Zombies-To-Be and the Walking Dead of Debt

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Using the dynamics of credit–which most other economists ignore–I explain why Japan, the USA and UK are among the “Walking Dead of Debt” and why China, Canada, Australia and South Korea are on their way to joining the Debt Zombies. This presentation is based on work I’m doing for a new 25000 word book for Polity Press entitled “Can we avoid another financial crisis?”, which should be published later this year.

Transcending the Lucas Critique & simple dynamic modelling with Minsky

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The Lucas Critique has ruled economics for the last 40 years, and led it into a dead-end as well. In this talk to the Economics for Everyone conference run by the Post Crash Economics Society in Manchester, I argue that micro-founded models fail because of the emergent properties that characterise complex systems. An alternative approach that transcends Lucas’s well-founded objection to ad-hoc model-building is to build models from strictly true macroeconomic identities. I show that three simple identities–the employment rate, the wages share of income, and the private-debt-to-GDP ratio–are sufficient to build a simple dynamic model that generates the possibility of a financial crisis. I also give a high-speed but I think comprehensible tutorial on using Minsky, the Open Source monetary modelling program.

Are we facing a global “Lost Decade”?

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This is an invited paper by the Private Debt Project, an initiative of the philanthropic organization the Governor’s Woods Foundation to raise awareness about the economic importance and dangers of private debt.

The era of low growth known as Japan’s “Lost Decade” commenced in 1990, and persists to this day.  While most authors acknowledge that the seeds for the Lost Decade were sown by excessive credit growth in the preceding Bubble Economy years, only Richard Koo (Koo, 2009, Koo, 2011, Koo, 2003, Koo, 2014) and Richard Werner (Voutsinas and Werner, 2011, Werner, 2002) have systematically argued that insufficient credit growth during the “Lost Decade” explains Japan’s now quarter-century long slump. Yet these arguments tell us more about the dilemmas facing today’s world economy than many more commonly accepted explanations of the current slowdown.

The Seven Countries Most Vulnerable To A Debt Crisis

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For decades, some of the most important data about market economies was simply unavailable: the level of private debt. You could get government debt data easily, but (with the outstanding exception of the USA—and also Australia) it was hard to come by.

That has been remedied by the Bank of International Settlements, which now publishes a quarterly series on debt—government & private—for over 40 countries. This data lets me identify the seven countries that, on my analysis, are most likely to suffer a debt crisis in the next 1-3 years. They are, in order of likely severity: China, Australia, Sweden, Hong Kong (though it might deserve first billing), Korea, Canada, and Norway.

Central Banking, Climate Change and Environmental Sustainability

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The Council on Economic Policies and the Bank of England are organising a workshop on this topic to be held at the Bank on November 14-15 2016. A call for papers has just been put out, with a deadline of June 30th.


Climate change and other environmental challenges are moving up policy agendas worldwide. Nonetheless, the potential implications of environmental risks and scarcities for central banking as well as the linkages between financial regulation, monetary policy and environmental sustainability remain largely unexplored.

Get ready for an Australian recession by 2017

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For the last 25 years, Australian politicians of both Liberal and Labor hue have been able to brag that, under their stewardship, Australia has avoided a recession. Those bragging rights are about to come to an end. During the life of the next Parliament — and probably by 2017 — Australia will fall into a prolonged recession.

Click here to read the rest of this post, and here to download the Excel file showing the link between a slowdown in the rate of growth of debt and a recession.

Macroeconomics of Loanable Funds & Endogenous Money compared using Minsky

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The mainstream economic idea that banks are just intermediaries between savers and investors is a fantasy, but given that fantasy, their argument that the level and rate of change of private debt are not macroeconomically significant (except at the “Zero Lower Bound”) is correct. But in the real world, the role of the level and rate of change of private debt is crucial. I illustrate this by building a Minsky model of Loanable Funds and converting it to the real world of Endogenous Money. Then I explain how credit growth plays an essential role in aggregate demand and income, and how this is consistent with the truism that Expenditure equals Income.

Laughter–the Worst Medicine

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Like many commentators, I regard August 9 2007 as the start of the “Global Financial Crisis“. On that day, BNP Paribas declared that several of its funds were being closed because liquidity in those markets had completely evaporated:


So I was particularly amused–in a sick sort of way–to see this brilliant info-graphic on The Fed on Twitter today: it plots the amount of laughter in FOMC meetings between 2000 and 2012. “Peak Laughter” occurred literally days before the crisis began:


Kingston Uni releases monetarily sound forecast model of US Economy

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PERG economists are developing a macroeconometric model to track the evolution of the US economy over the medium term, which is 3-5 years:

The model belongs to the family of “financial balances models”, an approach pioneered by Wynne Godley and collaborators at Cambridge University (UK) and then successfully developed by the macroeconomics team of the Levy Institute – led by Godley himself.


At its heart, the KFBM (Kingston Financial Balances Model) is characterised by a set of thorough accounting matrices that gather the major stocks and flows of the US economy as well as their links across institutional sectors. This results in three key strengths of the KFBM: