Start your US Depression engines

Steve, you use the term "well-functioning economy" (See Start your US depression engines, June 15). Does one actually exist? To me with all the intervention that occurs within economies most economic theory is just clutching at straws. However, I do agree that paying down private debt is good. Keep writing. I enjoy your articles.

If the minimum value of the DJIA change occurs 10 months before the minimum value of the "Credit Accelerator", it is hard to see how the latter causes the former (See Start your US depression engines, June 15).
Then again, I am not a Professor of Economics.

'Cometh the debt, cometh the economist'. Good one Steve keep batting away and don't forget to tell us where we should be salting our assets away (See Start your US depression engines, June 15).

Another, often ignored, factor is the illusion of the rational market (See Start your US depression engines, June 15).
To give one example that grows out of the 'One man's debt is another man's asset' notion.
If 1,000 individuals' debts make up one man's huge asset, then we've got one extremely happy potential spender, and 1,000 potentially nervous non-spenders.
In today's world, markets are based mostly on consumer driven economic models, and in reality it isn't 1 to 1,000, it's a relatively few banks to tens of millions of nervous debtors, who used to be enthusiastic consumers.
We're seeing the same thing, but to a lesser extent, here in Australia.
Economic thinkers who ignore market psychology are doomed to getting it wrong more than they get it right because markets are ultimately about people, and a century of research shows beyond doubt that we humans apply rational thinking in inverse proportion to the levels of pressure we're feeling at the moment of decision.

Please tell us which of your alarmist forecasts have been correct in the past (See Start your US depression engines, June 15)?
Australia's house prices crashed 40 per cent yet?
No one is debating they have some large debt issues that are hard to imagine, but one quarter of data is insufficient to foretell the end of the world. Certainly not quite ready to call the current state of affairs a Depression.
The alternative is that after a slight slowdown in growth, the stimulus multiplier effect will kick back in and the US recovery will continue – and you will still be renting and holding cash that is being eaten away by inflation.

Anthony Element hit the nail on the head when used the Term "Rational Market" (See 'market illusions', Conversation contribution, June 15).
How can basically 'unsophisticated' speculators, run up huge amounts of debt, whilst chanting the irrational mantras 'property only ever goes up', and 'you can't lose on Property'.
I hope you've upped the ante on your bet Steve, and that a few of your detractors walk from Sydney to Melbourne when they lose (See Start your US depression engines, June 15).

My own take on all this is that we really don't know what the hell is happening and only have a superficial grasp on what actually happened (See Start your US depression engines, June 15).
I include the experts as well as us plonkers. It reads as gobbledy gook trying to rationalise after the event. And it doesn't read very well. Nor does it augur well for the future.
As long as we have people wanting to make a 'fast buck' we will have repeats of lesser or greater severity of the GFC. No amount of legislation, hand wringing or bailing out our mates is going to get rid of the the cycle of greed and grief.

Another great article (See Start your US depression engines, June 15). +1 sending this to Adam "The Black Knight" Carr (he of Pythonesque aspect).
Goodness I hope Greece (then Ireland) default. The shameful, immoral transfer of irresponsible debt onto the public is an egregious wrong. It stuns me that people don't rise up against this. It is shocking.
US should default and the Fed should be abolished.
Gold standard.

Start your engines? Problem is the US economy is not producing enough combustion Steve (See Start your US depression engines, June 15). They are all in the back while Ben Bernanke is driving, but his GPS directions are flawed as it is an outdated version they used in the 1930s Great Depression.
They appear to be destined to repeat the mistakes that caused the 1930s depression.
They need a new driver - maybe use Ron Paul's GPS. It seems to point in the right direction.

You are still absolutely correct Steve (See Start your US depression engines, June 15), regardless of what propaganda for self benefit your detractors peddle.
How is it possible for our western world economies to increase productivity sufficiently enough to overcome this 'economic cancer', when the popular acceptance of the term 'productivity' is the productive equivalent of repeatedly digging a hole in the ground in order to bury it?
Is accepted practical usefulness now an exercise in eating the food rather than growing it?

