I was approached by Bloomberg to write an 800-word feature on “The Future of Economics” for the World Economic Forum, which starts today in Davos. Here is the Bloomberg newsletter, with my commentary on page 5.
For its entire history, macroeconomics has been dominated by mathematical models that ignore the existence of money, debt and banking, and that perceive the economy’s movement through time as transitions from one state of equilibrium to another.
Neil Wilson is a UK-based finance and information systems professional who blogs at 3Spoken.co.uk, and who is an active participant in monetary debates. He has just published a post where he takes my “Godley table” modeling approach and rejigs it to make it consistent with double-entry bookkeeping standards.
I am no accountant–I never studied accounting at university (I did an Arts/Law degree as an undergraduate, majoring in Economics with minors in Maths & Psychology), and have never had to develop the skills subsequently–so I am happy to take advice from someone like Neil about how to conform to proper double-entry standards.
Debtwatch began in March 2007 as a way of distributing my monthly newsletter on the economic crisis I expected to soon erupt, and about which I had been warning in media interviews since December 2005.
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Figure 1: Excerpt from the 1st Debtwatch Report in November 2006
From humble beginnings, the blog has grown like Topsy to have over 12,500 subscribers, about 60,000 unique visitors, amost one million page views and six million hits per month.
Figure 2: Debtwatch readership stats for 2011
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Mortgage debt is by far the largest component of debt in Australia today—government debt, which is the focus of political debate, is trivial by comparison (a quick caveat though—finance sector debt may be larger again than mortgage debt, if this claim, sourced from Morgan Stanley, is accurate—since it shows Australia’s aggregate private debt ratio as almost equal to the USA’s).
Figure 1
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The fundamental cause of the economic and financial crisis that began in late 2007 was lending by the finance sector that primarily financed speculation rather than investment. The private debt bubble this caused is unprecedented, probably in human history and certainly in the last century (see Figure 1). Its unwinding now is the primary cause of the sustained slump in economic growth. The recent growth in sovereign debt is a symptom of this underlying crisis, not the cause, and the current political obsession with reducing sovereign debt will exacerbate the root problem of private sector deleveraging.
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Data: Debtwatch Subscribers; CfESI Subscribers
As much as I criticize the US of A for its economic management, I can’t fault its statistical agencies on the collection and dissemination of data: data is readily available and almost always in an easily accessible format. That, and the fact that it’s the world’s biggest economy, is why most of my analysis is of the US. Australia’s ABS deserves similar accolades for making data readily accessible and relatively easy to locate.
Every year, The Age publishes a survey of economists’ opinions on the year ahead. Most of these are “market economists” rather than academics—working for banks, insurance companies and the like. Three academics are surveyed—myself, Jacob Marsden of Monash and Neville Norman of the University of Melbourne—and one economist working for a trade union, Brad Crofts of the AWU.
Peter Martin does an overview of the results each year, as well as providing snippets of the answers given to supplementary questions. He made one slip-up this year when he summarised views on achieving a surplus as:
Economic Reform Australia has just alerted me to a proposal for a partial mortgage debt forgiveness proposal put forward by economists from the US Federal Reserve in January 2009. ERA reproduced this post from WhoWhatWhy, which in turn referred to a Boston Fed publication Communities & Banking and the paper “A proposal to Help Distressed Homeowners”.
The proposal includes the suggestion of a grant to homeowners who are both in negative equity and unemployed, where the grant would pay up to 25% of the repayment costs over a 2 year period.
It’s always a pleasure to talk with Max, and in this interview he drops a bombshell that I still have a hard time even contemplating: the claim that the UK’s private debt to GDP ratio is 950%, and the finance sector alone has a debt ratio of 600% of GDP. Our discussion starts at the 14 minute mark.
I still have to see the data for myself, and until then I’ll remain skeptical, but here’s a chart allegedly sourced from Morgan Stanley that makes that claim.
My two favourite financial shows are The Keiser Report and Capital Account, and by sheer chance both interviewed me within 8 hours of each other this week.
Max’s program will go up tomorrow. The interview with Lauren Lyster went out live at 4.30pm time on the 20th–which was 8.30am on the 21st here in Sydney–and yet already they’ve put the interview up on Youtube:
Bravo to Demetri and Lauren for positively Warp Speed agility in both the traditional and social media.
