Steve Keen’S Scary Minsky Model

[stormymonday_2011]

Worth reading just for the US Debt By Sector Graph Alone

http://www.nakedcapitalism.com/2010/07/steve-keens-scary-minsky-model.html

I wonder what the UK private debt to GDP graph would look like.

[aa3]

I'm a fan of Steve Keen's work. I have felt the whole way the only way out would be massive fiscal deficits.. and also using that to 'shore up the households' not the banks.

Australia's fiscal stimulus has been much more successful because of this. And in fairness they went in with a much stronger hand than other western nations.

I feel most western nations are losing their will to stimulus and deficit spend though.. let alone to go bigger. And my original estimate was the USA would need 4.5 trillion dollar deficits for five years to get out. Policitally that will be hard to sell.

[Oliver Sutton]

I feel most western nations are losing their will to stimulus and deficit spend though.. let alone to go bigger. And my original estimate was the USA would need 4.5 trillion dollar deficits for five years to get out. Policitally that will be hard to sell.

Why do you group all western nations together?

22% of demand in the US was credt-driven.

Do you think the same is true in Germany where you have to have a bank account for a yaer to get a credit card and are then charged an annual fee of €100?

Why should Germany "stimulate" it's economy when it's growing with falling unemployment?

[aa3]

Why do you group all western nations together?

22% of demand in the US was credt-driven.

Do you think the same is true in Germany where you have to have a bank account for a yaer to get a credit card and are then charged an annual fee of €100?

Why should Germany "stimulate" it's economy when it's growing with falling unemployment?

Well Germany's economy contracted 6% in 2009. Steeper than the USA's 3.2% decline.

I believe Europe is even further leveraged up on credit than America. Germany in isolation though could probably avoid massive stimulus. Germany did not have anywhere near as much house price inflation or consumer credit as other European nations. And a lot of German corporate debt is based on actual real capital investment. So imo not a problem.

But where the German success becomes not quite as impressive is when you realize that so much of their export success was to consumers in America and Europe pumped up by credit. Countless people in Spain, USA, Greece, Ireland, UK buying BMW's on credit. Take away that credit and the market for German products shrinks a lot.

Finally why I still support German stimulus is they allegedly are part of the EU nation. While German employment is holding up, unemployment is reaching catastrophic levels in weaker EU nations.

[interestrateripoff]

Why do you group all western nations together?

22% of demand in the US was credt-driven.

Do you think the same is true in Germany where you have to have a bank account for a yaer to get a credit card and are then charged an annual fee of €100?

Why should Germany "stimulate" it's economy when it's growing with falling unemployment?

The Germans clearly don't get this debt is wealth model.

How much of German growth do you think has been driven by other nations with a more of a lax view on credit lending?

[Oliver Sutton]

But where the German success becomes not quite as impressive is when you realize that so much of their export success was to consumers in America and Europe pumped up by credit. Countless people in Spain, USA, Greece, Ireland, UK buying BMW's on credit. Take away that credit and the market for German products shrinks a lot.

Why does that make it less impressive?

Why didn't countless people in Spain, USA, Greece, Ireland, UK, buy home-grown products?

Edited July 5, 2010 by barry

[ralphmalph]

Germany Financed the boom in it's exports by either providing the credit directly i.e BMW Finance or Mercedes Finance or indirectly by buying foriegn assests for cash (sub prime mortgages) so that the consumer countries had an ample supply of cash to buy more German goods.

The FT call it the "German Bank Assetberg."

http://ftalphaville.ft.com/blog/2010/03/18/177361/germanys-bank-asset-berg/

Barry the reason that people did not buy home made goods was because of German credit, which was cheaper than other countries credit including Euro countries.

Edited July 5, 2010 by ralphmalph

[scepticus]

Worth reading just for the US Debt By Sector Graph Alone

hmm yes. steves paper shows that really, yes it is different this time. The current situation is totally unprecedented.

[Oliver Sutton]

Germany Financed the boom in it's exports by either providing the credit directly i.e BMW Finance or Mercedes Finance or indirectly by buying foriegn assests for cash (sub prime mortgages) so that the consumer countries had an ample supply of cash to buy more German goods.

The FT call it the "German Bank Assetberg."

http://ftalphaville.ft.com/blog/2010/03/18/177361/germanys-bank-asset-berg/

Barry the reason that people did not buy home made goods was because of German credit, which was cheaper than other countries credit including Euro countries.

Why didn't they use that credit to buy home-grown products?

[scepticus]

Why didn't they use that credit to buy home-grown products?

because their policy is to indebt foreign households rather than their own

[leicestersq]

Germany Financed the boom in it's exports by either providing the credit directly i.e BMW Finance or Mercedes Finance or indirectly by buying foriegn assests for cash (sub prime mortgages) so that the consumer countries had an ample supply of cash to buy more German goods.

