Can we avoid another finan­cial cri­sis?

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Help me rebuild eco­nom­ics at https://www.patreon.com/ProfSteveKeen

Can we avoid another finan­cial cri­sis?

In 2008, con­ven­tional eco­nom­ics led us blind­folded into the great­est eco­nomic cri­sis since the Great Depres­sion. Almost a decade later, with the global econ­omy wal­low­ing in low growth that they can’t explain, main­stream econ­o­mists are reluc­tantly com­ing to realise that their mod­els are use­less for under­stand­ing the real world.

How did main­stream econ­o­mists not see the cri­sis com­ing? Was it unpre­dictable, as they now assert, or did their the­ory blind them to the real causes? Will another finan­cial cri­sis occur?
These ques­tions and oth­ers are asked and answered in Can we avoid another finan­cial cri­sis? , a short (25,000 word) expla­na­tion for the lay reader of how we got into this eco­nomic mess, and why we are unlikely to get out of it.

The book is avail­able now in the UK. It will come out in mid-May in the USA. A e-book ver­sion will also be avail­able in May.

Sup­port my work by becom­ing my Patron on Patreon. Eco­nom­ics is bro­ken, and Uni­ver­si­ties won’t fund the repair job. Research fund­ing is con­trolled by and goes over­whelm­ingly to Neo­clas­si­cal econ­o­mists. Inno­va­tors out­side the Neo­clas­si­cal main­stream aren’t even con­sid­ered for posi­tions at lead­ing Uni­ver­si­ties, and have to sur­vive if at all at lowly ranked insti­tu­tions where their exis­tence is sub­ject to whims of gov­ern­ment pol­icy. If you want a new eco­nom­ics, you–the public–are going to have to fund its devel­op­ment directly.

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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  • mat­tnew­man

    Hi Steve
    Re the Aus­tralian hous­ing bub­ble;
    You men­tion the accel­er­a­tion in mort­gage debt is the key dri­ver to prop­erty prices and I see you ref­er­ence Amer­ica as a marker in a lot of your com­men­tary.

    I was in the uk dur­ing gfc and now being in Aus it all feels very bub­ble like how­ever the one ques­tion I can’t answer is the effect immi­gra­tion has on demand. Immi­gra­tion as a % of work­ing pop­u­la­tion in Aus I assume is a lot higher than in the US

    My point is, assum­ing 1/4 of the immi­grants are median earn­ers (I.e. Sin­gle earner in a 4 per­son fam­ily), we may have to assume that in 2–3 years AFTER arriv­ing in Aus (457 visa rules) they would be look­ing to take on max­i­mum mort­gage debt to get on the lad­der. As long as the flow of immi­grants con­tin­ues, does this snot prop up demand in 2–3 years ahead?

    Thus, debt to GDP in Aus is a skewed ratio as immi­gra­tion dri­ves GDP (even thou there are more mouths to feed from a slightly larger pie) and immi­grants need to (and will) take on debt to enter the game ?

    If your pre­dic­tion comes true, there will be an absolute eco­nomic blood­bath with seri­ous polit­i­cal and eco­nomic

    Many thanks, Matt New­man

  • mat­tnew­man

    Hi again Steve,
    Watch­ing your inter­view with “on prop­erty” which I think took place in April 2016, you said their were signs of slow­ing in the accel­er­a­tion of mort­gage debt in Aus­tralia.

    Know­ing prices in Mel­bourne and Syd­ney rose by c15% last year I ques­tioned your the­ory (i.e. Accel­er­a­tion in mort­gage debt leads to house price infla­tion) how­ever I then noticed the RBA cut rates in May and August by 25 BASIS POINTS.
    If mem­ory serves, in April 2016 mort­gage debt as a % of GDP = 90%, now I think it’s c120% which goes to prove an ever increas­ing accel­er­a­tion in mort­gage debt and resul­tant house price infla­tion.

    My ques­tion is, where is the tip­ping point in terms of %:GDP? I.e. When does it become a bank­rupt posi­tion?

