Steve Keen's Debtwatch

Discussion (9) ¬

1. 
   ken

   August 13, 2012, 7:40 pm | #

   Prob­a­bly a good idea to go while they still have an econ­omy. For­eign debt is only 125% of GDP. My guess is that their econ­omy will fail first and take ours with it.
2. 
   LCTesla

   August 14, 2012, 8:56 am | #

   There been an empir­i­cal, his­tor­i­cal study done by NBER that sup­ports the the­sis that pri­vate debt growth is a causal fac­tor in the emer­gence of finan­cial crises. I can’t read the paper with­out mak­ing a pay­ment but here’s Busi­ness Insider’s take on it: http://www.businessinsider.com/private-credit-growth-and-financial-crises-2012–8

   The graph dis­played by BI may be use­ful in argu­ing the point that the Great Depres­sion was pre­ceded by a lever­age buildup. The graph Keen more com­monly uses does not clearly show that lever­age rose prior to the finan­cial break­down (after all, the major peak was the result of falling GDP, not ris­ing pri­vate debt).
3. 
   Buddy Rojek

   August 15, 2012, 7:26 am | #

   @ Aziz “The least unfair way of doing this would seem to be the mod­ern debt jubilee advo­cated by Steve Keen — print money, and instead of pump­ing it into the finan­cial sys­tem as per QE, use it to write down a por­tion (say, $6,000) of each person’s debt load, and send out cheques up to an equal amount to those who are not indebted.”

   This is a start but does not address moral haz­ard. I pro­posed a sim­i­lar idea to keen, but instead of writ­ing off debts, TAXPAYERS through the “Tax Office/IRS etc” receive their Taxes back as lump sum pay­ments of say Monthly or quar­terly install­ments. This boost in GDP via Con­sump­tion will flow to the most utilised goods and ser­vices, and the var­i­ous busi­nesses on the receiv­ing end will appro­pri­ately invest. As Gov­ern­ment debt is quite high, cap­i­tal rationing will occur and only the best “Shover Ready” projects will get the go ahead, and Con­trac­tor Ten­ders would be much more scrut­nised. We would get the best value for our Tax Dol­lars. The psy­cho­log­i­cal boost to get­ting “free Money” which it really is not will jolt Consumption.

   The increased avail­abil­ity of work and over­time will allow the Bor­row­ers in Debt to pay down their debt based on “Con­trac­tual Hon­our” The peo­ple who were too stu­pid to plan ahead, bought too big a house or flash a car, will be tagged as “Bank­rupted” accord­ingly. It will be a good les­son for society.

   When the econ­omy is actu­ally work­ing again, Tax rates can be adjusted accord­ingly to “Har­vest” dol­lars out of the sys­tem and reduce infla­tion pres­sures. Using Mon­e­tary poli­cies does not work. It is too blunt a method to stim­u­late demand. I used to think the Cen­tral Banks had the best inter­ests of soci­ety, but now I am not so sure. I think Mon­e­tary pol­icy in its cur­rent form is inef­fec­tual and down­right dan­ger­ous. For exam­ple the Reserve Bank of Aus­tralia was rais­ing raites dur­ing the GFC, and now the Aus­tralian Prop­erty mar­ket is col­laps­ing. Hard. They wanted to take the heat out of the house mar­ket, but what they have done now is cause pos­si­ble panic. Too many peo­ple are invested in Prop­erty in Aus­tralia. The Reserve Bank Gov­er­nors knew what they are doing. I am sure their con­nected cronies will be buy­ing up houses on the cheap.

   It seems a lit­tle too con­ve­nient for me.

   http://azizonomics.com/2012/08/14/the-shape-of-the-debt-reset/#comment-16123
4. 
   Steve Hummel

   August 15, 2012, 2:23 pm | #

   Mon­e­tary pol­icy works if you’re not so ortho­dox in your “free” mar­ket theory.…which would be a good thing because free mar­ket the­ory as it is cur­rently fan­ta­sized by vir­tu­ally every­one is flawed and actu­ally isn’t free at all because they are over­look­ing the effects of the appar­ently most mun­dane yet most ever present and sig­nif­i­cant mon­e­tary fac­tor in economics.

