I haven’t yet had time to post Michael Hudson’s talk at Customs House–hopefully I’ll manage that this weekend–but in the meantime here is the talk I gave a couple of days earlier at Per Capita‘s Policy Exchange 2009 Conference in Canberra on October 21st 2009. The good folk at SlowTV put this together, and this is the link to the video on their site.
I open this talk by referring to the first presentation at the conference (after Julia Gillard’s opening speech) by Professor Joshua Gans, in which he began by describing both Milton Friedman and Hyman Minsky as “Keynesians”. Had one of the students in my History of Economic Thought subject at UWS made such an observation, he/she would have been well on the way to a fail grade. I was hoping that SlowTV might have also posted Joshua’s talk so that you could make your own minds up on this, but that doesn’t seem to have occurred. Those curious about his approach to economics should check this link to his home page and a blog he established called Core Economics.
BTB,
Interesting comment from Immelt- CEO of GE;
” The Govt has moved in next door, and they are here to stay.”
Acknowledging that the US Govt is the only real game in town now. This can continue for some time. Bernanke made it clear yesterday that as far as he is concerned he sees no problems with printing more USD’s at present.In any case the dollar is not his problem, it’s Timmy’s. Which leads analysts like Whitney to basically accept that current market conditions and levels make no sense at all.
Right now, Govts have the runs on the board having fabricated stats that can be interpretted as economic recovery. That can go on for some time given the access to printing presses enjoyed by all CB’s. Which is what is scaring more money into Gold. We could be staring at a very long stalemate between market forces and the Govt propaganda levers.
Hi Burrah
Got me thinking their are two types of traders!
Humble traders who know hidden luck plays a big part in a wealthy trade and protects himself against blow up.
The other trader Mr Universe who overestimates his flaw knowledge and eventually blows up.
@BTB
Thanks for the questions! Economically, I agree with you. However, geopolitically the “shut ‘em down” idea would lead IMHO to both national riots and serious geopolitical conflict.
In other words, if the problem was local to one country (even a big economy like Britain) then it is possible to grab everybody, put them in a room, lock the door and ask which guy wants to be the first to insist on getting his swaps paid out in full. Or would you prefer to settle this bloodlessly like gentlemen?
However, a lot of countries that really, really don’t like each other are involved in the slice and dice of the derivatives and the casino capitalism of the swaps.
So, the problem is more like the casinos in Las Vegas working out “a little problem of inter-dependent insolvency” than it is a simple rational economic problem. On the other side of the coin is the golden goose (average citizens). No players, no casino.
About average citizens : most people who got roped into excessive debt were hustled by their bankers. The average person does not have the time plus education plus intelligence to understand all the deals (especially because the banks can change the terms and conditions “on the fly”!).
Example from the Federal Reserve Bulletin February 2009 page A12 – “Shopping for Financial Services”
“When broken out by categories of net worth, the patterns are very similar for all families for loan shopping (data not shown in the
tables). For investment shopping, the data show a more pronounced gradient toward more intensive shopping by families with higher levels of wealth.
More families turn to friends, family members, or associates for financial information than to any other source of information on borrowing or investing (table B). This result suggests that there may be important feedback effects in financial outcomes; that is, families”
And the banks played this to the hilt.
This whole thing was just a raid on the cash in the pension funds? “Sell” a chump a mortgage with no background checks and no payments and then sell that mortgage to his pension fund (government and private) within hours or even minutes. Gotcha’.
Anyway, what a mess.
At this point in time I think that the best thing to do is restructure the debt with the Namke Debt Consolidation Idea (because it is fast, easy to understand and socially just) and then let any banks that can’t survive under the improved conditions be consolidated into the “better and more solid” banks.
Please keep in mind : Among the many advantages is this : the reduction of outstanding loans and the increase in cash will put the best of the banks in a position to absorb the insolvent banks. It will “reward and strengthen” the responsible banks. Bigger banks can go after smaller insolvent banks PLUS small responsible banks that have survived will be in a better position to fight off a hostile takeover.
