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.)
August 15th, 2009 at 12:54 pm
I hope it’s not one of those US$180 Elgar books.
August 15th, 2009 at 1:32 pm
Were it not for my prominence these days, it probably would have been: EE’s strategy is to release a hardcover first for library sales, and only if it sells out do they produce a much cheaper paperback.
The standard print run for EE is a sub-thousand run too. At a conference a couple of years ago a good friend asked me how many sales Debunking Economics had made. When I told him it was roughly 8,000 at the time (it’s about double that now), he choked on his beer and said he’s be happy to achieve one tenth of that–his last EE book had sold about 500 copies apparently.
The strategy works (and so does a related one of selling compendiums of journal articles on specific issues to mainly Japanese university libraries) because EE is highly profitable. I for one support it because Edward–whom I’ve met on numerous occasions–is a supporter of the development of non-orthodox economics, and without him there would have been substantially fewer non-neoclassical economics books published in the last three decades. So he’s successfully combined niche publishing with profitability.
In the case of Finance and Economic Breakdown, given my international profile it should be possible to go with a simultaneous hardcover and paperback launch–the more so if I can guarantee pre-sales via this website and elsewhere. So once the tome is written (and I’ve had to completely abandon it while writing the lectures of Behavioural Finance for this semester), I’ll start promoting it here and offering discounts for presales. If we get a critical mass–say 500 copies of the hardcover presold–then I can pretty much guarantee a simultaneous paperback launch with a price of maybe a third of the hardcover.
BTW, in the best of all possible worlds–if I could get one and a half years completely free of teaching and put 40 hours a week into the book (with another 20-40 going on the media and the blog)–then I might have it finished in 2011 and published in 2012. It’s still a very, very long way from being published.
August 15th, 2009 at 2:31 pm
steve – please excuse the stupid question…..
you say that in the usa the change in debt is subtracting about 10% from gdp. how do understand the contribution of fed fiscal deficit spending (now above 10%). can that (and taking into account changes in current account deficit) compensate to gdp while the private sector tries to pay down debt — at least enough to prevent debt deflation process? i’ve been reading some warren mosler and similar (and still trying to wrap my head around the many new ideas).
August 15th, 2009 at 2:39 pm
It can so long as the government can maintain the same level of spending pressure that is being lost via deleveraging selise–and I don’t think that’s for all that long! It’s a route to a global repeat of Japan’s “Lost Decade”. In my opinion, the only (relatively) fast way out requires debt reduction.
Warren is a friend of mine, but we differ on this particular point (Warren, Bill Mitchell and Randy Wray are in one camp on this issue arguing that the government can “do it”; I’m in a different camp arguing that they can for a while, but won’t sustain it–and probably can’t as well, though I’ve got further dynamic analysis to do on that point before I’ll be definitive).
August 15th, 2009 at 2:49 pm
Dear Steve,
Thank you for this blog! It is fantastic! What you are saying makes sense, but I still have some lingering questions on my mind:
1. What is the impact of foreign immigration and investment/speculation on the Australia real estate market? Will Asia continue to boom, leading to further foreign/immigration investment/speculation in Australian real estate? It seems there was a similar pattern of investment in Vancouver, B.C. driving up prices several years ago.
2. What is the probability of the real estate bubble bursting within 12 months, 24 months, 36 months, etc.? Is there a “tipping point”? What are the signs of an imminent bursting of a real estate bubble? You will certainly be correct – but when?
3. How does Australian consumer debt compare to the USA? Is the debt situation here better or worse? Given the debt situation in the US, what is the probability of a double dip recession?
4. Why is the Australian Dollar currently so strong? Do you expect this to change in 2010?
5. Isn’t it possible for governments to inflate their way out of a debt bubble? If so, wouldn’t it make sense to buy real estate with a fixed rate loan now if high inflation is expected?
August 15th, 2009 at 3:00 pm
Steve,
Thanks, I enjoyed viewing the talk.
I have a question related to your comparisons to the Great Depression and your explanations of debt contribution to demand (which have so far made complete sense to me):
How do you reconcile the dramatic growth in US nominal GDP between 1934 and 1940 (over a 60% increase in 6 years, and by the looks of this graph of yours, not all due to inflation) with the idea that deleveraging would have been subtracting from aggregate demand? Your total-debt-to-GDP graph shows the aggregate measure contracting sharply at the same time, so it can’t be all government spending (plus, the GDP growth rate is just as fast even before WWII starts). I wonder if a graph of total debt alone (i.e., not as a ratio to GDP) would shed more light on this, if you have one? Perhaps the spike in debt-to-GDP from ~180% to ~310% and back down was primarily a function of the ‘V’ shaped GDP trend? Why did deleveraging not reduce growth more dramatically (or did it?) as would be suggested for example by this recent post? Thanks for any clarification you can provide…
August 15th, 2009 at 8:03 pm
Steve,
After watching guy debelles talk, christopher joyes blogs and rory robertson bet I see that you have been set up by rory with regards to the bet. rory intentions were premeditated so that you would get sucked in loose in his time frame (not yours) and courtesy to his gang of mates (guy, chris etc) and the MSM they will make sure they go for the kill, which is in this case your credibility and your significance. This is very common in everyday life, at school, uni, work etc where someone feels threatened and hence tries to get rid of the threat. This is all because Steve had the guts to stand up to these incompetent neoclassical economist who dismiss the role of every increasing debt and want asset price speculation to increase at all cost. So my only concern is are we going to see a repeat of Fisher? where everyone does not remember his most comprehensive work and dismiss it because of his wild prediction in the lead up to the stock market crash?
Bullturnbear, Home4Aussies, ak and other intelligent members can we help out Steve here with some ideas?
August 15th, 2009 at 8:22 pm
Hi hbl,
The honest answer to that question about the GD is that, as yet, I don’t know. I both have to do more detailed historical research, and expand the mathematical model I have to be able to capture deleveraging as well as the upward debt spiral, and also the impact of government spending.
One other factor though is that deleveraging does bring itself to an end: if debt is reduced then as it falls the impact of a constant rate of deleveraging also falls: it’s a classical exponential effect, though this time in reverse.
I do have the raw debt data here:
http://www.debtdeflation.com/blogs/wp-content/uploads/data/Debt_to_GDP.xls
The spike upwards was more than 100% due to the V in GDP, as you surmise: debt actually fell from 1930-32, but the ratio rose. There’s lots to explore yet to understand the GD.
August 15th, 2009 at 8:32 pm
Thanks Joshua,
But I don’t think I’ll suffer Fisher’s fate. For a start, Fisher’s problem was that he was in the MSM cheer squad during the Stock Market Crash: that’s what destroyed his credibility. he developed his debt deflation theory in 1933, long after his reputation had been ruined.
I agree that I was ambushed by Rory, but my time perspective was always the 10-15 year horizon, and the fat lady is long from singing on that time frame. So if I have to walk for the sake of the closure I agreed to (that by end 2009 the downward trend would be in evidence–of course that was prior to the First Home Vendors Boost being implemented), I’ll make the execution of the bet on my terms, even though its framing was not.
On that front, I’ll make it an event to publicise the blog and my arguments.
I’m fit enough to do it as a stunt–and I’ll get fitter before taking it on. What I envisage is a “Getting High With A Little Help From My Friends Tour”: a half-walk, half-run over a 7-10 day period, with as many members of the blog as can manage a day with me coming along on the walk stage, and having a very detailed document for distribution in answer to the “I was hopelessly wrong on house prices. Ask me how” T-shirt I’ll be wearing.
The case that I “got it wrong” is one that will appear very hollow to most observers. Few would argue that we’d see house prices at their current levels were it not for the FHVB–even if that has had the secondary effect of igniting a mini-bubble in sub-$600K housing. Even the IMF, using very conservative neoclassical methods, has come out recently and called Australian housing as overvalued. And Stevens’s comments on raising rates I see as a “shot across the bows” of a bubble like those his predecessor used to occasionally fire.
My plan is to walk in February 2010, if the November 2009 ABS series breaks the 131 level. That will coincide with the next release of data, and be in summer: I wouldn’t consider walking other than in summer or spring–and nor would I expect Rory to do otherwise if in some time he finds himself losing the bet on my time frame.
August 15th, 2009 at 8:38 pm
Welcome aboard mbehar,
Many of your questions are answered on past blog posts, but quickly:
1. This inflow certainly helped sustain the bubble in Sydney and the other capitals to some extent;
2. I think the probability of it bursting next year is extremely high; the tipping point will be when debt service costs bring down those working reduced hours now, and/or rising unemployment hits those in jobs. The recovery will be anaemic if it happens at all, not the +4% growth rate the RBA is factoring in.
3. Australian debt is less extreme than the USAs–165% peak versus 295%–but the rate of growth was much higher in recent years. Consumer debt is virtually identical in the two countries however–at roughly 100% of GDP. This will be a double and quadruple dip until authorities realise that debt is the main problem.
4. I plead ignorance on the currency movements. There are so many forces there that I despair of picking which merry go round horse will rise and which will fall.
5. Not if they don’t understand the money creation process–read the Roving Cavaliers post. They will need to create 25 times as much money as they have via quantitative easing to have any impact on the price level, and I think deflation will rule for quite some time before anything like that is tried.
