Naked Cap­i­tal­ism and My Scary Min­sky Model

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I met with Yves Smith of Naked Cap­i­tal­ism on the week­end, at a superb Japan­ese restau­rant that only New York locals could find (and I’ll keep its loca­tion quiet for their benefit–too much pub­lic­ity could spoil a spec­tac­u­lar thing). Yves was kind enough to post details of my lat­est aca­d­e­mic paper at her site in a post she enti­tled “Steve Keen’s scary Min­sky model”.

Yves found the model scary, not because it revealed any­thing about the econ­omy that she didn’t already know, but because it so eas­ily repro­duced the Ponzi fea­tures of the econ­omy she knows so well.

I have yet to attempt to fit the model to data–and given its non­lin­ear­ity, that won’t be easy–but its qual­i­ta­tive behav­ior is very close to what we’ve expe­ri­enced. As in the real world, a series of booms and busts give the super­fi­cial appear­ance of an econ­omy enter­ing a “Great Moderation”–just before it col­lapses.

The motive force dri­ving the crash is the ratio of debt to GDP–a key fea­ture of the real world that the main­stream econ­o­mists who dom­i­nate the world’s aca­d­e­mic uni­ver­sity depart­ments, Cen­tral Banks and Trea­suries ignore. In the model, as in the real world, this ratio rises in a boom as busi­nesses take on debt to finance invest­ment and spec­u­la­tion, and then falls in a slump when things don’t work out in line with the euphoric expec­ta­tions that devel­oped dur­ing the boom. Cash flows dur­ing the slump don’t allow bor­row­ers to reduce the debt to GDP ratio to the pre-boom level, but the period of rel­a­tive sta­bil­ity after the cri­sis leads to expectations–and debt–taking off once more.

Ulti­mately, such an extreme level of debt is accu­mu­lated that debt ser­vic­ing exceeds avail­able cash flows, and a per­ma­nent slump ensues–a Depres­sion.

There are 4 behav­ioural func­tions in the model that mimic the behav­iour of the major pri­vate actors in the economy–workers, cap­i­tal­ists and bankers. Work­ers wage rises are related to the level of employ­ment and the rate of infla­tion; cap­i­tal­ists invest­ment and debt repay­ment plans are related to the rate of profit; and the will­ing­ness of banks to lend is also a func­tion of the rate of profit.

The model is explic­itly monetary–with bank accounts for work­ers, bankers and capitalists–and the cri­sis is marked by a col­lapse in deposits and a rise in inac­tive bank reserves.

The same phe­nom­e­non is evi­dent in the data, though the sharp­ness of the turn­around is far greater than can be repli­cated by the smooth func­tions in my model.

There’s a lot more work to do before the model is complete–notably includ­ing the impact of a gov­er­ment sec­tor that can add its own spend­ing power to a depressed economy–but its basic fea­tures ful­fil Minsky’s chal­lenge:

Can “It”-a Great Depres­sion-hap­pen again? And if “It” can hap­pen, why didn’t “It” occur in the [first 35] years since World War II? These are ques­tions that nat­u­rally fol­low from both the his­tor­i­cal record and the com­par­a­tive suc­cess of the past thirty-five years. To answer these ques­tions it is nec­es­sary to have an eco­nomic the¬ory which makes great depres­sions one of the pos­si­ble states in which our type of cap­i­tal­ist econ­omy can find itself.

This is the first eco­nomic model ever that meets Minsky’s stan­dards for real­ism. Its final stage empha­sises a mes­sage that Michael Hud­son, one of the very few oth­ers to see this cri­sis com­ing, puts very sim­ply: “Debts that can’t be repaid, won’t be repaid”. As Amer­i­cans now seem to be real­is­ing, the finan­cial cri­sis has not gone away, because the debt that caused it is still there.

Hav­ing got our­selves into a debt-induced eco­nomic cri­sis, the only per­ma­nent way out is to reduce the debt–either directly by abol­ish­ing large slabs of it, or indi­rectly by inflat­ing it away. I have very lit­tle con­fi­dence in the abil­ity of the Fed­eral Reserve to do the lat­ter, while the for­mer will take a level of polit­i­cal for­ti­tude that is far beyond our cur­rent politi­cians.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • bb

    noah cross @ 99,

    All sourced from the NSW rental bond board — no real estate agents involved at all. Data col­lected from legally required lodged rental bond pay­ments (ie: real data, not an esti­mate).

    see link

    http://www.housing.nsw.gov.au/About+Us/Reports+Plans+and+Papers/Rent+and+Sales+Reports/Latest+Issue/

    Based on this data, a 3 acco­mo­da­tion (all dwellings) bdrm rents in the mid­dle ring have increase by;
    3.1% p.a from 1990–2000
    1.9% p.a. from 2000–2005
    7.7% p.a from 2005–2009

    Check out any area or dwelling type you want — the answers are the same.