  • Hi Matt, Yes that’s the basic way the prop­erty bub­ble has been sus­tained. Check the charts at my new web­site:

    http://www.profstevekeen.com/data-on-credit-employment-and-house-prices/

    Aus­tralia (and about a dozen other coun­tries) are well past the tip­ping point, which starts at around 160% o GDP. This is why I expect a sec­ond wave of the GFC between now and 2020, not in the USA etc., but in coun­tries that evaded the 2008 event by con­tin­u­ing to lever. I cover this in my new book Can we avoid another finan­cial cri­sis?, which isn’t yet avail­able in Australia–but I hope it will be by May. You can order it from the UK now at http://eu.wiley.com/WileyCDA/WileyTitle/productCd-1509513728.html

  • PS Mort­gage debt is accel­er­at­ing in Aus­tralia right now:

    Australian mortgage accerlator and house prices

  • Samos

    Hi Steve, I just want to say thanks for all your work. I am going to jump on board your Patreon to sup­port your work. I’ve just fin­ished read­ing James Rickards ‘The Road To Ruin’ and am about a quar­ter of the way through debunk­ing eco­nom­ics (hop­ing ‘Can we avoid another finan­cial cri­sis’ is avail­able on Kin­dle soon so I can pur­chase that too)

    I enjoy the sci­ences but am far from an econ­o­mist. Every­thing you say is sound and wor­ri­some at the same time, for a thirty-one year old just about to build a home and hop­ing to start a fam­ily while run­ning a small busi­ness.

    I know you don’t give finan­cial advice, but I am hop­ing by the end of Debunk­ing Eco­nom­ics there’s a few point­ers for us Aussie’s. In one of your videos you men­tion that key is not to be too highly lever­aged.

    Thank­fully, I’ve just been sav­ing for the last decade and have a decent sav­ings amount, but I will still need to bor­row $650K from the bank to fund my home (2 are being built on the block of land, one for my brother who doesn’t have the funds or capac­ity to bor­row at this stage so I am tak­ing the bur­den solely). Aside from this, I have been very con­ser­v­a­tive but about 40K of lia­bil­i­ties within the busi­ness which is man­age­able cur­rently.

    What are your thoughts (gen­er­ally speak­ing) on gold or bit­coins as an invest­ment / shield­ing from the threat of aus­ter­ity? Are there any hints and tips you would give a young cou­ple want­ing to start their nest egg?

    Should I avoid build­ing this place all together and con­tinue liv­ing with my par­ents or rent? The only sil­ver lin­ing is that my brother and I were gifted a small lot of land from our grand­mother, so we only need to pay for build­ing costs (which are unfor­tu­nately exor­bi­tant!)

    My main con­cern is that I am wor­ried leav­ing a large amount of sav­ings in the bank puts me in a posi­tion of vul­ner­a­bil­ity if the com­ing cri­sis is severe enough for the bank to default or not allow me to have my money. I would be dev­as­tated as it has taken thou­sands of hours of sweat and tears to save.

    I hope you can even shed the dimmest of lights Steve, and thank you once again.

    My best,
    Sam

  • conall­boyle

    I’ve just fin­ished read­ing this and found it a rol­lick­ing good read until this on page 121

    I am sym­pa­thetic with the sen­ti­ment of these pro­pos­als [by Pos­i­tive Money for Sov­er­eign Money], but I believe they go to far:”
    This is because “arbi­trage prof­its alone won’t entice bank lend­ing to entre­pre­neurs.”
    Strewth! We must let banks con­tinue to cre­ate our money in the HOPE that they will lend to start-up busi­nesses (which they don’t do now)
    Steve: Have you lost the plot?

  • Hi Sam,

    I wouldn’t worry about bank deposits not being met, espe­cially ones below $100K.

  • Dac Tal­is­man

    You stated that “gold is not money” where many peo­ple reckon that gold is the only “real” money against the cen­tral bank cre­ated paper ‘fiat’ money. How do you define “money”?