A number of readers have complained that the video of my talk at Google took up too much bandwidth, resulting in “jerky” vision. Here are the same two files in a somewhat lower quality compression–half the size of the original files.
Steve Keen's Debtwatch Podcast with Stuart Cameron
Steve Keen's Debtwatch Podcast with Stuart Cameron
As one viewer noted, it is also feasible to download the files to your PC and view there without bandwidth problems during playback.
January 22nd, 2010 at 7:47 pm
[...] This post was mentioned on Twitter by greychampion, John Hacking. John Hacking said: Google–lower bandwidth version: A number of readers have complained that the video of my talk at Google took up to… http://bit.ly/5ekNtH [...]
January 22nd, 2010 at 9:07 pm
Steve
In your presentation to google you made a quick off the cuff comment proposing to fix the debt problem by having government wipe out debt (mortgages) and letting people start over.
It seems to me that this would mean those who took on the most debt and leveraged the most and accumulated the most investment property will walk away with the most stuff and assets for free.
Those who saved and lived within ones means and those to young to take advantage of this silly
speculative economy will be severely disadvantaged.
As a result before long we will see a even larger debt bubble as almost everyone rushes out and gets the most stuff before there debts are taken over by the government for payment by the next generation . ( Just like the banks)
All kids of the following generations will have to pay via there tax’s and limited government services.
The ones who have inherited the most assets from the biggest rescued debtors will have debt free assets from which to make rents.
We world see the return of a class system of inherited property owners and poor workers like we had up until the first world war.
As these days most of the debt is over houses and other real estate. The government should take ownership and rent these assets back to the public at socially responsible rents.
I think you idea of limiting banks to lending no more than 10 times the possible rental for a property it a excellent idea.
A lot of the pressures we see in the world economy may be largely explained in HS Dents study of
demographics forces. Such as the decline in Japanese real estate due to the advanced average age of the Japanese population. It may be the missing smoking gun to explain why the western economies are in late Roman empire mode.
January 22nd, 2010 at 9:23 pm
Welcome aboard latinz,
A verbal presentation doesn’t give sufficient time to add all the qualifications I’d want to any such policy. At the minimum it would have to actively discourage the behaviours your contemplate–and so scar the financial sector that another bubble like the current one would be unthinkable.
I agree that Harry has a substantial point with his demographics (we’ve met and appreciate each other’s perspectives; it isn’t easy to include demographics in my analysis). I argued, and he agreed, that the demographic factors can be manifest in the debt levels that are accumulated at the time.
January 22nd, 2010 at 9:54 pm
Steve,
Is there any chance you could drop the videos from the RSS feed, it jams up my reader, but probably also costs you additional unnecessary bandwidth. TIA.
January 22nd, 2010 at 9:59 pm
Not sure juk–I’ll check with Steven Richards to see whether that’s possible.
January 23rd, 2010 at 1:48 am
How to make creditors write off or write down non-performing debt: “Tax the debt, not the interest.” If only the interest is taxable, creditors can carry bad debt tax-free in the hope of eventually getting some interest. But if the debt is taxable at face value whether it is “performing” or not, creditors will write down the face value to match the performance. Seems to me that such a tax reform would be easier and less controversial than legislated cancellation of debt.
How to end the obsession with rising asset values, as opposed to rental income or dividend income or use-value: “Tax capital gains, not current income.”
Low taxation of capital gains relative to current income magnifies the after-tax appreciation rate of a rent-yielding asset, so that when you try to work out its capitalized value, you get ridiculous answers — like infinity. But buyers can’t service infinite loans. So there’s an instant explanation for financial instability. The “explanation” doesn’t describe the sequence of events or provide a quantitative dynamic model; but it proves that something’s gotta give.
With appropriate tax reform, involving the complete elimination of income tax on current income, the calculated P/E ratios of rent-yielding assets can be adjusted to something approaching sanity.
I have written up these idea in a working document at http://blog.lvrg.org.au/2010/01/problem-price-of-land-is-infinite.html and I now invite readers to tear it to pieces.
