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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  • Kalecki’s con­cept is a non-mon­e­tary one AK. I am talk­ing about the financ­ing of invest­ment and spec­u­la­tion, not the rela­tion­ship of invest­ment to out­put. To put how Keynes spoke about this in 1937 after the Gen­eral The­ory.

    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.

    It is, so to speak, as though a par­tic­u­lar piece of sav­ing had to be ear­marked against a par­tic­u­lar piece of invest­ment before either has occurred, before it is known who is going to do the par­tic­u­lar
    piece of sav­ing, and by some­one who is not going to do the sav­ing him­self. There has, there­fore, to be a tech­nique to bridge this gap between the time when the deci­sion to invest is taken and the
    time when the cor­rel­a­tive invest­ment and sav­ing actu­ally occur.

    This ser­vice may be pro­vided either by the new issue mar­ket or by the banks;-which it is, makes no difference.1 Even if the entre­pre­neur avails him­self of the finan­cial pro­vi­sion which he
    has arranged before­hand pari passu with his actual expen­di­ture on the invest­ment, either by call­ing up instal­ments in respect of his new mar­ket-issue exactly when he wants them or by arrang­ing
    over­draft facil­i­ties with his bank, it will still be true that the market’s com­mit­ments will be in excess of actual sav­ing to date and there is a limit to the extent of the com­mit­ments which the mar­ket will agree to enter into in advance.2 But if he accu­mu­lates a cash bal­ance before­hand (which is more likely to occur if he is financ­ing him­self by a new mar­ket-issue than if he is depend­ing on his bank), then an accu­mu­la­tion of unex­e­cuted or incom­pletely exe­cuted invest­ment-deci­sions may occa­sion for the time being an extra spe­cial demand for cash.

    To avoid con­fu­sion with Prof. Ohlin’s sense of the word, 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. It may be regarded as lying half-way, so to speak, between the active and the inac­tive bal­ances.

    If invest­ment is pro­ceed­ing at a steady rate, the finance (or the com­mit­ments to finance) required can be sup­plied from a revolv­ing fund of a more or less con­stant amount, one entre­pre­neur hav­ing
    his finance replen­ished for the pur­pose of a pro­jected invest­ment as another exhausts his on pay­ing for his com­pleted invest­ment. But if deci­sions to invest are (e.g.) increas­ing, the extra
    finance involved will con­sti­tute an addi­tional demand for money.
    Keynes, J. M. (1937). “Alter­na­tive the­o­ries of the rate of inter­est.” Eco­nomic Jour­nal 47, pp. 246–247.

  • ak
  • Kalecki had no analy­sis of mon­e­tary cre­ation AK.

  • Hi Steve. Love your work. Just one thing is bug­ging me. A few weeks ago, you men­tioned that share prices can­not be expected to beat infla­tion over the long term. I’m try­ing to get my head around this, as I’ve always assumed shares should beat infla­tion. I can’t remem­ber which post it was in, but it was almost given as a throw-away line. 

    Have you expanded on this idea in another posts? If so, would it be pos­si­ble to point me to it? Thanks!

  • koonyeow

    Title: Can Tables Be Cre­ated In This Blog?

    All Read­ers,

    Will this blog accept the HTML tags

    for cre­at­ing tables if I include those tags in the Com­ment field?


  • It was some­thing that Min­sky claimed that I was ini­tially scep­ti­cal about AHP, but I found it applied over the very long term. IF firms pay out their dis­trib­uted prof­its in div­i­dends, then in gen­eral since the source of prof­its over the very long term is sales of com­modi­ties, then for this to be sus­tain­able the share price to com­mod­ity price ratio has to remain roughly con­stant.

    Debt dynam­ics will add to this, but over the very long term–ie when both the build­ing and burst­ing of Ponzi schemes are included–this will be a rel­a­tively con­stant over­lay.

    Firms like Berk­shire Hath­away dis­tort this to some extent because they don’t pay div­i­dends, and there­fore their prof­its are accu­mu­lated into their share prices.

  • Not sure Koonyeow–why not try a test and see what hap­pens?

  • ak


    I have copied a sum­mary of Kalecki’s views on the func­tion of money in the econ­omy and money cre­ation from the book I have already men­tioned in the pre­vi­ous com­ment:


    Mon­e­tary eco­nom­ics or the role of the debt was not at the cen­tre of his inter­ests and he described the sys­tem which existed 60–80 years ago but the state­ment that Kalecki had no analy­sis of mon­e­tary cre­ation can­not be defended. 

    In fact it was Kalecki who built an alter­na­tive ana­lyt­i­cal frame­work which is not based on incor­rect loan­able funds the­ory. He was a pre­de­ces­sor of the mod­ern post-Key­ne­sians and MMT the­o­rists.

