Steve Keen's Debtwatch

This is the keynote speech that I gave to the Aus­tralian Teach­ing Eco­nom­ics Con­fer­ence, the paper for which will be the sub­ject of my next two posts: the decline of Eco­nom­ics from up to 40% of any busi­ness degree to about 4% today. In it I sug­gest that het­ero­dox econ­o­mists should com­plete the march to zero by jump­ing ship and join­ing Account­ing depart­ments. There they could devel­op a “Mon­e­tary Eco­nom­ics for Accoun­tants” unit that would replace the stan­dard Intro­duc­to­ry Eco­nom­ics sub­ject required for accred­i­ta­tion as an accoun­tant.

I spoke at the BEM-KEDGE Busi­ness School Finance and Soci­ety con­fer­ence in Bor­deaux on Wednes­day. The pre­sen­ta­tion is below, and the MKY files used in it are below the video.

The Min­sky files are linked below. RIGHT-CLICK and choose “Save as” to save them to your PC, oth­er­wise your screen will fill with XML gib­ber­ish.

• Loan­able Fund mod­el
• Endoge­nous Mon­ey mod­el 
• Debt-defla­tion mod­el

Use the lat­est ver­sion of the pro­gram to run these: it’s pret­ty bug-free now and will prob­a­bly be the sta­ble “Pet­ty” iter­a­tion of Min­sky while we move on the “Mun” ver­sion, which will focus on improv­ing the visu­als and speed­ing up sim­u­la­tions.

A sud­den erup­tion, and the sur­prise of real­is­ing that the world he under­stands is not the one he actu­al­ly inhab­its. – Pao­lo Baci­galupi, The Windup Girl

This time real­ly is dif­fer­ent.

Stock mar­kets are crash­ing after a run­away boom. Again. And the finan­cial sec­tor is ped­dling com­plex deriv­a­tive prod­ucts. Again. (Check out the US satir­i­cal rag The Onion’s bril­liant take on this: “Finan­cial Sec­tor Thinks It’s About Ready To Ruin World Again”)

One of the hand­ful of jour­nal­ists to ful­ly grasp the enor­mi­ty of the eco­nom­ic cri­sis that was to com­mence in late 2007 has died, long before the cri­sis itself will end. In his col­umn Plan­et Wall Street, David Hirst’s poet­ic prose warned his read­ers of the com­ing eco­nom­ic tsuna­mi, at the same time as the offi­cials who should have pre­vent­ed it con­tin­ued to laud the very instru­ments of finan­cial deceit that made it pos­si­ble.

Though the Fourth Estate’s high­er pur­pose is to keep the oth­er three in check, the human fear of being an out­cast keeps most jour­nal­ists with­in the bounds of con­ven­tion­al wis­dom. David had no prob­lem step­ping out­side it, as he stepped out­side the con­ven­tions of so much else in life.

Paul Krug­man recent­ly post­ed on pre­dic­tions of the cri­sis before it hap­pened, in a piece enti­tled “Non-prophet Eco­nom­ics”. It had a set of propo­si­tions about how one should eval­u­ate such claims with which I com­plete­ly and utter­ly agree. I’ll quote it in its entire­ty, because it’s an emi­nent­ly suit­able start­ing point for eval­u­at­ing whether a pre­dic­tion was in fact made:

“So as I see it, we should first of all be eval­u­at­ing mod­els, not indi­vid­u­als; obvi­ous­ly we need peo­ple to inter­pret those entrails mod­els, but we’re look­ing for the right eco­nom­ic frame­work, not the dis­mal Nos­tradamus.

Read more: http://www.businessspectator.com.au/article/2013/6/11/economy/more-forecasting-neoclassicals-and-nostradamus#ixzz2VszIBLQ2

In 1992, I built a mod­el of Minsky’s ‘Finan­cial Insta­bil­i­ty Hypoth­e­sis’ that sim­u­lat­ed the debt-induced break­down he argued could hap­pen in a cap­i­tal­ist econ­o­my. But it also had an unex­pect­ed fea­ture: the break­down was pre­ced­ed by a peri­od of appar­ent sta­bil­i­ty. Ini­tial volatil­i­ty gave way to a peri­od of tran­quil­li­ty, which was then fol­lowed by increas­ing volatil­i­ty and final­ly a break­down (see Fig­ure 1: the two vari­ables are the employ­ment rate and the wage share of GDP):

Figure 1: Volatility gives way to tranquillity, only to be followed by breakdown (Figure 9 in Keen 1995)

Read more: http://www.businessspectator.com.au/article/2013/6/3/economy/calm-deathly-debt-storm#ixzz2V7oG1C7R

Amer­i­ca is a land of con­tention, and one of the most con­tentious top­ics here (I’m in Seat­tle as I write) is the impact of the Fed­er­al Reserve’s pol­i­cy of “Quan­ti­ta­tive Eas­ing” – oth­er­wise known as ‘QE’. The Fed­er­al Reserve has com­mit­ted to spend­ing $85 bil­lion every month buy­ing a wide range of bonds from banks, until such time as the US unem­ploy­ment rate falls below 6.5 per cent.

The Fed has imple­ment­ed this pol­i­cy because it believes it is the best way to stim­u­late demand in a depressed econ­o­my. Its crit­ics oppose it because they believe this mas­sive amount of ‘mon­ey print­ing’ must inevitably lead to ruinous infla­tion.

One of the many schisms in eco­nom­ics is between econ­o­mists – new and old – who believe that prices are set by sup­ply and demand, and econ­o­mists – also new and old – who believe they are set by a mark-up on the cost of pro­duc­tion.

The for­mer argu­ment is the over­whelm­ing favourite today, but two cen­turies ago, it was the minor­i­ty view. Though mod­ern ‘neo­clas­si­cal’ econ­o­mists are wont to claim Adam Smith as one of their own, he dis­owned their pre­ferred ‘sup­ply and demand’ pric­ing mod­el to argue that prod­ucts exchange at prices that are relat­ed to their rel­a­tive costs of pro­duc­tion.
Read more: http://www.businessspectator.com.au/article/2013/5/20/economy/seductive-super-models-supply-and-demand#ixzz2UW9uTCoF

The Seat­tle Eco­nom­ics Coun­cil has invit­ed me to speak on the top­ic of “The Great Finan­cial Cri­sis and the Great Reces­sion: How we got here and the way out”. The details are:

Venue: Seat­tle Town Hall
Date: May 23rd
Time: 6PM

If you’d like to attend, click on this link.

I’ll also be speak­ing with Ger­ard Fitz­patrick (Rus­sell Invest­ments strate­gic bond fund man­ag­er) on “Mon­ey, Mon­e­tary Pol­i­cy and Finan­cial Repres­sion” at a day­time event (11:30 — 1:30) at the Town Hall.

This is the start of what can only be described as a tru­ly ridicu­lous speak­ing and sem­i­nar tour (if I had any con­trol over the sequence, it would be entire­ly dif­fer­ent):

The ABS pub­lish­es its house price index data today. My lead­ing indi­ca­tor for this is the Mort­gage Accel­er­a­tor, and it implies anoth­er increase in prices—and the first sign of ris­ing real prices on an annu­al basis since ear­ly 2011. But there’s also a turn­around devel­op­ing in mort­gage accel­er­a­tion which implies that the rate of increase will top out at a much low­er lev­el than the 2008 and 2010 booms.

I’d like to post a fig­ure here, but as usu­al there are has­sles with the ISP! Check on Twit­ter for the graph­ic.

Fig­ure 1: Before the release of ABS data on May 7 2013