January 23rd, 2010 at 2:03 am
Another problem I’ve just discovered with JW Player is that the slider control is a hoax. I had to abandon watching earlier, so made a note of the time so that I could continue later (now). Doesn’t work.
I can’t seem to get FireFox to do anything with the links other than render them, so I’m thinking of using wget to download the files. How have other people downloaded them?
January 23rd, 2010 at 4:04 am
i was just wondering something.
Given the Obama announcement about limiting bank sizes and forcing them to separate high risk activities and such that seems to have triggered the current downturn on several stock markets.
Something i might add that i expect to be temporary, because i think its real over reaction by the markets.
Did this sort of similar financial regulation occur in 1930 and did it trigger a stock market downturn then as well and if so how did it play out ?
January 23rd, 2010 at 6:11 am
Melbourne’s media house price soars record $70,500 in just three months
Lucky homeowners are sitting on an average $766 daily increase in the value of their properties.
January 23rd, 2010 at 8:30 am
Welcome aboard Gav!
As you may already know, one of my problems with tax-based reforms is that they can easily be amended. They are quite likely to be enacted in the aftermath to a crisis by people who know just how severe the crisis was, but if they work then after a few decades, new legislators will arrive who don’t have that firsthand knowledge of why they were enacted.
Also, if they work, and the system stabilises as a result, they will come to be regarded as impediments to commerce rather than as guarantees of its smooth performance.
Finally, if they do indeed become a major source of government revenue, then the government will have an interest in promoting their basis (leaving aside Chartalist arguments here about the role of taxation; I am specifically thinking of State governments in Australia here whose tax revenues today are heavily dependent on property sales). If that basis is capital gains, then the government will be amenable to “reforms” that promote capital gains. We’ll soon be back in Ponzi land again.
I haven’t yet read your document on this though; will do so later today. I do invite other blog members to do likewise, since the LVRG group Gav is from has done some of the most considered and intelligent work on land prices in Australia.
January 23rd, 2010 at 12:35 pm
The Global Debt Bomb.
http://www.forbes.com/forbes/2010/0208/debt-recession-worldwide-finances-global-debt-bomb_print.html
Q.Who is Australia’s 2nd largest trading partner? (By only 10ths of % points)? A.Japan.
Serious repercussions for Australia if Japan’s debt market implodes.
January 24th, 2010 at 5:26 am
What’s the cause of the long term (50yr) exponential increase in private debt:GDP ratio? Banks increasing leverage? Asset price speculation? Or a steady decline in the amount of debt-free cash versus credit in circulation? In 1950 there was a lot more debt-free cash in circulation in the western world. And net exporting countries (ie: germany, china) receive an effective debt-free cash inflow that seems to help keep their private debt:GDP ratio low.
So why don’t governments create more debt-free money (electronic cash) to keep the money supply afloat while the credit bubble deflates? It’s a similar solution to Steve’s proposal of reducing the face value of the debt without requiring repayment.
January 24th, 2010 at 10:59 am
barrythompson,
“What’s the cause of the long term (50yr) exponential increase in private debt:GDP ratio? ”
A: Corrupted Central Banks who have bent over for their political masters creating loose credit conditions and loose lending standards. Combined with financial voodoo accounting that provided banks with a money generation mechanism (securitizsation) from which to ramp up lending- without the accompanying balance sheet responsibilities. A perfect storm.
I’d be interested to know how “debt free cash” can be created then distributed into the economy without issuance of bonds or raising of taxes.
January 24th, 2010 at 11:23 am
“GSM” 67
“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.”
How do you create all these jobs ‘and have them productive’, if you have at least a generation whose principal skills are
“shuffling paper’?
January 24th, 2010 at 11:25 am
Gav and Steve
The paper is based on mathematical arguments which fail to describe the real world. Our world is not a neoclassical equilibrium world of constant levels and rates. The fact that such arguments are used in textbooks, by stockbrokers and by many people partly explains the mess we are in. If the arguments were correct, then stock picking would be easy: just pick the lowest P/E stocks. The fact that this method fails (to make you money) is an empirical proof that the argument is incorrect.