    Unless you think there is a rent bub­ble, the fact is there is a hous­ing short­age (at least in NSW).

  • TruthIs­ThereIs­NoTruth

    bb

    it is a hous­ing short­age which is con­tribut­ing to a price bub­ble. As a result first home buy­ers who have to com­pete with investors in the mar­ket have to bor­row 30% from over­seas to buy at these prices. The nation does not have enough sav­ings to cover what we are spend­ing to win auc­tions.

    there was an arti­cle about fund­ing costs going up — sorry no link — it is related to the prob­lems in Europe, and yes that might mean inde­pen­dant rate rises.

    Aus­tralia has low pub­lic debt, is cur­rently in trade sur­plus and is likely to stay that way as higher nego­ti­ated coal and iron ore con­tracts fil­ter through. All we need to do is buy smaller tv’s, cheaper cars and stop pay­ing crazy prices for hous­ing and we’ll be right. Get the stan­dard model! Don’t pay 20k extra for leather seats Aus­tralia.

  • soho44

    Here’s an angle that nobody’s talked about so far.

    We all know these points:

    Global debt is unsus­tain­able.
    Nobody wants to be the first to any­thing about it.
    Peo­ple will do and say any­thing to sur­vive.

    Set aside all of the Alex Jones/Max Keiser “the world will end tom­mor­row so buy gold now” rub­bish”. And instead, let’s exam­ine this point.

    If the econ­omy gets even lower, even­tu­ally many Amer­i­cans will emi­grate for a bet­ter life.

    If that’s true, then how will other coun­tries react to this wave of peo­ple? Will they be called “refugees”? Will they be called “eco­nomic ter­ror­ists”? What kind of quo­tas would other
    coun­tries put on this wave of peo­ple?

    I know that Rudd was talk­ing about expan­sion is a great idea. Mean­while the opposi­ton said impose lim­its. Also, when we see
    boat peo­ple, when was the last time you saw a jammed boat with all whites try­ing to get in?

    Peo­ple in Mex­ico have done it (because of NAFTA). Set aside Lebron James leav­ing Ohio. They still have one of the high­est unemployment/foreclosure rates nation­ally.

    But what does the govt con­tinue to push? All “ter­ror­ists” are dark-skinned Mus­lims who speak Ara­bic and want to blow us up. Right. Then how do you explain the grow­ing num­ber of whites in the States who say they sup­port Al-Quaeda?

    As much as they deny it, I’m sure that Wik­ileaks, Cryp­tome or some other whistle­blower site will pub­lish some govt. study that’s been done on this. 

    Keep in mind the con­nec­tion to global warm­ing. If the tem­per­a­ture rise by 5 degrees in the next 10 years, do you really think that mil­lions of peo­ple will obe­di­ently stay put in one place becuase their govt. told them to?

    Per­son­al­ize it. Would YOU stay in one unbear­able place (if you had a way to go else­where)? Regard­less of who does the eco­nomic graphs: there are only so many ways to manip­u­late data. And even­tu­ally you will come to the same result every time.

    The U.S. govt. con­sid­ers cli­mate change (and the ram­i­fi­ca­tions) one of the biggest “ter­ror­ist” threats to national secu­rity. Maybe they should also think about mass migra­tion?

    What are these Amer­i­cans gonna do when Cana­dian and Mex­i­can Immi­gra­tion stop them at the bor­der and hold THEM as “ille­gal aliens”? What’s Obama gonna do then? Will we respect their sov­er­eign laws? Or, will we use the usual “we are supe­rior” rub­bish and just invade?

  • Philip

    bb,

    I don’t have an updated graph. No doubt it will require revi­sion, given the changes that have occurred since the graph was cre­ated years ago.

