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The Coming Financial Crisis of 2021

Economist Steve Keen predicts that even if the covid-19 health crisis subsides next year, a brewing financial crisis on par with the 2008 Great Recession is in the making.

He sees the pandemic as having delivered an “unprecedented shock” to the global economy, and the response from authorities as nothing less than a “catastrophe”.

With tens of millions of households having lost their income this year, personal savings becoming exhausted, government support programs on their way to drying up, and lots more company layoffs/bankruptcies/closures ahead — Steve expects a punishing recession to arrive in full force in 2021.

And on a larger scale, he sees modern neoclassical economics — which ignores the importance of natural resources and the health of our ecosystems — as completely unsuited for the reality in which we live today. He warns that if we don’t adapt a more informed approach to managing the global economy, we will only continue to make the mess we’re in worse:

Nobel prize-winning economics of climate change is misleading and dangerous – here’s why

Nobel prize-winning economics of climate change is misleading and dangerous – here’s why

While climate scientists warn that climate change could be catastrophic, economists such as 2018 Nobel prize winner William Nordhaus assert that it will be nowhere near as damaging. In a 2018 paper published after he was awarded the prize, Nordhaus claimed that 3°C of warming would reduce global GDP by just 2.1%, compared to what it would be in the total absence of climate change. Even a 6°C increase in global temperature, he claimed, would reduce GDP by just 8.5%.

If you find reassurance in those mild estimates of damage, be warned. In a newly published paper, I have demonstrated that the data on which these estimates are based relies upon seriously flawed assumptions.

If you find reassurance in those mild estimates of damage, be warned. In a newly published paper, I have demonstrated that the data on which these estimates are based relies upon seriously flawed assumptions.

Nordhaus’s celebrated work, which, according to the Nobel committee, has “brought us considerably closer to answering the question of how we can achieve sustained and sustainable global economic growth”, gives governments a reason to give climate change a low priority.

His estimates imply that the costs of addressing climate change exceed the benefits until global warming reaches 4°C, and that a mild carbon tax will be sufficient to stabilise temperatures at this level at an overall cost of less than 4% of GDP in 120 year’s time. Unfortunately, these numbers are based on empirical estimates that are not merely wrong, but irrelevant.

Nordhaus (and about 20 like-minded economists) used two main methods to derive sanguine estimates of the economic consequences of climate change: the “enumerative method” and the “statistical method”. But my research shows neither stand up to scrutiny.

The ‘enumerative method’

…click on the above link to read the rest of the article…

The Delusional Leaders of the Eurozone

 I was looking forward to chilling with family and friends in Sydney this New Years Day, but Phil Dobbieruined it for me with this tweet:

I had forgotten that this was the 20th anniversary of the start of the Euro. But the Eurocrats in Brussels hadn’t. Some hours before the New Year commenced, Juncker and friends put out a press release extoling the virtues of the Euro. Virtues such as “unity, sovereignty, and stability … prosperity”.

Well so much for New Year cheer. With this one tweet, the EU put 2019 on track to be even worse than 2018. Using anyof those words to describe the Euro—apart perhaps from “unity”, since the same currency is used across most of continental Europe now—is a travesty of fact that even Donald Trump might baulk at.

Sovereignty? Tell that to the Greeks, Italians or French, who have had their national economic policies overridden by Brussels. Stability? Economic growth has been far more unstable under the Euro than before it, and Europe today is riven with political instability which can be directly traced to the straitjacket the Euro and the Maastricht Treaty imposed. Prosperity? Let’s bring some facts into Juncker’s fact-free guff.

I’ll start with Phil’s point about Greece. Greece’s GDP has fallen at Great Depression rates since the Eurozone imposed its austerity policies on it, and nominal GDP today is more than 25% below its peak.

Figure 1: Greek GDP and economic growth rate

Now of course that could be blamed on the Greeks themselves, so let’s look compare economic growth in the entire Eurozone to the USA (minus Ireland and Luxembourg, since in the former case their data is massively distorted by data revisions, and the latter has highly volatile data as well, and is so small—under 600,000 people—that it can safely be ignored).

Figure 2: Real economic growth rates

…click on the above link to read the rest of the article…

Steve Keen: “Why Did It Take So Long For This Crash To Happen?”

