Closing the door on the GFC

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(At least for the Anglo zone; more on Europe and Emerg­ing Mar­kets in com­ing weeks).

One of the ironies of the eco­nom­ic cri­sis that began in late 2007 is that the best acronym for it — the “GFC” for “glob­al finan­cial cri­sis” — was coined in the one coun­try that suf­fered the least from it, Aus­tralia. The year 2014 is the sev­enth of the “GFC” (the pan­ic began on August 9, 2007, when BNP Paribas shut down three of its sub­prime-based funds), but at last the major­i­ty of eco­nom­ic reports are of sus­tained if anaemic growth, rather than of bank fail­ures and reces­sion. Australia’s report­ed growth rate for 2013 of 2.8 per cent fol­lows the UK report­ing 1.9 per cent and the US 2.4 per cent; even the EU, where sev­er­al coun­tries are still mired in out­right Depres­sions, record­ed an over­all growth rate of 0.1 per cent for 2013.

These are hard­ly ster­ling growth rates, but the fact that they are all pos­i­tive is caus­ing a notice­able change of mood in eco­nom­ic com­men­tary — and a shift in pub­lic expec­ta­tions as well. Is it enough to call the GFC/Great Recession/North Atlantic Finan­cial Cri­sis over?

It isn’t. But I’m will­ing to do so on an entire­ly dif­fer­ent mea­sure: the rate of change of pri­vate debt is now strong­ly pos­i­tive. The peri­od of pri­vate sec­tor delever­ag­ing that caused the cri­sis appears to be over. Debt is now not mere­ly grow­ing, but grow­ing faster than GDP — see fig­ure 1.

Fig­ure 1: Delever­ag­ing is over — for the time being
Graph for Closing the door on the GFC

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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.