Deleveraging with a twist

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The lat­est Flow of Funds release by the US Fed­eral Reserve shows that the pri­vate sec­tor is con­tin­u­ing to delever. How­ever there are nuances in this process that to some extent explain why a recov­ery appeared fea­si­ble for a while.

The aggre­gate data is unam­bigu­ous: the US econ­omy is delev­er­ing in a way that it hasn’t done since the Great Depres­sion, from debt lev­els that are the high­est in its his­tory. The aggre­gate pri­vate debt to GDP ratio is now 267%,  ver­sus the peak level of 298% achieved back in Feb­ru­ary 2009–an absolute fall of 31 points and a per­cent­age fall of 10.3% from the peak.


This dwarfs any pre­vi­ous post-WWII experience–even the steep reces­sion of the mid-1970s.

US Debt Downturns Now 1990s 1970s
Dura­tion in years 1.3 2.3 1.3
Peak Debt 298 169 114
Debt Trough 268 163 106
Fall in Debt 31 7 8
Per­cent Decline 10.3% 4.2% 6.7%
Rate of Decline p.a. 7.9% 1.8% 5.1%

The aggre­gate level of pri­vate debt now tow­ers over the econ­omy, putting into sharp relief the obses­sion that politi­cians of all per­sua­sions have had with the pub­lic debt. Rather like Nero fid­dling as Rome burnt, politi­cians have focused on the lesser prob­lem while the major one grew out of con­trol. Now they are obsess­ing about a rise in the pub­lic debt, when in a very large mea­sure that is occur­ring in response to the pri­vate sector’s deleveraging.

If they had paid atten­tion to the level of pri­vate debt in the first place, then we wouldn’t be fac­ing explod­ing pub­lic debt today.

How­ever, though the decline in pri­vate debt is steep and con­tin­u­ing, the rate of decline has slowed. Because debt inter­acts with demand through its rate of change, this has given a stim­u­lus of sorts to the econ­omy in the midst of its deleveraging.


This is obvi­ous when one con­sid­ers aggre­gate demand as I define it: the sum of GDP plus the change in debt (where this demand is spread across both goods & ser­vices and the asset mar­kets). Though debt lev­els are still falling, because they are falling less rapidly there has actu­ally been a boost to aggre­gate demand from debt from the fact that debt is declin­ing less rapidly in 2010 than in 2009:

This is dou­bly so when the con­tri­bu­tion to demand from the pub­lic sec­tor is included, as this shorter term graph shows more clearly.

How­ever while recent data shows a pos­i­tive con­tri­bu­tion to demand from debt falling more slowly, on an annu­alised basis, the change in debt is still sub­tract­ing from aggre­gate demand–and more so than in the pre­vi­ous year. So total demand (across all markets–commodity and assets) had to fall, even though GDP itself grew. Obvi­ously most of the fall in demand has been absorbed by the asset mar­kets, which have not recov­ered to the same level of turnover as in the boom years–and nor should they.

The next table, which uses the aggre­gate debt fig­ure (pub­lic and pri­vate debt com­bined) from the Flow of Funds, shows that aggre­gate demand fell across July 2008 to June 2009, even though debt was still ris­ing, because the rate of growth of debt fell from $3.7 tril­lion to $1.4 tril­lion. Across July 2009 to June 2010, the decline in aggre­gate demand was less than the pre­vi­ous year (a 9.7% fall ver­sus a 15.2% fall), even though the change in debt had turned negative.

Variable\Year 2006.5 2007.5 2008.5 2009.5 2010.5
GDP 13,347,800 14,008,200 14,471,800 14,034,500 14,575,000
Change in Nom­i­nal GDP % 6.6% 4.9% 3.3% –3.0% 3.9%
Change in Real GDP % 3.0% 1.8% 1.2% –4.1% 3.0%
Infla­tion Rate % 4.1% 2.4% 5.6% –2.1% N/A
Total Debt 43,337,326 47,528,151 51,272,735 52,686,684 52,054,500
Debt Growth Rate % 10.0% 9.7% 7.9% 2.8% –1.2%
Change in Debt 3,934,348 4,190,825 3,744,584 1,413,949 –632,184
GDP + Change in Debt 17,282,148 18,199,025 18,216,384 15,448,449 13,942,816
Change in Aggre­gate Demand % 0.0% 5.3% 0.1% –15.2% –9.7%

The rise in aggre­gate demand sup­ported a recov­ery in employ­ment, but the prospects of this con­tin­u­ing to the point at which eco­nomic activ­ity booms once more are remote: with debt lev­els as high as they are, the poten­tial for fur­ther delever­ag­ing still exceeds the worst that the US expe­ri­enced dur­ing the Great Depression.

