Google runs a regular seminar series on topical issues, which I spoke at last week. There was a substantial audience (see the quick scan of the audience below) and Google’s staff lived up to their hyper-intelligent and hyper-engaged reputation.
Steve Keen's Debtwatch Podcast
I gave a presentation that combined my standard talk on debt and Minsky, with some exposition of the Circuit and Minsky models, befitting of an audience to whom simulation is no big deal–unlike economics conferences where such approaches are still fringe activities.
The discussion was also extensive, and intertwined with the talk, so it went for a long time–almost two hours. Most of the first hour was my lecture:
Steve Keen's Debtwatch Podcast
And most of the second hour was an extensive discussion with Google staff that I had to call an end to because my voice was about to fail:
Steve Keen's Debtwatch Podcast
Next week I hope to post the recent presentation to UNEP of my work with the CSIRO, which will showcase both the dynamic multisectoral monetary model of production I have built, and the CSIRO’s multidimensional-database-driven biophysical model of the economy.
On another note, I have written a feature for the April issue of Dissent (Number 32, Autumn 2010), discussing the usual vexed issue of Australian house prices. As part of it I gave my perspective on why Australia has to date come through the GFC so well, and one aspect of that was being on the receiving end of largess from China’s stimulus.
I noted however that China’s largess may be coming to an end:
China’s stimulus included a lending frenzy that only China could have inspired, since while finance in The West is largely an independent force to which governments kowtow, China is still fundamentally a command society: the best guarantee against criticism when things go wrong is to be able to prove that you carried out instructions to the letter and beyond.
I well remember a tour of China I organized for Australian journalists in 1979, just after the fall of the Gang of Four. An anomalous pair of statistics had turned up just before the tour began: Chinese light industry output had risen 17%, but heavy industry had fallen by 7%: how could these two contradictory things happen, our party of largely economic journalists wondered?
We got our answer from a meeting with the Mayor of Shanghai and an official who title was the “Economic Boss” of Shanghai: the Central Committee of the Communist Party of China had issued a directive to “promote light industry”. So what did they do?
“We stripped heavy industry factories and turned them into light industry”.
In China, if a communist party official tells a bank to lend, it lends. Chinese lending rose 95% in 2009 over 2008 levels, boosting its money supply by over 27%. That has undoubtedly caused unintended consequences that the Chinese government may well now seek to reverse—and its recent decision to increase the reserve ratio is a sign that this reversal may already be in train. If so, our Chinese largess could dry up just as suddenly as it began.
And today we learn that China has instructed its banks to stop lending…
To read the rest of the article, buy Dissent when it comes out in April.
Much better now thanks Steve.
I think that JW Player should have dealt better with the content though. eg buffer data for a reasonable stretch rather that just cough and splutter the whole way.
Maybe the debt-unemployment causality argument could be integrated into your presentation a little better. I got the uncomfortable feeling of that gentleman’s question being brushed, off even though I saw the logic of your response.
Thanks again.
ak
Glass-Steagall II it may be called but deeds not words are required. US industry will continue to degenerate and gutted were deficit spending and lawlessness to continue. Imagine that many smart folk on blogs like this still think that Zimbarbwie is a roll model.
Volcker who has been ignored up until now and hopefully sensible minds like his can right the sinking ship. And of course it will be tough especially for bankers as they need to be retrained; nothing like the 30s as some wellfare is a given.
What we need is the government to bring back sensible laws and to bail out no one. The mess would be cleaned up in matter of a few years as happended in the early 1920s. Money printers be damned.
#52. Good point Muzz. Some of the discussion here by Lyonwiss and TININT covers this causality/correlation issue. In my models I get the outcome that AggregateDemand=GDP+ChangeInDebt and the causality runs from demand to supply so that cause runs from ChangeInDebt to Unemployment rather than vice versa. But explaining that in a presentation gets somewhat tricky. I’ll work on it though.
The presentation played without a buffer, loading issue etc for me (firefox/adsl2+) and it’s a good talk. The Google people offered some decent interaction too.
In passing the refutation of the supply/demand concept and the maths in it was made and I’m interested in references to that. Are they here or elsewhere?
The debt-unemployment causality argument seems valid and clear to me, notwithstanding more explanation to really pin it as Muzz says above.
As small example: Anyone who has worked in the media industry where revenue dependence on consumer spending/debt has a direct effect on employment will know. It’s one of the reasons why that industry is an early marker of recession and recovery.
