Will We Crash Again? (FT/Alphaville Pre­sen­ta­tion)

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This is the talk I gave at the FT/Alphaville con­fer­ence in Lon­don last week. A num­ber of peo­ple asked me to send the PPT to them, and I got buried in other work and the emails are long lost in my Gmail queue. So if you’d like to down­load the pre­sen­ta­tion file, please click here. My apolo­gies to those cor­re­spon­dents to whom I haven’t replied directly.

To run the Min­sky model, down­load Min­sky from here and install it.

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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  • Tim Ward

    It seems that there has to be a causal rela­tion between changes in debt lev­els and changes in employ­ment lev­els, because of the Iron Law of Wages. Peo­ple sim­ply can’t buy things out of pocket, like dwellings, cars, boats, and a great many other things. (This isn’t sim­ply bring­ing con­sump­tion for­ward, with­out the financ­ing, hous­ing and some other things would almost never be bought by labour because they can’t save enough.) With­out final sale financ­ing, the pro­duc­tion (and employ­ment therein) for a great many things would cease, because the sales would cease. Debt gates employ­ment lev­els, (or inverse gates depend­ing on which way one looks at it) for those prod­ucts in which sales require final sale financ­ing. Also, there is pro­duc­tion that depends on financ­ing to pay wages in advance of final sales. Out of pocket/retained earn­ings sim­ply won’t cover.

    So debt directly feeds into incomes. It seems unavoid­able.

    On a pre­vi­ous post, a qual­i­fi­ca­tion needs to be added, about con­struc­tion being a major sec­tor. On look­ing at the actual employ­ment in con­struc­tion, it doesn’t look all that much. But the employ­ment in feeder indus­tries is sev­eral times more than in con­struc­tion, they need to be summed, as the feeder indus­tries exist because of con­struc­tion. And with that, the employ­ment becomes sub­stan­tial.

  • radio

    You once said some­thing resem­bling, “Demo­graph­ics dom­i­nates every­thing so we will ignore it (!)”. Please note that the peak in the Japan­ese post-WWII baby boom occurred about 18 years before the peaks in (much of) the west­ern world’s pop­u­la­tion.
    I was saved much grief and finan­cial loss by a col­league who, in 1992, pointed out to me that the peak in the US baby boom will reach age 49 (peak income and pro­duc­tiv­ity age) in 2007. China’s pop­u­la­tion dis­tri­b­u­tion peak will be 49 in about 2022.
    I greatly appre­ci­ate your insight and analy­sis; do bite the bul­let and con­sider demo­graph­ics.

  • Tim Ward

    There is major excep­tion to the idea that labour can’t save enough. The sec­ond world war. In the US, pro­duc­tion of con­sumer goods was sharply cur­tailed. Labour had large sav­ings from war pro­duc­tion, and the gov­ern­ment wanted to pre­vent infla­tion (even tho some price con­trols were also in effect) and so the gov­ern­ment went on large bond sales dri­ves. Thus after the war there were large amounts of sav­ings avail­able for con­sump­tion. There really was no risk of a return to the great depres­sion, in which jobs were scarce, and lit­tle money was avail­able. This is prob­a­bly why the 50’s and 60’s were such a rare golden period. All those sav­ings being put to use.

    But that is almost the excep­tion that proves the rule. With lots of con­sumer goods avail­able, labour doesn’t save well.

    Will We Crash Again?” By Min­sky, a crash is cer­tain! The Ponzi play­ers have been at it again.

  • James Charles

    Sav­ing does not by itself increase the deposits or ‘funds avail­able’ for banks to lend. Indeed, view­ing banks sim­ply as inter­me­di­aries ignores the fact that, in real­ity in the mod­ern econ­omy, com­mer­cial banks are the cre­ators of deposit money. This arti­cle explains how, rather than banks lend­ing out deposits that are placed with them, the act of lend­ing cre­ates deposits — the reverse of the sequence typ­i­cally described in text­books.”
    http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q102.pdf

  • peace_­coun­try

    Now China’s actions make a lot more sense.
    First came the clean up of cor­rup­tion
    Then came great drop in demand for oil and the drop in price
    Next came the whis­pers of the stock mar­ket to the Chi­nese pub­lic
    Then the force­ful con­trols to limit the market’s down­side
    Some­one must be look­ing at the drop in demand inside China and debt num­bers and be react­ing in very force­ful ways.
    Thanks Steve,

  • TruthIs­ThereIs­NoTruth

    Cor­re­la­tion does not prove cau­sa­tion. Causal argu­ment does not prove cau­sa­tion. Artic­u­late insults and hand wav­ing will gen­er­ally con­vince an math­e­mat­i­cally igno­rant audi­ence which is clearly the aim here.

    One could eas­ily make an argu­ment for a com­mon fac­tor for both the unem­ploy­ment vs credit accel­er­a­tor and espe­cially the mar­gin lend­ing vs stock prices. The argu­ment would not prove there is a com­mon fac­tor, this would need to be proven math­e­mat­i­cally. How­ever if you lack the math­e­mat­i­cal skill to prove your argu­ment, revert to insults and hand wav­ing.

  • James Charles

    Credit and growth
    Werner (1992, 1997, 2005, 2011b), using Japan­ese data, shows that credit for GDP trans­ac­tions explains nom­i­nal GDP well over sev­eral decades, while alter­na­tive explana­tory vari­ables (includ­ing inter­est rates and money sup­ply) are elim­i­nated in a reduc­tion from a gen­eral to the par­si­mo­nious spe­cific model.” P23.

    http://eprints.soton.ac.uk/339271/1/Werner_IRFA_QTC_2012.pdf

  • Willy2

    Mr. Keen,

    - Does Bernanke claim that the FED is the one that kept infla­tion under check ?

  • Willy2

    Mr. Keen,

    In your pre­sen­ta­tion you also focussed on China. Well, some­thing rot­ten seems to going on in China. Car sales (&pro­duc­tion) seems to be plung­ing.

    http://wolfstreet.com/2015/08/05/unnerving-thing-global-automakers-said-about-chinas-economy/