I have recently become aware of some other econ­o­mists using a sim­i­lar con­cept to my mea­sure of the debt con­tri­bu­tion to aggre­gate demand, which they call the “credit impulse” (Biggs, Mayer et al., http://ssrn.com/paper=1595980). They define this as the change in the change in debt, divided by GDP.

My def­i­n­i­tion empha­sises aggre­gate demand and cor­re­lates this with the level of employ­ment (or unem­ploy­ment, as above), whereas theirs empha­sises the change in aggre­gate demand and cor­re­lates with changes in the level of employ­ment. The logic is iden­ti­cal, but has the advan­tage of being able to cor­re­late the change in the change in debt with change in employ­ment. It high­lights an appar­ent para­dox: the econ­omy can receive a boost from debt, even though it is falling, if the rate of that decline slows.

The next few charts apply this con­cept using the recent Flow of Funds data, and shows why it is so impor­tant to con­sider the dynam­ics of debt when try­ing to under­stand why this down­turn has been so severe—and why it also seems to have eased. Firstly, change in employ­ment and change in real GDP are obvi­ously cor­re­lated, and on this basis this down­turn is bad, though not sig­nif­i­cantly worse than pre­vi­ous down­turns in 1958, 1975 and 1983.

How­ever when you con­sider the cor­re­la­tion between the “credit impulse” and the change in employ­ment, this cri­sis has no prece­dent in the post-WWII period:

Fur­ther­more, debt is the lead­ing fac­tor is this process. Though the cor­re­la­tion between changes in real GDP and changes in employ­ment are higher than those for the accel­er­a­tion in debt and changes in employ­ment, the “credit impulse” leads changes in employ­ment while GDP slightly lags changes in employ­ment: credit, which is ignored by con­ven­tional “neo­clas­si­cal” eco­nom­ics, is in the dri­ving seat.

This is some­thing that Keynes real­ized after writ­ing the Gen­eral The­ory (Keynes 1936), but which never made its way into the text­book ver­sion of Keynes that con­ven­tional econ­o­mists like Stiglitz and Krug­man learnt as Keynesianism.

Planned investment—i.e. invest­ment ex-ante—may have to secure its “finan­cial pro­vi­sion” before the invest­ment takes place; that is to say, before the cor­re­spond­ing sav­ing has taken place. This ser­vice may be pro­vided either by the new issue mar­ket or by the banks ;—which it is, makes no dif­fer­ence… let us call this advance pro­vi­sion of cash the ‘finance’ required by the cur­rent deci­sions to invest. Invest­ment finance in this sense is, of course, only a spe­cial case of the finance required by any pro­duc­tive process; but since it is sub­ject to spe­cial fluc­tu­a­tions of its own, I should (I now think) have done well to have empha­sised it when I analysed the var­i­ous sources of the demand for money. (Keynes 1937, pp. 246–247)

The good news in the lat­est Flow of Funds data is there­fore that a slow­down in the rate of delever­ag­ing can impart a pos­i­tive impe­tus to employ­ment. How­ever the bad news is that the econ­omy is now hostage to changes in the rate of delever­ag­ing, from lev­els of debt that far exceed any­thing it has ever expe­ri­enced before­hand. Since much of this debt was taken on to finance spec­u­la­tion on asset prices rather than gen­uine invest­ment, it is highly likely that delever­ag­ing will accel­er­ate in the future, as spec­u­la­tors tire—literally as well as metaphorically—of car­ry­ing large debt loads that finance stag­nant or declin­ing asset prices.

Drilling down into the debt data, it’s appar­ent that the sec­tor that caused the crisis—the finance sector—is the one that has delev­ered the most is also the one whose rate of delev­er­ing is slow­ing most rapidly.