   You need to have enough indi­vid­ual pur­chas­ing power avail­able to liq­ui­date pro­duc­tion in each and every pro­duc­tive cycle, and then you have to ACTUALLY and RESPONSIBLY con­trol infla­tion with a gen­eral price dis­count to con­sumers AFTER RETAIL PRICE HAS ACTUALLY BEEN DISCOVERED.….SO IT’S NOT ACTUALLY PRICE CONTROL ITS JUST RESPONSIBLE AND ADULT MONETARY CONTROL instead of leav­ing it up to the .….nonex­is­tent mar­ket and the honor of pro­duc­ers, whole­salers and retailers.
5. 
   Bill Wilson

   August 15, 2012, 3:56 pm | #

   Hope you will give our polit­i­cal lead­ers a kick up the a*se while here for the stu­pid poli­cies they’ve pur­sued since mar­ket dereg­u­la­tion was intro­duced 30 years ago.
   Plenty of peo­ple have been mar­gin­alised by their nutty pro­gram of asset strip­ping NZ and export­ing work­ers to Australia.
6. 
   ferb

   August 16, 2012, 6:13 pm | #

   seems the snide analy­sis will never stop until the shit really hits the fan.…http://www.theage.com.au/business/a-keen-audience-australian-doomsayer-goes-global-20120816-24a86.html
7. 
   Eliot Clarke

   August 16, 2012, 9:18 pm | #

   You beat me to it LCTesla but yeah that busi­ness insider arti­cle on the NBER paper by Tay­lor looks eerily like Keens work. Behind a pay­wall, I may go ahead tho as I am Keen to know if any men­tion is made of the credit accel­er­a­tor or endoge­nous money (I’m guess­ing not!). Does any one have any more info on the author?

   Ferb that arti­cle is about the usual stan­dards of jour­nal­ism these days i.e. piss poor. Starts off OK, and seems rea­son­ably com­pli­men­tary if a lit­tle snarky about the aca­d­e­mic engag­ments but then veers into Paul Ryan and pub­lic debt argu­ments, gets con­fused between pub­lic and pri­vate debt, and ends in a big mess and a throw away line about get­ting it wrong about house prices. One note­able point how­ever, I did not know Steve was on BBC Ques­tion Time. Is this true?? If so when was it I can’t find any clips anywhere.
8. 
   Glenn Stehle

   August 16, 2012, 11:19 pm | #

   @ LCTesla

   The NBER paper by Alan Tay­lor is out­stand­ing. Tay­lor obvi­ously has not only a knowl­edge of eco­nom­ics, but of the phi­los­o­phy, meta­physics and his­tory of sci­ence as well.

   I didn’t find it behind a pay­wall. Maybe that’s because I’m not in Austalia. These things seem to change from coun­try to coun­try. Here are the links I used:

   http://www.nber.org/papers/w18290

   http://www.nber.org/papers/w18290.pdf?new_window=1

   I agree with Eliot Clarke that Taylor’s work seems to be an empir­i­cal flesh­ing out of Keen’s the­o­ret­i­cal work. Would it be fair to say that Keen’s the­o­riz­ing is a sine qua non for this empir­i­cal work?

   Tay­lor pro­vides a good deal of insight into why neo­clas­si­cal econ­o­mists, who are so in love with the­ory, are also so hos­tile to empiri­cism. For Keen’s the­o­ret­i­cal work and Taylor’s empir­i­cal work do undoubt­edly col­lide head-on with neoclassism’s and neoliberalism’s dereg­u­la­tion the­ol­ogy, which is the one true faith of the Repub­li­can Party and the Ruben­ite wing (Clin­ton and Obama) of the Demo­c­ra­tic Party. As Tay­lor begins his paper:

   An intel­lec­tual as much as an eco­nomic crash, the global finan­cial cri­sis has thrown macro­eco­nomic the­ory and pol­i­cy­mak­ing into wreckage-­?sorting mode yet again. What will be picked up and what dis­carded dur­ing this time around remains an unset­tled ques­tion. Whilst a use­ful result can be hoped for, the­ory alone can only take us so far. This paper starts from the premise that eco­nomic his­tory is the only lab­o­ra­tory we have at our dis­posal for the study of many seri­ous macro­eco­nomic ques­tions. In eco­nom­ics, as in any other sci­en­tific pur­suit, empir­i­cal evi­dence is the ulti­mate arbiter of whether any par­tic­u­lar model bears a use­ful rela­tion to reality.

