Steve Keen's Debtwatch

As I not­ed in my pre­vi­ous post, neo­clas­si­cal eco­nom­ics made it an item of faith that cap­i­tal­ism was inher­ent­ly sta­ble, and dis­missed argu­ments to the con­trary as no more than left-wing pro­pa­gan­da. My favourite state­ment of this per­spec­tive came from the pen of Nobel Prize win­ner Ed Prescott, who was one of the key play­ers in intro­duc­ing the con­cept of “ratio­nal expec­ta­tions” into eco­nom­ics. Not only was cap­i­tal­ism inher­ent­ly sta­ble, he claimed in 1999, but it was so sta­ble that we can reli­ably expect the econ­o­my to dou­ble the stan­dard of liv­ing every 40 years. Marx and his ilk were sim­ply wrong:

Syd­ney Morn­ing Her­ald com­men­ta­tor Gareth Hutchens com­ment­ed that the Rogoff and Rein­hart affair shows how slow econ­o­mists are to realise that their data may be dodgy, but to my mind that is insignif­i­cant com­pared to how slow they are to realise that their the­o­ries are dodgi­er still.

A defin­ing fea­ture of main­stream eco­nom­ic mod­el­ling is the belief that the econ­o­my is sta­ble: giv­en any dis­tur­bance, it will ulti­mate­ly return to a state of tran­quil growth. Main­stream­ers argue over how fast this will hap­pen: Chicago/Freshwater /New Clas­si­cals argue it adjusts instant­ly, while Saltwalter/New Key­ne­sians say it will take time because of ‘fric­tions’ in the economy’s adjust­ment process­es. But they both take the innate sta­bil­i­ty of the econ­o­my for grant­ed, and this belief is hard-cod­ed into their math­e­mat­i­cal mod­els
Read more: http://www.businessspectator.com.au/article/2013/4/23/economy/instability-may-not-be-optional#ixzz2RFy8NpNX

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.

Read more: http://www.businessspectator.com.au/article/2013/4/15/property/house-prices-shoot-towards-ceiling#ixzz2QUFV7fFv

Sor­ry for the late notice here (the total crash of my ISP pre­vent­ed me from post­ing when I had hoped to—and thanks to Phil Stevens for his bril­liant work in reviv­ing the site from the wreck­age), but if any­one in Syd­ney has free time today (Sun­day 14 April) I rec­om­mend attend­ing this event between 2:00 pm and 5:00 pm. It is a festschrift to Eric Aarons, a remark­able man whom I am proud to call a friend.

Eric Aarons, now 94 years old, has been a sig­nif­i­cant fig­ure in left and pro­gres­sive pol­i­tics for over six­ty years.

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?

My log­i­cal argu­ment was the lat­ter. In my mon­e­tary approach to macro­eco­nom­ics, aggre­gate demand is income (effec­tive­ly gross domes­tic prod­uct) plus the change in debt, and this mon­ey is expend­ed on both goods and ser­vices (also effec­tive­ly GDP) plus net asset sales. Net asset sales in turn reflect the price lev­el of assets, the quan­ti­ty in exis­tence, and the frac­tion of that stock that is sold over a year.

Stock mar­kets are boom­ing — not only in USA and Aus­tralia where eco­nom­ic growth is pos­i­tive, but even in economies still locked in the dol­drums like the UK and Japan.

Alan Greenspan observed last month that this augured well for the econ­o­my, since

“the stock mar­ket is the real­ly key play­er in the game of eco­nom­ic growth… The data shows that stock prices are not only a lead­ing indi­ca­tor of eco­nom­ic activ­i­ty, they are a major cause of it. The sta­tis­tics indi­cate that 6 per­cent of the change in GDP results from changes in mar­ket val­ue of stocks and homes.”

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.

I’m lov­ing the final sprint that peo­ple are doing as the cam­paign approach­es its end–many thanks!

At the same time, I’ve been using Min­sky to write my paper for the forth­com­ing annu­al INET con­fer­ence in Hong Kong on April. I can’t upload them here–I’m at a friend’s place in San Diego with a new lap­top and I’ve for­got­ten my cPan­el login details to debt-deflation!–but I’ll post them when I get home. In the mean­time, here is a screen­shot.

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.

Then “I read the news today, oh boy”. I woke at 4am on Sun­day to the news that the EU has con­fis­cat­ed 10 per cent of depos­i­tors’ funds in its ‘bailout’ of Cyprus, in a move that will raise around €6 bil­lion. Lennon didn’t go far enough. It seems polit­i­cal sui­cide is also what hap­pens when you’re busy mak­ing oth­er plans.

The Kick­starter cam­paign for Min­sky has been a success–almost $70,000 has been raised–but as with any soft­ware project, so much more can be done with more pro­gram­ming time. Each addi­tion­al $140 buys anoth­er hour of pro­gram­ming by both Dr Rus­sell Stan­dish & Nathan Moses. We’ve done a lot with just over 1,000 hours of pro­gram­ming fund­ed by the orig­i­nal INET Grant, and the mon­ey raised by Kick­starter will add rough­ly anoth­er 500 hours to that. But I esti­mate that to take Min­sky to its full poten­tial will take 10 to 20 thou­sand hours of pro­gram­ming.