This is not a good thing, nor is it likely to last. The finance sec­tor exists to cre­ate debt, and the only way it can do that is by encour­ag­ing the rest of the econ­omy to take it on. If they were fund­ing pro­duc­tive invest­ments with this money, there wouldn’t be a cri­sis in the first place—and debt lev­els would be much lower, com­pared to GDP, than they are today. Instead they have enticed us into debt to spec­u­late on ris­ing asset prices, and the only way they can expand debt again is to re-ignite bub­bles in the share and prop­erty mar­kets once more.

Here’s where the level of debt (when com­pared to income) mat­ters, as opposed to its rate of change: reignit­ing these bub­bles is easy when debt to GDP lev­els are low. But reignit­ing them when debt to income lev­els are astro­nom­i­cal is next to impos­si­ble. Spec­u­la­tors have to be encour­aged to take on a level of debt whose ser­vic­ing con­sumes a dan­ger­ously high pro­por­tion of their income, in the belief that ris­ing asset prices will let them repay that debt with a profit in the near future.

With the debt to GDP lev­els for all non-government sec­tors of the Amer­i­can econ­omy at unprece­dented lev­els, the prospect that any sec­tor can be enticed to take on yet more debt is remote. Delever­ag­ing is America’s future.

Biggs, M., T. Mayer, et al. “Credit and Eco­nomic Recov­ery: Demys­ti­fy­ing Phoenix Mir­a­cles.” SSRN eLi­brary.

Keynes, J. M. (1936). The gen­eral the­ory of employ­ment, inter­est and money. Lon­don, Macmillan.

Keynes, J. M. (1937). “Alter­na­tive the­o­ries of the rate of inter­est.” Eco­nomic Jour­nal
47: 241–252.

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About Steve Keen

I am a professional economist 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 debts accumulated in Australia, and our very low rate of inflation.
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132 Responses to Deleveraging with a twist

  1. brett123 says:

    Actu­ally BrightSpark I don’t really on ABS for my unem­ploy­ment figures.

    Steve has pre­vi­ously men­tioned these 2 sites:

    http://e1.newcastle.edu.au/coffee/ and
    http://www.roymorgan.com/news/polls/unemployment.cfm

    Both show we are almost back to pre-GFC lev­els. So yes “record unem­ploy­ment” may be a tad of an exag­ger­a­tion. But it doesn’t mat­ter what fig­ures you look at are unem­ploy­ment stats are remark­ably good.

    Even Steve can’t dis­agree with this.

  2. brett123 says:

    Mahaish re “its no sur­prise that we have dodged a eco­nomic bul­let for the time being. but i think the news of steves demise when it comes to this debate is pre­ma­ture in the extreme,lets see what the pic­ture looks like by the end of the decade”

    So you are giv­ing it another 10 years before it hits Aus­tralia? This seems to be the case with a lot of peo­ple on this site. Every day they come­back and push the date of Australia’s reck­on­ing back a year or 2.

    I don’t want to sound to harsh about Steve. As I’ve often said, I believe his the­o­ries have a lot of worth. There’s noth­ing wrong with admit­ing he got his orig­i­nal pre­dic­tions wrong (as he has done). I just think he could be bet­ter chan­nel­ing his efforts in help­ing Aus­tralia avoid a depres­sion, instead of con­tin­u­ally stat­ing we can’t avoid it.

    And when it comes to the­o­ries, there is no point con­cen­trat­ing on the exam­ples that back up what you are say­ing (eg USA, Japan). You need to look at the exam­ples that seem to be going against them.

    It only takes one exam­ple of a the­ory being wrong and it means your the­ory is wrong.

  3. DrBob127 says:

    brett123,

    May I just say how refresh­ing it is for some­one to admit that they have over­stated some­thing (“…yes “record unem­ploy­ment” may be a tad of an exag­ger­a­tion…”) rather than refus­ing to accept that any­thing that they say is not 100% correct.

    It sure does make this place a lot more pleasant.

    Yes I’m look­ing at you bb.

  4. bc says:

    Oops. For a plane curve cur­va­ture is K=y”/(1+y’**2)**3/2
    work­ing from memory.

