Download presentation - DebtDeflation

Debt-financed demand percent of aggregate demand
Private debt to GDP ratios
25
300
275
20
15
225
10
200
Percent
Years (percent of GDP)
250
USA
Australia
175
150
125
100
5
0
0
5
Great Depression
including Government
Great Recession
including Government
 10
75
 15
50
 20
25
0
1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020
Flow of Funds Table L1+Census Data; RBA Table D02
 25
0
1
2
3
4
5
6
7
8
9
10
11
12
Years since peak rate of growth of debt (mid-1928 & Dec. 2007 resp.)
Are We “It” Yet?
Steve Keen
University of Western Sydney
Debunking Economics
www.debtdeflation.com/blogs
www.debunkingeconomics.com
13
Are We “It” Yet?
• Biggest debt bubbles in history...
Private debt to GDP ratios
300
275
Years (percent of GDP)
250
USA
Australia
225
200
175
175
150
125
100
75
50
25
0
1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020
Flow of Funds Table L1+Census Data; RBA Table D02
Are We “It” Yet?
• “If income is to grow, the financial markets … must
generate an aggregate demand that, aside from brief
intervals, is ever rising.
• For real aggregate demand to be increasing, … it is
necessary that current spending plans, summed over all
sectors, be greater than current received income
• and that some market technique exist by which aggregate
spending in excess of aggregate anticipated income can
be financed.
• It follows that over a period during which economic
growth takes place, at least some sectors finance a part
of their spending by emitting debt or selling assets.”
(Minsky 1982, p. 6; emphasis added)
Are We “It” Yet?
• Aggregate Demand
• Debt
and GDP
US Private Debt and GDP 1920-1940
US Aggregate Demand GDP 1920-1940
180000
120000
Debt
GDP
170000
160000
110000
150000
100000
130000
$ million
$ million
140000
120000
110000
100000
90000
80000
70000
90000
60000
80000
GDP alone
GDP+Change in Debt
70000
50000
60000
50000
20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
40000
20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
Year
Year
US Private Debt and GDP 1990-2010
US Aggregate Demand GDP 1990-2010
7
7
510
7
4.510
210
Debt
GDP
7
1.810
7
410
GDP alone
GDP+Change in Debt
7
1.610
7
7
$ million
$ million
3.510
7
310
7
2.510
1.410
7
1.210
7
7
110
7
810
7
610
6
410
 10 9  8  7  6  5  4  3  2  1 0 1 2 3 4 5 6 7 8 9 10 11
210
6
1.510
6
110
510
 10 9  8  7  6  5  4  3  2  1 0 1 2 3 4 5 6 7 8 9 10 11
Years since 2000
6
Years since 2000
Are We “It” Yet?
• Aggregate demand & unemployment 1920-1940
8
7
6
5
4
3
2
1
0
1
2
3
4
5
6
7
8
9
 10
20
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
Change in Debt (lagged one year)
Unemployment
22
24
26
28
30
Year
32
34
36
38
40
Percent unemployed (inverted)
Percent change p.a.
Correlation of change in private debt and unemployment
Are We “It” Yet?
• Aggregate demand & unemployment 1990-2010
15
14
Private only
13
Inc. Gov
12
11
Unemployment
10
9
8
7
6
5
4
3
2
1
0
1
2
3
4
5
6
7
8
9
 10
 10  9  8  7  6  5  4  3  2  1 0
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
9.5
10
10.5
11
11.5
12
1
2
3
Years since 2000
4
5
6
7
8
9
10 11
Percent unemployed (inverted)
Percent change p.a.
Correlation of change in private debt and unemployment
Are We “It” Yet?
• Debt-financed proportion of aggregate
Debt
demand:GDP  Debt
Debt-financed demand percent of aggregate demand
25
20
15
Percent
10
5
0
0
5
Great Depression
including Government
Great Recession
including Government
 10
 15
 20
 25
0
1
2
3
4
5
6
7
8
9
10
11
12
Years since peak rate of growth of debt (mid-1928 & Dec. 2007 resp.)
13
Are We “It” Yet?
• Unemployment: end of the storm or just a lull?
Unemployment Great Depression vs Today
30
Percent of workforce
25
20
15
10
From mid-1927
U-3 from Dec-2007
U-6 from Dec-2007
5
0
0
1
2
3
4
5
6
7
8
9
10
11
Years since peak rate of growth of debt (mid-1928 & Dec. 2007 resp.)
12
Are We “It” Yet?
• Far larger Fed response: quantitative easing then & now
Year
33.5
34
34.5
10
9
Inflation
8
Change in Base Money (RHS)
7
6 110
5
4
3
2
1
0
1
2
3
4
5 0
5 5.5
6
6.5
7 7.5
8
8.5
9
??
9.5
10
Years since 2000
• “Printing press” may have stopped nascent deflation
• But will it be sustained?
• Over to modelling...
