(At least for the Anglo zone; more on Europe and Emerg­ing Mar­kets in com­ing weeks).

One of the ironies of the eco­nom­ic cri­sis that began in late 2007 is that the best acronym for it — the “GFC” for “glob­al finan­cial cri­sis” — was coined in the one coun­try that suf­fered the least from it, Aus­tralia. The year 2014 is the sev­enth of the “GFC” (the pan­ic began on August 9, 2007, when BNP Paribas shut down three of its sub­prime-based funds), but at last the major­i­ty of eco­nom­ic reports are of sus­tained if anaemic growth, rather than of bank fail­ures and reces­sion. Australia’s report­ed growth rate for 2013 of 2.8 per cent fol­lows the UK report­ing 1.9 per cent and the US 2.4 per cent; even the EU, where sev­er­al coun­tries are still mired in out­right Depres­sions, record­ed an over­all growth rate of 0.1 per cent for 2013.

The big­ger the finan­cial sec­tor gets, the more it can destroy. And Bank of Eng­land Gov­er­nor Mark Car­ney’s vision of British banks nine times the size of GDP is pos­i­tive­ly ter­ri­fy­ing…

Fans of Japan­ese schlock fic­tion will be pleased to know that that old mega-favourite Godzil­la is return­ing in 2014, to stomp on sim­u­lat­ed cities in a cin­e­ma near you. And of course, he’s big­ger and bet­ter: the orig­i­nal Japan­ese movie had him at about 50–100 metres and weigh­ing 20–60,000 tons; I’d guess he was about twice that size in the 1998 US remake; and by the looks of the trail­er for the 2014 movie, he’s now a cou­ple of kilo­me­tres tall and prob­a­bly weighs in the mil­lions.

The penul­ti­mate Win­dows ver­sion of Min­sky (released a few days ago) inad­ver­tent­ly installed an old ker­nel with a very low exe­cu­tion speed. This has been fixed in the lat­est ver­sion. If you down­loaded a few days ago and now find that mod­els run very slow­ly, please down­load the lat­est ver­sion today (it has the same name: Minsky.1.D32). If you down­loaded before then, the exe­cu­tion speed will be fine, but a few bugs have also been fixed in this release: see Tick­ets for the details (from my per­spec­tive, the main bug was a fail­ure to pass LaTeX for­mat­ting codes between God­ley Tables).

Last week I satirised Australia’s out­mod­ed belief that the rate of inter­est can be used to fine tune the econ­o­my. This belief was ensconced in the so-called “Tay­lor Rule”, which accu­rate­ly described what cen­tral banks tend­ed to do until the eco­nom­ic cri­sis hit in 2007. That rule saw the infla­tion rate and the unem­ploy­ment rate as the two key eco­nom­ic indi­ca­tors, and the inter­est rate as the key mech­a­nism need­ed to achieve an accept­able bal­ance between them.

Of course, the cri­sis blew that rule out of the water, and issues that cen­tral bankers once dis­missed as unim­por­tant — like, for exam­ple, asset price bub­bles or the lev­el of pri­vate debt — sud­den­ly had to be dis­cussed.

With the announce­ment that Toy­ota will stop its man­u­fac­tur­ing in Aus­tralia in 2017, Aus­tralia has become one of the few wealthy nations on the plan­et with­out a car indus­try. But there’s a good argu­ment that Aus­tralia nev­er had a car indus­try in the first place.

Dou­glas Adams’ bril­liant com­ic farce The Hitchhiker’s Guide to the Galaxy describes Earth as resid­ing in sec­tor ZZ9 Plur­al Z Alpha, one of “the unchart­ed back­wa­ters of the unfash­ion­able end of the West­ern Spi­ral Arm of the Galaxy” and being inhab­it­ed by “ape-descend­ed life forms” who “are so amaz­ing­ly prim­i­tive that they still think dig­i­tal watch­es are a pret­ty neat idea”.

Some­times when I return to Aus­tralia, I feel that I’ve arrived in the planet’s sec­tor ZZ9 Plur­al Z Alpha. Here, the eco­nom­ic debate is so prim­i­tive that peo­ple still think the econ­o­my can be con­trolled by tin­ker­ing with the rate of inter­est.

“I know my place” was the title of a famous sketch on Eng­lish class sen­si­bil­i­ties from the 1960s, star­ring the very tall (Upper Class) John Cleese, the aver­age height (Mid­dle Class) Ron­nie Bark­er, and the very short (Low­er Class) Ron­nie Cor­bett.

The Upper Class Cleese gen­er­al­ly looked down on both Mid­dle Class Bark­er and Low­er Class Cor­bett; Bark­er looked up to Cleese and down on Cor­bett; and Cor­bett “knew his place”. That was at the bot­tom of the Eng­lish class sys­tem peck­ing order, and sur­viv­ing his place meant liv­ing life with low­ered expec­ta­tions.

This paper will be pub­lished in a forth­com­ing book on the cri­sis edit­ed by Malliaris, Shaw and She­frin. In what fol­lows, I derive a cor­rect­ed for­mu­la for the role of the change in debt in aggre­gate demand, which is that ex-post aggre­gate demand equals ex-ante income plus the cir­cu­la­tion of new debt, where the lat­ter term is the veloc­i­ty of mon­ey times the ex-post cre­ation of new debt.

The PDF is avail­able here: Keen2014ModelingFinancialInstability. The Min­sky mod­els used in this paper are here in a ZIP file. The lat­est ver­sion of Min­sky can be down­loaded from here.

• Introduction

That ver­bose title is almost the reverse of a quin­tes­sen­tial­ly arro­gant state­ment of eco­nom­ic suprema­cy pub­lished in the UK’s Dai­ly Tele­graph — on the edi­to­r­i­al page of the busi­ness sec­tion — by Andrew Lil­i­co. Enti­tled “Econ­o­mists are near­ly always right about things, despite what you may think” in the print edi­tion, its con­tent and tone encap­su­lat­ed every­thing about eco­nom­ic the­o­ry, and econ­o­mists’ blind belief in it, that led me to write Debunk­ing Eco­nom­ics over a decade ago.

Fig­ure 1: Lil­i­co’s arti­cle in the print edi­tion of the UK Dai­ly Tele­graph

On Jan­u­ary 31, we will bid good­bye to chair­man Ben Bernanke and say hel­lo to chair­man Janet Yellen. Most com­men­tary has focused on what Yellen’s ascen­dan­cy might mean for the Fed­er­al Reserve and the US econ­o­my, but today I’d like to con­sid­er how Bernanke’s lega­cy might he be regard­ed in future years — say, 70 years after the cri­sis we’re in now.

It cer­tain­ly won’t be as he expect­ed it to be before he took on the job of Fed chair­man in Feb­ru­ary 2006. In the worst case sce­nario, he will be blamed for caus­ing the ‘Great Reces­sion’, just as he blamed his pre­de­ces­sors for caus­ing the Great Depres­sion.