Last month I spoke at a seminar on the financial crisis organised by The Whitlam Institute, in reply to a speech by Professor John Quiggin. Guy Debelle, the Assistant Governor (for Financial Markets) of the Reserve Bank of Australia, was the other discussant.
The Institute has put together a very professional video of the discussion, which has been picked up by SlowTV, a free internet TV channel run by The Monthly, an Australian magazine of comment and analysis which, amongst many other things, published Australian Prime Minister Kevin Rudd’s lengthy essay on the Global Financial Crisis in which he explicitly critiqued neoliberalism.
The video comes in 4 parts, which are respectively
- John Quiggin’s speech in two parts (One and Two)
- My reply and alternative analysis of the Global Financial Crisis (embedded at the bottom of this post)
- Guy Debelle’s reply
The Question and Answer session with the audience isn’t available at SlowTV, but it is on YouTube in three parts:
The Powerpoint presentation that I gave is available here.
My presentation includes simulations of two dynamic models that are the core of my analysis of the financial crisis:
- The Minsky Model simulates a cyclical economy with debt in the form of both productive borrowing–where the money borrowed finances increases in productive capacity–and “Ponzi” borrowing–which gambles on asset prices (which are not explicitly modelled here as yet) and therefore adds to debt without increasing productive capacity;
- The Circuit Model models the endogenous creation of credit in a pure credit economy, and also simulates a crisis caused by a sudden shift in the willingness to lend and to take on debt–a “credit crunch”. I also model an “exogenous” government rescue one year into the crisis in one of two ways:
- By injecting a $100 billion sum into banks unlent reserves over a one year period; and
- By injecting the same sum into the bank accounts of the debtors (firms in this model) over the same period
The simulations are run in the visual simulation program Vissim; I have embedded a link to download the free Vissim Viewer into the presentation; that embedded link may no longer work, but the one given here should do so after a registration process (I use Vissim mainly to showcase the models; I develop them in the mathematical program Mathcad).
My main research objective for the next year is to combine these two models to develop an explicitly monetary model of financial instability. This will be the bedrock of the book Finance and Economic Breakdown that will be published by Edward Elgar Publishers.
Finally, my speech is embedded below (Reuters will soon start publishing a regular vidcast by me, and I’ll reproduce it on this site.)