August 15th, 2009 at 11:26 pm
Sorry this is a bit off-track from the above discussion.
Just reading an old book “Religion and the Rise of Capitalism” by R.H Tawney (1938) which covers, among other things, medieval and modern business ethics. I thought it might help explain how we got in this mess. Here is how ethics was once thought of in relation to business (it seems a bit preachy, but then religion was closely tied to ethics once):
“It is right for a man to seek such wealth as is necessary for a livelihood in his station. To seek more is not enterprise. but avarice, and avarice is a deadly sin. Trade is legitimate: the different resources of different countries show that it was intended by Providence. But it is a dangerous business. A man must be sure that he carries it on for the public benefit, and that the profits which he takes are no more than the wages of his labour. Private property is a necessary institution, at least in fallen world; men work more and dispute less when goods are private than when they are common. But it is to be tolerated as a concession to human frailty, not applauded as desirable in itself … At best, indeed, the estate is somewhat encumbered. It must be legitimately acquired. It must be in the largest possible number of hands. It must provide for the support of the poor. Its use must as far as practicable be common. Its owners must be ready to share it with those in need, even if they are not in actual destitution. Such were the the conditions which commended themselves to an arch-Bishop of the business capital of 15th century Europe.”
Now these ethics were certainly not always followed in the 15th century, just as our ethics are not always followed today. What is remarkable, in my opinion, is the public focus of them, versus our dog-eat-dog, my-property-is-mine attitude and ethics today. It certainly seems pretty clear that most business CEOs today are gaining more wealth than is necessary for their livelihood. I would be interest to hear from Anarcho, or someone else knowledgeable, any comments in relation to ethics under Anarchism.
Thanks Ueberbaer for your energy tip in an earlier track. I will look into it.
August 16th, 2009 at 6:15 am
Steve, I’m a huge fan of your brilliant attempt to save neoclassical econ from the fact that they assume away debt and risk. It’s unbelievable neoclassical became so entrenched…unless we consider the powerful interests that preferred neoclassical because it ignores debt.
I’m curious of your view of central banks? Your posts/speeches seem to continue the implication of economics that market dynamics happen via an invisible hand or other impersonal forces like the forces of physics (gravity, momentum, etc). The implication is that if we all just reduce personal leverage, our economy would be fine. But I’m intellectually curious what you do with the fact that central banks are debt machines, that our monetary systems are based on debt, that the natural result of debt-based money from central banks is the insane debt bubbles we have today, that the only way for our economies to grow now is via credit inflation by the banking industry, i.e. the more in-debt national governments are to their central banks the more private debt-based purchasing power the banking industry can create? These are institutions created by a few rich men. Why not name those institutions and people rather than imply this is the result of impersonal forces? It seems to me that we can’t fix our problem by just suggesting people be more responsible with debt because the very foundation of our system requires debt/credit inflation to grow.
August 16th, 2009 at 8:08 am
Steve,
Great talk, and I agree about the question of whether more federal spending here is possible. The Fed has already set an end date for QE. And all the cheery forecasts recently will definitely make another round of stimulus in the U.S. difficult this year.
The Republicans in Congress are looking for an issue. Working against an expansion of the fiscal deficit has the beauty of being both currently popular, and appears to be a return to the traditional Republican values. And the Republican party desperately needs a new rallying cry.
I think the economy will turn worse by fall/winter, when it gets bad enough, they’ll have the votes for more spending. But I think it may need to get pretty bad. And since so many of the incentive programs are pulling future demand forward, the incentives will need to be even greater.
August 16th, 2009 at 8:23 am
Mbehar,
Let me add to Steve’s response re tipping points.
You said what are the signs? I’d say the signs have been screaming for a few years now.
1. Look to the global collapse of all value in the last 2 years. All assets were sinking together. Once the reality of asset failure fully sinks in in Australia many will be angry with themselves that they ignored the signs and believed the “we are different crowd”.
2. Housing in Australia became an investment some time in the 80s (my opinion). Investment pricing is strange. When prices are rising more people invest. (this fuels bubbles). When prices are falling less people invest and some people sell through fear or they are forced to sell. Some say that fear drives all investing. Fear of missing out drives the bubble up and fear of losing deflates the bubble on the other side.
While I agree with the economists that unemployment and failing demand will cause asset prices to fall over time. I further believe that house price falls will be accelerated by the fear factor that will lead to extreme liquidity problems. Furthermore I believe that during the worst of the crisis Australian will believe for a time that home ownership is bad and that it is not rational to buy a house. In other words sentiment towards housing will fall to an extreme low and cause a spike down in prices. The spike down will not be rational just like the extreme price rises have not been rational.
August 16th, 2009 at 8:58 am
Hi strabes,
It might pay to read the Roving Cavaliers of Credit post: I don’t see Central Banks as the main source of systemic liquidity. However I am critical of them for stopping what would have been a “natural” crisis in 1987 and delaying the day of reckoning for 2 decades, during which debt levels roughly doubled.
For the future I’d be in favour of limiting CBs to their account clearing house role, and stripping them of the ability to manipulate the markets.
In one sense I do see this as the result of impersonal forces, since most of the people in finance have no idea of how money is created, or its relation to debt. But some individuals paid themselves extraordinary amounts of money that would only have been justified if they knew what they were doing and it worked. Since they didn’t know what they were doing and it %*$(ed up badly, they should lose the wealth they accumulated as a result.
August 16th, 2009 at 10:00 am
Steve,
Super-excellent talk. I’m going to post it everywhere.
I’m especially interested in the CDO/lawsuit story. Do you have names/dates/places etc.?
August 16th, 2009 at 11:18 am
It was actually first pointed out to me in a blog post here Warren–maybe do a search on “CDS” in the comments? I’ll do what I can to find it in the meantime too.
August 16th, 2009 at 11:19 am
Good old WordPress: the story was first highlighted by Moz this way:
http://www.prudentbear.com/index.php/thebearslairview?art_id=10241
A good news story
===================
Sorry to hi-jack the topic but this was too good to let go without mention:
http://www.prudentbear.com/index.php/thebearslairview?art_id=10241
“Now a small house, Amherst Holdings, has beaten the Wall Street titans at their own horrid game, according to the Wall Street Journal. It found a pool of $29 million of particularly repulsive California subprime mortgages, then sold $130 million notional of CDS on them, pocketing around $100 million in premiums, since this waste was so toxic the big houses were prepared to pay up to 80% to insure against it. Clear so far? It sold insurance for 4½ times the maximum possible loss, but hey, that’s finance.
Then it quietly went round and paid all the debts of the lucky homeowners owing the $29 million. At that point, since there were no defaults, it was able to keep the $100 million in premiums (net of the loan repayments, a $70 million profit). Simple, really! Wall Streeters are furious and, inevitably, suing, but in fact Amherst’s coup was a perfectly legitimate use of this corrupt and foolish structure, far more so than many of the shenanigans undertaken by the likes of Goldman Sachs – after all, Amherst’s operation PREVENTED a number of defaults and foreclosures.”
Bawaahhhhh Bawaahhhhh Bawaaahhhhhhh
August 16th, 2009 at 11:22 am
Here’s some more:
http://www.businesspundit.com/amherst-holdings-throws-an-unwelcome-curveball-at-wall-street-banks/
You should be able to follow it from there–maybe form a “Friends of Amherst” lobby group? -:))
August 16th, 2009 at 11:27 am
Well Steve make sure you make rory look like an idiot if you walk and that you are walking only for the sake of it because of rory pea sized brain and inability to understand stock to flow problems. Unlike stock markets the housing market does not tank that rapidly, it takes years for the housing market to deflate. A 40% drop in house prices over the course of 6 to 8 months with the intervention of government stimulus is improbable to me. Even if you even the game and remove intervention it would ultimately deflate very slowly compared to the stock market. By the way guy debelles response was very shallow. I could not believe he actually thinks we might me a lucky country and suggested that, he kept on rambling nonsense most of the time.
But the fact remains we have incompetent people who hold positions they should not be. Like in my work place they have nominated one of the existing business analyst to be the software architect on a new project? We have a blind person who is trying to lead the development team having no idea about tech knowledge or dev experience. This ba has been spending the last 4 weeks at our desk watching us developing and explaining how it works and she is supposed to define the tools we use? Options are we can stand up and voice our frustration and be accused of not being a team player, eventually be made redundant or look out for another job where people are not so dumb.
August 16th, 2009 at 2:42 pm
Thanks Steve great talk.
I’ll attend the ASA function to hear you live on Tuesday.
I’ve helped your cause deleveraging.
Sold my house and now debt free.
I’ll sit tight and rent a while, keeping a close eye out for value corrected assets.
Steve, not sure if i’m on the right path here but demographics, the baby boomers in particular, doesn’t seem to be highlighted in discussions as much as it should. Possibly i’ve missed it in past blogs.
After reading your Roving Cavaliers of Credit, which really sums up the whole picture and thank you for producing the paper, the point being debt /credit is created by the willingness of the public to go into debt for private gain. Surley this would have been driven by the 78 million US baby boomers now approaching retirement and past their peak earning years.
My understanding of the US population is there is a significant contraction in the population numbers after the last of the baby boomers have retired and generally no increase in growth up to and including 2008.
This would indicate to me further deleveraging and contraction beyond today’s crisis.
