Wednesday, Dec 02, 2009

Central Bankers read this - There is nothing more dangerous than a bad theory

Steve Keen’s Debtwatch: Debtwatch no-41 december2009 4-years of calling the gfc

"I first realised that the world faced a serious financial crisis in the very near future in December 2005, as I prepared an Expert Witness Report for the NSW Legal Aid Commission on the subject of predatory lending."
He goes on to point out where we are and why Central Bankers models are wrong, seeing the economy in equilibrium not as dynamic, meaning the Global Financial Crisis is not over.
"It will also require the breaking of the hegemony of neoclassical economics over economic thinking, but I doubt that the academic profession, or economists in Central Banks and Treasuries, are up to the task of changing their spots. Change in economics will have to come from the rebels, and from outsiders taking over a discipline that economists themselves have failed."

Posted by mountain goat @ 02:36 PM (898 views)
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1. Teeth said...

Only a small part of Economics is dedicated to Business Cycle Theory so I suspect that the basics of Neoclassical economics will stand up well to this downturn, as it has to previous downturns.

Wednesday, December 2, 2009 02:42PM Report Comment

2. icarus said...

Another of Steve Keen's criticisms of Bernanke is that the latter believes that the way to combat deflation is to increase bank reserves and thus, via the money multiplier, the amount of money circulating in the economy (broad money). Government-created money, base money, has done nothing of the sort - it has not led, via the money multiplier, to money flooding into the economy but to money building up in banks. Keen argues that Bernanke's concept of money creation is logically flawed.

The question is whether the muddled thinking of neoclassical economists that Keen points to is the result of academic wrongheadedness or of the way political power works. It may be muddled but it has functioned well in concentrating wealth in the top 1%.

Wednesday, December 2, 2009 04:27PM Report Comment

3. alan said...

Steve Keen is reminding us of the debt bubble. The charts are good.

So, how is it important? Well, if it continually inflates, then eventually, people just can't pay the interest. When someone can't pay, you have a default.

Lots of people go bankrupt each year and companies do too - the assets get bought out and creditors make write offs. The top 10% of the rich list have hedged their bets and diversified.

But what happens when a country can't pay? Lessons from the past are Argentina etc. And.... what if the country was a big financial centre and I lived there? MMmmn!

Wednesday, December 2, 2009 05:10PM Report Comment

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