  • ango­phera

    soho44,

    Leav­ing the excitable Mr. Alex Jones out of the pic­ture, what prompts you to put hys­ter­i­cal words like this into Max Keiser’s mouth:

    the world will end tom­mor­row so buy gold now”

    I don’t recall hear­ing Max Keiser say any­thing of the sort. In fact he’s been known to seek the views of a good econ­o­mist or two. If you’re into intem­per­ate “rub­bish” you should read the com­ment @ 103 here.

  • sir­ius

    ango­phera,

    Leav­ing the excitable Mr. Alex Jones out of the pic­ture, what prompts you to put hys­ter­i­cal words like this into Max Keiser’s mouth:

    the world will end tom­mor­row so buy gold now”

    I recently watched a few extracts of Max Keiser and have seen him wav­ing phoney dol­lar bills with a pic­ture of Obama on them. Show­ing and bit­ing gold coins that were in fact choco­late with gold coloured paper. I think he was say­ing “buy gold” but I find him too painful to lis­ten to to go and check this out (and who cares?).

    I per­son­ally find Keiser very annoy­ing to watch and he is so “crazy” that I really don’t know what he is say­ing.

    I under­stand what soho44 was say­ing. He was just paint­ing a pic­ture stereo­type.

  • sir­ius

    79 CTin­dale
    95 DrBob127

    I don’t know if you saw KD’s rebut­tal to Eco­nom­ics-is-hard ?

    http://market-ticker.denninger.net/archives/2458-Economics-Is-Hard.html

  • jamiepullen

    Steve,

    Been a long time since I’ve posted, but had to log on and post this link once I’d seen it:

    http://www.zerohedge.com/article/will-public-austerity-cause-private-sector-paralysis

    Nice arti­cle from Gold­mans that mir­rors your pre­dic­tions from over a year ago. Nice to know that every­one catches up in the end. Unfor­tu­nately my guess is that the “end” is still some way off.…

    The more I read and the more I see this entire deba­cle play out the more impressed I am by your work. Truly great stuff.

  • jamiepullen

    bb @ 101,

    It is a leap of logic to impute a hous­ing short­age from ris­ing rental rates. In the UK rental rates have come down since the bub­ble burst there — i.e. there is evi­dence to sug­gest that rental rates are also a func­tion of the cap­i­tal price. So in a house price bub­ble rents get dragged unduly higher too.

    And remem­ber that the demand part of a “short­age” is a func­tion of both basic util­ity and finan­cial spec­u­la­tion. I would imag­ine there might be a few read­ers here that would posit that the lat­ter has been fairly high in recent years…

  • sir­ius

    Just a quick com­ment.

    I under­stand GDP to be a flow. The aggre­gate flow of “money” at a given veloc­ity.

    MV=PQ

    I add the fol­low­ing expla­na­tion for M (found else­where but with which I imme­di­at­ley agreed)…

    where “M” is money sup­ply. Bzzzzt – in all mod­ern eco­nomic sys­tems “M” is **CREDIT** sup­ply, and the proof of same is triv­ially found in every person’s wal­let, yet we still have eco­nom­ics texts and classes that teach utter non­sense.

    I would fur­ther empha­size that M con­sists of cur­rency (by which I mean ban­knotes and bank cre­ated credit.

    On this basis. GDP is pro­por­tional to cur­rency and bank credit * “money” veloc­ity.

    (I there­fore would say that delta GDP is related not only to delta credit but would also fac­tor in the veloc­ity in some way math­e­mat­i­cally).

    The com­ments above tag onto to a pre­vi­ous thread on this blog.

    I notice that M defla­tion has occurred in the Bank of Eng­land net credit fig­ures (net = credit issued — credit destroyed).

    I sur­mise also from empir­i­cal research locally that M(oney) veloc­ity has also dimin­ished con­sid­er­ably.

    One sim­ple example…Houses are turn­ing over (sell­ing) at a veloicty of only 33 % of what they were at their peak 2 years ago.

    I also know (locally) that we have wage decreases, reduced work­ing weeks, lay-offs and redun­dan­cies.

    As I have men­tioned pre­vi­ously it is very unwise to look at any effect in iso­la­tion. I argue also that debt and other fig­ures have dimen­sions in addi­tion to just the stated cur­rency unit (dol­lars, euros, pounds etc).

    Aus­ter­ity mea­sures (I speak now of the UK) can only serve can it not to fur­ther cause mon­e­tary defla­tion and lower M(oney) veloc­ity and leave us (the UK) in a sit­u­a­tion as expe­ri­enced in the Great Depres­sion. The sit­u­a­tion where the debt level grew in rela­tion to GDP since GDP sagged con­sid­er­ably.