  5. majorowe says:

    Well at least some­one in the US has the courage to say some truths — Rea­gans FED Chief Takes Aim at Amer­i­cas Bat­tered Finan­cial System:

    http://www.theaustralian.com.au/business/news/reagans-fed-chief-takes-aim-americas-battered-financial-system/story-e6frg90x-1225928703094

  6. noah cross says:

    Views on employ­ment should ref­er­ence Bill Mitchell as his analy­sis is good — http://bilbo.economicoutlook.net/blog/?p=11467

    Analy­sis requires more than read­ing stats and tak­ing them at face value.

  7. Jason Murphy says:

    Brett, City­doc, where do you stand on this question …

    If I have a loan half in Aus­tralian dol­lars and half in inter­na­tional cur­ren­cies, and the trade weighted index moves up:

    (a) is the bur­den on the Aus­tralian econ­omy to repay the $AUD com­po­nent of that debt more, same, or less? and
    (b) is the bur­den on the Aus­tralian econ­omy to repay the Int. Curr com­po­nent of that debt more, same, or less?

  8. ken says:

    Some­how I wouldn’t feel employed if my job:
    1. Didn’t give me annual leave, sick leave and payed pub­lic hol­i­days
    2. Didn’t pay enough to have a hol­i­day, and I might lose my job because of being away
    3. My employ­ment could be ter­mi­nated with the words “Don’t come in tomorrow”

  9. BrightSpark1 says:

    brett123@76

    Thanks for that response, I an aware of the COFEE site and the other that you quoted. But I fail to see the rel­e­vance of the unem­ploy­ment lev­els being “almost as low as before the GFC” after all Steve Keen was mak­ing the point that the world econ­omy was head­ing for dis­as­ter before the GFC when the unem­ploy­ment fig­ures (whichever dodgy ones you want to believe) were “at pre-GFC lev­els” that is a lit­tle lower than they are now.

    The rot of the global econ­omy set in with the ascen­dancy of neo­clas­si­cal eco­nom­ics (AKA Eco­nomic Ratio­nal­ism) in the 1970’s at a time when unem­ploy­ment (by a more real­is­tic cri­te­rion) was lower that 2%. To find a time when unem­ploy­ment was as high as it is now, and has been (or higher) for the last forty years we must go back to World Depres­sion 1 (WD1). Over these 40 years we have been accu­mu­lat­ing debt at an ever accel­er­at­ing rate, while prob­a­bly in excess of 10% of our peo­ples pro­duc­tiv­ity has been wasted. We have also dumbed this coun­try down to the extent that it should be clas­si­fied as “for­merly industrialised”.

    Steve Keen orig­i­nal pre­dic­tions were not wrong his only error was in the tim­ing but all of the “pow­ers that be” are still lis­ten­ing to the Neo­clas­si­cal Econ­o­mists. They will not not start lis­ten­ing to Steve Keen until the delever­ag­ing goes into full swing and it becomes obvi­ous that we are in WD2.

  10. Jason Murphy says:

    re @ 70

    mahaish nice insight.

    The detail will reveal lit­tle edies and back­washes and so on.

    The cen­tral point how­ever is that the exter­nal debt — the national “other peo­ples money” is in some ways a very broad bas­ket for mea­sur­ing how hard a gov­ern­ment has gone — and in this case the answer for the US and Aus­tralia is equally.

    [Would the equity trans­fer you describe effect exter­nal debt? Were their any asso­ci­ated cashflows?]

  11. mahaish says:

    actu­ally brett123,

    ive been pretty con­sis­tent on this site, about this,

    always thought lat­ter part of this decade, early next decade

    the credit engine in oz, may have a lit­tle more petrol in the tank left.

    as for steve, his 15 year bet is a good one to have some money on,

    as in all these things, what the cur­rency monopolist(the gov­ern­ment) does, will have a sig­nif­i­cant bar­ing on what hap­pens how fast.

    by issu­ing more cur­rency , or reduc­ing the need for non bank indi­vid­u­als to pay back some of that cur­rency in the form of taxes can drag the process out for longer than what many of us had in mind.

    i sus­pect though, that what ever largess the gov­ern­ment bestowes in terms of bal­ance sheet improve­ments to non bank indi­vid­u­als, it will be lever­aged away again , which will cre­ate a even big­ger debt overhang.