Mainstream economics ignores this failure and maintains that the world is rational according to simplistic models. Others conclude incorrectly that the world is irrational as “the market can remain irrational longer than you can remain solvent”. They look to behavioral finance to model irrationality.
Of course, we (particularly Steve) know our world is dynamic with fluctuating quantities over time. And I would also add the fact of uncertainty with quantities fluctuating sometimes seemingly in unpredictable ways. This is the world we must understand for sound public policy.
January 24th, 2010 at 11:26 am
Oh , and who EXPECT top dollar for unproductive work.
January 24th, 2010 at 11:42 am
GSM,
“The elites know fully well the game they are playing.” – moving the discussion from the previous thread.
In my opinion “they” (people in power surrounding Bush and later Obama) didn’t understand:
1. The real implications of the “free trade” with China (de-industrialisation)
2. The implications of the overconsumption, debt bubble and then deflation (false stimulation of the economy by increasing aggregated demand for often imported goods and then a collapse of the money multiplier and lowered aggregated demand)
3. The implications of deregulation of the financial institutions and banks (since markets are not in equilibrium and pumping more liquidity leads to speculation and asset bubbles)
Late Paul Samuelson became aware of 1. These guys http://www.cato.org/ will never grasp it. This is also good – the “post-industrial” stuff and the myth about IP / service-based economy:
http://mjperry.blogspot.com/2009/12/us-remains-largest-manufacturer-in.html
Regarding the second problem – Some Austrians and Post-Keynesian like Hyman Minsky (and Steve) predicted the GFC. Prof Balcerowicz of Poland (a half-Austrian) to some extent anticipated the problem – but his influence outside of Central Europe was minimal.
Paul Volcker, Warren Buffett and George Soros have recently grasped 3. very well.
Now let’s look at the decision-makers or their advisors. This is what they thought in 1994:
“Over the past century, the rise of new powers has posed great challenges and opportunities for the established world order. The same will be true as the world deals with a rising China.
This report charts a course for the Trilateral countries (Japan, North America, and Western Europe) in dealing with China. It considers China’s rise more an opportunity than a threat, and recommends a wide range of economic, strategic, and political actions that would facilitate China’s involvement in the world community. At the same time, it recommends that expectations be kept realistic.
The Trilateral countries have a substantial number of significant interests at stake with China. Most of these interests correspond with the interests of China’s leaders to develop their country in a tranquil environment. The priorities recommended in this report are in the security and economic domains and in assisting development of institutions contributing to China’s effective and good governance.”
http://www.trilateral.org/projwork/tfrsums/tfr45.htm
The attention of American decision-makers was diverted from the economy. They were preoccupied with Kosovo, Georgia, Ukraine, the missile shield in Redzikowo near Slupsk and similar rubbish – while the real American productive economy was bleeding to death. This in fact happened during the great moderation.
That’s why I believe that the GFC and the real face shown by the Chinese oligarchy are a kind of rude awakening. Will the system be fixed? I don’t think so. This is not the objective. But they will do something to prevent its collapse (most likely print some money and go into a kind of limited trade war with China).
January 24th, 2010 at 11:54 am
“Alan Gresley” 83
“….then if he was a true President of change, he would have allowed the previous President and his administration to be impeached on the grounds of launching a war based on lies.
Iraq had no WMD so the invasion of Iraq was an illegal act based on lies.”
The basic requirement of the for acting in defense is that one must reasonably have believed that the threat was real and imminnent.
You will still have a difficult task establishing beyond doubt that the above wasn’t their BELIEF. ( at the time – forget the hindsight).
Of course the action of defense has to be proportionate and whilst you would probably argue that was clearly not the case. The defense would be that George Snr ‘didn’t go on with it’ ( as many believe he should).