You could say the Ponzi pyramid would have worked if the population pyramid maintained its exponential growth trajectory.
If Australia needs immigration to supplement our slow population growth, dampened because of financial constraints, affordability and jobs, then this can’t be a healthy sign either.
Interestingly i noted on ABC’s Asia Focus last week, China is introducing a 2 baby policy, as their population approaching retirement is massive.
Appears to be all based around consumers spending, but if there are less consumers to spend, we have contraction.
I know there are other more primary factors but, i’m looking at it from a demographic perspective.
Is this even half correct, otherwise i’ll shut up in lunch time debates.
Thanks
NB: I know its early days, but I think your idea on house valuations would work. Therefore in a undersupply situation if someone wanted to pay above valuation that’s their choice, but the value is maintained lower. But if house value is based on 10 times the annual rent, wouldn’t this drive up rental rates? A positively geared investors dream mind you.
Mike
August 16th, 2009 at 2:48 pm
Hi Robbo,
And thanks.
Demographics do matter, but I haven’t had the time to incorporate them into my analysis. Someone who has–and makes this the focus of his analysis–is Harry Dent. We met recently in Sydney and find our views are very compatible. If you’d like to check out his analysis then go to:
http://www.hsdent.com/
August 16th, 2009 at 2:49 pm
Steve,
Thanks for providing the raw debt data! I added a couple derived columns so I could make this chart of total and private debt levels in absolute $ terms.
At first glance it seems surprising to see total debt peak around $192bn in 1930 and only fall to $168bn in 1933 (a 12% fall). I would have expected a larger fall given the notoriety of the GD’s “liquidationist” style debt deflation and the ~30% drop in GDP. Does a fall of this size seem correct to you, or is there a chance the data is spotty? (I’m not sure the source of the early years as they are not in the Fed FoF). Also I’m assuming the data has not been inflation-adjusted to any specific year’s $s? The rapid 1933-1940 GDP growth is still a mystery, also, though I have some guesses, and it does look like debt levels had already stopped contracting in that timeframe. Of course I know you said you have more research to do in this area so I’m not trying to push for answers you aren’t ready to give!
I look forward to playing with it a little more myself and comparing debt contribution to demand changes in the 1930s vs today… Thanks.
August 16th, 2009 at 5:10 pm
Robbo,
I think your comment about population growth is an important one. Our system seems to be predicated on pulling forward demand with ever-increasing levels of debt. I actually don’t see why this wouldn’t work in a world without resource limitations (people, space, energy, etc.). And if humanity were struggling merely to keep ahead of plagues and predators, I might actually think this economic system would provide a great incentive to force man to reproduce faster and faster. But, in _this_ world, which we seem confined to until other inhabitable planets can be colonized, I think population growth makes our current global economy a doomed Ponzi scheme.
When you realize that many social scientists are predicting world population to stop growing at around 9+ billion, in about 2050, this becomes a critical issue … at least for those of us who hope to live that long.
Regarding the talk, did Guy Debelle really compare escalation in home prices to food commodities? And did he also liken Australia’s debt growth to a young mortgager anticipating higher future earnings? Wow. Those are both horrible comparisons.
I seem to remember that it was one of Steve’s past comments that emphasized that you don’t take out a loan to go to the grocery store, but you do to buy a house. You wouldn’t have thought that his allegation that neoclassical economists ignore the role of debt would have been _immediately_ followed by such a fine example.
As an American, it makes me feel good to know we don’t hold a total monopoly on ignorant leadership. As a Caltech grad, I also enjoy seeing MIT men unnerved by sharp criticism
Nice work, Steve.
August 16th, 2009 at 6:52 pm
Yes he did n8r0n,
And the graph he referred to that I displayed… didn’t exist. I think he came prepared to debate me on Australian house prices, and stuck to his script even though I hadn’t discussed what he expected.
August 16th, 2009 at 8:37 pm
hi robbo,
the way i see it china and india all want to be like the US living standard wise.
8 or 9 more US’s ,
we will have world war 3 before they get even half way there, if they decide to follow the conventional energy intensive , mass consumption model of the US.
if we are going to get through the next 30 to 40 years of east asian development without conflict arising from competition for resources, the chinese and indians are going to have pursue an alternative path and probably show us the way to the future.
they certainly cant be satisfied with emulating the 20th century technological glories of the west such as they are, because well before they get there the whole ediface will come tumbling down around their and our ears .
August 16th, 2009 at 10:04 pm
Just a quick comment about demographics/aging population and asset prices. Chris Martensen’s website (which by the way is well worth a look) makes a good point about this. Basically as the boomers retire they shift from being investors to divestors. People when working contribute to superannuation which is obviously invested in shares and property etc. They also in many cases build up stock and property portfolio’s of their own (often taking on large debt). They are “investors”. Bubbles are created.
In the next few years as many retire people will sell down their assets for two reasons.
1. As people retire I would suggest their appetite for risk/debt reduces and therefore assets will be sold to delever.
2. Retirees draw from superannuation and divest assets to fund their lifestyles as they are not working.
Whilst I don’t know the exact demographics of Australia, it is well known that the population is aging and many boomers are retiring soon.
This must be bad news for house and stock prices in the medium term and adds some weight to Steve’s 10-15 year house price predictions.
August 16th, 2009 at 10:54 pm
Does anyone know what has become of ‘CIT’ they had until august 14th to settle their obligations. According to Mike Shedlock those 4 banks going bust last week technically bankrupted FDIC, meaning they will have to ask for more money because they have used up their allocation. I think ‘CIT’ is sitting on about 60 billion, so if that’s not sorted one wonders what surprises we are in for this week.
August 16th, 2009 at 11:35 pm
Steve
You were the only one qualified to speak. The others were asleep and they had no understanding about the global financial crisis. They did not even see it coming: not even an inkling. Read all the rubbish on RBA research! What was Guy Debelle doing before the GFC? Absolutely cheap shot on you about accuracy short-term forecasting manipulated by government interference. The government took you seriously and did everything to make sure your forecasts about house prices do not eventual. They have managed to postpone it so far, defying gravity: there will a “Willy E. Coyote moment” coming.
Your talk was the only one where opinions were supported by facts. The other talks were just unsubstantiated opinions. You have my total support on bringing more science and less rhetoric (most of what passes as economics) to the conversation. The mainstream people are confidence men: con-men. They think reality doesn’t matter: only perception or illusion matters: hence the jawboning. They will wake up with a very rude shock, in time.
If you (John Guiggin) reject the efficient market hypothesis (EMH), you have to reject most schools of economics, particularly the mainstream neoclassical economics, because they are founded on same stupid assumptions as EMH. John Quiggin sounded balanced and reasonable, but ultimately self-contradictory and unfounded on hard logic or evidence, but founded on nothing more than reasonable intuition (which can easily be wrong).
You will never get a government official predicting an economic depression. Their job is to maintain confidence (cautious optimism indeed by con-men). Guy Debelle talks apparently reasonable nonsense. The government will do “whatever it takes”, include telling lies, stealing from investors, taxpayers etc. for short-term effect. Unfortunately market failure has empowered the government to undertake bold experiments with unknown social consequences. Where is the proof that their actions are justified? Whatever the predictions are of the consequences of their actions, there is a high probability that they will be wrong. They will admit that theirs is not rocket science.
August 17th, 2009 at 1:04 am
steve @August 15th, 2009 at 2:39 pm –
lol, mitchell and wray were part of the “similar” in my “been reading some warren mosler and similar” and i’d been wondering about the very different forecasts you all have. i, of course, have no idea re the economics — but as for the politics, i seriously doubt our current batch of neoliberals in the obama administration (larry summers et al.) and the deficit hawks in congress would be willing to keep fed budget deficits high enough for long enough to support aggregate demand at the level mosler and others seem to be proposing (massive jobs program for full employment, temporary repeal of the employment tax, etc — or even a serious industrial/energy/climate policy as advocated by galbraith).
mostly i’m still just trying to wrap my head around lots of new ideas while constantly running up against the conventional (and mostly wrong) ideas about money unfortunately absorbed through listening to politicians, reading the news, etc over the years. thanks as always for your work via this blog and public appearances to spread your ideas and educate the curious (especially given your teaching and research/writing work load!).
p.s. a few months ago i listened to the audio of a conference at levy and the last session (#6) was galbraith, mosler, robert parenteau and wray. even though there wasn’t much of a discussion, hearing them present their perspectives together was, i though, interesting for both the similarities and the differences. kept wishing for your narration and critique of the presentations though. here’s the link in case anyone else is interested in giving it a listen: http://www.levy.org/vdoc.aspx?docid=1142
August 17th, 2009 at 8:31 am
Thanks selise,
I am on the same side of the road as those guys on economics in general, but on the other side when it comes to the dynamics of money creation (aside from Jamie Galbraith, who I’d lightly suggest might be standing on the median strip). and the feasibility of government running those deficits indefinitely as, on my analysis, would be required to counter private deleveraging.
In a nutshell, they have a “Chartalist” view of how money is created which sees it as a government invention, even though they also support the general Post Keynesian position that the money supply is endogenously determined. I don’t see how they can reconcile the two positions, and they have yet to develop any model of money creation (of which I’m aware anyway) that puts any substance to the Chartalist view that differs in any significant way from the “money multiplier” argument that I (and the data!) reject.