    my bet is though , that it wont necesser­ally be an endoge­nous dynamic in the econ­omy that will lead to the next finan­cial cri­sis, but per­haps an exoge­nous geo pol­i­ticsl factor

    all it takes is a few poorly thought through for­eign pol­icy deci­sions by the americans,

    or a few zealots in north korea or iran

    let alone the poten­tial for china to polit­i­cally blow up in the next 20 to 30 years, its hap­pened before over a 150 years ago, in cir­cum­stances not too dis­sim­i­lar to what is tran­spir­ing now.

    the sovi­ets got to 70 years before the wheels started falling apart, if they were ever on cor­rectly in the first place.

    the amer­i­cans got to a lit­tle under 80 years before they had their own big inter­nal kerfuffil

    the chi­nese have got to 60 years and count­ing last august

    every­thing old is new again

  12. Neil says:

    All this is very inter­est­ing but how rel­e­vant is it to Aus­tralia? Just how much of the Aus­tralian econ­omy is depen­dent, either directly or indi­rectly on the US or come to that the EU.

    In Sin­ga­pore 30 years ago I was derided by the few peo­ple who lis­tened for sug­gest­ing that a lot more con­cen­tra­tion should be placed on intra– Asian trade than trade with “The West”, pos­si­bly the insight was pre­ma­ture but today the eco­nomic activ­ity inter­nally gen­er­ated ni China , India, Indone­sia, Viet­nam, Thai­land etc, should not be ignored.

    Alto­gether it is con­sid­er­ably more impor­tant than the US and will only become more impor­tant as every year passes.

    It’s time we changed our focus as any­one who has lived in Asia will agree. Let’s move on.

  13. gaday says:

    Neil, 87
    You raise a vey good point. Some peo­ple like your­self were exposed to this think­ing. I can remem­ber talk­ing with Rus­sell Prowse the then Gen­eral Manger and econ­o­mist with The Bank of New South Wales when he informed me that they were going to change the name to West­pac for the vey rea­son the future trad­ing part­ners for Aus­tralia will be from the West­ern Pacific Region.
    To move the tra­di­tional name from a State of Aus­tralia to an Inter­na­tional Region –not includ­ing the U.K. or heaven for­bid the U.S. of A. was a great feat. One that I don’t think the Aus­tralian busi­ness com­mu­nity relly understood.

    None the less Amer­ica grabbed hold of the Inter­na­tional Cur­rency as the “stan­dard” con­sumed more than any other coun­try in the World and dom­i­nated power pol­i­tics of being the Police­man of the free World. Con­duct­ing wars inter­nati­nally in the name of good for sup­pressed inhabitants-all of which have been a fail­ure.
    So, why do we take notice of Amer­ica in being affected by their economy?

    Our banks bor­rowed more money from them? Tra­di­tion, loyalty-they helped save us dur­ing the World War 11 cri­sis in the Pacific. Emo­tional Debt? or inse­cu­rity in hav­ing such a Great Island in Aus­tralia and no one to pro­tect us– prob­a­bly ALL OF THAT.

    Yes, we are part of ASIA in prox­i­matey and in trad­ing, very much so, how­ever we are dis­parate in cul­ture which need scare­ful under­stand­ing nur­tur­ing before trust can be accepted. After all we have given trust to Mother Eng­land and to the U.S. emo­tion­ally and finan­cially and paid for it.

    We now have to decide what price we will have to pay for our new Asian Alliance for this is the bed we are now making.

  14. brett123 says:

    I don’t want to get into to much of a debate about whether Steve is right or wrong. As I have said I think his the­o­ries have a lot of merit. I just think any­one who gets on national TV pro­claim­ing a depres­sion is upon us — and can­not be avoided — deserves to be held account­able for what they say. And Steve did not put any tim­frame on what he said then. (And, I’m talk­ing 2008 — pre Rory Robert­son bet.)

    To his credit Steve has admit­ted he under­es­ti­mated the impact of the stim­uls in Aus­tralia. But we are now 2 years on from this. And I’m inter­ested in his thoughts as to what the future holds for Australia.