150
140
130
120
110
100
90
80
70
60
0 50
40
30
20
10
0
10.5 11
Annual change in M0
30
28
26
24
22
20
18
16
0 14
12
10
8
6
4
2
0
2
4
6
8
 10
35
Inflation
8
7
Inflation
6
5
Change in Base Money (RHS)
4 22
3
2
1
0
1
2
3
4
5
6
7 0
8
9
 10
 11
 12
30 30.5
31
31.5
32
32.5
33
Change in M0 and Inflation, Great Recession
Annual change in M0
Inflation
Change in M0 and Inflation, Great Depression
Are We “It” Yet?
+
• Minsky: Ponzi
finance
extension to
Keen 1995
Investment
Capital
Output
Plot
Speculative to Productive Debt
Output
6
5
Cyclical Growth
2000
4
1000
3
2
0
0
10
20
30 40 50
Time (Years)
60
70
1
0
WageShare
Click here to
download Vissim
viewer program
Output
0
10
30
40
Time (Years)
50
60
70
Cyclical Growth
Debt
Ratios
Wages share of output
Employment Rate
1.0
.5
0
On
DebtInModel
On
Off
Ponzi
InitialBoom
Plot
Debt to Output Ratios
0
10
20
30
40
50
Time (Years)
60
70
6
Total Debt
Productive
Speculative
5
Cyclical Growth
4
1.1
Employment
• Click on icon to
run simulation
after installing
Vissim Viewer
20
3
.9
2
.7
1
.5
.3
.5
EmploymentRate
+
Profit
+
.7
.9
Wages
*
1.1
Employment
InterestRate
TotalDebt
0
0
10
+
+
20
30
40
Time (Years)
Productive
Debt
Speculative
Debt
50
60
Profit
Investment
RateOfGrowth
70
Are We “It” Yet?
rl
• Circuit:
Which gives
more “bang
for buck”—
rescuing
bankers or
debtors?
Bank Assets
1500
Bank Liabilities (Deposits)
Loans
Unlent Reserves
1250
1500
1000
1000
750
750
500
500
250
250
0
0
10
20
Firms
Households
Banks
1250
30
Time (Years)
40
50
60
URate
0
0
10
InfRate
20
B_D
H_D
Unemployment
25
40
50
60
40
50
60
F_D
Inflation
No Stimulus
Bank Injection
Borrowers Injection
20
30
Time (Years)
10.0
7.5
No Stimulus
Bank Injection
Borrowers Injection
5.0
2.5
15
0
10
• Click on icons
to run
-2.5
-5.0
5
-7.5
0
0
10
20
30
Time (Years)
40
50
Parameters &
Initial Conditions
Financial
System
NoStimulus
Production
System
StimBank
0
60
-10.0
0
10
20
3
Debt to Output Ratio
Magnitude of Crunch
25
30
Time (Years)
25
No Stimulus
Bank Injection
Borrowers Injection
20
C_size
tCC
15
StimFirm
StimFirm
F_L
Y
l
r
/
100
10
1.
5
D:0 S:1
60.
0
0
10
20
30
40
Time (Years)
50
60
Are We “It” Yet?
• Integrating Minsky & the Circuit
– Debt-deflationary dynamics in strictly monetary
Minsky-Circuit model
– “The Great Moderation”, then “The Great Crash”
Bank Accounts
Debt to Output Ratio
5
110
5
4
110
Years to repay debt
4
$
1000
100
Bank Equity
Bank Transactions
Firm Loan
Firm Deposit
Worker Deposit
10
1
0
10
20
30
Year
40
3
2
1
0
50
0
10
20
30
Year
40
50
Are We “It” Yet?
• Stability is destabilizing...
Rate of employment and rate of profit
Real growth rate
10
20
15
5
90
0
Percent p.a.
100
Percent p.a.
Percent of workforce
110
5
100 (    )
0
80
Employment
Profit
70
10
0
10
5
20
30
5
50
40
0
10
20
30
40
50
Employment and wage share dynamics
120
Year
Inflation Rate
Percent p.a.
40
20
0
0
Worker share of GDP
60
100
80
60
 20
 40
40
0.7
0
10
20
30
40
50
0.8
0.9
Employment rate
1
1.1
Are We “It” Yet?
• Income inequality
– Not worker vs capitalist but worker vs banker
Income Distribution
110
Workers
Capitalists
Bankers
100
90
Percent of GDP
80
70
60
50
40
30
20
10
0
 10
0
10
20
30
Year
40
50
Are We “It” Yet?
• QED: a new approach to dynamic modelling
• Inspired by Godley SAM approach
– Extended to continuous time
• Ideally suited to financial flows
– Model dynamics via a GodleyTable:
Are We “It” Yet?
• Equation entry:
Are We “It” Yet?
• Automatically
generate “Forrester
Diagram”
• Similar to standard
systems engineering
– Simulink, Vissim,
Ithink, Stella,
Vensim
• And also “Phillips
Diagram”...
Are We “It” Yet?
• Tribute to Bill
Phillips...
•
•
Freely available at
www.debtdeflation.
com/blogs/qed
Updates will be
posted there