As originally written at RT, outspoken Aussie economist Steve Keen points out that everyone who’s asking “why did the stock market crash Monday?” is asking the wrong question; the real question, Keen exclaims, is “why did it take so long for this crash to happen?

The crash itself was significant – Donald Trump’s favorite index, the Dow Jones Industrial (DJIA) fell 4.6 percent in one day. This is about four times the standard range of the index – and so according to conventional economics, it should almost never happen.

Of course, mainstream economists are wildly wrong about this, as they have been about almost everything else for some time now. In fact, a four percent fall in the market is unusual, but far from rare: there are well over 100 days in the last century that the Dow Jones tumbled by this much.

Crashes this big tend to happen when the market is massively overvalued, and on that front this crash is no different.

It’s like a long-overdue earthquake. Though everyone from Donald Trump down (or should that be “up”?) had regarded Monday’s level and the previous day’s tranquillity as normal, these were in fact the truly unprecedented events. In particular, the ratio of stock prices to corporate earnings is almost higher than it has ever been.

More To Come?

There is only one time that it’s been higher: during the DotCom Bubble, when Robert Shiller’s “cyclically adjusted price to earnings” ratio hit the all-time record of 44 to one. That means that the average price of a share on the S&P500 was 44 times the average earnings per share over the previous 10 years (Shiller uses this long time-lag to minimize the effect of Ponzi Scheme firms like Enron).

…click on the above link to read the rest of the article…

How I sold out to the Putin-Soros-Murdoch conspiracy to destroy Western civilization

How I sold out to the Putin-Soros-Murdoch conspiracy to destroy Western civilization

Steve Keen is an Australian economist and author. He’s professor and Head of the School of Economics, History and Politics at Kingston University in London. You can support his attempts to build a new economics https://www.patreon.com/ProfSteveKeen.
How I sold out to the Putin-Soros-Murdoch conspiracy to destroy Western civilization
I was delighted to find myself in the Top Ten (alright; top 15) of the European Values list of 2,326 “Useful Idiots” appearing regularly on RT shows, and thus legitimizing Vladimir Putin’s attempt to destroy Western civilization as we know it.

Why delighted? Because it completes the set of conspiracies to which I can now be accused of belonging. They include:

• The Putin Conspiracy, since I am regularly interviewed on Russia Today (and even worse, I now get paid to write for RT!);

• The Soros Conspiracy, since my research, has been funded by the Institute for New Economic Thinking (INET) which he established;

• The Murdoch Conspiracy, since I appear every week on Sky News Australia with Carson Scott, and I used to get paid by News Ltd to write a weekly column; and

• The Alt-Right Conspiracy, since I’ve signed a book contract with Vox Day’s publishing firm Castalia House.

So not only am I a “useful idiot,” I’m a useful idiot for four contradictory conspiracies. Does that make me a double-double agent?

…click on the above link to read the rest of the article…

There Is No Excuse For Janet Yellen’s Complacency

There Is No Excuse For Janet Yellen’s Complacency

Janet Yellen has been reported by Reuters as saying in London yesterday that “she does not believe that there will be a run on the banking system at least as long as she lives”:

“Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” Yellen said at an event in London. “Fed’s Yellen: Not another financial crisis in ‘our lifetimes’

The only word I can use to describe this belief is “delusional.”

NEW YORK, NY – JUNE 14: Traders work as a television monitor displays Federal Reserve Chair Janet Yellen announcing the Fed’s decision to raise interest rates on the floor of the New York Stock Exchange (NYSE) June 14, 2017 in New York City. The Federal Reserved raised interest rates today .25 percent for a new target range of 1 percent to 1.25 percent. (Photo by Drew Angerer/Getty Images)

The only way in which her belief could be justified would be in financial crises were truly random events, caused by something outside the economy—or just by a very bad throw of the economic dice.

This is indeed the perspective of mainstream “Neoclassical” economic theory, in which Yellen was trained, and because of which she was deemed eligible—and indeed eminently suitable—to Chair the Federal Reserve.

This is the theory that led the OECD to proclaim, two months before the crisis began in August 2007, that “the current economic situation is in many ways better than what we have experienced in years”, and that they expected that “sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment.” (OECD, June 2007, “Achieving Further Re-balancing”).