At this point in time, the NDCI would simply hold the boat together so that your stated goal of “starting at a lower level” can be achieved without the boat sinking?
It’s definitely a time for “Work for the best and prepare for the worst.”?
I hope this helps a bit to inspire, amuse and intrigue. Life is pretty boring without that?
thanks and all the best from
Namke von Federlein
Hi GSM,
Agree the US can go on printing money. But I still believe at some point the market sacks the government. I can’t say how or when, but I do not believe that the governments are as big as they think they are.
The daily trade in $US is $3T. That is simply too big IMO for the US to manipulate for longer than a short period of time. If the government goes too far the currency will simply correct against it.
The global bond market is far bigger than governments around the World. When that market wants to react against government policy it will crush whole countries overnight.
The believers in exogenous control might be right and I might be living in the hope that reality will prevail. But if history is a guide, no system, political, cultural, financial lasts forever.
The door is still very much open for the current farce to continue on for many years to come. I doubt it, but i’ll probably be very wrong on many things by the time this correction is over.
We have to analyse the death triangle:
private debt – housing bubble – trade deficit
currently replaced by:
public debt – assets bubbles – trade deficit and unemployment
rather than just concentrate on the private and public debt. I believe these are the side effects of the globalisation.
Jobs are lost in the US -> the economy is artificially stimulated -> (private or public) debt grows -> money is leaking into asset bubbles -> in the end the demand and investment in China is stimulated, the Americans get free lunch and the American productive economy is destroyed.
What else can we expect if wages are still a few times lower in China than in America? I believe this is the root cause.
The cold world trade war between the US and China is looming.
Pumping up public debt and printing money is a desperate measure to return to GDP growth in the US in order to reduce unemployment. They can probably ignore 5% unemployment but they cannot ignore 16%. The Chinese have recently refused to unpeg yuan. We will all be taken on a rough ride right to the bottom by the US – until they rebalance their trade. Or we will see the resurrection of explicit trade barriers – but this might alienate American friends.
The Chinese can print yuan to maintain the peg. The Americans can print USD to debase their currency. Once the commodity prices rise high enough the Chinese will have to surrender.
Otherwise there is no chance to start reducing unemployment in the US. These people who lost their jobs in the manufacturing cannot be re-hired elsewhere. It is almost like Pearl Harbour and the Americans have to bite the bullet right now or lose their global position forever.
Defaulting and going into depression is not an option.
I think that the Americans have no choice but to keep debasing their currency – knowing of course that this will result in lowering consumption level and CPI inflation at some point of time.
This is what Paul Krugman wrote:
“Most of the world’s major currencies “float” against one another. That is, their relative values move up or down depending on market forces. That doesn’t necessarily mean that governments pursue pure hands-off policies: countries sometimes limit capital outflows when there’s a run on their currency (as Iceland did last year) or take steps to discourage hot-money inflows when they fear that speculators love their economies not wisely but too well (which is what Brazil is doing right now). But these days most nations try to keep the value of their currency in line with long-term economic fundamentals.
China is the great exception. Despite huge trade surpluses and the desire of many investors to buy into this fast-growing economy — forces that should have strengthened the renminbi, China’s currency — Chinese authorities have kept that currency persistently weak. They’ve done this mainly by trading renminbi for dollars, which they have accumulated in vast quantities.
And in recent months China has carried out what amounts to a beggar-thy-neighbor devaluation, keeping the yuan-dollar exchange rate fixed even as the dollar has fallen sharply against other major currencies. This has given Chinese exporters a growing competitive advantage over their rivals, especially producers in other developing countries.
What makes China’s currency policy especially problematic is the depressed state of the world economy. Cheap money and fiscal stimulus seem to have averted a second Great Depression. But policy makers haven’t been able to generate enough spending, public or private, to make progress against mass unemployment. And China’s weak-currency policy exacerbates the problem, in effect siphoning much-needed demand away from the rest of the world into the pockets of artificially competitive Chinese exporters.