    I do won­der why the mar­ket was not allowed to clear and expunge the bad debt. (I am kid­ding right?). Reces­sion, given our cur­rent mon­e­tary sys­tem, is a nec­es­sary part of the eco­nomic process.

    I con­tinue to watch and see what hap­pens with a mix­ture of “will I be right” and “oh sh*t I fear a lot more social trou­ble com­ing to many”.

  • sir­ius

    soho44

    Peo­ple will do and say any­thing to sur­vive.”

    I would add also…

    Peo­ple will say absolutely noth­ing in order to sur­vive.

  • Lyon­wiss

    CTin­dale @ 79
    DrBob127 @ 95
    Sir­ius @ 107

    Trained” econ­o­mists makes eco­nom­ics harder than it ought to be, because they are trained to close their minds to real­ity. The fol­low­ing pas­sage admit­ted that much:

    More­over, just below the sur­face of all the chat­ter that appears in blogs and op-ed pages, there is a vibrant, highly com­pet­i­tive, and trans­par­ent sci­en­tific enter­prise hard at work. At this point, the pub­lic remains largely unaware of this work. In part, it is because few of the econ­o­mists engaged in seri­ous sci­ence spend any of their time con­nect­ing to the outer world (Greg Mankiw and Steve Williamson are two coun­terex­am­ples that essen­tially prove the rule), leav­ing that to a group almost defined by its will­ing­ness to make exag­ger­ated claims about eco­nom­ics and over­rep­re­sent (sic) its abil­ity to deter­mine clear answers.

    To engage in “seri­ous sci­ence” with­out spend­ing time “con­nect­ing to the outer world” is sci­ence with­out real­ity: an oxy­moron. And when econ­o­mists do “con­nect”, they make “exag­ger­ated claims about eco­nom­ics and over­rep­re­sent (sic) its abil­ity to deter­mine clear answers”. “Eco­nom­ics is hard” because of the noise made by “trained” unsci­en­tific econ­o­mists. The eco­nomic pro­fes­sion has no abil­ity to cen­sor the utter­ances of its own mem­bers, because of the lack of a sci­en­tific par­a­digm.

  • ango­phera

    sir­ius,

    @ 160

    I per­son­ally find Keiser very annoy­ing to watch and he is so “crazy” that I really don’t know what he is say­ing.”

    If you don’t know what he is say­ing .…

    If the econ­omy gets even lower, even­tu­ally many Amer­i­cans will emi­grate for a bet­ter life.

    If that’s true, then how will other coun­tries react to this wave of peo­ple? Will they be called “refugees”? (FRoW­ill they be called “eco­nomic ter­ror­ists”? What kind of quo­tas would other
    coun­tries put on this wave of peo­ple?

    I under­stand what soho44 was say­ing. He was just paint­ing a pic­ture stereo­type.”

    Like a stereo­type of a “doom” econ­o­mist .….

  • sir­ius

    @Lyonwiss 112

    To engage in “seri­ous sci­ence””

    Are you kid­ding?? The sys­tem is a fraud end to end. It’s like try­ing to make claims you can split water using a lit­tle 12 bat­tery and doing a demo show­ing this whilst in real­ity you have a big power source hid­den behind the desk.

    bill black bill moy­ers
    http://www.youtube.com/watch?v=Rz1b__MdtHY&feature=player_embedded
    http://www.youtube.com/watch?v=UhO–P_tVBQ

    I have to laugh when peo­ple seem to take it all seri­ously.

    How­ever I do not den­i­grate the dynamic mod­els that Mr Keen shows us as to how an econ­omy “might” work in a world where the banksters can­not do as they please.

    The roots of the sys­tem goes back hun­dreds of years when the King of Eng­land was “stitched up” by the mon­eyed power inter­ests.

  • sir­ius

    @Lyonwiss 112

    When I said “Are you kid­ding??” I was being sar­cas­tic of course. I wasn’t try­ing to say you took eco­nom­ics seri­ously.

    Of course once you have cov­ered the core con­cepts of an eco­nomic sys­tem I do admit that it makes for seri­ous think­ing.

  • peck­ster­is­m101

    sirius@115

    The sys­tem is a fraud end to end.”