    It’s not good enough for some­one to wait to the next world shock occurs and then say — look I told you so. Any­one can do that. Any­one can sit back and say Aus­tralia will have a down­turn in the next 10 years (gee after 30 years eco­nomic growth — I hardly call that a poor result).

    If his the­o­ries are worth any­thing he should be able to pre­dict within at least 5 years what will hap­pen in a given coun­try — surely that is not too much too ask. Or will we be back here, long after Steve has passed (touched wood!) in 2050 — dis­cussing how Steve will be right — next year.….

  15. gaday says:

    Cor­rec­tion to my post Rus­sell Prowse was the Assis­tant Gen­eral Man­ager of the Bank of NS.W. and their res­i­dent econ­o­mist– in my opin­ion a great man in is own time with a vision

  16. Alan Gresley says:

    @brett123 89

    If his the­o­ries are worth any­thing he should be able to pre­dict within at least 5 years what will hap­pen in a given coun­try – surely that is not too much too ask.”

    How can Steve pre­dict the geo-political dance?

    Now con­sid­er­ing if my maths is correct.

    If Tim­o­thy Geit­ner and Co. have there way, the Yuan will appre­ci­ate 20% to 40%. This would make Amer­i­can man­u­fac­tur­ing more com­pet­i­tive inter­na­tion­ally but this new man­u­fac­tur­ing (retool­ing etc.) can not be achieved in the same timescale as US cur­rency depreciation.

    Gold has just now hit USD 1,300 and it could hit USD 1,820 to USD 2,080 if the USD depre­ci­ates by 40% to 80%.

    I myself have made pre­dic­tions and will for­ever continue.

    http://www.smh.com.au/business/world-business/us-jobless-claims-rise-unexpectedly-20100924-15p5p.html

    I was wrong on the tim­ing. Why was I wrong? The rea­son I give is that I didn’t know to the true extent how psy­chotic and blinded the inter­na­tional casino gam­blers were and how nar­rowed viewed and non ratio­nal the Amer­i­can pub­lic was.

    You are inquir­ing when it will hit Aus­tralia. First we must wit­ness the domino effect,

    http://en.wikipedia.org/wiki/Domino_effect

    or the house of cards.

    http://en.wikipedia.org/wiki/House_of_cards

    I pre­fer the house of cards argu­ment since that works in with my the­ory of 20 years that Cap­i­tal­ism would fail since it is built like a pyra­mid and when the foun­da­tions (lower and mid­dle class) are strained beyond struc­tural integrity, the top of the pyra­mid falls.

  17. Hawkeye_Pierce says:

    Steve,

    You say that :“I have recently become aware of some other econ­o­mists using a sim­i­lar con­cept to my mea­sure of the debt con­tri­bu­tion to aggre­gate demand, which they call the credit impulse”

    Have you come across the eng­lish econ­o­mist Peter War­bur­ton? I recall in his excel­lent book “Debt & delu­sion” (for which he does make ref­er­ence to Minksy) he had a chap­ter about the mar­ginal pro­duc­tiv­ity of debt to GDP growth, and it’s recent dimin­ish­ing returns. Writ­ten in 1999. Fekete ref­er­ences him in this article:

    http://professorfekete.com/articles%5CAEFTheMarginalProductivityOfDebt.pdf

    (Actu­ally I’m a bit sur­prised that War­bur­ton didn’t make the notable Beze­mer list!)

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  19. Citydoc says:

    Alan Gres­ley @ 91,

    You men­tioned:

    How can Steve pre­dict the geo-political dance?”

    He can’t and nor can any­one else. In fact, a per­son who is knowl­edge­able about a par­tic­u­lar topic or issue can still have a major blindspot in their think­ing. It hap­pens to you, hap­pens to me and hap­pens to every­one else at var­i­ous times.

    And despite the best laid plans, the­o­ries or strate­gies, you can still be stopped in your tracks by an unfore­seen event or series of events.

    Peo­ple need to focus on what is impor­tant and knowable.

    Because there is cer­tainly no guar­an­tee that the Chi­nese will let the Yuan appre­ci­ate 20% to 40%. And whilst Peter Schiff (Euro Pacific Cap­i­tal) reck­ons gold can get to $5000 or higher, oth­ers (e.g George Soros) have sug­gested that gold is cur­rently a bubble.