But why do I say that this problem is about to get much worse? Because for the past year the true scale of the China problem has been masked by temporary factors. Looking forward, we can expect to see both China’s trade surplus and America’s trade deficit surge.”
“So picture this: month after month of headlines juxtaposing soaring U.S. trade deficits and Chinese trade surpluses with the suffering of unemployed American workers. If I were the Chinese government, I’d be really worried about that prospect.
Unfortunately, the Chinese don’t seem to get it: rather than face up to the need to change their currency policy, they’ve taken to lecturing the United States, telling us to raise interest rates and curb fiscal deficits — that is, to make our unemployment problem even worse.
And I’m not sure the Obama administration gets it, either. The administration’s statements on Chinese currency policy seem pro forma, lacking any sense of urgency.”
http://www.nytimes.com/2009/11/16/opinion/16krugman.html
We will see when the “markets” get the message. We might get caught in the crossfire here in Australia.
Hi Namke,
Enjoying the discussion.
Even though my idea is politically impossible. I believe it is the same as the “lets just wipe out the debt” ideas that have been floated. That’s why I shared it. Not that I thought my idea would happen, but I shared it to illustrate a point.
What you are forgetting is this. If the government simply gives every citizen money to pay off debts, they make the money worthless and the people that are owed the money (shareholders, bondholders, tax payers, depositors, etc) revolt just like the owners of confiscated assets would revolt.
The conclusion is that you can’t simply rig the system to get out of jail. If you have borrowed money, you either have to pay it back or forfeit the security offered.
Zimbabwe has executed your idea in the last few years. In the case of Zim, no country would lend them money any more. So what did they do? They just printed their own money. Still no one will deal with them and now their people are starving and living in rags.
I too wish we could just wake up tomorrow and the debt was gone. But I’m afraid Ponzi schemes don’t work like that. When the money runs out, everyone left in the scheme loses.
@BTB
I am definitely a very bad writer.
At minute 3:08 Steve Keen presents a chart that shows the debt to GDP ratio of the US.
The maximum value of this chart (approx 400%) would be the same before and after the Namke Debt Consolidation Idea. Identical.
The difference is that “the government” would own 2 trillion more of the debt and “households” would hold 2 trillion less of the debt directly.
And I think that this would encourage the creditors of (in this case) the USA to continue to do business with them.
What has more risk for creditors:
a) the government managing 2 trillion in debt (at lower interest rates) or
b) hundreds of millions of maxed-out consumers managing all of their debts at a very high rate of interest?
(cynical smile duly noted but, generally speaking, it’s the consumer debt…)
Steve Keen (from what I see in the video) makes the economic case for getting the money directly to consumers. However, the problem is that consumers have maxed out their credit. If you need to *both* rebuild consumer balance sheets *and* recapitalise the banks then the Namke Debt Consolidation Idea achieves this *without increasing the total debt of the nation*.
It is the only idea that I have seen that achieves this directly and without needing “forward looking” estimates of GDP growth/decline or predictions about interest rates or predictions about employment or anything else. It works instantly.
A) The “let them crash and burn” as a strategy at this point in the process would, IMHO, involve a lot of real stuff crashing and real stuff burning around the world.
B) On the other hand, the current strategy of printing money is taxing both the assets and the patience of responsible people. If it goes on much longer, there will be war. Taxpayers will stop paying their taxes. Guns, bullets and gold will become the “currency” needed to get and protect your essential human needs.
One aspect of this crisis that I find amazing is the speed that things move this time. My opinion : the pure waste in the economic process was at levels never seen before in history. “Just say no to $200 jeans” (when you can get comparable quality without the label for $20) is pretty easy to do. It’s not like deciding on a cheaper tractor.
Did you know that Wal-Mart is selling coffins now? The saving is anywhere from 50% to 80% off the cost of the same coffin at your local funeral home. This is what I mean by the incredible waste of money in the system. In 10 minutes, Wal-Mart could save the average dead person (sic) thousands of hard-earned dollars.
So, one way or another the human race will go on.
Actually, just thinking about it : today’s biological weapons are cheap, easy to manufacture, tiny, portable and self-replicating. Example : there is even a version of H1N1 that was found in England that is resistant to *all* antibiotics.