Just to clarify, it ran for me without a glitch with the reduced data rate. My comments about buffering related to the earlier, larger files. My experience with other media players is much better.
Circumstantial evidence is not statistical proof.
Don’t ignore the empirical statistics and statistical theory.
The causality runs both ways and is not constant, the direction and magnitude of the causality is probably a bit cycle dependant. This is just an obvious example of how a lot of economic variables behave in reality.
You cannot measure these variables accurately enough and you certainly cannot claim causality. All you can use is educated and objective intuition.
Is reality really that black and white that rules governing interaction of economic variables remain not only constant but totally one sided?
@winsloreconomics 32:
Thinking that the Fed is more powerful than the market is a very serious and costly mistake, IMO. The markets always have, and always will, eat Central Bankers for lunch. They are just too big.
I would grant that they can be influenced, but only for a while. Eventually it always catches up. I’d even go further than that, and bet on a bond market dislocation in the next year or two. Correction – I am actually betting on that.
@Steve #38 (and everyone else)
I would heartily recommend reading the book. I find it amazing that the
two editors of the Monthly Review provided a framework, in the 1960′s,
for describing what’s happened over the past 80 years, and what is
happening now. I find it amazing also that the authors of the book
published their predictions of what we’ve gone through these past 4
years back in 2005 and 2006. And they even describe what’s currently
in the press today pretty well; namely, where does one put one’s money?
I don’t like the conclusions. Nor did I know anything about the Monthly
Review before this. But I find it extremely ironic that a Marxist
oriented publication has done a better job of predicting and
describing what we’ve gone through these past 20+ years than has the
free-market publications of the neoclassical economists.
Eternal Student @59,
What don’t you like about the conclusions? Do you disagree with the conclusion, or the arguments leading to the conclusion, or is it that the conclusions are that we are headed for a depressing future?
Thanks
I find the conclusions too depressing. In their view, they refer to the past twenty years as the “financialization phase”. And that it always implodes, until we go back to the manufacturing phase.
The trouble is, they’ve been saying that we’re in a financialization phase for the past 20-some years. And the way they characterize it, I’d say they are right.
I’m paraphrasing it, and have only read through it once. But a lot of the points that they made before 2006 certainly are ringing a bell now.
I recommend reading it and drawing your own conclusions. The first half is downright dull, until they get to their original papers in the second half. Then it really picks up. I think one can get it at amazon.com.
If you don’t mind, what do they predict next? Depression/deglobalizaton/war?
#58 Eternal Student
“I would grant that they can be influenced, but only for a while. Eventually it always catches up. I’d even go further than that, and bet on a bond market dislocation in the next year or two. Correction – I am actually betting on that.”
Interesting bet you are making. Is it based on economics or politics, perhaps both? Bernanke/politicians decide whether that bet wins or loses. Hopefully our host isn’t betting on the Austrialian housing bubble bursting…..at least until economic and political forces align.
“The Federal Reserve’s pledge to stop buying mortgages by the end of March is sparking fears among home builders, mortgage investors and even some Fed officials that mortgage rates could rise and knock the fragile housing recovery off course.”
http://online.wsj.com/article/SB126291088200220743.html
I believe you confuse inaction for inability. The Fed/gov have a printing press that can drive all interest rates to zero as shown in Japan. Why does their exchange rate remain so strong?
A pertinent question, will the U.S. dollar exchange rate head towards zero as Bernanke uses the printing press to drive interest rates towards the zero bound? As long as political actions direct new monetary ‘lending’ towards productive sectors of the economy, there will be no inflation. Political actions that direct new fiscal spending towards productive sectors of the economy are inflationary but not by much. Political actions that direct new fiscal spending towards nonproductive sectors are more inflationary.
But by how much?
It would be nice to have a sectoral model for fiscal spending and monetary lending as related to exchange rates and inflation.
MechEng 62:
Depression and Deglobalization. In short, if the economy is to get back on its feet, then the middle class has to start earning money again. And the only way that happens is by producing things, and not just shifting paper around. I.e. manufacturing has to return. Which means the end of globalization.
Oh, also, it drives home the point that Steve has been making about the weakness in Economics with respect to the mathematics, especially time-based differentials.
@winslowreconomics 63:
I agree that it would be nice to have a model. Sometimes it seems like we’re back in the caveman days.
I just don’t believe in Ponzi schemes, no matter how very well they are propped up. I’ll admit the Fed still has quite a bit of sway. But IMO they’ve only kicked the can down the road, and haven’t fixed the problem.