    Maybe not a fraud exactly, but cer­tainly it is socio-polit­i­cal con­struct, by and for the elite, which is why they get bailed out time and time again. The finan­cial sys­tem is “just” a par­a­site on the “real econ­omy” — and prob­a­bly always will be.

  • TruthIs­ThereIs­NoTruth

    jamiepullen

    a lot of truth in what you are say­ing. I’ve been doing a lot of leg­work in the real estate mar­ket in the last few months. My obser­va­tion is that when it comes to prop­erty, peo­ple will pay what they can to get the best pos­si­ble prop­erty. When it comes to rent­ing or buy­ing peo­ple will gen­er­ally stretch them­selves to get some­thing a bit bet­ter — and there is always some­thing bet­ter. So in terms of the rent/price rela­tion there will always be some­one who is will­ing to pay rent just below what it would cost to ser­vice a loan for that place. It’s not a per­fectly lin­ear rela­tion, as rates and prices rise rents won’t rise as fast but they will tend to move in the same direc­tion. They are cer­tainly not inde­pen­dant mar­kets. How­ever, a pre­con­di­tion to that is there are not too many prop­er­ties around.

    When it comes to price there is cer­tainly big com­pe­ti­tion between owner occu­piers and home investors and there is cer­tainly not enough prop­er­ties to sat­isfy both. Assum­ing hous­ing stock is roughly equal to sat­isfy hous­ing demand, investors who can own any­thing from 2 to 100 prop­er­ties are basi­cally over­crowd­ing the liv­ing space, forc­ing peo­ple to rent and com­pete for rental prop­er­ties. In a vac­uum envi­ro­ment — investors will always be bet­ter posi­tioned to com­pete for prop­er­ties and the lower bound for the price of the mar­ginal prop­erty just a bit less than the poor­est investor is will­ing to pay and just a bit more than what the rich­est owner occu­pier is will­ing to pay. 

    By intro­duc­ing investors into a mar­ket for some­thing essen­tial to life, one intro­duces fierce com­pe­ti­tion as peo­ple are will­ing to make many sac­ri­fies to have a roof over their heads. Imag­ine what the price of water would be if peo­ple were forced to bid for it and investors could basi­cally own water allo­ca­tions and rent them out — just the com­pe­ti­tion between investors and peo­ple want­ing the secu­rity of own­ing their water allo­ca­tion would drive the price up aggres­sively, because after all you can’t live with­out water.

  • noah cross

    bb…NSW rental board stats are derived from rental board lodge­ment stats which lodged by estate agents for the rental agree­ment. Those lodge­ments are typ­i­cally for annual rent peri­ods and rent increases within a tenant’s con­tract are annual within NSW

    Ten­ants who remain in a prop­erty over many years will not nec­es­sar­ily be reported. The qual­ity of the report­ing in the prop­erty indus­try is not solid and invari­ably if not always self serv­ing to its own com­mer­cial ends, as we know from sev­eral sources (cf Ger­ard Minack’s analy­sis on the indus­try).

    There is likely to been strong under-report­ing as for the period 99–04 when Syd­ney had it’s boom. I know of some­one res­i­dent in inner Syd­ney (30 minute walk from Town Hall sta­tion) who did not have a rent increase for 7 years. The stan­dard rea­son give at the time for the nil increase was that find­ing renters was impos­si­ble as every­one was buy­ing prop­erty. Would that have been reported? Despite the so-called short­age of rental houses and units in that area, there are still many Lease signs up in the win­dows and for over month.

  • bb

    jamiepullen @ 109

    It is a leap of logic to impute a hous­ing short­age from ris­ing rental rates”

    I think it is a leap of faith to sug­gest “ris­ing rents don’t point to a short­age”. It seems the bears want to beleive peo­ple just like pay­ing higher rents even if there is excess supply…for rea­sons that is quite beyond me.….

    And remem­ber that the demand part of a “short­age” is a func­tion of both basic util­ity and finan­cial spec­u­la­tion”

    What part of pay­ing rent = finan­cial spec­u­la­tion?

  • bb

    noah cross

    So do you agree the rental data IS derived from inde­pen­dant gov­ern­ment sources? Or do you beleive real estate agents fraud­u­lently change the bond report­ing to fur­ther spruik the RE mar­ket as some sort of con­spir­acy?

    There is enour­mous turnover in the rental mar­ket per annum — far more than the trans­ac­tion mar­ket (how many times does a renter move, ver­sus when a owner sells & re-buys). The fact some very minor data is not reported from sit­ting ten­ants would hardly be a “blimp” on the data over a sus­tained period of time. 

