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.
Several people have commented on the speech by Glenn Stevens (for international readers, Stevens is the Governor of Australia’s central bank, the Reserve Bank of Australia) yesterday in which he commented, inter alia, that:
“I do not know anyone who predicted this course of events. This should give us cause to reflect on how hard a job it is to make genuinely useful forecasts. What we have seen is truly a ‘tail’ outcome – the kind of outcome that the routine forecasting process never predicts. But it has occurred, it has implications, and so we must reflect on it.”
Ross Gittins finally comes aboard the debt-deflation train, with an article in today’s (December 8 2008) Sydney Morning Herald entitled “It’s not inflation that did us in, it’s the borrowing”. For non-Australian readers, Ross has been a regular economic commentator for Sydney’s leading newspaper for about forty years.
His economic position in the past could be described as predominantly neoclassical, with occasional dashes of Keynesianism, the odd infrequent jibe at the unrealistic assumptions under neoclassical economics, and a socially concerned orientation that was critical of both income inequality and excessive consumerism.
The UK Government has taken the first tentative steps towards a solution to this crisis with its decision today to give stressed borrowers an interest repayment holiday of up to two years (New scheme to help people at risk of repossession).
The scheme is limited in scope to households that suffer “a significant and temporary loss of income as a result of the economic downturn to defer a proportion of the interest payments on their mortgage for up to two years”. It also guarantees banks that the deferred payments will ultimately be made.
What’s Really Going On? or…
Why Did I See it Coming and “They” Didn’t?
Part 2: The Models
“But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.” (Keynes, A Tract on Monetary Reform, 1924)
In last month’s Debtwatch, I explained why the data side of why the “Financial Instability Hypothesis” enabled me to predict this crisis, long before conventional “neoclassical” economists had any idea it was approaching.
Dear Subscribers,
There is some technical glitch affecting the blog at present that delays approval of new posts, and often results in multiple postings from the same post. I know these would be irritating to receive, but they are the fault of either the underlying software (WordPress) or my ISP host, or both.
Once I have time to get to the bottom of this, I will repair it. In the meantime, please accept my apologies for the blog’s tendency to crowd your email inbox with spurious multiple posts.