    I would be very care­ful in claim­ing that the prior art does not exist:


  • Thanks Steve. I guess it makes sense in that any steady growth (above infla­tion or even above 0) is expo­nen­tial and there­fore, not sus­tain­able in the long term. Is that right?

    But what about as com­pa­nies get larger (economies of scale) and more effi­cient (indus­trial rev­o­lu­tion / tech­ni­cal rev­o­lu­tion etc.), don’t they become more valu­able com­pared to the com­mod­ity that they sell?

    p.s. sorry to hijack the topic of this post.

  • koonyeow

    Title: Please Ignore This Com­ment As It Is Only A Test


    Thanks. I was wait­ing for your approval to run the test. After all, you are the boss of this blog (laugh out loud).

    Below is the test

    Col­umn 1
    Col­umn 2

    row 1, cell 1
    row 1, cell 2

  • koonyeow

    Title: Test Failed

    Below is the snap­shot before I posted

  • koonyeow

    Title: How It Looks If Suc­cess­ful

    Below is how it would have looked if suc­cess­ful

  • alain­ton

    @steve @ak

    Although Kalecki had no spe­cific the­ory of mon­e­tary cre­ation he did take Marx’s endoge­nous the­ory of mon­e­tary cre­ation for granted and did assume that money was demand deter­mined.

    Peter Dixons remarks are use­ful, its not as David­son claims either Kalecki or Keynes on the issue of invest­ment

  • alain­ton

    George Mobiot on the Monop­o­lis­tic racket of aca­d­e­mic pub­lish­ers and why it means uni­ver­sity libraries cant afford books any more http://www.guardian.co.uk/commentisfree/2011/aug/29/academic-publishers-murdoch-socialist

  • Yes I know Andrew; Kalecki’s prin­ci­ple of increas­ing risk also formed part of Minsky’s FIH, and my devel­op­ment of it in my PhD. As you note, Kalecki also realised–unlike so many so-called Marxists–that Marx had a the­ory of endoge­nous money cre­ation.

  • ak

    This arti­cle and book have been orig­i­nally rec­om­mended by Scott Full­wiler on Bill’s blog.

    What is Debt? – An Inter­view with Eco­nomic Anthro­pol­o­gist David Grae­ber

    David Grae­ber cur­rently holds the posi­tion of Reader in Social Anthro­pol­ogy at Gold­smiths Uni­ver­sity Lon­don. Prior to this he was an asso­ciate pro­fes­sor of anthro­pol­ogy at Yale Uni­ver­sity. He is the author of ‘Debt: The First 5,000 Years’ which is avail­able from Ama­zon.”


    One of my inspi­ra­tions for ‘Debt: The First 5,000 Years’ was Keith Hart’s essay ‘Two Sides of the Coin’. In that essay Hart points out that not only do dif­fer­ent schools of eco­nom­ics have dif­fer­ent the­o­ries on the nature of money, but there is also rea­son to believe that both are right. Money has, for most of its his­tory, been a strange hybrid entity that takes on aspects of both com­mod­ity (object) and credit (social rela­tion.) What I think I’ve man­aged to add to that is the his­tor­i­cal real­iza­tion that while money has always been both, it swings back and forth – there are peri­ods where credit is pri­mary, and every­one adopts more or less Char­tal­ist the­o­ries of money and oth­ers where cash tends to pre­dom­i­nate and com­mod­ity the­o­ries of money instead come to the fore. We tend to for­get that in, say, the Mid­dle Ages, from France to China, Char­tal­ism was just com­mon sense: money was just a social con­ven­tion; in prac­tice, it was what­ever the king was will­ing to accept in taxes.”

    “As I said Eurasian his­tory, taken in its broad­est con­tours, shifts back and forth between peri­ods dom­i­nated by vir­tual credit money and those dom­i­nated by actual coin and bul­lion. The credit sys­tems of the ancient Near East give way to the great slave-hold­ing empires of the Clas­si­cal world in Europe, India, and China, which used coinage to pay their troops. In the Mid­dle Ages the empires go and so does the coinage – the gold and sil­ver is mostly locked up in tem­ples and monas­ter­ies – and the world reverts to credit. Then after 1492 or so you have the return world empires again; and gold and sil­ver cur­rency together with slav­ery, for that mat­ter.

    What’s been hap­pen­ing since Nixon went off the gold stan­dard in 1971 has just been another turn of the wheel – though of course it never hap­pens the same way twice. How­ever, in one sense, I think we’ve been going about things back­wards. In the past, peri­ods dom­i­nated by vir­tual credit money have also been peri­ods where there have been social pro­tec­tions for debtors. Once you rec­og­nize that money is just a social con­struct, a credit, an IOU, then first of all what is to stop peo­ple from gen­er­at­ing it end­lessly? And how do you pre­vent the poor from falling into debt traps and becom­ing effec­tively enslaved to the rich? That’s why you had Mesopotamian clean slates, Bib­li­cal Jubilees, Medieval laws against usury in both Chris­tian­ity and Islam and so on and so forth.

    Since antiq­uity the worst-case sce­nario that every­one felt would lead to total social break­down was a major debt cri­sis; ordi­nary peo­ple would become so indebted to the top one or two per­cent of the pop­u­la­tion that they would start sell­ing fam­ily mem­bers into slav­ery, or even­tu­ally, even them­selves.

    Well, what hap­pened this time around? Instead of cre­at­ing some sort of over­ar­ch­ing insti­tu­tion to pro­tect debtors, they cre­ate these grandiose, world-scale insti­tu­tions like the IMF or S&P to pro­tect cred­i­tors. They essen­tially declare (in defi­ance of all tra­di­tional eco­nomic logic) that no debtor should ever be allowed to default. Need­less to say the result is cat­a­strophic. We are expe­ri­enc­ing some­thing that to me, at least, looks exactly like what the ancients were most afraid of: a pop­u­la­tion of debtors skat­ing at the edge of dis­as­ter.

    And, I might add, if Aris­to­tle were around today, I very much doubt he would think that the dis­tinc­tion between rent­ing your­self or mem­bers of your fam­ily out to work and sell­ing your­self or mem­bers of your fam­ily to work was more than a legal nicety. He’d prob­a­bly con­clude that most Amer­i­cans were, for all intents and pur­poses, slaves. ”

    Well I have pur­chased the book — of course using my credit card… I can assure every­one that it is worth read­ing.

  • aus_ed

    I could not resist not to share it… some read­ers of this blog will love it 🙂

    Who Runs the World?

  • @koonyeow

    The com­ment field also strips white-space and new­lines. View­ing the source of your test shows and tags. The tag could be used to cre­ate columns and rows but or I can see is which I am intrigued by since this is not a blog where code needs to be highlighted. Like what is below or encoded properly:

    <p style=""background: blue;>hello</p>


    &#60;p style=""background: blue;&#62;hello&#60;/p&#62;

  • Wow, I have encoded my amper­sands and open­ing and clos­ing tags. Steve. Who­ever set this blog up has allowed it to show proper code exam­ples. 🙂

  • koonyeow

    Title: A Reply To Alan Gres­ley


    I would like to assume that the host­ing pro­gram of this blog only allows those tags spec­i­fied below the Com­ment field. I was reluc­tant to run the test until Steve rec­om­mended to give it a try.

    Please see the snap­shot below to see what I meant

  • @koonyeow

    I know what your are say­ing (I do see those tags below) but there is no rea­son to allow this tag <code> on an eco­nomic blog. Any­way, enough code talk, I need to sleep so I can com­ment on topic about true intrin­sic worth and how that flies in the face of the notions of price and asset inflation/deflation and mon­e­tary inflation/deflation.

  • soho44

    Hi Steve,

    Excuse me if I asked this before. Exclud­ing your­self, how many other econ­o­mists in Aus­tralia fol­low Minksy’s ideas? Here in the States, almost every­one fol­lows neo­clas­si­cal. One excep­tion: Richard Wolfe.

  • alain­ton

    Just think­ing about a few promi­nent Uk and US min­skyians, no idea about down under

    Paul McCul­ley, Jeremy Grantham, Lau­rence Meyer, Perry G. Mehrling, Steven Faz­zari, Noubi, George Mag­nus; Ran­dall Wray, Micheal Hud­son and the Kansas City guys, Mur­ray Glick­man, of course the late Kindle­berger

    Just a note: Min­sky was in part updat­ing the ideas of Hawtry from 1919 http://www.archive.org/stream/currencycredit00hawtrich#page/n5/mode/2up
    in the light of later writ­ers and his own ideas

    The idea that insta­bil­ity was the norm, and that mon­e­tary pol­icy was to tackle it, used to be the ortho­doxy
    Read chap­ter IX page 127. There is an inter­est­ing model there of finan­cial crises under the gold stan­dard. Page 131–132 is a clas­sic state­ment of debt defla­tion & liq­uid­ity cri­sis — and look at the date.

  • Agreed. I bought the book yes­ter­day after being con­tacted by the inter­viewer. Excel­lent stuff and very engag­ingly writ­ten.

  • Hi Soho,

    There are quite a few who are influ­enced by Min­sky. Most of the mem­bers of the Soci­ety of Het­ero­dox Econ­o­mists have been influ­enced by Min­sky, though the num­ber that are actively devel­op­ing the Finan­cial Insta­bil­ity Hypoth­e­sis would be a frac­tion of these. But on a per capita basis, Aus­tralian aca­d­e­mic econ­o­mists have a sub­stan­tial pres­ence in devel­op­ing non-neo­clas­si­cal ideas–even though the bas­tions of the pro­fes­sion here are quite neo­clas­si­cal.