The FT call it the "German Bank Assetberg."

http://ftalphaville.ft.com/blog/2010/03/18/177361/germanys-bank-asset-berg/

Barry the reason that people did not buy home made goods was because of German credit, which was cheaper than other countries credit including Euro countries.

ralphmalph,

Yes, chronic surplus nations really are a problem. They suck all of the capital out of deficit nations.

The problem is reduced when these nations have their own floating currencies. If they refuse to spend the money they have earned, then their currency appreciates to a point where their exports are no longer competitive.

But Germany and China dont have this restriction. China fixes the exchange rate, and Germany is part of the eurozone. Net result, China sucks money out of the US and everywhere else. When credit no longer fills the gap in the US, you get a depression.

In Europe, Germany sucks that money out of other countries, and replaces it with debt. Of course that debt cannot be repaid. I can only repay a debt to you, if you let me work for you to repay that debt. This is something that Germany fails to understand. This failure to understand will lead to mass default across Europe, until the Eurozone breaks down.

In the US, they have a choice. Either print huge amounts of money, or go into the second depression. I would go for the former option. This printing exercise wont create inflation whilst the Renminbi is fixed. So I would urge them to print like the blazes, use the printed money to finance government spending directly, until the Chinese have so many dollars in the Central Bank that they wake up to the idea that a floating rate is a good idea. Printing US dollars with a floating renminbi is silly, but for now go for it.

[Oliver Sutton]

because their policy is to indebt foreign households rather than their own

Of course it is.

Forcing people to buy BMWs Audis, Porches, and Bosch, Miele washing machnies.

What a bunch of bästards.

Their trade surplus has nothing to do with producing quality goods. It's simply achieved by giving people cheap credit.

[scepticus]

Their trade surplus has nothing to do with producing quality goods. It's simply achieved by giving people cheap credit.

you're right, its a combination of exporting quality goods AND cheap credit, that is your basic permanent surplus export strategy.

Bad quality goods and cheap credit wouldn't work. Neither would good quality goods and expensive credit.

Looks like they got it just about right.

[Oliver Sutton]

Yes, chronic surplus nations really are a problem.

Only to chronic deficit nations.

That's why there are so many Brits squealing on here.

[scepticus]

Only to chronic deficit nations.

which came first, the chronic deficit or chronic surplus?

[Traktion]

which came first, the chronic deficit or chronic surplus?

Who is to blame, the drug addict or the drug pusher?

It's better to not get hooked on the drugs in the first place.

EDIT: BTW, if the debtor nations intended to default all along, who are the mugs in this game? Will the credit ever be paid back? It was always a risk to expect repayment at all.

Edited July 5, 2010 by Traktion

[scepticus]

Who is to blame, the drug addict or the drug pusher?

presumably the drug pusher must have existed first, then the addicts come later.

who are the mugs in this game? Will the credit ever be paid back?

it remains to be seen who the mugs are. Probably anyone without nukes.

[ralphmalph]

Why didn't they use that credit to buy home-grown products?

The not tied to an asset (or liability depending on your point of view) credit they could buy whatever they wanted, houses mainly. The tied credit is tied to a German made asset i.e BMW will not give credit for you to buy a Land Rover.

[Traktion]

presumably the drug pusher must have existed first, then the addicts come later.

But we all know drugs are bad (unkaay...), so why did we become so irresponsible? We should have just said no at the start and then we wouldn't have had angry pushers and broke, but dependant, druggies.

it remains to be seen who the mugs are. Probably anyone without nukes.

That's a bit concerning. TBH though, no loan is guaranteed to be repaid and those doing the lending should have factored this in. While those who loaned the money could argue a moral case for repayment, those refusing to pay could argue the moral case for not going to war over it.

Unless the creditor nations want to behave like loan sharks, they should take the defaults on the chin and consider it a painful financial lesson.

[Oliver Sutton]

The not tied to an asset (or liability depending on your point of view) credit they could buy whatever they wanted, houses mainly. The tied credit is tied to a German made asset i.e BMW will not give credit for you to buy a Land Rover.

Do you think Toyota will give you credit to buy an Audi?

[scepticus]

But we all know drugs are bad (unkaay...), so why did we become so irresponsible? We should have just said no at the start and then we wouldn't have had angry pushers and broke, but dependant, druggies.

would you like to join us in the real world at some point?

the widespread existence of addicts of various chemical and financial substances implies that as a race we are incapable of being sensible on an individual basis. Know any doctors who smoke? I do.

Time for todays lesson, brought to you, as ever, by wikipedia.