On government spending, while I’m still somewhat agnostic on the sustainability of their proposals (and will remain so until I model it dynamically and see the results), my position is that, as you note, though government could hypothetically finance deficit spending indefinitely without debt, practically and politically it won’t, simply because neoclassicals are in control of government policy and wouldn’t countenance that policy.
August 17th, 2009 at 10:45 am
selise, thanks for that link….. Joseph Stiglitz talk is very good.
http://www.levy.org/pubs/conf_april09/audio/speaker_Stiglitz.mp3
August 17th, 2009 at 2:54 pm
Hi All,
I know I am your resident nutcase banker/trader and you all think that banking and trading is for crooks and spivs. Either way, for the time being, I am sticking with the thesis that stock markets signal coming trends in the economy, not the other way around.
I have just discovered this guy on the net. Many of his ideas I share. Most of the Elliot wave and the options talk will bore you guys. I’m sure his link to loan resets will interest you guys though. Anyway, be very interested to see what you all think.
His post is called inflection Point.
http://evilspeculator.com/?p=10114#disqus_thread
August 17th, 2009 at 5:01 pm
Good article from Pettis on why he is sceptical about the power of China’s consumers, also some comments on steel production being curtailed;
http://mpettis.com/2009/08/predicting-consumption-growth-in-china/#comments
“In another article another writer in the same magazine warns of growing overcapacity in steel:
The government will freeze approvals of new steel projects for the next three years in a bid to curb overcapacity, Ministry of Industry and Information Technology chief Li Yizhong told a news conference August 13. Li said oversupply is a serious problem, with annual production capacity of 660 million tons far exceeding estimated demand of 470 million tons. China will produce a record 580 million tons of prime steel in 2009, far above the government’s target of 460 million tons, according to China Iron and Steel Association data”
August 17th, 2009 at 6:01 pm
Good site, thanks BTB.
I’m sure the general “mood” will be entirely different later this year. We’ll see a general bearishness not just for stocks, but all assets – realestate comes to mind. And then, no ammount of cheerleading will change peoples’ psyche. 2010 will be grim.
August 17th, 2009 at 7:15 pm
Dear Steve,
My understanding of the Chartalist view is both the government and the non-government sector can create money.
The non-government sector is made up of households, business firms, banks, and the foreigner sector. A bank makes loans to those it considers as creditworthy customers irrespective of its level of reserves. Loans create deposits and the money multiplier is rejected. These new loans create money. However, any transaction amongst the non-government sector (which Chartalists call horizontal transactions) cannot create any net financial assets (net savings). Transactions amongst the non-government sector can increase or decrease both financial assets and liabilities by an equal amount. This means that an increase (decrease) in savings will be identical to the increase (decrease) in the amount owed.
The government can create money when it spends. The difference between the government and the non-government creating money is the government can increase net financial assets (net savings) while the non-government cannot. This means that when the government spends (taxes) the net savings of the non-government sector increase (decrease) by an identical amount without a corresponding liability (transactions involving the government are known as vertical transactions). For example, say the government issues bonds and spends to the value of $100:
1. Non-government assets decrease by $100 as deposits are used to buy the bonds
2. Non-government assets increase by $100 as the purchased bond is an asset
3. Non-government assets increase by $100 from the government crediting a bank account when it spends
4. As a result the non-government sector now has net savings of $100
According to the Chartalist view, does the government have to raise taxes or issue debt to pay for the spending? No. The non-government sector is a user of the currency and has to finance their spending, whereas the government is the issuer of the currency and is not required to finance its spending. In other words, the government does not have to balance the budget and can run budget deficits of any size for any length of time it chooses. So why does the government borrow if it does not have to finance its spending? Answer, to target a positive interest rate. Government spending increases the level of bank reserves, which drives down the interest rate as banks now have excess reserves. Banks purchase government bonds with excess reserves because government bonds are a higher interest-earning alternative to bank reserves and put upward pressure on interest rates.
So the Chartalist view is to increase government deficits up to the level of full employment
More info here
http://bilbo.economicoutlook.net/blog/?p=332 part 1
http://bilbo.economicoutlook.net/blog/?p=352 part 2
http://bilbo.economicoutlook.net/blog/?p=381 part 3
August 17th, 2009 at 7:42 pm
Steve, thanks so much for your reply. I did read Cavaliers several months ago…it was so insightful it completely flipped my economics training upside down.
However, I still think we can’t fix the debt problem as long as we have a debt-based monetary system, i.e. US dollars can’t exist until somebody makes a loan (the Fed loans to Treasury, banks loan to people and corporations and have an “implied put” from the Fed), because interest creates the need for exponential growth, i.e. perpetual credit inflation until the whole system crashes in deflation. In order to payback interest and principal the pie must keep growing. And the system grows mathematically by putting people and institutions further in debt…household, govt, corporate debt is so large because otherwise the system would’ve deflated long ago. Each time it would’ve deflated, Wall St got DC to do what it needed to facilitate further leveraging and funny money creation. Isn’t that the fundamental math of debt-based money? As long as debt/credit grows, the illusion of real growth continues. Once bankers can’t find a way to grow credit, it collapses because there’s not enough money to payback the collective liabilities.
Say at year 0 the world’s economy is worth 1 trillion. And assume a 3% global growth rate and 3% spread in the global banking system (difference between what they pay to depositors and what they receive on loans). In a mere 23 years, the banking industry inherits the entire 1 trillion in interest payments, and by that point the economy must appear to be worth 2 trillion or the 1 trillion in interest couldn’t have been paid. In another 23 years, it must be a 4 trillion economy with another 2 trillion in interest being paid. That is an exponential growth, i.e. unsustainable, problem. So even if we return to normal levels of leverage, if we don’t change our monetary system, we’ll still have inflation/deflation cycles–they’ll just be smaller because we won’t allow the debt to grow as large before it pops.
So I think the problem is our fundamental notion of money. It starts as a loan…debt rather than an asset. And the institutions that created this system are the central banks. They should be eliminated in my view. Governments should have the sovereign authority over money, rather than privately-interested bankers.
August 17th, 2009 at 8:19 pm
Why should the Chinese adopt the same wrong attitude towards consumption as we have in the first place? What’s wrong in saving 20-30% of the income? Why should they copy our overconsumption-driven model which has just failed us on a massive scale? Just to help us? Do they really have to join the race to nowhere? Gas-guzzlers for everyone – 1.3 billion? Come on…
Maybe what we all need is true moderation and different rules of the game. For example can we consume 20% less of energy in 2010 than in 2009 and do not have 20% unemployment (I made up the numbers)? No – any drop in the consumption level (strongly correlated with the energy consumption level) instantly leads to the seizure of the whole credit-lubricated economy. It is like a life of an alcoholic – stop drinking and the hangover will catch you.
But there is a lot of countries which have consumption level 20% lower than Australia with pretty healthy societies. But we are locked in the race to nowhere – it is not the absolute level of consumption, it is the illusion of “growth” and “progress” what constitutes our normality.
I have a feeling that the plug to the great Australian illusion of wealth is being pulled right now – because of the reconfiguration of the economic policy happening in China and the green shoot getting brown in the US. The Chinese don’t need to buy more raw materials from us at any price if they cannot sell final products overseas. They have replenished their stocks already. We may see the effects pretty soon – in a few months time. The first symptom will be the current account deficit and falling exchange rate of AUD. Then any small disturbance (for example from the stock markets) can trigger a growing instability – because the system is inherently instable in the current state. As a result Steve may not need to walk.
“though government could hypothetically finance deficit spending indefinitely without debt, practically and politically it won’t, simply because neoclassicals are in control of government policy and wouldn’t countenance that policy”
If this is the case we will not be able to finance any investment in new technologies and infrastructure. Private sector will never have an incentive without dramatic changes to the taxation system (blocked immediately anyway by the mining sector and trade unions). The efficient allocation of resources in the free market economy means that there will be more (usually foreign) investment in the mining sector than in energy-efficient technologies or alternative energy resources in Australia (solar, nuclear, wind, geothermal).
As long as our economy is driven only by the consumer demand, export of commodities and foreign borrowing/investment I cannot see any chance to change anything.
The only realistic model which may offer some hope for a change in the paradigm is one with a greater role of the state. It may be slightly more inefficient and provide fewer opportunities to get rich quickly (except for corruption) – but otherwise we have no alternative. We will only keep selling commodities to Japan and China forever.
Let’s see what happens when the plug is pulled.
August 17th, 2009 at 8:40 pm
Ak, it is for reasons like this that we have no hope:
http://www.monbiot.com/archives/2009/08/10/tesco-opted/
Everyday people in Western societies have no say over decision making. In Victoria the Premier is removing rights for locals who “interfere” in state planning with their objections. This is not democracy, the fact that it is even called democracy is a joke. Are your sure that things will improve if these people (state authorities) assume even more power? I suspect that the state apparatus will be used by corporates to extract even more from the community before a final unrecoverable collapse.
August 17th, 2009 at 9:14 pm
Why does the money-multiplier myth have such longevity and currency?
Article “Excess bank reserves won’t inflate system” Stephen Grenville AFR 17 Aug 2009 …:
“Respected senior economists have begun ringing the inflation alarm bell in the United States, motivated by the enormouse growth in banks’ excess reserves.”
