher got it wrong in 1929 and after the crash become bank­rupt. This was a “wake-up call” for Fisher and after doing a post-mortem on his pre­vi­ous pro­jec­tions and studing what hap­pen to the econ­omy dur­ing the great depres­sion was the only one that came up with a good expla­na­tion of what caused the great depres­sion. I guess you could say that Fisher’s fore­sight was poor but his hind­sight was excel­lent! I am not an econ­o­mist, but this is my under­t­sand­ing after read­ing Steve’s stuff.

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