Darn. I’ll guess I’ll have to say : one way or another the human race stands a fair to middling chance of surviving this decade. It’s a race against the clock…
Anyway, do you see now why the Namke Debt Consolidation Idea *does not* increase the total debt and it *does not* create a need for printing even a single dollar?
all the best from
Namke von Federlein
Hi Namke,
Sorry I misunderstood you. I see your point now.
There are serious moral hazard problems with what you are proposing. Your idea rewards the risk takers and the over consumers. The idea also heavily punishes the conservative and the savers. It would also heavily devalue to local currency as a burst of money would be unleashed on the system.
Some side affects could be massively increased taxes, a renewed speculative bubble (expecting to be bailed out) and catastrophic inflation. Not to mention ultimate national bankruptcy in due course. After all you are talking 10s of trillions.
Fellow debaters,
Who financed the debt of the Australian Federal Government when they (we) went into deficit to stimulate the economy?
Who lent or gave us that money?
Any takers?
There is one more economist who saw the crisis coming. A right-wing libertarian one, Paul Craig Roberts.
This is from an article written in 2003:
“Throughout history, peoples have been overcome by trends and forces that they were unable to recognize. Could the United States be losing its economy to forces economists mistake for benevolent free trade? Traditionally, free trade has required a country’s workforce to compete indirectly against the workforces of other countries in the markets for traded goods and services. Fears in the post-WW II era that U.S. wages and living standards would be undermined by imports made with cheap foreign labor proved to be wrong. U.S. labor was better educated and worked with more and better capital and technology, which made American labor much more productive. Higher productivity protected U.S. wages and employment from cheap foreign labor.”
“The collapse of world socialism changed circumstances overnight. U.S. labor now faces direct competition in global labor markets. The excess supply of labor in these markets will drive down wages, salaries and employment in the United States. As the dollar is likely to lose value under pressure from our growing trade deficit, the decline in wages will not be compensated by a decline in prices, and U.S. living standards will fall.”
“U.S. labor no longer has the advantage of education, training, technology and capital over its foreign competition. Existing wage levels, however, assume that Americans still have these advantages. The extraordinary wage differences between the United States and Asia mean that jobs will flow out of America into Asia. Tax cuts and low interest rates cannot compensate for the huge wage differences.U.S. corporations have made a strategic decision to move jobs abroad. What corporations will employ the displaced U.S. employees?”
http://archive.newsmax.com/archives/articles/2003/8/6/132901.shtml
These were the conditions which seeded the final phase of the debt bubble growth in the US. Inflation was low but the economy required stimulation – low interest rates. So the growth of the debt bubble was overlooked – everything was OK because of the cheap cargo arriving from China and other developing countries. I fully agree that the debt/housing bubble was endogenous – but in normal circumstances the economy would have hit the inflationary bump much earlier. The extra demand generated by the debt loading was filled by the cheap import.
What will change if we abolish the debt right now? I am afraid this would buy the US (and us here in Australia) only a few more years – the relapse of the debt bubble would be inevitable. The debt is a symptom not the root cause of the instability. The root cause of the instability is the cut-throat wage competition with China (and other developing countries) within the framework of globalization.
The effects of the current collapse are obvious. It is not a matter of restoring the GDP growth if 5% of the demand is filled by the trade deficit. There are groups of people who have no chance to find a job – exactly as in Poland in the 1990-ties. But in Poland these were former state-owned farm workers. They hadn’t contributed to the actual production of anything. They were just poor human beings.
There is a good article in The Guardian (a left-wing source) describing the effects of deindustrialisation of the US. (I don’t care who writes the articles – I only pay attention whether what’s written reflects the reality.)
“More than a million children regularly go to bed hungry in the US, according to a government report that shows a startling increase in the number of families struggling to put food on the table. President Barack Obama, who pledged to eradicate childhood hunger, has described as “unsettling” the agriculture department survey, which says 50 million people in the US – one in six of the population – were unable to afford to buy sufficient food to stay healthy at some point last year, in large part because of escalating unemployment or poorly paid jobs. That is a rise of more than one-third on the year before and the highest number since the survey began in 1995.”