…
“Perhaps, having failed to foretell the timing of the downturn, economists want to get in early in predicting the inevitable excesses of the business cycle. More likely, however, they are carrying misconceptions about how monetary policy works these days. They note that central banks almost everywhere responded to the crisis by greatly expanding the base money. They have in mind the old text book credit multiplier process. Lots of extra base money means lots of extra bank credit, and this in turn means inflation.”
“The money multiplier however, isn’t relevent now. Central banks implement monetary policy by setting the key interest rate, not by altering the amount of base money. Credit growth is determined by the interaction of the public’s demand for credit and the interest rate.”
August 17th, 2009 at 9:41 pm
Dear Anthony,
That’s a good statement of the Chartalist position, and on most of it I’m not at all querulous. I also argue that both the private banking sector and the government can create money, though I give primacy to the private system and also model the fact that, while the private system can’t create net financial assets, it can in fact create net negative financial assets–because while bank lending creates identical debt and money (net zero), non-bank lending creates debt without creating money (net negative). Other factors add to this (non-payment of debt interest, bankruptcy, etc.).
Where I am querulous is the sustainability of indefinite government deficits. Point 5 of your 4 points above is that the government now has a debt-servicing obligation to the private buyer of government bonds. Chartalists often argue that this servicing requirement can also be met by issuing further bonds, etc. etc.; I am not convinced on the long-term monetary and productive sector and inflationary consequences of this, and won’t be convinced one way or the other until I’ve put together a dynamic model than encompasses the entire set of processes and their feedbacks.
August 17th, 2009 at 9:47 pm
Hi strabes,
In the language of logic, I see the outcome you describe as a sufficient but not a necessary outcome of our system. Debt service is relatively easy to maintain when the debt is lent for productive reasons. But I agree that in general, that isn’t the case in our economies, and a runaway process of unproductive lending normally overwhelms them. However trying to limit money creation just the government is, in my view, futile. That’s why I’d rather control the proclivity to take on debt than attempt to limit it at the source.
August 17th, 2009 at 11:19 pm
Anyone interested in the latest on the US mortgage situation this article from Mike Shedlock is frightening. some good charts and other links.
http://globaleconomicanalysis.blogspot.com/
Brace for a Wave of Foreclosures, the Dam is About to Break
A summary of Second Quarter 2009 Negative Equity Data from First American CoreLogic shows that Nearly One-Third Of All Mortgages Are Underwater.
More than 15.2 million U.S. mortgages, or 32.2 percent of all mortgaged properties, were in negative equity position as of June 30, 2009 according to newly released data from First American CoreLogic. As of June 2009, there were an additional 2.5 million mortgaged properties that were approaching negative equity. Negative equity and near negative equity mortgages combined account for nearly 38 percent of all residential properties with a mortgage nationwide.
* California has $2.4 trillion in mortgages debt. 42.0% of the properties have negative equity.
* Florida has $923 billion in mortgage debt. 49.4% of the properties have negative equity.
* Illinois has $447 billion in mortgage debt. 29.4% of the properties have negative equity.
* Arizona has $298 billion in mortgage debt. 51.0% of the properties have negative equity.
* Nevada has $149 billion in mortgage debt. 65.6% of the properties have negative equity.
* Nationwide there is $10.1 trillion in mortgage debt. 32.2% of the properties have negative equity.37.6% of the properties have “near-negative” equity.
August 17th, 2009 at 11:51 pm
Hi Bullturnedbear,
Please expand on “…stock markets signal coming trends in the economy…”. I can’t fit this to any graph I’ve seen unless the time scale is minimised to the point of rendering the exercise pointless.
Or do you mean there is an inverse relationship? Or do you mean if we ignore all of the interesting periods like the one we are experiencing now?
What do you mean?
August 18th, 2009 at 3:19 am
Hi Muz,
I’m not referring to the everyday up and down of the share market. I am referring to the major turning points/trend changes and their severity sending signals of where the economy will head in the future. Some times the market throws up head fakes but many times the market signals what will happen in 6 or so months time.
Some examples of what I mean. When the market turned hard in March ’09. That was a wave A snap back from being massively oversold. The timing and strength of that rally was suggesting that in a few months the media would see signs that the recession was over. I thought it also possible that GDP numbers may even turn positive in America. But when wave C of this rally runs out and turns over, I expect a very large trend change again. That will signal to me that the economic news and outlook will darken in 3 to 6 months time. Unemployment will be rising again, demand will be falling harder and businesses will come under increased pressure.
On the other hand, if the falls in late 2007 had turned out to be only corrections to the continuing uptrend that would have been a continuing bullish signal that the economy was not ready to turn down yet. But the magnitude of the trend change signaled otherwise.
This is not an exact science, but I believe still a strong predictive beacon.
August 18th, 2009 at 3:20 am
It seems that Steve thinks that money printing may not solve the problems whilst others like the Chartalist think otherwise. I would like to remind the money printing crowd that the reason why we are in this mess is precisely because of inflation which forces people into mal investment. To continue to print money forces consumption and preserves the wealth of the asset rich. The only way that this consumptive binge can end is to end excessive credit and deficit spending. The money printing crowd point to the fact that debt can be inflated away but fail to mention that prices for hard assets reaches for the moon. Thus instead of hoarding money people simply hoard hard assets and those trying to get onto the asset ladder are required to leverage up even more – why is this point not getting through.
The most damaging aspect of inflation however is not one that can be written down to balance an equation. It is in fact the destruction of the need to create wealth through productive means. The reason why so many Australians work in non-productive enterprises is simply because they can earn more money by scamming, ie. finance, buying and selling etc…, rather than productive work. The psychological damage brought on by money printing is far reaching and its path leads to a banana republic.
I am still amazed at how many people still think that money printing is a panacea; it’s like they really believe that you can get something for nothing. Granted our factories will produce more cars and we will consume even more energy – but why and where will the new car models come from as no one will be inclined to do real work.
I will also add that buying assets on leverage that is not excessive can be productive if value has been added to the asset. For example buying a house, fixing it up and renting it out is productive so long as leverage is kept to around 10:1. Historically the system is stable if leverage kept at reasonable levels. There is really no need IMO to go to other measures such as putting time limits on shares etc… sorry Steve but I disagree with you on that point.
And for those who think that unemployment is a bad thing; I will say it again – I strongly disagree. If we had 20% unemployment tomorrow then that will be a great thing so long as most of those who are unemployed are of the non-productive type such as 70% of those that work in finance. These people need to re-educate themselves into productive areas such as growing zucchinis.
August 18th, 2009 at 4:46 am
Aac, largely agree with your sentiments. Just a couple things:
- I recommend we discard the term money printing. That’s not reality anymore and it’s why inflationists are wrong about the immediate future. We are in a system of extended credit, i.e. increasing debt. The way the Fed tries to reinflate is by actually putting us all in bigger debt, enslaving us even more and requiring the IRS to beat up more americans to ensure we’re all being good little slaves to finance the oligarchs, not by printing money.
- When you say “historically the system is stable if leverage is kept at reasonable levels” are you just looking at the 20th century since the creation of the Fed? There were constant bank busts before the Fed ever enabled hyper-leverage conditions. The Fed is what has allowed the false “stability” because it gave the banking industry power over government with a debt-based currency (the govt is in receivership to the bankers behind the Fed) and they were able to shift the economy from productive growth to inflationary growth and continually get DC to give the bankers new ways to keep the credit inflation going so that it continued to look “stable.” Mathematically any debt-based system is not sustainable because the interest eventually overwhelms productive capacity. Interest always grows exponentially, even if leverage is kept at 10:1. And perpetual exponential growth of the underlying economy is not possible…that’s why the system is now crashing…the “terminal value” equations bankers put in their spreadsheet models which assume exponential resource consumption/production in perpetuity are fundamentally false assumptions so the need to repay exponential interest CANNOT be met EVER in the long-term. So the problem is that we have a fundamentally unstable monetary system where private bankers create our “wealth” (it’s actually a measure of debt).
August 18th, 2009 at 4:51 am
My last post actually illustrates the need for jubilee…the ancient practice of canceling all debt and freeing all debtors every so often (clearly that’s what should be done with derivatives…the holders royally screwed up and they need to go bust rather than be further propped up by responsible people having their wealth stolen and transferred to them). The ancients apparently knew that allowing the debt machine to keep chugging without resetting everybody eventually enslaves everyone to the creditors as the creditors soak up all wealth via exponential interest growth.
August 18th, 2009 at 5:34 am
Strabes
The idea that interest leads to a collapse as exposed by The People For a Mathematically Perfect Society is not necessarily correct IMO. How the system works and how it is supposed to work are not one and the same of course. How it should work is that interest should not be lent out but instead recirculated back into society by way of paying bank wages, bank expenses and by paying dividends to share holders and of course interest to bank bond holders. This recirculation of interest is in fact non debt based money which can then be used to pay off debt etc… I’m not saying that this is how it works but it’s how I see that it can work in an ideal system.