January 24th, 2010 at 3:55 pm
@Muzz #7:
Yes, I had a similar problem with the start/stop buttons in Firefox, so I downloaded them. It works great. Also, there’s no jitter or other
bandwidth problems. Here are the commands and URL’s for the high-bandwidth videos:
wget “http://www.debtdeflation.com/blogs/wp-content/uploads/talks/GoogleAudienceScan.flv”
wget “http://www.debtdeflation.com/blogs/wp-content/uploads/talks/KeenGoogleTalk01LR.flv”
wget “http://www.debtdeflation.com/blogs/wp-content/uploads/talks/KeenGoogleTalk01LR.flv”
January 24th, 2010 at 3:58 pm
Whoops. The third command should be:
wget “http://www.debtdeflation.com/blogs/wp-content/uploads/talks/KeenGoogleTalk02LR.flv”
January 24th, 2010 at 3:59 pm
Steve (from the other thread):
“I’m still waiting till 2011 for anything really significant to be done by (Obama)”.
That could well be. I’d also add that Obama’s insistance on Bernake puts the nail into the coffin for the argument that he tried it the Establishments’ way, and he’s taking the other tack. He’s still in their pocket, IMHO. But now, it looks like they are setting him up to take the fall, and not the Banks. I see that CNBC and Cramer (ugh) have the headline
“Could Obama cause a 1000 point drop in the Dow?”.
Wow. How fast the rats will turn on you.
It will get real interesting if there’s a large drop in the Dow. Personally, I’d betting a greater than 1000 point drop this year.
January 24th, 2010 at 5:15 pm
Lyonwiss (#15),
Your disagreement is not with me.
> Our world is not a neoclassical equilibrium
> world of constant levels and rates.
Or even of constant appreciation rates. But if enough people believe it is…
Indeed, they don’t even have to believe that much. If they believe land values will keep growing erratically, as in the past, the market will chase P/E ratios that can’t be sustained by the financial system, and thereby cause financial instability.
> If the arguments were correct, then stock
> picking would be easy: just pick the lowest P/E…
The argument, be it correct or not, would also consider capital gains. Furthermore, the dividend that a company chooses to pay is more arbitrary (“discretionary”) than the rent that a property gets.
January 24th, 2010 at 5:50 pm
Gav
You said: “But if enough people believe it is…”. I have heard this line of reasoning from all sorts of people. Rational expectation school seems to believe that if most people believe their model is true, their their model will be true. I have also heard personally from highly educated senior managers in the public sector that the truth does not matter, only perception matters. This gives them the excuse to tell all sorts of lies “in the public interest”. For example, if we talk the economy “up” or assert there is no bubble, then everything will be fine: only up to a point may be.
But what most people think changes all the time and for that reason ultimately irrelevant. If everyone believes pigs can fly, will pigs fly? I believe that there is an objective reality, not only in science but also in economics. There are things which are true irrespective of what most people believe. Those things are what we must seek to discover.
January 24th, 2010 at 9:38 pm
Lyonwiss:
“Rational expectation school seems to believe that if most people believe their model is true, their their model will be true.”
But the point of the paper is that under present tax conditions, due to the limitations of the financial system, my pricing model CAN’T be true.
January 24th, 2010 at 11:11 pm
Gav,
Your pricing model can’t be true because it does not describe the real world. Logically, you cannot draw any valid conclusions from a false proposition. Certainly it does not follow from your arguments that there are “limitations of the financial system” (even if there are).
January 25th, 2010 at 12:26 am
Oh Ohhh
http://www.dailytelegraph.com.au/news/sunday-telegraph/tighter-credit-rules-to-halve-home-loans/story-e6frewt0-1225822838856
Last week Westpac cut its loan-to-value ratio (LVR) for new customers to just 87 per cent of the property’s value – a new low for a big bank.
January 25th, 2010 at 12:55 am
OK, Lyonwiss, how do YOU decide how much a piece of land is “really” worth?
January 25th, 2010 at 2:27 am
That was an enjoyable talk, btw.