   A cou­ple of ear­lier papers that aluded to the same empir­i­cal data that Tay­lor devel­ops to a much greater degree were this one by the FDIC:

   Devel­op­ments after Deregulation

   The sav­ings and loan indus­try changed swiftly and dra­mat­i­cally after the dereg­u­la­tion of asset pow­ers and inter­est rates. The period from year-end 1982 to year-end 1985 was char­ac­ter­ized by extremely rapid growth, as the indus­try responded to the new reg­u­la­tory and leg­isla­tive cli­mate. Total S&L assets increased from $686 bil­lion to $1,068 bil­lion, or by 56 percent?more than twice the growth rate at sav­ings banks and com­mer­cial banks (approx­i­mately 24 percent).

   http://www.fdic.gov/bank/historical/history/167_188.pdf

   As the paper goes on to point out, by 1988 S&L assets had balooned even fur­ther, to $1349 bil­lion, before evey­thing came crash­ing down.

   and this study by the IMF:

   Fac­tors Under­ly­ing the Buildup in House­hold Debt

   In each of these episodes, a loos­en­ing of credit con­straints allowed house­holds to increase their debt. This increase in credit avail­abil­ity was asso­ci­ated with finan­cial inno­va­tion and lib­er­al­iza­tion and declin­ing lend­ing standards.…

   In the United States in the 2000s, an expan­sion of credit sup­ply to house­holds that had pre­vi­ously been unable to obtain loans included increased recourse to private-label secu­ri­ti­za­tion and the emer­gence of so-called exotic mort­gages, such as interest-only loans, neg­a­tive amor­ti­za­tion loans, and “NINJA” (no income, no job, no assets) loans.

   http://www.imf.org/external/pubs/ft/weo/2012/01/pdf/c3.pdf

   Since neo­clas­si­cists, neolib­er­als, Repub­li­cans and the Ruben­ite wing of the Demo­c­ra­tic Party (Clin­ton and Obama) assert that pri­vate debt is not impor­tant, and has not macro­eco­nomic effect, they look for expla­na­tions for eco­nomic crises else­where, such as gov­ern­ment spend­ing, for­eign debt and pub­lic debt. Paul Ryan is the cur­rent poster child for this the­ol­ogy. But Tay­lor pours cold water on this parade:

   Over 140 years there has been no sys­tem­atic cor­re­la­tion of finan­cial crises with either prior cur­rent account defi­ci­ets or prior growth in pub­lic debt lev­els. Pri­vate credit has always been the only use­ful and reli­able pre­dic­tive factor.
9. 
   Glenn Stehle

   August 16, 2012, 11:40 pm | #

   @ LCTesla
   @ Eliot Clarke

   This fel­low cer­tainly isn’t an aca­d­e­mic like Tay­lor or Keen, and I think he is mis­taken in some of the details, but he nev­er­the­less uses Keen’s work to arrive at some rather obvi­ous conclusions:

   IT’S PRIVATE DEBT, NOT PUBLIC DEBT, THAT GOT US INTO THIS MESS

   The argu­ments that the Amer­i­can Gov­ern­ment caused this cri­sis through over­spend­ing on enti­tle­ments — serv­ing the so-called losers of soci­ety — this is the stan­dard line of the Far Right — doesn’t show up in this chart.

   Gov­ern­ment debt vis-a-vis Gross Domes­tic Prod­uct is not astro­nom­i­cal, accord­ing to this chart. It was not high in 1929 either, the last time the global econ­omy had a heart attack and died. Pub­lic Debt is, in fact, at the time of this chart at least, lower than in 1945, when the pub­lic financed Amer­i­can involve­ment in World War II.

   The Far Right illu­sion is that if gov­ern­ment just ‘gets out of the way’ of pri­vate enter­prise, the world will fix itself. But this chart gives a dif­fer­ent pic­ture of reality.

   This chart says it is PRIVATE DEBT that is at astro­nom­i­cal lev­els vis-a-vis GDP. Pri­vate Debt in Amer­ica was at 240% of GDP in 1929, before the global econ­omy crashed then; and Pri­vate Debt in Amer­ica was at 300% of GDP in 2009 — and is still at 260% of GDP now, higher still than in 1929.…

   What this all sug­gests is that Big Busi­ness is refus­ing to take the blame for the Global Col­lapse it helped to cre­ate through the same mech­a­nism it used in the 1920s pur­su­ing reck­lessly their own eco­nomic empires — asset price infla­tion fueled by lower and lower inter­est rates — and has attempted to shift the blame on to the gov­ern­ments of the world (Big Gov­ern­ment being the boogey­man of the Far Right).

   http://seekingalpha.com/instablog/428250-michael-clark/591021-it-s-private-debt-not-public-debt-that-got-us-into-this-mess

   http://seekingalpha.com/instablog/428250-michael-clark/591021-it-s-private-debt-not-public-debt-that-got-us-into-this-mess