August 18th, 2009 at 6:04 am
Aak and Strabes,
Aak I love the points you raise on this blog. I agree with you that we have people employed doing largely unproductive things. But I still don’t see how government intervention can help here. I realise that there are many causes to this debt problem and that Steve has a done a great job at highlighting the financial/economic aspects of this. But thinking about my point earlier on why the Victorian state gov is taking over planning laws makes me think that governments have demonstrated they cannot do anything constructive about our problems. Leaving myself open here – because I have no concrete evidence of this beyond general trends – I think the reason we have forced on us in Victoria unsustainable desalination stations, uncontrolled growth in suburbs that spread over our finest farmland, and soon, it seems, high rises along all our streets with existing transport (without any significant new transport, despite the creation of new highways everywhere), is that governments can only fuel the bubble, both with debt and by unsustainable population growth which prop up our construction and housing industry (as well as house prices) along with boomer’s wealth so that they can fund their own retirement. This cannot be stopped. It cannot be stopped because people are not prepared to accept declining wealth and because if it does stop we will have at least the 20 percent unemployment you suggest. The common argument (sorry no reference, but common in papers and talkback shows) is that we need immigration because of an aging population. I am entirely happy with the idea of replacing boomers with immigrants in this manner. However, to increase the population in doing so leads to schemes whereby immigrants are used to prop up wealth (and by the way, create profits for corporations who must build new roads and houses, desal plants and big box stores because of these arrivals) is unsustainable, both economically and environmentally. However, everyone is happy. Governments cannot resist this, it is easier to put up with complaints about new developments when the people making the complaints aren’t prepared to accept high unemployment and lower wealth – high unemployment which was largely avoidable. It seems the reality is that we have nothing left on which to base our wealth except our sales of non-renewable resources. I have asked before: On what is the wealth of the West based? Our industry and technology have been stipped and given to Asia through a process of neoclassical (in my mind a servant of corporations) rationalism. I can see no reason now for an Aussie to earn more than a Chinese, Indian or Indonesian. This is the new reality, but populations and governments seem to be putting off accepting this and in doing so creating housing and other bubbles in a process that can only be stopped when others stop lending to us, and then we risk being left with massive social and environmental problems. Throw in peak oil and as things stand this does not look like a pleasant landing. Maybe debt forgiveness is a start, but it is nowhere near enough. Perhaps we need a public education campaign pointing out how to be sustainable we all need to be poorer.
August 18th, 2009 at 9:10 am
I don’t think that our democracy is in terminal decline if I read what’s going on in other countries. 5 minutes spent every day with Gazeta Wyborcza makes me feeling happy that I live in Australia. If I feel depressed I can always read about “progriess” of “diemokratia” in Russia. It is much better than Orlov.
In my opinion the bastardisation of public life in Poland (to some extent Central Europe in general) is a direct result of 20% unemployment (and previous historic experiences). This does not affect politicians only – think about your boss at work treating you as his serf (this system was only abolished in 1864).
If this doesn’t convince us we should put our current crisis of democracy in the historical context. WW1, the Soviet Revolution, Stalin, WW2, Nazi camps, genocide of Jews and Gypsies, communism in Eastern Europe.
Of course I share the grave concerns about the impact of humans on the environment and then the impact of environmental damages and diminishing resources on humans. But I believe that the evolution of the current (imperfect) system is the only way to address the issues and that we are not doomed.
I am not for printing money – this is not the solution. Deficits may be a tool to achieve certain social goals and direct investment in the areas normally neglected by the investors. If the tool is abused the only effect will be even more mess. We cannot cure debt with more debt – but for now this seems to be the easiest way out. This won’t work for very long I think.
When our society is “stirred not shaken” by the next phase of the crisis either right-wing morons will seize power or we may actually see our democratic system working better – people may lose certain illusions and request genuine reforms. I am still an optimist to some extent – the awakening may slowly arrive.
August 18th, 2009 at 10:09 am
Aak,
People I know say (certainly immigrants) that Australia is the best place in the world to live, one says it one the few systems worth fighting and dying for. I believe him. I have done very well in Australia, despite the faults I point out I have a great standard of living and many opportunities. What concerns me is that is not a sustainable system. I believe democracy is likely to survive because with our history and culture we will accept nothing less, however, I believe that democracy in the future, if we are to be sustainable, must be localised, people must be faced with the consequences of their actions/decisions (not just everyday people but also those that seek to exploit others for their own gain). Then people will act responsibly. What worries me is what is going to happen in the transition. We can nationally recognise the massive problems we are facing and start moving towards local, sustainable communities now with a national effort, in this case would could probably even maintain our federal system (possibly not our state system). I also believe there are significant benefits to localisation that make it worthwhile in itself. Alternatively, I believe we will continue down our current path until we can go no further, and then our democracy will be truly challenged, because the alternatives for an unprepared, oil-dependent (for food and transport) nation are either military rule or anarchy. Hopefully democracy would revive, but it is this transition that will threaten everything, not to menation all the suffering involved in either case. I am not just being cantankerous, I have a child and I am seriously afraid of this.
August 18th, 2009 at 11:35 am
Steve
some of the inflationists in the US argue that the dollars overseas will come flooding back, but as I understand it government borrowing like non-bank lending doesn’t create new money just new debt, therefore overseas there’s likely to be a lot of debt held but not nearly as much actual cash. Is there any way that this debt coming back could cause inflation as I wouldn’t have thought so?
Also with governments just creating new bonds to meet old serving requirements, this seems highly unsustainable, surely the only options if continuing down this path are default or printing. Why would people keep giving their money to the governemnt if its not being spent productively and they can’t expect a return on their money, in the case of government the spending has to increase growth so tax base rises. Surely its as simple as productive investment equals debt servicable and vice versa.
August 18th, 2009 at 11:48 am
Hi Steve,
Thanks for another very interesting and persuasive presentation. I’m a big fan of your innovative analysis which has certainly contributed enormously to my understanding of how credit-driven economies actually work.
I do have a few questions on the model however: firstly, what eventually happens to all the excess reserves that accumulate in banks during the deleveraging? I have read your cavaliers of credit piece, and can see how the cessation of growth in PSC contribues to a sharp reduction in aggegate demand. However, when people attempt to deleverage, the repayment of loans, if they are not relent out by banks (which in aggregate needs to happen if deleveraring is to occur), become excess reserves (although obviously some are needed merely to replenish equity against bad loans). I note in your modelling outcomes, unemployment rises, debt/GDP declines over time, and also back reserves increase materially.
I can see how when new credit growth occurs, new “money” and aggregate demand is created. but when the debt is paid back, that “money” does not disappear – it just gets pulled temporarily out of circulation but remains very much real on the balance sheet of banks. this would seem to imply a massive excess of capital and ultimately very low interest rates for a long time. I guess my question is, what are the implicaitons of this? Seems unrealistic to think banks are going to have equity/asset ratios of 20-30%??
Thanks in advance,
Rgds,
August 18th, 2009 at 12:41 pm
When a loan is repaid the balance is netted and the virtual (credit) money is destroyed. For example the bank removes mortgage from your house. This process led to the decrease in the amount of M2 during the Great Depression.
August 18th, 2009 at 3:01 pm
Not my analysis ak,
I argue that the money is taken out of circulation by being transferred from active deposits to unlent reserves; but it is not destroyed.
LT, I’m flat out now for lecture writing but I’ll answer your post tomorrow sometime.
August 18th, 2009 at 4:12 pm
Small business: “What recovery?”
http://www.news.com.au/business/story/0,27753,25946946-31037,00.html
August 18th, 2009 at 4:20 pm
Steve,
I thought that the original question referred to the principal of the loan.
“I can see how when new credit growth occurs, new “money” and aggregate demand is created. but when the debt is paid back, that “money” does not disappear – it just gets pulled temporarily out of circulation but remains very much real on the balance sheet of banks”
Obviously I didn’t refer to the interests accrued.
This is what I’ve found on the Wikipedia:
“When the loan is repaid, with interest, the credit money of the loan is destroyed, but reserves (equal to the interest) are created – the profit from the loan.”
http://en.wikipedia.org/wiki/Circuitist
If I am wrong could you please explain what I have misunderstood as this may have far reaching consequences.
August 18th, 2009 at 4:24 pm
http://economicedge.blogspot.com/2009/08/week-in-charts-buckle-heck-up.html
This article should interest those who think we have inflation to worry about. Good chart porn.
August 18th, 2009 at 9:10 pm
Hi MMitchell, I like your question about how wealth in the west is defined. Westerners have accepted the definition bankers want us to believe–”the number of electronic digits you have in your bank accounts.” Humans instinctively know that’s not wealth…no child I know feels more inner joy, delight, rest, beauty by having an account somewhere with digits in it which would really only show how much time they’ve spent trying to collect more purchasing power, or how much they’ve borrowed as they put themselves into debt. Westerners need to be taught this definition over the course of a career in public schools and public media so we can be good debt slaves and corporate wage slaves and national tax slaves and consumption addicts…all to fuel the system the banking oligarchy created. And now surveys indicate the more “wealthy” developed world is the least joyful population. Hmm…puts the lie to the definition of wealth.
Native tribes knew what real wealth was. They knew what sustainable life was…they didn’t create unsustainable banking models with debt-based money which required unsustainable corporate debt laundering machines. That’s why the anglo-banking empires had to exterminate them…they weren’t corruptible and capable of being taught to be debt slaves. Now isn’t it interesting that a few hundred years later we’re struggling to answer the questions you ask about wealth and sustainability, but they knew it all along? If only we had listened to them rather than killing them.