“The principal cause is unemployment, which has risen past 10%, as well as increasing numbers of people who have had their hours cut back or been forced in to minimum wage jobs. Even before the recent economic collapse many working people were struggling to meet rising living costs, such as those who drive long distances to their jobs in rural states who were hit by the rising cost of fuel.”
http://www.guardian.co.uk/world/2009/nov/17/millions-hungry-households-us-report
The only way the issue of poverty can be addressed is by reducing unemployment – either by a direct program like one advocated by prof Bill Mitchell (which would also inevitably lead to rebalancing the exchange rates and as a consequence – reducing trade deficit) or by forcing down exchange rates outright and making American workers competitive again. The second option may lead to a much more painful adjustment but is probably more palatable to the electorate. It is also possible to think about the restoration of trade barriers and limiting the speculative capital flow.
Yes we need inflation. We are screwed up anyway – as long as yuan is pegged to USD there is no escape from the Death Star made in China. The side effect of the inflation will be deflating of the debt bubble.
If we leave things as they are – the adjustment in the form of a second collapse will happen anyway, the markets will take care (unless there is a large scale social instability in the US and people overthrow the system). At some point of time the Chinese will lose interest in buying American bonds and subsidizing American consumption with cheap products poisoning the American economy. One may argue that this will happen after displacing the Americans from the Middle East, Eastern Asia, reunification of Taiwan and achieving a few more “minor” geopolitical goals like buying up the most of the mining sector here in Australia.
Isn’t it time to get sober from the overconsumption binge? We have to forget about our financial assets – they are fake anyway.
…The side effect of the inflation will be inflation of the debt bubble… – sorry for a typo
BTB
I agree with you, even the reality that it can’t work This is why I accept the the repayment of debt has to prolonged over time.
How long is the question? What Black Swans will come along to change the estimated term?
It irks me that one can provide for oneself,wear the blunt of mistakes, and still be the one that provides for those that recklessly took on the debt and moreso the greedy morons that provided it. They seem to escape responsibility. Nonetheless that is society and those that govern it are interested only in the mass vote and not correcting problems for it will be the reverse.
EW,
I am not an expert in the field of bonds or govt issues but the Australian Office of Financial Management would probably have the info you would be seeking.
http://www.aofm.gov.au/default.asp
On going through their website they note that issue number 329 on 18 November 2009 was majority taken up by the public
http://www.aofm.gov.au/content/bondtender/bondtender.asp?tendernumber=329
I would say that there is some demand from within our own super industry and professional investment community that would be more than capable to take up govt issued debt.
Hi Ak,
Interesting write up. After much discussion on this site long ago I concluded that all assets are financial. Or at least linked to the system. Even commodities are assets linked to the financial system. That is the nature of a fiat system.
I believe the only assets that we have outside the financial system are:
Our human capital
Our family/friends
Our culture/community spirit (this one may be negative)
Our belief system.
Sorry BTB, Belief system is not an asset, it’s an anchor around our necks attaching us to our bronze age relatives.
“This article is very very bad and the author has something wrong in his mind. He needs to apologize to China. ”
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6575883/China-has-now-become-the-biggest-risk-to-the-world-economy.html
I am starting to feel like the kid on the Simpsons who, in response to his mother haraunging him, pulled a bucket over his head and beat it with a stick.
Namke…when you give all this money to people what do they do with it???? Their debts are all wiped out and we are off on another spending spree. Where is the money spent under the current industrial and political regime? China (and oil)result is massively increased CAD higher foreign debt. I think you could expect China to say ‘whoa’ to taking USD before this was all played out particulalry if China is banned from buying US assets (other than reasuries)with the USD they hold.