…click on the above link to read the rest of the article…

CERN Discovers New Particle Called The FERIR

CERN Discovers New Particle Called The FERIR

This is an article by our friend Steve Keen, which was yanked by Forbes yesterday after just a few hours due to, according to Steve, their ‘parody policy’. I did some research and it turns out the Automatic Earth has no such policy. So I offered Steve to repost it here.

Steve Keen: CERN has just announced the discovery of a new particle, called the “FERIR”.

This is not a fundamental particle of matter like the Higgs Boson, but an invention of economists. CERN in this instance stands not for the famous particle accelerator straddling the French and Swiss borders, but for an economic research lab at MIT—whose initials are coincidentally the same as those of its far more famous cousin.

Despite its relative anonymity, MIT’s CERN is far more important than its physical namesake. The latter merely informs us about the fundamental nature of the universe. MIT’s CERN, on the other hand, shapes our lives today, because the discoveries it makes dramatically affect economic policy.

CERN, which in this case stands for “Crazy Economic Rationalizations for aNomalies”, has discovered many important sub-economic particles in the past, with its most famous discovery to date being the NAIRU, or “Non-Accelerating Inflation Rate of Unemployment”. Today’s newly discovered particle, the FERIR, or “Full Employment Real Interest Rate”, is the anti-particle of the NAIRU.

Its existence was first mooted some 30 months ago by Professor Larry Summers at the 2013 IMF Research Conference. The existence of the FERIR was confirmed just this week by CERN’s particle equilibrator, the DSGEin.

Asked why the discovery had occurred now, Professor Krugman explained that ever since the GFC (“Global Financial Crisis”), economists had been attempting to understand not only how the GFC happened, but also why its aftermath has been what Professor Summers characterized as “Secular Stagnation”.

…click on the above link to read the rest of the article…

Canada due for debt crisis and recession, economist argues

Canada due for debt crisis and recession, economist argues

Credit growth has to stop at some point, and then economy shrinks, argues Steve Keen

Finance Minister Bill Morneau has just delivered a budget that will put Canada deeper in debt. A Forbes columnist argues that puts Canada on track for a credit crisis.

Finance Minister Bill Morneau has just delivered a budget that will put Canada deeper in debt. A Forbes columnist argues that puts Canada on track for a credit crisis. (Sean Kilpatrick/Canadian Press)

An economist writing for Forbes magazine has tapped Canada as one of seven countries in the world that are due for a debt crisis and an ensuing recession in the next one to three years.

The trigger will be too much credit, with companies and individuals discouraged from borrowing because their debt is too high and banks then balk at lending, said Steve Keen, head of the school of economics, politics and history at Kingston University London.

A critic of conventional economics, he argues that economists failed to anticipate the global financial crisis of 2008 because they ignored the phenomenon of banks lending too much money.

That’s the situation Canada is approaching now, along with China, Australia, Sweden, Hong Kong, Korea and Norway, he writes in “The seven countries most vulnerable to a debt crisis.”

“Timing precisely when these countries will have their recessions is not possible, because it depends on when the private sector’s willingness to borrow from the banks — and the banking sector’s willingness to lend — stops,” he writes.

Government stimulus programs and programs to support first-time home buyers can postpone the pain, he argues, but credit cannot keep growing at such a rapid rate, unless GDP is growing more rapidly.

Soon to be ‘walking wounded’

“When it arrives, these countries — many of which appeared to avoid the worst of the crisis in 2008 — will join the world’s long list of walking wounded economies,” Keen says.

…click on the above link to read the rest of the article…

The Balkanization of Europe

Danae Stratou, Ilargi, Yanis Varoufakis and Steve Keen Feb 16 2016
When my mate Steve Keen took me to meet Yanis Varoufakis for dinner last week when we all happened to find ourselves in Athens together, I at least sort of regretted not having the time and space to talk to Yanis about his DiEM25 project for the democratization of Europe. It was a private occasion, there were other people at the dinner table, Steve and Yanis had no seen each other for a while, it was simply not about that.

I did think afterward that it would be great to do this kind of get together more often, and get ideas running, but then realized we are all workaholics and we all live thousands of miles apart, so the odds of that happening are slim at best. And that in turn made me think of how inspiring the years were when I toured the world with my Automatic Earth partner in crime Nicole Foss, how important it is to have people around to bounce off your ideas of what’s going on, how much faster that crystallizes your own ideas.

