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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10 Responses to Will We Crash Again? (FT/Alphaville Presentation)

  1. Pingback: Allocation Focus On Long Term. Quad 3 Or 4. | Chris Belchamber Investment Management

  2. Tim Ward says:

    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.

  3. radio says:

    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.

  4. Tim Ward says:

    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.

  5. James Charles says:

    “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.”

  6. peace_country says:

    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,

  7. TruthIsThereIsNoTruth says:

    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.

  8. James Charles says:

    “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.


  9. Willy2 says:

    Mr. Keen,

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

  10. Willy2 says:

    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.


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