Serotonin

"Serotonin is a neurotransmitter, and is found in all bilateral animals where it mediates gut movements and the animal's perception of resource availability. In the simplest animals resources are equivalent with food, but in advanced animals such as arthropods and vertebrates resources also can mean social dominance. In response to the perceived abundance or scarcity of resources the animal's growth, reproduction or mood may be elevated or lowered. Recent studies involving the serotonin transporter gene 5-HTT have shown that the short allele of this gene increase synaptic serotonin levels. These genetic studies have demonstrated that serotonin has strong associations with depression in regards to a negative environment.

Gauge of food availability

"Serotonin functions as a neurotransmitter in the nervous systems of simple as well as complex animals. For example, in the roundworm C. elegans, which feeds by grazing on bacteria, serotonin is released as a signal in response to positive events, e.g., finding a new grazing ground or in male animals finding a hermaphrodite to mate. When a well-fed worm feels bacteria on its cuticle, dopamine is released, which slows it down; if it is starved, serotonin also is released, which slows the animal down further. This mechanism increases the amount of time animals spend in the presence of food.[7] The released serotonin activates the muscles used for feeding, while octopamine suppresses them.[8] Serotonin diffuses to serotonin-sensitive neurons, which control the animal's perception of nutrient availability. This system has been partially conserved during the 700 million years of evolution which separate C. elegans from humans. When humans smell food, dopamine is released to increase the appetite."

if you are thinking that the way to structure a human civilisation is to base it on mass denial of the reality of basic brain chemistry then I suggest that such a scheme will quickly fail.

[Traktion]

would you like to join us in the real world at some point?

the widespread existence of addicts of various chemical and financial substances implies that as a race we are incapable of being sensible on an individual basis. Know any doctors who smoke? I do.

...

waffle

Of course there are addicts, but blaming someone else for your addiction is infantile.

[ralphmalph]

Do you think Toyota will give you credit to buy an Audi?

You are missing the point. Every country does it. I am sure that when some Arab airline wants to put Rolls Royce Engines on its planes Rolls Royce will arrange the finance with it's mates in the city.

The point being made is that Germany has done it to excess and so created a bubble for its exports that will have to deflate. Read the ft article I linked to.

At one point Germanys exports to Spain ammounted to 13% of Spanish GDP, this is why German banks are so heavily exposed to Spanish debt both consumer and sov.

Yes Germany makes good expensive products, no body denies that. What we did here in the UK is have a banking bubble stoked up by light regulation, Financial services became too large. What Germany did is to stoke up an export manufacturing bubble that is not sustainable without Germany lending the money to client countries.

A bubble is a bubble and when they burst it is painful.

[scepticus]

Of course there are addicts, but blaming someone else for your addiction is infantile.

once again you fall for the fallacy of composition.

given the way our brains are wired, statistically almost the entire population of the world will get it wrong.

the fact that some individuals will be able to consciously dominate their biological wiring does not mean that one can base a policy on that ability, because we know the vast majority will fail.

[Injin]

would you like to join us in the real world at some point?

the widespread existence of addicts of various chemical and financial substances implies that as a race we are incapable of being sensible on an individual basis. Know any doctors who smoke? I do.

Time for todays lesson, brought to you, as ever, by wikipedia.

Serotonin

"Serotonin is a neurotransmitter, and is found in all bilateral animals where it mediates gut movements and the animal's perception of resource availability. In the simplest animals resources are equivalent with food, but in advanced animals such as arthropods and vertebrates resources also can mean social dominance. In response to the perceived abundance or scarcity of resources the animal's growth, reproduction or mood may be elevated or lowered. Recent studies involving the serotonin transporter gene 5-HTT have shown that the short allele of this gene increase synaptic serotonin levels. These genetic studies have demonstrated that serotonin has strong associations with depression in regards to a negative environment.

Gauge of food availability

"Serotonin functions as a neurotransmitter in the nervous systems of simple as well as complex animals. For example, in the roundworm C. elegans, which feeds by grazing on bacteria, serotonin is released as a signal in response to positive events, e.g., finding a new grazing ground or in male animals finding a hermaphrodite to mate. When a well-fed worm feels bacteria on its cuticle, dopamine is released, which slows it down; if it is starved, serotonin also is released, which slows the animal down further. This mechanism increases the amount of time animals spend in the presence of food.[7] The released serotonin activates the muscles used for feeding, while octopamine suppresses them.[8] Serotonin diffuses to serotonin-sensitive neurons, which control the animal's perception of nutrient availability. This system has been partially conserved during the 700 million years of evolution which separate C. elegans from humans. When humans smell food, dopamine is released to increase the appetite."

if you are thinking that the way to structure a human civilisation is to base it on mass denial of the reality of basic brain chemistry then I suggest that such a scheme will quickly fail.

Your post contradicts it's own message.

To be consistent, you should have offered huim drugs, not been logical.