It is a major fault in all Economic thinking at the moment where the External Account is regarded as a source of funds that is both infinite and costless. It isn’t and sometime in the future we are sure going to find that out (as we did last year but got out of it by the skin of our teeth and learned nothing in the process)
Mechanical Engineer
One of the major ‘contributors’ to Australia’s Carbon emissions is the emission, in particular, by ruminants of Methane. The model took no account of the Carbon fixed in the grasses the ruminants eat. So it was a very unbalanced, unscientific, and simply wrong model.
I don’t think this aspect has yet been rectified but I am open to correction. It is not in the interests of government to have any truth around these issues. As someone commented, they are interested in revenue, to provide largesse to win elections. Bunch of psychopaths!
@The Outback Oracle
First question : the “spending spree”.
Here’s the context : banks are tightening lending standards, people are scared for their jobs, 20% of Americans are unemployed or underemployed, household mortgages are underwater, small business owners and the “self-employed” (many doing not much more than odd jobs) are struggling, retirement plans are still down by thousands of dollars, people have been through 2 stock market crashes now (dotcom and this one), all levels of government are cutting back on visible and essential services, job benefits and perks are evaporating and more.
People wouldn’t go on a spending spree. “People” (as you put it) are scared to death right now. Rightly so. “People” (at this point) are running on depreciation. They are barely managing to pay their bills but everything they own is depreciating and they are not making any reserves to replace the stuff. It’s economic rot in the entire OECD.
Secondly, people wouldn’t have “all that money”. The only impact on the cash flow of the average household would be a reduction in their monthly credit payments (like credit card bills, car payments, etc).
So, people would have “more headroom in their credit” – if they wanted to use it. Oops. The banks are lowering credit card limits, the home devaluation means that the home ATM has *already* pulled the personal credit headroom below current personal debt levels and consumers are now (generally) doing everything they can to get out of debt and build up cash buffers (the “savings rate”).
And the top 20% of income earners would not take the money and just spend it. They buy whatever they need when they need it. Having $10,000 off their debt would not incite them to spend more money than they would otherwise.
Finally, the responsible people (savers) would also get their cut of the cash. And these folks tend to invest their money wisely.
So :
1) even with $10,000 off their debt the average person would not have excessive headroom in their credit limit
2) until the jobs market creates jobs for at least 6 months then people will not “spend”, much less go on “spending sprees”
3) The only “stimulus” (cash flow basis) would be the smaller monthly debt payment and the reduced cost of servicing the debt to the economy (ie credit card rates – 18%+ – become Treasury rates – 3% – on 2 trillion of total national debt. That’s tens of billions saved).
4) the cost of management of the debt is greatly reduced. Millions of people don’t have to micro-manage the 2 trillion. Thousands of banks don’t have to micro-manage the 2 trillion.
Next point : China and other creditors
The Namke Debt Consolidation Idea would stop the rot. It would stop the vicious circle of default to write-downs to jobloss to bankruptcy to more default.
Finally, there are advantages that I don’t even mention because they are too “hot” as topics. On my blog I point out one thing that is IMHO very important. The only way that the Fed can get the MBS stuff off their books and back into the market is by selling it to the Money Market funds. Until the job losses stop *and the entire banking system is properly capitalised*, the Money Market funds won’t touch the stuff. When the job losses stop (if the NDCI is used) then there will be a couple of trillion in cash that can be leveraged into the market to scoop up the MBS.
A lot of the MBS stuff is cash-flow dependent. If consumers remain in their current position of “slow death squeeze” then there is no way to price the cash flow. It’s not just a problem of pricing the tangible assets. It’s also a problem of pricing the cash flow! When the Fed finally figures this out, then I think that they will become big fans of the Namke Debt Consolidation Idea.
Thanks for your thoughtful comments!
Namke von Federlein
Namke,
There are stocks and flows. You want to reset the stock (debt). Fine, good on you. But if you don’t fix the flow – there will be a relapse – unless you claim that by filling up the debt hole you are also changing the rules of the game. The stock is just an integrated flow – as simple as that. I think that the flow should be fixed what will result in filling up the debt hole over time. If you read the original Steve’s proposal of writing off the debt – it also contains 2 points preventing the relapse by limiting the size of mortgage loans and making shares redeemable at the original price when they expire (making them bond-like). He wants to throttle the flow creating a debt bubble at its source.
