Protecting yourself from World War III: Debtors vs Creditors
Steve Keen is an Australian Post-Keynesian economist credited as having "seen it coming" in this survey of research by economists or financial market commentators. Keen was one of only eleven researchers who qualified, which included Schiff, Roubini, and Shiller.
Steve Keen is a follower of Hyman Minsky’s “Financial Instability Hypothesis”, which he summarises as:
1) Capitalist economies periodically experience financial crises;
2) These are caused by debt-financed speculation on asset prices leading to bubbles in asset prices;
3) These bubbles must eventually burst because they add nothing to productive capacity while increasing the debt-servicing burden;
4) When they burst, asset prices collapse but the debt remains;
5) The attempts by both borrowers and lenders to reduce leverage reduces demand and causes a recession;
6) If the economy survives such a crisis it goes through the same process again, with another boom driving debt up even higher, followed by yet another crash; but
7) This leads to a level of debt that is so great that another revival becomes impossible since no-one is willing to take on any more debt;
8) Then a Depression ensues.
A plausible but dismal explanation. Consider this comment on Steve's latest blog post:
"This is one of the great questions for all of history, how to get out of this. For one thing, one persons debt is another persons asset or in many cases their money. ... It is clear that everyone that has something is going to take a haircut on it. Either by a systematic bankruptcy or by a natural one."
As Steve Keen says:
Some form of price chaos has to be expected though, whatever is done. One side-effect of the bubble has been an enormous dislocation in prices, not just with overvalued financial assets, but also with drastically overinflated incomes for the financial class, and concomitant price distortions all the way through commodities.
How do you protect yourself from this economic World War III? Simply swallow the red pill and step outside the Financial Matrix: bail out of your "has something"s into precious metals and sit by and watch the annihilation as everyone else takes "a haircut".
Steve Keen is a follower of Hyman Minsky’s “Financial Instability Hypothesis”, which he summarises as:
1) Capitalist economies periodically experience financial crises;
2) These are caused by debt-financed speculation on asset prices leading to bubbles in asset prices;
3) These bubbles must eventually burst because they add nothing to productive capacity while increasing the debt-servicing burden;
4) When they burst, asset prices collapse but the debt remains;
5) The attempts by both borrowers and lenders to reduce leverage reduces demand and causes a recession;
6) If the economy survives such a crisis it goes through the same process again, with another boom driving debt up even higher, followed by yet another crash; but
7) This leads to a level of debt that is so great that another revival becomes impossible since no-one is willing to take on any more debt;
8) Then a Depression ensues.
A plausible but dismal explanation. Consider this comment on Steve's latest blog post:
"This is one of the great questions for all of history, how to get out of this. For one thing, one persons debt is another persons asset or in many cases their money. ... It is clear that everyone that has something is going to take a haircut on it. Either by a systematic bankruptcy or by a natural one."
As Steve Keen says:
Some form of price chaos has to be expected though, whatever is done. One side-effect of the bubble has been an enormous dislocation in prices, not just with overvalued financial assets, but also with drastically overinflated incomes for the financial class, and concomitant price distortions all the way through commodities.
How do you protect yourself from this economic World War III? Simply swallow the red pill and step outside the Financial Matrix: bail out of your "has something"s into precious metals and sit by and watch the annihilation as everyone else takes "a haircut".
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