August 18th, 2009 at 9:21 pm
ak, I suggest we don’t live in democracies. We’re made to think so, but we’re in something far more akin to the Roman Empire. Empires need mass democracy (mob rule) to manipulate with fear/entertainment and maintain control. I don’t know how Australia was originally constructed, but the US was constructed as a republic specifically to prevent the danger of empire and mass democracy. Unfortunately the republic failed and we now live in the biggest empire in history. The empire is crumbling now, which means a renaissance may follow, but the transitional collapse to get there is going to be horrific. The equivalent of the Roman praetorian guard in the US has put in place a police state to protect itself from the masses. I think there’s a high probability we will be seeing in the US some of the stuff we saw in the periods you mention (WW1, WW2, Nazis, Communists, etc).
By the way, the “emperor” of today’s empire is the banking elite…they are transnational…they have conquered all developed territories via the US dollar. They are also some of the same interests that funded Hitler after the banks collapsed the German economy.
August 19th, 2009 at 2:44 am
ak,
Regarding what happens when bank loans are repayed, Steve discusses the topic in much more detail here:
http://www.debtdeflation.com/blogs/2007/03/30/dynamics-of-endogenous-money/
and in the linked paper:
http://www.debtdeflation.com/blogs/wp-content/uploads/2007/03/KeenKeynesCircuit.pdf
However, I’m also a bit unclear as to the meaning of his distinction here. Page 17 of the PDF in particular shows the effects of loan repayment — the bank’s assets (loan balance) and liabilities (deposit balance of the loan recipient) are both reduced by the amount of the repayment. This part seems to agree with the idea that repaying the loan reverses the original money creation and contracts the bank balance sheet.
I haven’t read the whole paper yet, but where Steve loses me so far is in the justification for how/why this process adds to the reserves of the bank. He shows those reserves in a seemingly separate table from the bank balance sheet itself. Are they off balance sheet? If they are on the bank’s balance sheet, what happens on the liabilities side to match the reserve assets? (i.e., so that loan repayment doesn’t shrink the liabilities side of the bank balance sheet while leaving the asset side at the same size). Is a special type of capital created that is distinct from share capital / equity? Perhaps (just guessing) that’s what the “loan capital” example refers to in this wikipedia example?
Perhaps quoting one of Steve’s statements could help clarify:
“The repayment of loans therefore does not “destroy” money, but transfers it out of income accounts—where it can be used for expenditure—to a reserve account. The proposition that money is destroyed when loans are repaid in part reflects economic conventions that money is the sum of active bank balances. If money is defined that way, then it is indeed destroyed; but I feel that the dynamics of endogenous money creation are more clearly illuminated if we define money in the fundamental Circuitist sense as a token whose transfer settles all commitments between trading parties. That token can then reside in active accounts (deposits) or inactive accounts (reserves). Repayment of loans alters the balance between active and inactive accounts, and thus alters the amount of money in circulation, but it does not destroy the token itself.”
The whole topic seems like something that should be black and white — i.e., don’t bank accountants (or computer systems) have to handle this every day? Or maybe I’m the only one confused
August 19th, 2009 at 9:14 am
hbl,
I have an idea how the part of the system (a bank, a debtor and their immediate neighbourhood) can be described but I will probably have enough time to write about it on the weekend. I would be extremely happy to see Steve’s response to my initial post because I may be missing something.
August 19th, 2009 at 9:26 am
Have to wait till Friday ak–too much work for tomorrow’s lecture right now.
August 19th, 2009 at 11:58 am
Ak, what you describe makes sense to me. Also I’m not really sure it matters in effect if the capital repayment goes into a reserve or is destroyed as the bank, when it wants to make a new loan, can either draw down on the reserve account or just create it out of thin air if it originally cancelled it. It doesn’t matter it seems to me.
August 19th, 2009 at 12:39 pm
I have a few thoughts on Australia’s position in the global mayhem.
I remember late 2007 and early 2008 the RBA was raising rates. They were very late in the trend. The herd had already changed course, the RBA was only just catching the trend. Many borrowers started to go into arrears and suffer stress. Since then rates fell to 3% and PAYG borrowers began finding a way to pay again (businesses are a different story, due to crashing demand).
The MSM assumption is that we are in recovery and interest rates will have to rise again so that bubbles and inflation can be headed off at the pass. I suspect though that rates can’t be raised much going forward, because too much mortgage stress will be evident too quickly. Since 2007 mortgage debt levels have risen and wages have stagnated and hours worked have fallen. Meaning that borrowers are even more sensitive to rising interest rates now.
The downside problem that the RBA faces, is that all up rates (lending rates) cannot go much lower, due to cost of funds constraints. In other words. The RBA may lower the cash rate, but can banks follow? So if sentiment turns negative again, what power will lowing rates have in “saving” borrowers?
As Steve has identified before. Monetary policy is getting pretty blunt in Australia. If it every did anything other than follow the trend in the first place!
The second observation is a comment on how quickly and sharply Australians became negative last year, even before unemployment started rising. I take that as an omen. Australians are very nervous. They have flipped back to extreme optimism at the moment. But what if that flips straight back to negativity? What will save the Australian asset bubbles next time?
August 19th, 2009 at 12:40 pm
Strabes,
Thanks for your comments. I agree with almost everything you say. Except I would like to separate the idea of wealth and democracy. Our system has traditionally excelled at providing personal freedom and the freedom of ideas. This I think is worth fighting for and retaining. In Australia we, at least in public, are very accepting of multi-culturalism, this is worth retaining, however, I suspect this only works while everyone is well off, under stress racial tensions (which are probably already present) may arise. What has been corrupted is our entire economic existence, and in turn the aspects of society that are related to economics ie: everything that can be marketed; education; mass-media (which is driven by marketing). These are the domains in which empire reigns as you say. Mob rule need not be bad, as long as the fate of everyone in the mob is linked. In this case, stupid mobs will not prosper or survive, eventually all mobs must wise up. In our massive system the linking of everyone’s fate does not hold, and one group can benefit by exploiting or dominating another, perhaps weaker group – this is the failing of democracy, and perhaps the mechanism by which the native peoples you refer to have been extinguished. To make my point yet-again (sorry to everyone) smaller masses will more likely have linked fates. These seems possible if we have localised communities with the final say over any decision making. Large projects, such as nationwide railways will still be possible, but would need to be done with much more sensitivity (who cares how long it takes if it is done properly and sustainably and fairly. Stealing land (called compulsory acquisition) for unsustainable projects should not be possible. In the case of water allocations such as we face now where one state or community takes more than its share, that state is actually protected by our current national structures. Under a regional arrangement it is far more likely that an equitable arrangement would eventually be reached, either by co-ordinated sanctions against the offending communities, or, immigration to the areas that are appropriating the resources (so that they are in effect are shared equitably) or, in the very worst case, the threat of armed conflict.
August 19th, 2009 at 12:59 pm
I see that an international consortium has signed a deal with China to sell Australian Natural Gas to China for the next 30 years. This is a big POSITIVE story this morning.
No where did I read that natural gas is now trading at $3 per mmBTU. This is approaching a multi decade low. One year ago gas sold for $13+ mm BTU and in 2006 the price hit $17.
Great positive story! A consortium of ExxonMobil, Shell and Chevron will sell our gas to China and virtually give it away. Why is this good? I read that the government will get $40B tax over the next 30 years. Maybe that’s the good bit.
By the way the price of gas is falling into a multi-decade low as mentioned. A possible target I have is $2.50. But if wave 5 down extends the target will be in the mid to high $1s. That’s insane! Natural gas looks like it will be one of the first commodities to register a long long term low. Some time next year. Natural gas may be the buy of the decade. This is not advice, only opinion.
August 19th, 2009 at 7:17 pm
MMitchell,
I would agree with Strabes that we don’t live in a genuine democracy. If one looks at the institutions in our society: governments (federal, state & local), capitalist firms, educational institutions (universities, TAFEs & schools), churches, non-profit foundations, etc., the only one that has formal democratic mechanisms is the government. All others are based upon authoritarian internal structures whose leaders are unelected and can serve potential life terms (a pathology found in fascist and Bolshevist states). Some may be more moderate but all are based upon top-down hierarchical structures. We don’t accept totalitarianism in the political sphere of life, so why do we accept it in the workplace?
Describing Australia as a democracy defiles its very meaning. Just because one institution (the government) out of many in our society has formal democratic mechanisms, in this case voting rights, this hardly means that Australia can be defined as a democracy in any substantive fashion.
Theoretically, in a democracy, the people rule. However, decision-making power over many aspects of life reside in private, unaccountable hands, generating large-scale effects throughout society. The best way to resolve this problem is to extend democracy throughout the economy so that decisions relating to investment, saving, planning, organization of work, etc. is firmly within the control of people and democratic grassroots organizations. There is no natural law which states that our economy has to be largely managed by unelected and unaccountable corporate central planners and barely accountable state central planners. Reforming this disastrous system would constitute a major social revolution.
“Our system has traditionally excelled at providing personal freedom and the freedom of ideas.”
With the caveat that rights and freedoms are always won, never given.