Merideth Whitney said she thought they were out of bullets. Could well be. I think they are out of normal bullets, but might have some unusual ones left.
I agree that the Fed can print a lot of money. But IMO, they can’t print enough to overcome all of the debt/credit out there in the form of derivatives when that House of Cards starts to collapse.
That’s just my opinion. Take it or leave it as you will. But I’ve been very happy with it over the past year.
Eternal Student @ #59,
I find that ironic too. The Marxist economist Michael Perelman produced a great book The Confiscation of American Prosperity: From Right-Wing Extremism and Economic Ideology to the Next Great Depression in 2007 that examined the financialization of Western economies since the 1970s.
He predicted that a depression or economic storm was soon to happen, and he was right. If he had been more specific about the problems, he could’ve been added to the list of the Gang of 12.
Eternal Student,
” agree that the Fed can print a lot of money. But IMO, they can’t print enough to overcome all of the debt/credit out there in the form of derivatives when that House of Cards starts to collapse.”
I think we are about to see that premise put to the test. The fundamental inertia of the huge US economy downsizing itself and resetting to a much lower level of economic activity(one with substantially reduced debt/credit fuelled commerce) has resulted in a decade of zero jobs growth. There will be no 2nd term for Obama and many in his party if jobs are not provided and lickety split too. Already we now see Obama rolling out the populist policies (screw the Banksters) shoring up his declining popularity and knee jerk response to the MA election. This is just a start. Unless the US economy can demonstrate organic jobs producing growth (sans Govt stimulous), I expect Obama’s Administration to embark on a program of money spending we will truly stand in awe of. Many trillions per year. Masses and masses of new Govt spending, funded by monetization, in order to soak up the now alarming levels of widespread unemployed.
The key to success for this strategy is to keep the world accepting debased US dollars. I think the US will succeed in that for some time to come simply because of the lack of viable alternatives on a global scale. No doubt this ticks off many playaz but so be it.In essence a very big kick of the can.
Given the circumstances, what other possible plan can the US have that could deliver Obama’s 2nd term?
@GSM 67:
I agree with many of your points. As to how it’s going to play out, the only certainty that I see is that 2010 is going to be an interesting year; and that we seem to have some more interesting years ahead of us. Truly history in the making, but I’d rather be back in the 1990′s.
Obama may have made the case of playing by the Establishments’ rules – only that didn’t work. And now it’s time to stick it to the Bankers like the public wants. It’s really hard to see at this point. But I’m glad to see that Volker might actually now be in the loop.
#63 winslowreconomics
“The Fed/gov have a printing press that can drive all interest rates to zero as shown in Japan.”
Do you think there are political limits to printing?
Read this articel from Michael Pascoe today.
http://www.smh.com.au/business/beijing-following-the-economists-path-20100122-mpgv.html?autostart=1
“Wouldn’t it be funny if Beijing did what rational economic market commentators told it to do and the markets reacted as if the cadres had declared an end to capitalism. That’s pretty much what happened this week.
The concern about China easing off the accelerator a touch – an accelerator that had been flat to the metal – is simply absurd.
In the same week that any number of figures from BHP production reports to Beijing’s rubbery statistics showed China rocketing along, news of a little less stimulus, a tightening of monetary policy and a sharper brake on some of the more dubious lenders should have been a cause for celebration.
Instead, the lemmings headed for the nearest cliff. OK, maybe it was just a small ditch, but they still jumped.”
I have the following question regarding this statement-
“but it needs to act more boldly to lift interest rates and curb bank lending. That means that the yuan must be allowed to rise.”
I do not see the relationship between lifting the value of the Yuan and how it would lift interest rates and curb bank lending? Can someone explain?
FYI, the following Press Release was issued today by Bubblepedia and homes4aussies
Australia Day Brochure Drops in Prime Minister’s Electorate Response to House Price Bubble
Brisbane, Qld, 22 January 2010 – This Australia Day, Australians concerned about the house price bubble are delivering 20,000 brochures in the inner south Brisbane electorate of the Prime Minister Kevin Rudd.
Through online websites http://www.bubblepedia.net.au and http://www.homes4aussies.com, the brochure was developed to highlight the size of the Australian house price bubble and to detail the causes and consequences of the bubble to all Australians.
On the front page is a graph from the Reserve Bank of Australia showing that Australian house prices relative to household disposable income has been higher than in all other major English-speaking countries for nearly three decades.
Below the RBA graph the reader is challenged to consider “Is this really what you want for our country and our kids?”