But as things are, and as they happened, I didn’t have that time with Yanis. And not nearly enough with Steve either, for that matter, who has/is a brain that I would love to pick for days if not weeks, he’s such a brilliant mind. When you have just a few hours, though, the time is filled with drinking wine and catching up with what’s happened in each other’s personal lives, it had been 3 years since we met, and professionally, since Steve knows Nicole very well, they did quite a few presentations together, yada yada.

Immensely gratifying, of course, to be able to renew a friendship like that, but almost as frustrating to not be able to expand on it.

…click on the above link to read the rest of the article…

Are Asian Central Bankers Even Crazier Than Our Own?

Are Asian Central Bankers Even Crazier Than Our Own?

That the world’s central bankers get a lot of things wrong, deliberately or not, and have done so for years now, is nothing new. But that they do things that result in the exact opposite of what they ostensibly aim for, and predictably so, perhaps is. And it’s something that seems to be catching on, especially in Asia.

Now, let’s be clear on one thing first: central bankers have taken on roles and hubris and ‘importance’, that they should never have been allowed to get their fat little greedy fingers on. Central bankers in their 2016 disguise have no place in a functioning economy, let alone society, playing around with trillions of dollars in taxpayer money which they throw around to allegedly save an economy.

They engage solely, since 2008 at the latest, in practices for which there are no historical precedents and for which no empirical research has been done. They literally make it up as they go along. And one might be forgiven for thinking that our societies deserve something better than what amounts to no more than basic crap-shooting by a bunch of economy bookworms. Couldn’t we at least have gotten professional gamblers?

Central bankers who moreover, as I have repeatedly quoted my friend Steve Keen as saying, even have little to no understanding at all of the field they’ve been studying all their adult lives.

They don’t understand their field, plus they have no idea what consequences their next little inventions will have, but they get to execute them anyway and put gargantuan amounts of someone else’s money at risk, money which should really be used to keep economies at least as stable as possible.

…click on the above link to read the rest of the article…

Why the Fed Is WRONG About Interest Rates

Why the Fed Is WRONG About Interest Rates

Economics prof Steve Keen – who called the Great Recession before it happened – points out today in Forbes that the Fed’s rate dashboard is missing crucial instrumentation:

The Fed will probably hike rates 2 to 4 more times—maybe even get the rate back to 1 per cent—and then suddenly find that the economy “unexpectedly” takes a turn for the worse, and be forced to start cutting rates again.

This is because there are at least two more numbers that need to be factored in to get an adequate handle on the economy: 142 and 6—the level and the rate of change of private debt. Several other numbers matter too—the current account and the government deficit for starters—but private debt is the most significant omitted variable in The Fed’s toy model of the economy. These two numbers (shown in Figure 2) explain why the US economy is growing now, and also why it won’t keep growing for long—especially if The Fed embarks on a period of rate hiking.


Figure 2: The two key numbers The Fed is ignoring

image004

[T]he dilemma this poses for The Fed—a dilemma about which it is blissfully unaware—is that a sustained growth rate of credit faster than GDP is needed to generate the magic numbers on which it is placing its current wager in favor of higher interest rates.

The Fed, along with all mainstream economists, dismisses this argument on the basis that the level of private debt doesn’t matter to the macroeconomy: for every debtor who can spend less because of higher rates, there is a saver who can spend more, so the two effects cancel out.

…click on the above link to read the rest of the article…

Austerity, Economics and Religion

Austerity, Economics and Religion

There are many things going on in the Greece vs Institutions+Germany negotiations, and many more on the fringe of the talks, with opinions being vented left and right, not least of all in the media, often driven more by a particular agenda than by facts or know-how.

What most fail to acknowledge is to what extent the position of the creditor institutions is powered by economic religion, and that is a shame, because it makes it very difficult for the average reader and viewer to understand what happens, and why.

Greek FinMin Yanis Varoufakis has often complained that he can’t get the finance ministers and others to discuss economics. As our mutual friend Steve Keen put it:

Steve Keen said the finance minister was frustrated with the progress of Greece’s talks with the euro zone, adding Varoufakis had compared the talks to dealing with “divorce lawyers”. Keen said the finance ministers of Europe refused to discuss certain euro policies, according to Varoufakis. [..] When asked what [Varoufakis and he] mainly discuss at the moment, Keen said, “Mainly his frustration, the fact that the one thing that he can’t discuss with the finance ministers of Europe is economics..”

