My hero!

Banks: "parasites... financial bastards... should never have lent the money in the first place... bankrupt them... nationalise them... cancel debt... or the economy will die... never-ending Depression."

Straight-talking Aussie economist Steve Keen, talking to teeth-clenched grinning, gonzo (but still on the money, in my opinion) "Wall Street are terrorists" Max Keiser.

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.

The night they raided Minsky

Australian economist Steve Keen summarises Hyman Minsky's Financial Instability Hypothesis, which is that you get bubble after bubble, each time increasing the debt, until the process simply cannot continue and all will be catastrophically revealed.

So he's another forecasting and fearing systemic collapse - like Marc Faber and Max Keiser recently - and now Karl Denninger.

As the Dow heads for 10,000, the FTSE soars above 5,000 but gold seems now to be consistently drifting beyond the $1,000 breakwater, I feel of the bankers, traders and politicians, as Talleyrand said of the Bourbons, that "They have learned nothing and forgotten nothing."

Debt, unemployment and escape routes

Interesting observation by Steve Keen: unemployment correlates closely with the amount that debt contributes to demand in the economy.

Let me try to reason out the consequences, however inexpertly.

So, as everyone scrambles to cut spending and get out of debt, unemployment will soar. Since there is a great deal of international trade, the hit will be felt internationally.

Then government finances will come properly unravelled, especially in countries that have generous social welfare provisions. Worldwide, sovereign states will look for anyone who has real money to lend.

This should result in higher interest rates, but that would make the cost of debt, and its sustainability, extremely difficult, both for states and for corporations (and the burden on the latter will tend to result in even more unemployment and more claimants on the government). A rise in rates would also hit holders of long-term government debt, which may be one of the reasons the Chinese have been swapping that for shorter-dated Treasuries. A collapse in bonds will affect the capital value of pensions and investments, oh dear.

Another way out is default on debt. But who will be hit by that? Not just foreigners, but our pensions and managed investment funds.

A third way, which given that we have history to learn from doesn't seem likely, is the true hyperinflation approach. Germany in 1923, Hungary, Argentina, Zimbabwe... do you really see this happening here?

Then there's the downgrading of debt, with corresponding falls in the traded value of the currency. We've seen some of that - what, 20% off the pound? - so maybe there's more to come from that direction. Except other countries may follow suit. In 1922, if you were a far-sighted German, I suppose you might have sold marks and bought dollars; what currency would you buy now?

Or there's "more of the same" again - talking up the economy and pumping in cash until you spend because you daren't leave it to rot in the savings account.

Which way will it go? Where will it all end?