Not a bad analysis, but one very important correction (See Start your US depression engines, June 15). Putting Bernanke and Krugman together, and calling Krugman neo-classical is ignorant and wrong. The two stand on opposite ends of the economics spectrum and Krugman has been advocating debt-focused relief measures loudly and clearly for years.

Thanks Steve. I enjoy reading your articles very much. (See Start your US depression engines, June 15). The weight of the finance sector and its control over politics and asset prices (like mentioned in your closing paragraph) has interested me much - especially its corrupt ways.

Steve Keen's analysis remains as lightweight as ever. (See Start your US depression engines, June 15.) Fed Chairman (and full professor) Ben Bernanke supposedly ignores "the level of private debt" and the booms and busts in credit through history.
Moreover, extraordinarily, Keen pretends that he invented the 'Credit Accelerator' and that everyone else has been too dumb to notice. Yet Bernanke was publishing serious papers on "The financial accelerator and the credit channel" and "Credit, money and Aggregate Demand" more than two decades ago. Check out the references at http://www.bis.org/review/r070621a.pdf.
Most of us try to hide our ignorance – great or small – from the world but, awkwardly, Keen seems unaware that he is way out of his depth on his own chosen special subject.

It's not rocket science, to get the economy moving you need someone spending (See Start your US depression engines, June 15). The ones with the money (CEOs, board members et al), the ones that caused the GFC need to redistribute their wealth by spending big time, or cut their salaries in half give a little bit to the workers or shareholders so they have something to spend. Then try to rein in inflation when the economy is moving. As long as you don't pay multi million dollar salaries they and the world will be fine. It shouldn't be the government (us taxpayers) paying for the greedy's greed.

In response to Rory Robertson (See Start your US depression engines, June 15):
Bernanke's financial accelerator is not the same as Prof Keen's. Bernanke describes his term (from your link): "The inverse relationship of the external finance premium and the financial condition of borrowers creates a channel through which otherwise short-lived economic shocks may have long-lasting effects. In the hypothetical case that Gertler and I analyzed, an increase in productivity that improves the cash flows and balance sheet positions of firms leads in turn to lower external finance premiums in subsequent periods, which extends the expansion as firms are induced to continue investing even after the initial productivity shock has dissipated. This "financial accelerator" effect applies in principle to any shock that affects borrower balance sheets or cash flows."
Bernanke's other paper you cite (Credit, money and Aggregate Demand) was also a tangential idea about the differential treatment of credit and money in the IS-LM model. If you had read any of Keen's articles you would see what his term means – "The Credit Accelerator at any point in time is the change in the change in debt over the previous year, divided by the GDP figure for that point in time." So much for hiding our ignorance.

It was Ben Bernanke who decided to copy the Japanese in using liquidity to treat insolvency (which hasn't worked for 20 years), and expect a different result. History will judge him a fool, also those who stick up for him (See Start your US depression engines, June 15).

Why don't you have another bet, Rory? Even you must admit the government stimulus artificially inflated property prices. ANZ bankers have openly acknowledged this fact. http://www.theaustralian.com.au/business/first-home-stimulus-inflated-property-prices-says-banker/story-e6frg8zx-1226068248920
I don't think you would be so lucky this time around.

"We unfortunately live in a credit-drunk economy where accelerating debt leads to asset price bubbles" (See Start your US Depression engines, June 15). There we have it in a nutshell. Keep on challenging your critics, Steve Keen. Your well researched work cannot be dismissed as simple ignorance at any level. Mentioning the 'D' word will always ruffle a few feathers. It's the debt, stupid.

Contrary to what Rory Robertson says above (See 'Debt mountain no real discovery', Conversation contribution, June 16), Steve Keen has always attributed the 'invention' of the Credit Impulse to Biggs, Mayer et al., http://ssrn.com/paper=1595980 - see his blog posting at http://www.debtdeflation.com/blogs/2010/09/20/deleveraging-with-a-twist/. The Bernanke deliberations have nothing to do with what Steve Keen is talking about (See Start your US depression engines, June 15).