Look at the hidden agenda of the Chartalists. You won’t read about it on their website but I think that I got it right.
They want the governments to keep printing enough money to keep employment at 98% and satisfy the demand of private / foreign savers. If too much is printed and the demand barrier is hit – the excess liquidity must be scooped up by taxation. It is obvious that when interest rate is zero and there is a guarantee that money will be printed to run the economy close to the maximum capacities the habit of private (domestic and foreign) sector savers (so-called “markets”) will dramatically change. Private sector will be only marginally interested in creating net financial assets if this is not a “riskless” way to multiply money. You won’t be able to run 20% budget deficits. You will hit the inflationary barrier at let’s say 5%. The private sector will switch to real assets – what is good if these assets are productive. The Chartalists don’t care about the exchange rates. The exchange rates of free floating currencies will adjust to rebalance the trade deficit as one of the main incentives in building up trillions of dollars large war chest will be removed. A little bit of protectionism added to the mix should do the job.
As I said before I don’t believe this policy can be implemented because people hate socialism and massive income redistribution which is implied by Chartalism. But your policy won’t be implemented either. What Paul Krugman proposed can prevail – or the Americans have no chance to get out of the new depression and loss of the Empire. They are doomed if they don’t stand up and fight right now.
We will see whether the Americans wake up early enough to fight the great world trade war which has already started. Paul Krugman may be right – they are probably still asleep. But the hysterical screams of the Chinese whenever these issues are discussed (see the reaction to the article written by AEP) should wake them up – exactly as the Stern Hu’s arrest did a similar job here in Australia.
Good morning Prof Keen, have you read Hunter Lewis’s new book, “Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles, and Busts”?
If Hunter Lewis’s account of Keynes is correct, then Keynes could be both the angel and the devil and all followers of Keynesians economics, be it Friedman or Minsky, neo-classical or classical, belong to a Luciferian cult. Well, at least in the eyes of the Austrian economists.
In this case, Professor Joshua Gans could have a point by describing both Milton Friedman and Hyman Minsky as “Keynesians”.
The following passages are extracted from Amazon Editorial Reviews:
(quote)
“In the press release for the book we see that “When the world financial system began to fall in 2008, the US government reacted decisively with a stimulus package, bailouts, and printing, borrowing, and spending trillions of dollars. All of these interventions were taken from a playbook devised by the last century’s most influential economist, John Maynard Keynes. But is Keynes right? The implications of this question are large and timely. If Keynes is wrong, then so are the economic policies of Barack Obama, George W. Bush, and virtually all governments today.”
… Did Keynes have proof for his theories? Lewis argues that the answer is absolutely not. In fact, the author noted in an interview that “Overall, the most surprising thing is the lack of evidence, much less proof for anything he says. It is just a series of brilliant hunches. But there is really nothing to back up the hunches. In the whole of the General Theory, Keynes most important book, there are only two pages devoted to actual evidence….”
[Keynes' book is] full of paradoxes that tend to only confuse and not bolster his arguments. The following are a few examples from Lewis…: * “If too much bad debt is the problem, for example during the Crash of 2008, the solution is to add more debt.” * “An economy depends on the confidence of the players. If confidence has been shaken by too much bad debt, restore confidence by adding more.” * “If low interest rates held down long have caused trouble, lower them further and hold them down longer.” * “If the public seems to be opposing the idea of borrowing and spending more, their elected representatives in government can do it for them.”
“Keynes is a famously difficult writer to understand. While his ideas have achieved tremendous influence, most people have been exposed to them only by reading macroeconomics textbooks. Lewis writes, “Because few people have read Keynes, it is easy to be confused about what he said” (p. 7). Another source of confusion is that:
Keynes himself is often obscure, even at first glance self-contradictory. In some cases, Keynes was not actually contradicting himself. Often he was simply being sloppy, although sometimes he seems to be intentionally opaque. Opacity has its uses in politics, especially when there is a logical difficulty to obscure or evade.
