Steve Keen's Debtwatch

Eco­nom­ic his­to­ri­ans Bar­ry Eichen­green and Kevin H. O’Rourke are using empir­i­cal data to com­pare this down­turn to the Great Depres­sion. I’ll be refer­ring to and adding to their com­par­i­son in the next Debt­watch (which will be pub­lished late next week, before the RBA’s July meet­ing), but the research is so good that it deserves to be high­light­ed now.

Their con­clu­sion is com­pelling:

To sum­marise: the world is cur­rent­ly under­go­ing an eco­nom­ic shock every bit as big as the Great Depres­sion shock of 1929–30. Look­ing just at the US leads one to over­look how alarm­ing the cur­rent sit­u­a­tion is even in com­par­i­son with 1929–30.

AUSTRALIAN-RELATED LINKS:

Aussie Banks Addict­ed To For­eign Bor­row­ing, Dai­ly Reck­on­ing, 18 Jun
“The deposit base of Aussie banks is ‘too low’. Aussie banks are over-reliant on off­shore mon­ey. This entire sit­u­a­tion is a ‘threat to eco­nom­ic recov­ery’. So it appears Aussie banks are addict­ed to for­eign bor­row­ing and are cur­rent­ly suf­fer­ing from with­draw­al symp­toms… Aus­trali­a’s prop­er­ty boom was bought with bor­rowed mon­ey. Both res­i­den­tial and com­mer­cial prop­er­ty val­ues soared with the cred­it boom. If you think the banks are fine because they don’t have a sub­prime prob­lem, think again. The banks have a prop­er­ty prob­lem, and you can find it on the asset side of the bal­ance sheet.” Well said. Our robust and con­ser­v­a­tive bank­ing car­tel hasn’t had to account for a prop­er­ty crash. Yet. Green shoots com­men­ta­tors claim that high unem­ploy­ment is the only fac­tor that may cause a dip in prop­er­ty prices, ignor­ing the role of the whole­sale for­eign fund­ing required to keep the Aussie Ponzi scheme alive and kick­ing. We put our­selves in hock to for­eign cred­i­tors to cre­ate the illu­sion of dou­bling or tripling house prices. Col­lec­tive­ly, we are all the Greater Fool.

More gems and brick­bats from the world’s media and blogs gath­ered by Evan, with con­tri­bu­tions from oth­er blog mem­bers. Please keep those tips com­ing in to gfcwrap at gmail.com.

AUSTRALIAN-RELATED LINKS:

In Debunk­ing Eco­nom­ics, I argued that eco­nom­ic the­o­ry had done such dam­age to soci­ety that human­i­ty would be bet­ter off if every­thing ever writ­ten about eco­nom­ics by anyone–including yours truly–were oblit­er­at­ed, and the world had to start again from scratch.

Unfor­tu­nate­ly that can’t be done–everything, even eco­nom­ics, devel­ops in an evo­lu­tion­ary way–but the next best thing is to admit how wrong neo­clas­si­cal thought has been, and to start devel­op­ing alter­na­tives.

There are many such endeav­ours around the world, and one of them is tak­ing place in the very appo­site loca­tion of  Reyk­javik, Ice­land, in Sep­tem­ber this year.

Before the Pool Room, a quick com­ment on Aus­trali­a’s recent 0.4% growth in GDP in the first quar­ter of 2009–largely due to a sur­prise growth in net exports–and the sequel the next day of a sur­prise trade deficit.

Briefly, the “text­book” def­i­n­i­tion of GDP is:

GDP = C+I+G+X‑M

“GDP equals Consump­tion plus Invest­ment plus Govern­ment spend­ing plus eXports minus iMports”

M fell by 9 bil­lion, X (more on this below) fell by 3 bil­lion, so there was a +6 bil­lion turn­around in the “net exports con­tri­bu­tion to GDP” (as it’s known).

STEVE KEEN and EVAN JONES in conversation with FRANK STILWELL

In this event to cel­e­brate the pub­li­ca­tion of Polit­i­cal Econ­o­my Now!–the his­to­ry of the Polit­i­cal Econ­o­my strug­gle at Syd­ney University–Evan Jones, Frank Stil­well and Steve Keen will dis­cuss the strug­gles inside the uni­ver­si­ty eco­nom­ics depart­ments and their sig­nif­i­cance, not only for teach­ing, but for the world econ­o­my itself.

Polit­i­cal Econ­o­my Now! by Gavan But­ler, Evan Jones and Frank Stil­well is the sto­ry of one of the most sub­stan­tial and endur­ing con­flicts in the his­to­ry of Aus­tralian uni­ver­si­ties. Begin­ning in the late 1960s, it pit­ted those com­mit­ted to the teach­ing of main­stream eco­nom­ics at the Uni­ver­si­ty of Syd­ney against the pro­po­nents of an alter­na­tive pro­gram in polit­i­cal econ­o­my. It explores issues such as

Eco­nom­ic debate in Aus­tralia today reminds me of one of the great lines in The Rocky Hor­ror Show. As he invites Brad and Janet to meet Rocky, Frank-N-Furter taunts Janet with the lines:

I would like–if I may–to take you on a strange jour­ney…

“I see you shiv­er with antic­i­pa­tion!

But maybe the rain is real­ly to blame

So I’ll remove the cause,…

But not the symp­tom!”

It seems that in Aus­tralia, the reverse can apply: the symp­tom can be removed with­out elim­i­nat­ing the cause. We can avoid a seri­ous reces­sion while doing noth­ing to reduce pri­vate debt. 

Thanks again to blog mem­ber Evan Har­ris for com­pil­ing this week­ly list, and for blog mem­bers pass­ing on their sug­ges­tions. If you see any arti­cle or blog entry that you think deserves record­ing for pos­ter­i­ty, send the link to gfcwrap at gmail.com.

And a reminder for any blog mem­bers in Syd­ney that I’ll be speak­ing at Pol­i­tics in the Pub tonight at the Gael­ic Club in Devon­shire St Sur­ry Hills, start­ing at 6pm.

The Pool Room – Week End­ing Fri­day 29^th May

Aus­tralian-Relat­ed Links:

Hous­ing & Hous­ing Finance: The View From Aus­tralia & Beyond, Luci Ellis [RBA Research], Dec 2006