Steve Keen's Debtwatch

In the first half of this lec­ture, I show that even if all con­sumers were util­i­ty max­i­miz­ers whose indi­vid­ual demand curves obeyed the “Law of Demand”, the mar­ket demand curve derived from aggre­gat­ing these con­sumers could have any shape at all. This result, known as the “Son­nen­schein-Man­tel-Debreu Con­di­tions”, is actu­al­ly a Proof by Con­tra­dic­tion that mar­ket demand curves do not obey the “Law” of Demand, and there­fore that Mar­shal­lian par­tial equi­lib­ri­um mod­el­ing of indi­vid­ual mar­kets is invalid–let alone the Neo­clas­si­cal prac­tice of mod­el­ing the entire macro­econ­o­my as a sin­gle agent in “Dynam­ic Sto­chas­tic Gen­er­al Equi­lib­ri­um” mod­els.

Ann Pet­ti­for is one of the hand­ful of econ­o­mists who pre­dict­ed and warned about the finan­cial cri­sis of 2007 well before it hap­pened. Ann first came to promi­nence when she led the Jubilee 2000 cam­paign to abol­ish the debt of the world’s 42 poor­est coun­tries. She was one of the 12 nom­i­nees for the Revere Award; some of her pre-cri­sis com­ments that were high­light­ed there were:

Remov­ing con­trols over the finance sec­tor paved the way for its rise to dom­i­nance, which in turn has led to a trans­for­ma­tion of the glob­al econ­o­my and increased insta­bil­i­ty.

Fig­ure 1: Asset Prices ver­sus Con­sumer Prices since 1890

Far be it from me to under­es­ti­mate the stock mar­ket’s capac­i­ty to pluck the embers of delu­sion from the fire of real­i­ty. How­ev­er, the crash in the past few days may be evi­dence that san­i­ty is final­ly mak­ing a come­back. What many hoped was a new Bull Mar­ket was instead a clas­sic Bear Mar­ket ral­ly, fuelled by the mar­ket’s capac­i­ty for self-delu­sion, accel­er­at­ing pri­vate debt, and—thanks to QE2—an ample sup­ply of gov­ern­ment-cre­at­ed liq­uid­i­ty.

I’m writ­ing a post on the end­ing of the stock mar­ket’s Bear Mar­ket ral­ly now, where I’ll be focus­ing on US data.

At the same time, one of the US’s great deflation/bear ana­lysts has just pub­lished an “I told you so” post on Aus­tralia.

Click here to read Mish Shed­lock­’s “Secret­ly Broke in Aus­tralia”

ABC Radio’s pre­miere cur­rent affairs pro­gram PM asked me to debate the caus­es and impli­ca­tions of last week’s mar­ket sell-off with Chris Caton, from BT Aus­tralia. Click below to hear the debate.

Steve Keen’s Debt­watch Pod­cast

The tran­script is below  (and here on the ABC site). As is usu­al with such things, the tran­script is wild­ly ungram­mat­i­cal at times.

MARK COLVIN: The under­ly­ing fact about the glob­al econ­o­my is that there’s still a huge dis­crep­an­cy between what the eco­nom­ic his­to­ri­an, Niall Fer­gu­son, calls Plan­et Finance and Plan­et Earth.

My pre­vi­ous blog post on the RBA not­ed their ten­den­cy to fol­low a Tay­lor Rule pri­or to the GFC. A col­league points out anoth­er sta­tis­ti­cal reg­u­lar­i­ty that holds either side of the GFC, and right back to 1990: the RBA’s deci­sions fol­low the 90-day bank bill. Below are Phil Williams’ obser­va­tions on this issue.

In the days run­ning up to the first Tues­day of each month, the Aus­tralian pop­u­lace is sub­ject­ed to the excru­ci­at­ing pageantry of whether the RBA Board will increase or decrease inter­est rates, or whether they will keep them on hold for anoth­er month.

Today’s 4.78% fall on the S&P could eas­i­ly be reversed tomor­row if the BLS unem­ploy­ment num­ber is bet­ter than expect­ed; equal­ly today’s fall could turn out to be just the starters if it is worse. But beyond the volatil­i­ty of the stock mar­ket, it is becom­ing obvi­ous to every­one now that the cri­sis that began in 2007 is still with us.

I’ve just received the fol­low­ing request for assis­tance from Chris Vede­la­go, the Prop­er­ty Reporter for The Sun­day Age :

I lec­ture on Behav­ioral Finance at the Uni­ver­si­ty of West­ern Syd­ney this semes­ter, and will record all my lec­tures and post them on my YouTube Chan­nel Prof­Steve­Keen. In this first lec­ture (after the usu­al pre­lim­i­nar­ies of explain­ing assess­ment and the like to my 85 third year stu­dents), I cov­er the Neo­clas­si­cal the­o­ry of con­sumer behav­ior.

As I note to my stu­dents, the con­cept I teach here–Revealed Preference–was taught in 1st year 40 years ago, when I was an fresh­er under­grad­u­ate. But the tuition of Neo­clas­si­cal eco­nom­ics has been so dumb­ed down over the years that my 3rd year stu­dents had­n’t heard of it before. I expect it’s reserved as pun­ish­ment for those who under­take an Hon­ors degree these days!

In a Nutshell: I have a hunch that the RBA will follow its conventional “neoclassical” models and raise rates tomorrow, even though the economy is locked in “two speed” mode, and the global economy is racked by uncertainty. This would be a mistake: given unprecedented private debt levels and deleveraging by households and businesses, a rate rise would accelerate the economy’s decline into recession.

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