    But in rela­tion to Steve’s sit­u­a­tion, and to speak quite frankly, I am not sure whether his the­o­ries will ideas, beliefs and the­o­ries will come to fruition at this point in time. And if it does occur, it may end up being a short wait or a rather long wait. So my per­sonal feel­ing at the present time, is that there is too much uncer­tainty in the even­tual out­come for longer term invest­ment deci­sions to be made.

    But if you like to gam­ble with your cap­i­tal, then that’s different.

  20. Jason Murphy says:

    City­doc @ 90

    I quote: “In fact, a per­son who is knowl­edge­able about a par­tic­u­lar topic or issue can still have a major blindspot in their think­ing. It hap­pens to you, hap­pens to me …”

    It may be that the only con­clu­sion of the two con­clu­sions of your research that the researcher has actual data on is the latter?

    But seri­ously, City­doc, are you say­ing that a delever­ag­ing influ­ence can­not be off­set by an exter­nal real prod­uct demand trade weighted index influ­ence [given that debt is denom­i­nated in par­tic­u­lar currencies]?

  21. Citydoc says:

    Jason @ 90,

    The valid­ity of a con­clu­sion depends on your actual rate of return. And it can be irrel­e­vant to the amount and type of data one possesses.

    In response to your sec­ond point, I believe the answer is no in the cur­rent situation.

  22. brett123 says:

    Re: Alan and Jason

    Are you say­ing that a delever­ag­ing influ­ence can­not be off­set by an exter­nal real prod­uct demand trade weighted index influence”

    How can Steve pre­dict the geo-political dance?”

    Are you guys try­ing to defend Steve, or mount a case against him?

    This is exactly what Steve believes. He believes that too much debt to GDP means that an econ­omy will even­tu­ally start delever­ag­ing — and enter a depres­sion (or long term reces­sion). He regurlary states that noth­ing can stop the delever­ag­ing (includ­ing exter­nal influ­ences or increas­ing gov­ern­ment debt). He’s tem­pered his state­ments recently say­ing that these things can have a short term influ­ence, but even­tu­ally delever­ag­ing must resume. I think we need greater clar­ity on what the “even­tu­ally” time period is.

    As it stands Aus­tralia seems to be doing a great job of prov­ing Steve wrong and prov­ing both of you right.

  23. Jason Murphy says:

    City­doc @ 96 — So you and Brett123 are say­ing that you book a Credit on your bal­ance sheet when the bank calls in the loan backed by the asset you pur­chased which you priced at Rent Plus Price Growth with the mar­ket not now being pre­pared to offer you the Price Growth com­po­nent is dif­fer­ent to the Debit you book to your bal­ance sheet when the num­ber of Inter­na­tional Dol­lars you need to pay the Cred­i­tor to extin­guish the loan reduces with trade weighted index appreciation.

    Two things are clear:

    1. The data back­ing con­clu­sion 2 of your afore­men­tioned research pro­gram mounts daily, and

    2. You are now say­ing that 10 — 5 + 5 = 5

    Cer­tainly if your inten­tion is to claim a posi­tion higher than the Pro­fes­sor in terms of makimg a state­ment you believe in irre­spec­tive of the oppo­si­tion to it’s valid­ity that you may face then your 2 above should cer­tainly see you well on the way to achiev­ing that goal!

  24. Jason Murphy says:

    Brett123 @ 97.

    I’ll tell you what we are rock solid on.

    We are rock solid on notic­ing that you and your asso­ciate City­doc still haven’t answered the ques­tion put to you @82 so I’ll ask it again:

    If I have a loan half in Aus­tralian dol­lars and half in inter­na­tional cur­ren­cies, and the trade weighted index moves up:

    (a) is the bur­den on the Aus­tralian econ­omy to repay the $AUD com­po­nent of that debt more, same, or less? and
    (b) is the bur­den on the Aus­tralian econ­omy to repay the Int. Curr com­po­nent of that debt more, same, or less?

  25. brett123 says:

    Jason @ 99 — How about you tell me Jason? Per­son­ally, I have no idea why this is valid to any­thing I have said.

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