    FYI, the data ulti­mately gets adjusted when the ten­ant finally moves, buys, dies etc. So the per quar­ter data is volatile, the per annum data is a bit bet­ter, but over 5 years (which is what I quoted) the data becomes very reli­able.

  • soho44

    For all of you who seem to be upset with my com­ments re: Alex Jones and Max Keiser, here are some points that hope­fully will clear things up:

    I never specif­i­cally said that Keiser is always say­ing buy gold. How­ever, appar­ently you haven’t noticed all of the buy gold ads on his site? 

    While they’re enti­tled to their opin­ions, Alex Jones and Celente (to name two) are (IMO) milk­ing people’s eco­nomic fears all they can for profit. How much do they make a year? I frankly don’t care. How­ever, con­sid­er­ing the amount of time they’re been at it (and the sub­scribers that they have), appar­ently they’re mak­ing some money out of it. 

    Back to Keiser. If he’s so great, then please answer either one (or pos­si­bly all of these ques­tions):

    If he’s so smart, then why is he essen­tially fran­chis­ing the same radio and TV show world­wide (but try­ing to pro­mote it like they’re all dif­fer­ent)? I’ve worked in radio and TV (and con­tinue to work in media). So I do know a lit­tle about what makes for good con­tent.

    In the past, I’ve seen him talk about how hor­ri­ble the U.S. econ­omy is. How idi­otic Obama, Gei­th­ner, Greenspan and Bernanke are. The dol­lar is worth­less.

    If he really believes that, then why do I see an ad for him try­ing to sell his show to HBO in the States? 

    If the States are going to fall apart, why does he still keep his U.S. cit­i­zen­ship?

    Obvi­ously, he has his niche and fan base online. Yet, since he’s a pub­lic fig­ure, he’s also fair game with the above ques­tions. I’ve writ­ten sev­eral times to his site (and to some con­nected sources as well re: these). And nobody’s ever answered my ques­tions.

    Re: my other com­ments about emi­gra­tion from the States, I dis­agree with those who say I’m paint­ing a stereo­type. Just the oppo­site. I’m bas­ing my com­ments on what I believe are the most accu­rate sources that I can find. On the other hand, Keiser, Jones, Celente and oth­ers are pro­mot­ing a stereo­type (using people’s fears in the process) to make money.

    A sug­ges­tion for Keiser: if you’ve really made tons of money from your Wall Street days, spend some money and hire some decent writ­ers, ok? Then again, that’s just my opin­ion.

  • noah cross

    bb…the rental data is not derived from inde­pen­dent gov­ern­ment sources and even if it was it is not 100% invi­o­lable. I did not say cor­rupt but I would say — as it is han­dled by the hous­ing indus­try — sus­pect, and must be treated with cir­cum­spec­tion. Enor­mous cir­cum­spec­tion.

    And aver­age rental occu­pancy is about 4 years but within some groups it will be shorter. That is not a volatile mar­ket.

    I have worked with gov­ern­ment data over 3 juris­dic­tions and none of it is per­fect, let alone good. Unless the data method­ol­ogy, sam­pling tech­niques, and gathering/composition tech­niques can be ver­i­fied it will be flawed. All of it will be flawed in some way, large or small. 

    Gvt data,let alone any other source is not an accu­rate depic­tion of real­ity. It is an imper­fect and late rep­re­sen­ta­tion. Fur­ther­more, to make basic deduc­tions from it, or to make infer­ences on the basis of it alone with­out fur­ther ana­lyt­i­cal insights is fal­la­cious.

  • Lyon­wiss

    Sir­ius @ 114, 115
    peck­ster­is­m101 @ 116

    William Black (WB) was of course right. But he would not have agreed that “the sys­tem is a fraud end to end” (prob­a­bly a delib­er­ate exag­ger­a­tion by Sir­ius). WB said 90 per­cent (who have some ethics) could have done the same things (but choose not to) as the other 10 per­cent of fraud­sters, who hap­pened to be finan­cial elite in the GFC.

    The eco­nom­ics reces­sion which was caused by the GFC was fully pre­dictable by peo­ple like William Black, Peter Schiff etc. who saw mal-invest­ments or mis-allo­ca­tion of resources as orig­i­nat­ing from fraud, which was antic­i­pated in 1992 by Min­sky him­self, who pointed out seri­ous flaws in the mort­gage orig­i­na­tion and secu­ri­ti­sa­tion processes.