Lewis goes directly to the source in order to gain a clear understanding of this difficult original material. In part 2 of the book, he presents Keynes’s views in a series of short quotes and excerpts from his works (mainly The General Theory). Lewis presents the original words with a minimum of analysis and interpretation.
In part 3, Lewis attacks Keynes from several directions: in some cases, showing that what Keynes said makes no sense or contradicts itself; in other cases, citing empirical studies that have produced results contrary to Keynes; and finally, developing alternative theories that make more sense…”
(unquote)
Namke,
Step back and consider what you are proposing.
The government borrows money to give to it’s citizens in the hope that they will pay off debt, thus freeing up some credit limit to borrow more money and spend.
The end result is that the overall debt levels grow massively in a short period of time. This is all in the context that the problem has arisen because people have over borrowed on wasteful consumption and speculation in the first place.
Australia did exactly this thing. Every middle to lower income tax payer received $900. If we believe the MSM and the recession is over (in fact in Australia there was no recession), then this money was a giant waste, that the tax payers now have to repay through taxation anyway.
It is simply more borrowing to kick the can down the road. What happens when the limit is reached the next time? Give another $10K!
@Bullturnedbear
Did you get a chance to read the NDCI on my blog or just see the “real short form” that I posted as a very, very informal “request for comment” to Steve Keen? You can find the NDCI in a little more (but not a lot more!) detail if you search for “Namke Debt Consolidation Idea” with your favourite search engine.
From your comment : “The government borrows money to give to it’s citizens in the hope that they will pay off debt, thus freeing up some credit limit to borrow more money and spend.”
Actually, that’s not what I am proposing. The government borrows money and *forces* citizens to pay off their debts with it. It’s taxpayer money anyway. The citizens own it. I find it both criminal and stupid for the government to borrow money and give it straight to the banks.
And I am not trying to stimulate a spending boom. The situation today is a long way from that for the average person.
I guess the situation is unique because there are IMHO 2 key problems at the same time : consumers need some help rebuilding their balance sheets and (at the same time) the banking system needs to be recapitalised.
And last but not least : yes, if the $10K is not enough (and consumers are still stuck with too much debt *at the same time* as the banks needing recapitalisation) then do it again. It does not increase the total outstanding debt of the nation. The NDCI just keeps interest rate payment load *and* loan default risk (leveraged 40x through the derivatives) from paralysing the financial system.
Anyway, since I saw Steve Keen’s video I feel better about things in general. At least there is somebody with very visible credibility who is in a position to try and get sensible and socially just economic policy implemented. The best I can hope is that the Namke Debt Consolidation Idea can be helpful as part of the collective brainstorming going on.
And I also find your thoughtful comments very inspiring. Many thanks for your patience! I’m not a very good writer.
However, I am going to ask to bow out of this dialog because I find that I am taking up way too much space. It’s Steve Keen’s blog and I feel like I’m clogging up his blog space with my rather lengthy comments!
May all beneficial wishes come true in beneficial ways!
Namke von Federlein
@ak
Thanks for your comment. You’re talking a little bit over my head!
I’m new on this site. I’ve been looking around but I didn’t see anything about :
“If you read the original Steve’s proposal of writing off the debt – it also contains 2 points preventing the relapse by limiting the size of mortgage loans and making shares redeemable at the original price when they expire (making them bond-like). He wants to throttle the flow creating a debt bubble at its source.”
Where is the proposal? (The information might also help other people new to the site?)
Thanks from
Namke von Federlein
Namke,
The proposal of debt reduction and measures preventing relpse have been mentioned on the last slide of this presentation:
http://www.debtdeflation.com/blogs/wp-content/uploads/lectures/public/KeenGFCScaleCausesConsequences.ppt
and there:
http://www.aph.gov.au/library/pubs/vis/KeenParliamentLibraryFinancialCrisis.ppt
It has been mentioned on several podcasts as well.
Since the political climate is not appropriate and timing is not right in Australia these ideas haven’t been discussed extensively.