Saturday, November 21, 2009
Steve Keen: we are facing a rerun of the 1930s
In a long and fairly technical presentation which, as an amateur I freely admit to not fully understanding, Steve Keen, one of the few professional economists to foresee the credit crunch, argues that there will NOT be a successful reflation this time, and instead we face a savage "deleveraging" as in the 1930s. Possibly worse, since the ratio of debt to GDP is worse this time.
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6 comments:
My belief, from before the whole thing began, has been that we are looking at another Great Depression. Therefore, in my view, the Government's job was to do what could be done to ameliorate the damage, without putting the finances of the sovereign state at risk. Instead it just tried to put off the evil day until after the election, and has horrbly compromised the state while doing so. It may yet prove to be a hanging offence.
Of course there are two ways you can reduce debt to GDP ratios - firstly the hard way, by paying back the debt slowly over time, with a hardly increasing GDP. Akin to having a big credit card debt and then spending years scrimping and saving to pay it down. Or you can increase the nominal value of GDP, while the debt remains constant, thus reducing the ratio. Short of an economic miracle that allows the economy to grow rapidly without taking on more debt, the only way this can happen is inflation.
Hence my belief that somewhere along the line there will be a inflationary period, that will allow the debt to GDP ratio to fall back towards its historic levels, and thus set the seeds of the next debt fuelled boom.
@dearieme
Sadly, I think that one of the first things Blair did on coming to office was to get rid of the sentence of Capital Punishment for the crime of Treason.
Now we know why.
It's worse than that because it is accompanied by a political agenda in the States as well as over here with the EU. This depends on the situation getting worse so that it can step in as the saviour. That Messiah motif again.
I believe that we are getting closer and closer to a currency crisis based on the U.S. government's misguided policies of ever increasing deficits. And the action in the dollar index is particularly worrisome. While I do not think now is a great time to be buying gold, I am still very bullish on the gold price and gold mining stocks in the long term. In my view it's one of the few sectors where investors can protect themselves from the Keynesian policies of the govt. And in terms of specific gold mining companies, I just saw that one gold mining company I like a lot, San Gold, just discovered a new high grade gold zone at its Rice Lake Mine in Canada. There are several good articles on the company including one that discusses how it is increasing production and reducing costs. There are many unintended consequences of the huge deficits the govt is running up, and I think the gold price reaching new highs is a strong indication of the currency debasement and money printing that are going on.
...and, as I pointed out in my 'Dilution' piece, the amount that the governments of the World have printed pales in comparison to the amount that the finance sector has created on paper.
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