I don’t know if people have seen this updated version of the Credit Suisse Reset wave, but I found this pertinent and interesting:
http://5minforecast.agorafinancial.com/the-second-wave-too-big-to-fail-legislation-tech-bubble-redux-wind-power-and-more/
I don’t know how accurate these folks are. But if it is, it’s tempting to issue a doom-and-gloom warning for 12/12/2012. Or perhaps 12/21/2012 if you believe the Mayans.
I’m being somewhat whimsical about those dates, but not the year.
January 25th, 2010 at 9:43 am
Many thanks for the videos Steve, I’ve been a sometime lurker.
I tried both versions of the video on a fast connection and was plagued with the buffering problem too, I got round it by pressing pause now and again. I use VLC player it is a great streamer might be worth just posting a link to the stream.
With regards to your video content, I see a big fight developing between different factions in the US, you see many blog sites with videos stating why they hate Obama , blaming him for everything, so I tend to think that something bad will happen there are there are too many people seeking the power and they have guns and Blackwater too.
January 26th, 2010 at 1:39 pm
Gav
I have no idea how much a piece of land is “really” worth. It depends on many variables: location, economic environment, personal circumstances etc., which fluctuate over time. My decisions to buy properties have never been based on rational economic valuation of land, which is virtually impossible to do for most people. Nor were the decisions based on speculation on capital gains. The first reason was having somewhere stable to live and the second reason was effective saving.
My main assumption was that properties are real assets and therefore they should maintain their real values over the long-term. For this reason, it is an effective long-term savings vehicle. When I bought my last property in the mid-80s, inflation was just under 10%, cash rate and mortgage rate were more than 15% and my marginal personal income tax rate was nearly 50%. Investment returns on personal savings would have to be 30% p.a. to beat saving through my own residential property, without assuming capital gains (above inflation).
The popularity of residential properties as saving vehicles is substantially driven by personal tax considerations within a volatility economic environment. This may have caused the observed capital gains, which in turn have attracted investment property speculators, for whom capital gains are essential (with negative gearing etc.), but not for owner-occupier like me. Property speculators will come and go as bubbles inflate and deflate, with land prices doing similar gyrations. How much a piece of land is “really” worth? Thank goodness I didn’t have to answer the question, before I made my decisions.
January 27th, 2010 at 11:15 pm
On the first video @ 47min:40sec a guy asks the question about interest rates being 18% and that the Mortgage to GDP debt would have been greater etc. He does not understand, yes rates were 18%, but the homes/land people were buying were a 1/4 of the price they are now and 18% mortgage was only 25% of the average wage on repayments.
February 4th, 2010 at 12:27 am
Professor Keen,
I’ve read your Roving Cavaliers of Credit and listened to some of your videos here. I think you misunderstand Austrian economics.
You state: ”
We are therefore not in a “fractional reserve banking system”, but in a credit-money one, where the dynamics of money and debt are vastly different to those assumed by Bernanke and neoclassical economics in general.[10]
[10]And, for that matter, by Austrian economics, whose analysis of money is surprisingly simplistic. Though Austrians advocate a private money system in which banks would issue their own currency, they assume that under the current money system, all money is generated by fractional reserve lending on top of fiat money creation. This is strange, since if they advocate a private money system, they need a model of how banks could create money without fractional reserve lending. But they don’t have one.”
First off there is nothing incompatible between the Austrian monetary model and a system where the banks expand credit first and the government back fills with fiat credit. In fact Mises said as much when he complained the central banks allow the private banking system to increase lending beyond what is possible without it. In fact I don’t see the Austrian model being what you’ve claimed. Of course, banks create the increase in the money supply and then in a fiat system the central bank fills in behind. That’s still a fractional reserve monetary system, and is quite compatible with the temporal order of money expansion, banks first, fiat later.
At this point I don’t see your point about overall debt levels or why that would be incompatible with the Austrian model. Seems perfectly compatible with their model to me. Nor do I understand why you think the Austrian analysis of money is so simplistic. Your short article certainly didn’t capture it, yet you make it sound even simpler than what you described.
