Steve Keen talks about instability inherent in high debt economies.  He does this while modeling economies on a computer and demonstrating the oscillations.

Video Notes

  • I have seen this kind of stability analysis applied before.  It is valid for circuits and system functions – I would posit it is valid for economic systems
  • When economies start using debt to drive employment things are ok for a few economic cycles – then you hit a last cycle when debt taken on is huge – the economic levitation ends – the economy shuts down.
  • The blue trace with loops is a tracing of oscillator "squegging" as we call it in electrical engineering – parametric modulation
  • because private debt levels are so high private deleveraging can overwhelm government deficit spending
  • writing off the bad debt – a.k.a. recognizing the bad debt is the only solution
  • to stabilize the system the system should be tweaked to limit the amount of personal debt individuals are willing to take on – base housing loan prices on rents you can get for said house instead of what appraisers conjure up
  • Full talk at the Whitlam Institute is here
  • The associated PowerPoint presentation is here

 


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