Dr Brett Edgerton, a former research scientist and founder of the website homes4aussies, said “there is no better time for Australians to consider whether we really want to give up on our ideal of a fair go for all – a proud egalitarian past – for the entrenchment of a two-tiered society.”
“The media has been littered over the last several years of stories of everyday Australians being squeezed by skyrocketing house prices and rents. At the same time, we have our politicians enacting policies which have continued the bubble and increased the pressure on those vulnerable Australians.”
The brochure includes several other graphs to support and underline the extent of the problem. It draws heavily on research and analysis by the RBA and Dr Steve Keen, as well as the recent book “The Great Crash of 2008” by Prof. Ross Garnaut in which he unequivocally states that Australia has a massive housing bubble on its hands.
Donations received through Bubblepedia have funded printing of 50,000 brochures as well as the Australia Day deliveries in the Prime Minister’s electorate of Griffith.
The house price bubble and consequent housing affordability crisis is a key electoral issue in this election year, especially in the electorate of Griffith where 42% of households rent. This is well above the national average of 27% and is one of the highest levels of any electorate in the country.
The remaining brochures are being dropped into mailboxes throughout Australia by volunteers. Moreover, electronic copies of the brochure are available on the websites for viewing, printing and further dissemination.
Dr Daniel Cox, a Sydney anaesthetist and founder of Bubblepedia, said “We intend to snowball this effort right up to the federal election, targeting marginal electorates for additional letterbox drops.”
“Throughout human history all speculative bubbles have popped and it is highly unlikely that our house price bubble will be different. The Government throwing good money after bad on continuing it – thus continuing the pain of the housing affordability crisis for many, and setting us up for future tax increases and reductions in Government services – is certainly a lose-lose situation for Aussies” said Dr Edgerton.
The brochure may be viewed at – http://homes4aussies.com/hpbroch.pdf
For additional information “Community Responds to House Price Bubble with Australia Day Brochure Drops in Prime Minister’s Electorate”, please contact Dr Brett F Edgerton, http://www.homes4aussies.com, homes4aussies@yahoo.com, or Dr Daniel Cox, http://www.bubblepedia.net.au, dan@bubblepedia.net.au
ABOUT – Bubblepedia and homes4aussies are websites which presents the facts and debunks the myths surrounding housing in Australia. Bubblepedia has an active blog as a platform for sharing information and ideas relevant to the housing bubble.
-END-
Up and Away,
The constant mistake made by many China watchers is discounting the fundamental difference between the west and China – ie China is a large and growing command economy. Combine that with skewed GDP accounting and you have an economy that will basically perform as (Party) rote. Until it does not.When might that happen? Not for some time I suspect. With a per capita income for it’s 1.3 Billion people of some USD2,000 – peanuts- and change their exists enormous capacity to absorb fiscal and monetary debauchery. And with a war chest of over 2 trillion in Foreign Reserves, it is not as if they face any imminent danger of a financial calamity they can’t buy their way out of.
And this news cycle (i.e. this afternoon), Mr Swan discusses giving hard workers “a fair go”, Rismark produces another “report” showing affordability has improved (wonder whether this is an actual report this time??), and CommSec (on the Business Channel a couple of hours after I sent the channel the PR) is doing it’s best to put a positive spin on the housing market.
Nice to see they’re taking notice
#71 homes4aussies
Three cheers for you and bubblepedia.
BTW I heard Tanya Plibersek on radio saying that all of the first home buyers she “spoke to” were well aware that interest rates could only go up from the “emergency rate” and they had made provision for this in deciding to commit to the purchase of a home.
I think the Govt can see what is coming. Westpac’s decision to double up on the RBA increase must have rattled them. IMO you have a real shot at making this an election issue. (If not in this electoral cycle it could fly in the next one.)
Can I suggest an alternate version of this campaign? Why not also target the younger demographics that have been victimised by the bubble blowing in the FIRE economy? eg. it is no accident that the younger cannot afford to buy or rent a place to live at a reasonable price.
#69 Muzz
“Do you think there are political limits to printing?”
Yes. Though most limits arise from a misunderstanding of the monetary system and how it functions.
FYI – Zerohedge has some interesting comments from Whitney and Berntein:
http://www.zerohedge.com/article/whither-prop-trading-thoughts-whitney-and-bernstein
“In addition, we believe the medium term impact of the proposal will be a reduction of liquidity in not only the corporate market but also in the consumer market. For the record, we believe the possibility of this proposal going the distance is high.”