“He goes inside, he is expected to be discussing what the economic impact of the policies of the euro are and how to get a better set of policies, living within the confines of the euro and the entire European Union system, and he said they simply won’t discuss it. He said it is like walking into a bunch of divorce lawyers, it is not anything like what you think finance ministers should be talking about..”

…click on the above link to read the rest of the article…

Steve Keen: The Deliberate Blindness Of Our Central Planners

Steve Keen: The Deliberate Blindness Of Our Central Planners

Choosing to ignore the largest risks

The models we use for decision making determine the outcomes we experience. So, if our models are faulty or flawed, we make bad decisions and suffer bad outcomes.

Professor, author and deflationist Steve Keen joins us this week to discuss the broken models our central planners are using to chart the future of the world economy.

How broken are they? Well for starters, the models major central banks like the Federal Reserve use don’t take into account outstanding debt, or absolute levels of money supply. It’s why they were completely blindsided by the 2008 crash, and will be similarly gob-smacked when the next financial crisis manifests.

And within this week’s podcast is a hidden treat. Steve’s character exposition on Greek Financial Minister Yanis Varoufakis. Steve has known Varoufakis personally for over 25 years, and is able to offer a window into his constitution, how his mind thinks, and what he’s currently going through in his battle with the Troika for Greece’s future.

 

…click on the above link to listen to the podcast…

The Fed Has Not Learnt From The Crisis

The Fed Has Not Learnt From The Crisis

The Financial Crisis of 2007 was the nearest thing to a “Near Death Experience” that the Federal Reserve could have had. One ordinarily expects someone who has such an experience—exuberance behind the wheel that causes an almost fatal crash, a binge drinking escapade that ends up in the intensive care ward—to learn from it, and change their behaviour in some profound way that makes a repeat event impossible.

Not so the Federal Reserve. Though the event itself gets some mention in Yellen’s speech yesterday (“Normalizing Monetary Policy: Prospects and Perspectives”, San Francisco March 27, 2015), the analysis in that speech shows that the Fed has learnt nothing of substance from the crisis. If anything, the thinking has gone backwards. The Fed is the speed driver who will floor the accelerator before the next bend, just as he did before the crash; it is the binge drinker who will empty the bottle of whiskey at next year’s New Year’s Eve, just as she did before she woke up in intensive care on New Year’s Day.

So why hasn’t The Fed learnt? Largely because of a lack of intellectual courage. As it prepares to manage the post-crisis economy, The Fed has made no acknowledgement of the fact that it didn’t see the crisis itself coming. Of course, the cause of a financial crisis is far less obvious than the cause of a crash or a hangover: there are no skidmarks, no empty bottle to link effect to cause. But the fact that The Fed was caught completely unawares by the crisis should have led to some recognition that maybe, just maybe, its model of the economy was at fault.

 

…click on the above link to read the rest of the article…

The overdue Copernican Revolution in Economics – Steve Keen’s Debtwatch

The overdue Copernican Revolution in Economics – Steve Keen’s Debtwatch.

This is the talk I gave at the first con­fer­ence of the Inter­na­tional Stu­dent Ini­tia­tive for Plu­ral­ism in Eco­nom­ics, held in the beau­ti­ful Ger­man town of Tue­bin­gen, Ger­many on Sep­tem­ber 19–21 2014.

I cover Min­sky, money, com­plex­ity, the role of debt in aggre­gate demand & aggre­gate sup­ply, and the eco­nomic cri­sis. I spoke too fast and cov­ered top­ics at too high a level for many of the under­grad­u­ate stu­dents in the audi­ence who are part of the rebel­lion against the dom­i­nance of eco­nom­ics tuition and research by Neo­clas­si­cal eco­nom­ics. I hope putting it up here gives those stu­dents and oth­ers a chance to “hit the pause but­ton” and go through my talk more slowly.

– See more at: http://www.debtdeflation.com/blogs/2014/09/23/the-overdue-copernican-revolution-in-economics/#sthash.ztLwxDRA.dpuf

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