I have just moved the blog to a new ISP after my previous provider IXWebhosting proved to have intractable problems with malware.
The new hosting is being provided pro bono by Cyanide Web Hosting, which I greatly appreciate.
Some posts may have been lost in the process, but that was preferable to putting up with a site that distributed viruses to all and sundry. So if you have made a post and it hasn’t turned up here, please re-submit.
Note: This post has been modified ni the light of comments that the initial version quoted Bernanke out of context.
A link to this blog from a US legal advisory website the Practising Law Institute’s In Brief ( “DEFLATION IN THE REAL WORLD”) reminded me of Bernanke’s book Essays on the Great Depression, which I’ve been aware of for some time but have yet to read. I’ll make amends on that front early this year; fortunately, an extract from Chapter One is available as a preview on the Princeton site (I couldn’t locate the promised eBook anywhere!; in what follows, when I quote Bernanke it is from the original journal paper published in 1995, rather than this chapter).
One blog participant brought a post by George Monbiot to my attention. I frequently comment that the financial regime initiated after WWII omitted key ideas that Keynes proposed–in particular, a new currency for international trade and controls on the behaviour of surplus nations as well as those running deficits. Monbiot provides the historic detail of these proposals and their defeat. It is well worth a read.
A link to my site from another blog alerted me to another post, from the opposite end of the spectrum, which is a cert for my “Brickbats” page–both for its content and its timing. On January 19, 2007, Gerard Baker of The Times editorialised that “Historians will marvel at the stability of our era”. An excerpt for you:
It had to happen: neoclassical economists are now advising that the anticipated recession will be much milder if only workers would accept wage cuts.
When I saw this crisis was imminent in December 2005, one major factor that motivated me to go public with my analysis was the certainty that, when the crisis hit, neoclassical economists would either blame it on wages being too high (”the abolition of Work Choices caused the Depression!”), or would suggest that wages should be cut to reduce the imbalance between the supply of and demand for labour.
This is getting a bit like Star Wars, but I promise–this will be the last post in this series. In the previous two, I constructed a model of a pure credit economy in which the money supply and economic activity can expand smoothly of time.
Of course, that’s not the real world. As we know from the bitter experience of the financial crisis that is this blog’s raison d’etre, finance characteristically destabilises an otherwise healthy economy. Part of the reason for that is the existence of Ponzi Financing–something that the recent Bernie Madoff scandal has thrown into $50 billion high relief.
In the previous post, I outlined my basic model of a pure credit economy, in which a single initial loan allowed a continous flow of economic activity (at a constant level) over time. The basic flowtable of that system was:
| Type | 1 | -1 | -1 | -1 |
| Account | Firm Loan (FL) | Firm Deposit (FD) | Bank Deposit (BD) | Worker Deposit (WD) |
| Interest on Loan | +A | |||
| Interest on Deposit | +B | -B | ||
| Pay Interest on Loan | -C | -C | +C | |
| Pay Wages | -D | +D |
This is an unplanned post that partly pre-empts what I’ll be writing in the February Debtwatch Report, where I will explain in full my theory of money creation in a pure credit economy. So this is somewhat out of sequence, and will undoubtedly be badly explained compared to what I put together for February.
I will also have to finish this in a later post–probably in the first couple of days of the New Year–because Sydney’s fireworks beckon, and we have to be on board the cruiser we’re watching them from at 7pm. But what is here is part of a long-promised explanation of my model of money creation. In a couple of days I’ll publish the punch line, which is a newly developed model of a Ponzi Scheme.
Click on the cover to buy the eBook
Debunking Economics was first published in 2001 by Pluto Press (Australia) and Zed Books (UK). There has been renewed interest in it since I began warning of the impending financial crisis, and I decided to release the book in electronic format to make it more accessible (the hard copy can still be purchased, if your bookshop will order it, from Zed Books UK, or online from Amazon).
I have gone with the (free) Mobipocket Reader format–which runs on PCs and PDAs as well as eBook Readers like Amazon’s Kindle. The eBook priced at US$10 (about a third of Amazon’s paperback price).
Two days ago the FBI indicted Bernie Madoff, principal of Bernard L. Madoff Investment Securities LLC, on securities fraud. Though the case has yet to run, in the indictment the FBI reported that Madoff confessed that his was “basically a giant Ponzi Scheme” that may have lost some extremely high net worth individuals over US$50 billion.
Madoff’s firm was famous for returning constant positive results, even on a month by month basis, for decades. As Henry Blodget on Yahoo’s Tech Ticker reports below, many Wall Street professionals were incredulous of these results, but invested in his firm anyway–because they thought his returns must be coming from him exploiting his “market maker” role on the Nasdaq to do insider trading.
University of Texas Economics Professor James Galbraith is a son of the great US Institutional economist John Kenneth Galbraith, and a leading non-orthodox economist in his own right. He has developed highly innovative methods to measure economic inequality that are well documented here; he is a strident critic of conventional economics; and he has been as active in the USA as an analyst of and commentator on this financial crisis as I have in Australia. His many interviews on the topic are linked from this site.