August 19th, 2009 at 8:54 pm
Philip,
I agree with you because of course you are right. I was talking, and thinking, about democracy in a governmental sense, in all those other areas you mention we have little or no democracy. However, I think our lack of democracy in these other areas comes from our economic history, which in turn probably evolved from our feudal history. However, I was not claiming the best possible political system, just the best existing system beyond tribe size. Compared to many other countries we are relatively very well off.
Rights and freedoms are never given, because those in power use the usurption of rights and freedoms to stay in power. In a truly democratic system I don’t think this would be a problem. In any case, if the following discussion with Monbiot is any indication, I don’t think we should be worrying about that just now, but rather how we can get our existing system to mobilise to deal with the problems we are facing, otherwise their might be no system to talk of:
http://www.monbiot.com/archives/2009/08/18/should-we-seek-to-save-industrial-civilisation/
August 20th, 2009 at 11:39 am
I would dispute that the govt sector is democratic either. Just because the media puts on an election show every once in a while doesn’t mean it’s a democracy. At least in the US we have 2 establishment parties controlled by the banking/corporate elite. They give us 2 to fool us into thinking we have a choice. They debate the irrelevant issues, but neither party would ever cross the Federal Reserve or the rule of Wall St. It doesn’t matter to the elite which one wins…both of them appoint the same Wall Streeters to run the economy and CFR members to run Defense, State, CIA, NSA, Justice.
The elite giving people 2 very limited choices is hardly freedom.
Not to mention the simple evidence that 75% of people were strongly opposed to the US govt bailout program, yet Congress passed it in flying colors. This is not democracy.
I think we’re going to have revealed to us over the next 10 years how un-free we are. The elite allowed us for a few generations to play the bankers’ game because they needed us as good little borrowers/interest payers to ensure we kept the velocity of money screaming so they were propped up as the wealthiest elite on the planet. We’re no longer needed. Our debt bondage, lack of freedom, will soon become obvious to everyone.
August 20th, 2009 at 12:14 pm
The global financial system plays a game of “pass the parcel” to avoid proper regulation, including mortgage securitisation, mortgage insurance etc. Here is a useful health warning from Kris Sayce:
http://www.moneymorning.com.au/20090819/australias-mortgage-insurance-time-bomb.html
August 20th, 2009 at 1:05 pm
strabes,
I would agree that government doesn’t tend to be very democratic and responsive to the will of the population. However, despite its internal bureaucratic problems, the greatest impediment to democracy comes from outside the government, namely the business class or more specifically, the corporate sector.
Citizens turn up to vote once every four years but the business class spends every day and night subverting democracy and market principles. As the Founding Fathers in the US created a separation of church and state, a separation of corporation and state needs to occur.
August 20th, 2009 at 3:27 pm
Strabes and Philip,
As I KBH and I discussed in a previous thread: it is almost inevitable that vested interests will take control of any system. I think the system put in place in the US, like ours, was in fact very good (to begin with). The fact is that over time vested interests subvert whatever democratic processes and checks that are in place. It seems the only way we have any hope of avoiding this is to have as close to direct democracy as possible, no corporations that can use their enormous resources to out-gun anyone using systems of law, EOI, etc that were set up for individual PEOPLE. I do not believe this can be done successfully on a large scale. The temptation to let some group or organisation do our thinking and look after things for us is too great and the rationale that it is more effecient or effective to have some group of so-called experts do this is too tempting for policy makers. We then get a situation like now where the instruments (eg: Financial instruments) used are so arcane that only trained experts can understand them (if even they do) and the everyday person is excluded from participating even if he/she wants to. Having small localised economies (locally produced goods and local control over all resources, laws and decision making) will allow higher levels of accountability, and even if many do get corrupted over time, the scale will not be catastrophic as we seem to be experiencing now.
August 24th, 2009 at 8:39 pm
[...] of many slides from the accompanying Powerpoint presentation. You can download the presentation on Steve Keen’s Debtwatch Blog. You will need to listen to the video to understand some of the [...]
August 25th, 2009 at 12:02 am
[...] of many slides from the accompanying Powerpoint presentation. You can download the presentation on Steve Keen’s Debtwatch Blog. You will need to listen to the video to understand some of the [...]
August 25th, 2009 at 5:53 am
[...] of many slides from the accompanying Powerpoint presentation. You can download the presentation on Steve Keen’s Debtwatch Blog. You will need to listen to the video to understand some of the [...]
August 25th, 2009 at 7:49 am
[...] of many slides from the accompanying Powerpoint presentation. You can download the presentation on Steve Keen’s Debtwatch Blog. You will need to listen to the video to understand some of the [...]
August 25th, 2009 at 8:40 am
I don’t often recommend a Peter Hartcher piece–while I generally find him OK on international issues, he’s just standard MSM on economics–but the jokes he relays in this report of a talk are well worth reading:
http://www.smh.com.au/opinion/friendly-banter-in-the-back-channels-that-nurture-an-alliance-20090824-ewg5.html?page=-1
September 14th, 2009 at 6:50 pm
Hi Steve,
I’m still very interested in any thoughts you had on my original query re the implications of increased bank reserve ratios if you had time?
Thanks very much,
Lyall
September 15th, 2009 at 12:07 am
Hi LT,
It’s easily sidestepped by banks’ innate ability to create credit independently of government money creation. Check the Roving Cavaliers on that front–the reserve ratio and money multiplier are the tail wgged by the private sector lending dog.
September 15th, 2009 at 8:29 am
Hi Steve,
Sorry I should have been clearer & more specific – I was refering to the question on the implications of bank’s reserve ratios increasing over time as deleveraging ensures. I’ve reproduced the earlier post in full below. You mentioned at the time that you would come back to me on this point.
Cheers,
LT
Original post:
Thanks for another very interesting and persuasive presentation. I’m a big fan of your innovative analysis which has certainly contributed enormously to my understanding of how credit-driven economies actually work.
I do have a few questions on the model however: firstly, what eventually happens to all the excess reserves that accumulate in banks during the deleveraging? I have read your cavaliers of credit piece, and can see how the cessation of growth in PSC contribues to a sharp reduction in aggegate demand. However, when people attempt to deleverage, the repayment of loans, if they are not relent out by banks (which in aggregate needs to happen if deleveraring is to occur), become excess reserves (although obviously some are needed merely to replenish equity against bad loans). I note in your modelling outcomes, unemployment rises, debt/GDP declines over time, and also back reserves increase materially.
I can see how when new credit growth occurs, new “money” and aggregate demand is created. but when the debt is paid back, that “money” does not disappear – it just gets pulled temporarily out of circulation but remains very much real on the balance sheet of banks. this would seem to imply a massive excess of capital and ultimately very low interest rates for a long time. I guess my question is, what are the implicaitons of this? Seems unrealistic to think banks are going to have equity/asset ratios of 20-30%??
Thanks in advance,
Rgds
September 15th, 2009 at 9:47 am
Sorry LT!
Yes, the model does show excess reserves accumulating, and this is also happening in the real world. I think that in the longer term the banks would find themselves having to write off debt on a grand scale, and this raises the question of the mechanics of that process vis a vis their reserves. This is where I would have to defer to my colleagues who have a better knowledge of the rules on such things, but my feeling is that the rise in reserves would to some degree counter the fall in their assets from the debt write-off process. However at some point they would become technically insolvent.
It’ something I’ll consider in full detail when I get into writing the book; at the moment that’s the best I can do. Sorry for an inadequate answer at this stage, as well as a wrong-headed one initially!
September 15th, 2009 at 9:49 am
PS it would seem that the dynamics of credit creation you outline in your caviliers of credit piece result in an expansion of the money supply, as banks lend first and then find reserves later. If I am correct, the latter is facilitated by the RB creating additional money.
However, when the process goes into reverse the credit-created money does not get destroyed through a reversal of the said process, because the excess reserves held at banks do not trigger the RB to destroy money to despose of the excess reserves. In fact to the contrary, global reserve banks are currently inclined towards creating still more reserves to wage a battle against deflation.
So you have all this credit-money created during the great credit expansion which now has to go somewhere. What are the implications of this? Low interst rates and asset price inflation would prima facie seem to be two likely consequences, the beginning of which we are starting to see. And perhaps ultimately we need huge consumer price inflation to effectively effectively “mop up” all the excess money supply, much as a share consolidation reduces the shares outstanding but increases the price?
Very interested in your thoughts on this as I’m still trying to figure out what all this means.
Rgds,
LT
September 15th, 2009 at 9:56 am
Hi Steve,
As I posted the above while you were writing your reply, I had not had the benefit of reading your previous reply.
That was my initial thought too, but ultimately all the bank needs to do is swap out debt for equity to remain solvent, which is what banks have been doing by raising significant equity. From a money supply perspective, giving a bank $1 in the form of equity or debt makes no difference.
This equity is needed to offset the bad loans, but ultimately under a deleveraging scenario there would also be a large cash inflow from the steady repayment of good loans. So this would not seem to resolve the problem of there being a systemic excess money/reserves in the bankign system, which need to be relent. Perhaps the great depression played out differently because the aggregate money supply was shrinking so reserves fell this way?
Cheers,
LT
September 15th, 2009 at 9:59 am
PS no problem re your reply – appreciate you taking the time. Will look forward to hearing more of your thoughts when you have a chance, and will eagerly anticipated the release of your book!!
Rgds,
LT