It’s almost as if you haven’t read and understood the Austrian economics. Either that or I’m missing something myself.
Why in the video have you claimed that only one economist has predicted this mess when in fact the Austrians have been howling about the stupidity of past and current actions for a long time, and it fact their model predicts what’s happened?
February 4th, 2010 at 6:43 am
Hi Brian (RE #32 on Google bandwidth),
Rather apropos of the discussion that’s been raging here recently between Chartalists and Circuitists, I freely admit that I am better informed of the weaknesses of neoclassical than Austrian economics–I have certainly not read Austrian economics as deeply as I have read neoclassical.
I also agree that many Austrians predicted this crisis, and I didn’t claim to be the only economist who predicted it–just “one of”. The paper from which that list is compiled–which was not put together by me but by Professor Dirk Bezemer in the Netherlands who was unknown to me prior to his paper being published–notes Peter Schiff as well as myself and another 10 economists.
There are fundamental aspects of Austrian economics–its theory of value, and its theory of capital–which I reject, for the same reasons that I reject the related if somewhat different theories within neoclassical economics. But at the same time I see strengths, versus only weaknesses in neoclassical theory.
I don’t have time to dwell on those now–in the same sense as my recent comments on Chartalism vs Circuit theory, the main game for me is always the neoclassical case. But I can’t help being asked questions about Austrian economics in public, and I have to give some answer–and that creeps into my online papers as you note.
February 4th, 2010 at 12:57 pm
Professor Keen,
Thank you for your response.
I heard in one of your videos that you have written criticisms of Austrian economics, so I will read those from your book, and will look for the online stuff you suggested.
I misremembered the claim I was objecting to regarding predictions (and you are correct you mentioned Austrians). It’s at the 9:00 mark in the first video, where you claim “Economists don’t consider credit at all in the way they model the economy…” This however is not true since Austrians do.
Also to counter your footnote [10] above where you write, “And, for that matter, by Austrian economics, whose analysis of money is surprisingly simplistic.” take a look at the chapter on “The Elasticity of the Reciprocal Cancellation” from Mises’ the Theory of Money and Credit written in 1912.
As you can see he covers the issue of your simple cavalier of credit model when he writes: “If, instead of payment in money, claims on third persons are transferred which are canceled by the transferee and the debtor by means of claims held by the latter against the former, the sphere of the offsetting process can be extended.” The entire chapter covers the topic.
I’m talking about the simple model as in this picture:
Did you ever wonder when looking at that picture what establishes the price level? If we take the picture literally there is nothing to establish price levels. I mean how many of bank note X’s is a pig worth for the very first such transaction? Since the money created by this method (assuming no commodity money and no possible chartalism the question arises as to what establishes price levels. If it is existing price levels then the system is prone to random walks shifting price levels all over the place.
My uneducated opinion (based on a quick read) at this point is that your models are a in fact modeling a subset of Austrian theory. Any differences (and extra complexities of Austrian theory) are ignored by your models.
You can’t solve the issue by saying “one pig unit” because then you are truly dealing in a commodity money.
Austrian theory leads to credit crunches even without fiat money and central banks. Those only aggravate the problem by allowing the fractional reserve monetary inflations to go on for longer periods (credit expansions in your lingo). There are other aggravating factors like FDIC insurance, GSEs, etc. The third party money creation issue is inherent in fractional reserve banking based on a commodity money.
Note that calling a commodity money system a barter system is wrong.
I wish Austrians would create math/computer simulations of their economic models like you do. Can’t blame Mises writing in 1912 but modern Austrians are behind the curve.
I think what you are doing is very valuable.
I am puzzled by your claim that debt dwarfing money supply being some kind of falsification of fractional reserve models. Fractional reserve models can support an infinite amount of debt, it’s just a matter of keeping low actual reserves. With the GSEs acting like banks and having leverage amounts of 50x or more the debt can easily reach 50x. I will read more of your writings to see if I can get a better take on what you are claiming. So don’t bother responding.