    Nowhere in Key­ne­sian or post-Key­ne­sian eco­nom­ics is “fraud” men­tioned as a real­ity, whether in mon­e­tary the­o­ries or in poten­tial expla­na­tions of eco­nomic col­lapses. It seems that “easy money” must imply the unmen­tioned “fraud” which is now self-evi­dent. In eco­nomic the­o­ries such as dif­fer­ent ver­sions of Char­tal­ism or Key­ne­sian­ism where the gov­ern­ment has a large spend­ing role, for employ­ment or aggre­gate demand man­age­ment, there is never any sug­ges­tion that the gov­ern­ment may be incom­pe­tent or cor­rupt, by par­tic­i­pat­ing (will­ingly or unwit­tingly) in fraud. 

    The mis-allo­ca­tions of resources, such as the home insu­la­tion scheme fraud in Aus­tralia, the bailouts and the encour­age­ment of moral haz­ard in the US and else­where, all are assumed to have no adverse impact on eco­nomic per­for­mance. Surely increased inci­dences of fraud are “canaries in the mine” for increased mal-invest­ments in the Aus­trian sense. Until we have an eco­nomic the­ory that can accom­mo­date major pieces of real­ity, we do not have a real eco­nomic the­ory.

  • ned

    I agree Lyon­wiss, I don’t under­stand why peo­ple have to have an ‘ISM’. They are all bol­locks in real­ity. This is why eco­nom­ics is not a real sci­ence. Physics and Chem­istry don’t have ‘ISM’s’, the sooner peo­ple avoid this way of think­ing the sooner eco­nom­ics has a real chance of being under­stood.

  • sir­ius

    Lyon­wiss @ 123

    the sys­tem is a fraud end to end” 

    Those were my words. The videos show­ing William Black were just two that could be used to sup­port some of my claim.

    (prob­a­bly a delib­er­ate exag­ger­a­tion by Sir­ius)”

    Not any more. After read­ing all man­ner of mate­r­ial I have come to that con­clu­sion. The “rab­bit hole” goes very deep. (If you care to fol­low it).

    You might have 5,000 banks in a coun­try all fol­low­ing the “rules” very well. But when 4 of the biggest banks rep­re­sent 70 % of the finan­cial activ­ity are engag­ing in huge fraud (above and beyond the quest of if FRL iteslf is fraud­u­lent) then the mate­ri­ally it is the behav­iour of the 4 big banks that count.

    Of course the banks are not inde­pen­dent “actors”. Gresham’s law/rule states some­thing along the lines of bad money dri­ves out good. Our money sys­tem nowa­days is vir­tu­ally 100 per-cent debt based. (Some­thing to think about).

    UK, go watch and lis­ten to Alis­tair Dar­ling among oth­ers says…

    http://www.youtube.com/watch?v=nmy2MmWsyog

    USA
    http://market-ticker.denninger.net/archives/2464-Become-a-Big-Bank,-Ignore-The-Law.html

    http://market-ticker.denninger.net/archives/2460-How-To-Run-Drug-Money-Be-A-Large-Bank.html

    Have you seen…

    http://www.youtube.com/watch?v=n0NYBTkE1yQ

    Cha­rade ?? Remem­ber that Obama is sur­rounded by Gold­man Sachs men.

    I only illu­mi­nate a path. You decide for your­self but please don’t just believe that this is a recent thing. (Just watch the the first 1 hour 15 mins to get an idea)…

    http://www.youtube.com/watch?v=Xw44Zs46ZQg

    These are just a tiny amount of things to con­sider. I repeat I leave it to your judge­ment.

    (And now I think I had bet­ter con­tinue to just lurk on this site).

    FRL ?
    “Frac­tional Reserve Bank­ing Com­men­tary 1”
    http://khanexercises.appspot.com/video?v=ZyyaE3DIxhc

    see the videos that come after (and before this one).
    http://www.khanacademy.org/

    You can take it from me that I have con­sid­ered a great deal of mate­r­ial from many var­ied sources and many dif­fer­ent eco­nomic thinkers.

    Of course it doesn’t have to be like this. It comes down to peo­ple.

    Watch out for a one world cur­rency backed by the IMF and other actors as being a “fix” to the GFC sur­fac­ing in the MSM.