Steve Keen's Debtwatch

The bulls are roar­ing, house prices are ris­ing, and all’s well with the world.

Or maybe not. Cer­tainly house prices have risen — and con­trary to pop­u­lar opin­ion, I expected price rises this year, since mort­gage debt has been accel­er­at­ing since the begin­ning of 2012 (see Fig­ure 1). One of my many eco­nomic here­sies is the argu­ment that asset prices are dri­ven by ris­ing debt. Ris­ing asset prices — in this case, houses — require accel­er­at­ing debt (in this case, mort­gage debt), and that’s indeed what we’ve had since the begin­ning of 2012.

Last week’s col­umn on mar­gin debt and the US stock mar­ket con­firmed that lever­age plays a key role in dri­ving move­ments in share mar­kets – and vice versa. But it left one tech­ni­cal ques­tion unan­swered for me: is the causal link between change in debt and change in asset prices, or between accel­er­a­tion in debt and change in asset prices?

For par­tic­i­pants of the Hong Kong INET Con­fer­ence

What is the
World Eco­nom­ics Association?

The World Eco­nom­ics Asso­ci­a­tion (WEA) was launched in May 2011. The WEA seeks to increase the rel­e­vance, breadth and depth of eco­nomic thought. Its key qual­i­ties are world­wide mem­ber­ship and gov­er­nance, and inclu­sive­ness with respect to: (a) the vari­ety of the­o­ret­i­cal per­spec­tives; (b) the range of human activ­i­ties and issues which fall within the broad domain of eco­nom­ics; and © the study of the world’s diverse economies.

John Lennon’s best line in a life­time of song-writing was “life is what hap­pens when you’re busy mak­ing other plans”. I had planned today to write about the excel­lent Atlantic Monthly The Econ­omy Sum­mit 2013 con­fer­ence I spoke at in Wash­ing­ton on Wednes­day, where it seemed that senior fig­ures in the US were finally start­ing to realise that pri­vate debt, not pub­lic, was the main game in a debt-deflation.

This is the con­clud­ing arti­cle in a four-part series. View part one here, part two here, and part three here.

But first, a word about my Kick­starter cam­paign to raise funds to develop Min­sky, a tool for design­ing strictly mon­e­tary macro­eco­nomic models:

There are only 58 hours left to help Kick­start Min­sky! We’ve raised $65,000 now, which puts us within strik­ing dis­tance of our first stretch goals: