Oilfield Trash alerts us to Steve Keen's Outlook 2015 (PDF, 20 pages, lots of graphs).
From the PDF:
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| Figure 1: Private debt bubbles everywhere |
Look, a lot of people say No, debt's not the problem. The problem is inequality.
Here's the thing: We have to stop saying "no". I want you to stop saying No, debt's not the problem. I want you to start saying Yes, and you find the same problem in inequality.
It's the same problem. "Inequality" is how it shows up among people. "Debt" is how it shows up in economic data. It's not two different problems. We don't need to fight about that. If you want to think of inequality as the problem, and think of debt as evidence of the inequality problem, that's fine with me. But we have to stop saying "no".
We have to start agreeing with each other. Otherwise, the people who disagree with both of us will win the day.
3 comments:
Art
You are so on point with this, and Keen makes a very important point.
“… private debt crisis can’t be solved simply by increasing public debt. If deleveraging is to really occur and allow a real private sector revival, then private debt has to be substantially reduced by deliberate government policy. But there is no sign of that even being discussed in the United States—or anywhere else.
IMO increasing government spending without some corresponding government policy to reduce the level of private debt is not going to help repair the foundation for steady private sector growth.
Granted increasing government spending will make things better than without it, but I think the best outcome we would see long term is two steps forward and three steps back in the private sector.
One other point he brings up that does not get a lot of attention is the CAD.
If you follow Keen theories even if government deficit spends to neutralize private sector deleveraging, if the CAD is in deficit the economy still shrinks.
"IMO increasing government spending without some corresponding government policy to reduce the level of private debt is not going to help repair the foundation for steady private sector growth."
IMO also. Increased government spending provides some relief from the stresses created by excessive private debt. But relief encourages further growth of private debt.
The picture I see is private debt expanding at a rate fast enough to keep the private/public debt ratio stuck at a high level -- with both components growing faster than before! This defeats the purpose of increasing the public debt and fails to solve the problem.
You can see "stuck at a high level" from 1970 to 1990 on this FRED graph.
If we want to provide relief by accelerating Federal spending, then we must also limit the growth of private sector debt.
Oilfield Trash,
An old post showed up in my blogger stats just now. The topic is the Current Account Deficit. My conclusion: "Can't say GDP declined because of the trade deficit. I'd say this instead: The thing that's causing the decline of GDP is also responsible for the trade deficit."
Also, regarding your remarks of 8 January
("... This would seem to support the argument that a reduction in the level of debt will bring some level of recession since it reduces spending for goods and/or services.")
mine of this morning is a first stab at an answer. Didn't go over too well, but I was pretty happy with it.
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