Updated Credit Accelerators

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As I’ve noted in earlier posts, the concept of the Credit Accelerator is still a work in progress. A major objective is to be able to use monthly data and remove the noise that generates, but for now I’m working with the change in the change in debt over a year, divided by GDP at the midpoint of that year. In order to be able to still use the latest monthly debt data from Australia (and quarterly from the USA), I’ve revised the formula to “freeze” the last available value of GDP six months in advance of the last data for debt. This gives an accurate measure of the change in the change in debt, but divides it by a GDP figure that will later need revision.

The result for Australia is shown in Figure 1 below, using debt data released by the RBA on Friday: the Mortgage Accelerator is now negative (though not as negative as it has previously been). The correlation coefficient is also higher than I reported in the previous post—0.53 rather than 0.42 (the previous figure was derived from data including a discontinuity in the mortgage data caused by a reclassification of household debt data by the RBA in the early 90s)

Figure 1: The Mortgage Debt Accelerator and change in real house prices

On the other hand, the US Mortgage Accelerator is now positive, though only barely—see Figure 2. It will be interesting to see whether this is maintained in the next release of the Flow of Funds, due out on September 16th, and if so whether there is any slowdown in the rate of decline of US house prices (though the recent extreme volatility on share markets may be enough in itself to renew the trend to falling debt, thus turning the Accelerator negative once more).

Figure 2: Debt acceleration determines change in US house prices

Finally, one thing I omitted from yesterday’s blog was evidence of the role of the First Home Vendors’ Boost in causing and reigniting the housing bubble. I can provide statistical evidence as well, but the visual evidence in Figure 3 is stark enough.

Figure 3: First Home Vendors Scheme starts, reignites & rescues the housing bubble

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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59 Responses to Updated Credit Accelerators

  1. Lyonwiss says:

    Alainton August 31, 2011 at 8:32 am

    Hawtrey provides some nice descriptions of some of the underlying economic processes. If financial and economic instabilities orginate from monetary processes, then the government cannot possibly help in the short-term and can only possibly help in the long-term through structural changes. Macroeconomics is quite misleading and useless, because it does not help in understanding underlying economic processes.

    For example, if large quantities of money are injected into the financial system and they have not produced the desired effects, then they could well be doing undesirable danmage, like taking the wrong medicine. Unfortunately, neither Hawtrey nor Minsky, could provide direct answers bacause crisis repeats but always with a twist (in different underlying proesses). No one has so far acknowledged the elephant in the room, which needs to be shown to be irrelevant, rather than ignored.

  2. alainton says:


    Get your point however Hawtry lived long enough (till 95) on this point and in his lifetime, being a clever chap, his views were never rigid.

    Certainly in the 1920s he held that famous ‘Treasury View’ as the no 2 economic advisor, but of course his friendship with Keynes and exchange of ideas with him led to gradually see that this view has flaws, indeed some economic historians put some of the key ideas in developing from the ‘treatise’ to the ‘general theory’ down to Hawtry’s insights.

    I would agree though that much ‘Keynesian’ work post-war has forgotten the origins of the creed in ideas about money, credit, entrepreneurship and investment.

    Both Hawtry and Keynes – being supreme pragramatists, im sure would have seen today and dispatched the elephant, rather than attempting pure conventional monetary or fiscal solutions.

  3. koonyeow says:

    Title: Thank You, Alainton

    Thanks for the link to Hawtrey’s book.

    Sigh…. So much to read and so little time.

  4. allis2 says:

    Thanks for the reference to Hawtrey. I just read the first few pages. Makes me think of Steve Keen’s good advice to forget the textbooks and read economics in the original authors. Did you ever read Daughter of Time? After much work proving to his own satisfaction a commonly denied historical truth, a researcher realized that many others had also figured it out.

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