In response to Rory Robertson (See 'Debt mountain no real discovery', Conversation contribution, June 15):
It's interesting that the paper spends a deal of time on information, credit worthiness and business loans... This is not really a big issue for the Australian banking system because most of the Australian banks loans are housing loans.
Housing loans require no credit skills what-so-ever, which is why Australian banks have gorged themselves with them. All you need to know is what the other houses in the neighbourhood recently sold for and the household free cash flow minus the level of the Henderson poverty line divided by the mortgage rate plus 1 per cent for amortization (cross your fingers they tell you no lies) but it doesn't really matter because you can re-sell the asset at the present market price.
Why bother with lending to difficult-to-understand risky businesses requiring a brain and analysis of difficult information? So I don't see much relevance in the Bernancke's paper to the Australian economy and banking system.

To commenter Rory Robertson (See 'Debt mountain no real discovery', Conversation contribution, June 16), I'm not sure if you read your own link, but Bernanke's financial accelerator is not the same as Professor Keen's (See Start your US depression engines, June 15).
Bernanke describes his term (from your link):
"The inverse relationship of the external finance premium and the financial condition of borrowers creates a channel through which otherwise short-lived economic shocks may have long-lasting effects. In the hypothetical case that Gertler and I analysed, an increase in productivity that improves the cash flows and balance sheet positions of firms leads in turn to lower external finance premiums in subsequent periods, which extends the expansion as firms are induced to continue investing even after the initial productivity shock has dissipated. This "financial accelerator" effect applies in principle to any shock that affects borrower balance sheets or cash flows."
Bernanke's other paper you cite (Credit, money and Aggregate Demand) was also a tangential idea about the differential treatment of credit and money in the IS-LM model.
If you had read any of Keen's articles you would see what his term means:
"The Credit Accelerator at any point in time is the change in the change in debt over the previous year, divided by the GDP figure for that point in time."
So much for hiding ignorance.

Rory Robertson claims that "Moreover, extraordinarily, Keen pretends that he invented the 'Credit Accelerator' and that everyone else has been too dumb to notice" (See ‘Debt mountain no real discovery’, Conversation contribution, June 15). In fact, on his blog Keen references three economists from Deutsche Bank as having "invented" it (See Start your US depression engines, June 15).

I did my economics degree many years ago when Friedman's monetary theory was beginning to be recognised. I completed my degree part-time at a real university and I paid my fees myself in after tax dollars.
That was in 1972 just before the 1974 recession so I have seen much change over the years.
My concern with this current situation is that just like the great empires of past eras we are now in the midst of the fall of yet another 'world power' and we are simply the pawns in the game (See Start your US depression engines, June 15).
Napoleon said that China was "a sleeping giant". He also warned against waking the sleeping giant, for whoever did would be sorry. Today, China is awake.
Go to youtube and search 'chinese professor' for an interesting point of view.

Where extraction from an economy is not balanced by contribution to the economy, then the economy weakens. (See Start your US depression engines, June 15). Far too much is being extracted by non-producers, e.g. the illegal drug market , the legal market , professional sports , gambling , the alcohol and cigarette markets. Income from production is constrained by economic realities further limited by taxation and interest rates.
Huge incomes tend to be spent on foreign exotica or drift into 'legal' tax havens, but where it is invested locally competes with tax depleted income, diminishing the value such that workers and the middle class are forced to borrow to survive.
The professional classes are becoming a liability to taxpayers rather than service providers. Banks do not appear to be wealth creators, except for staff. The record indicates banks as a cause of catastrophic losses for middle America, millions unemployed, millions of homes repossessed, thousands of businesses bankrupted. Surely it is the clients who bring wealth into a bank together with the investors. This the wealth bankers play with -- the losses are enormous, yet bankers award themselves bonuses!

We know the US had a recession fuelled by debt followed by a stimulus-induced dead cat bounce and now faces a long soft patch (See Start your US depression engines, June 15). But tell me Steve, what does your credit accelerator say about China? Loan growth in China is decelerating fast. Should we be worried?
http://eiudatapoints.wordpress.com/2011/06/14/bank-loans-in-china-tapping-the-brakes/