Steve Keen : Outlook 2015 (private debt trap)

[chene]

Steve Keen's 2015 Outlook
Jan 13, 2015

[thriftyandboringinohio]

Re: Steve Keen : Outlook 2015 (private debt trap)

Nice find, chene, thanks.

The full PDF available at your link gives one quit a bit to think about.

I believe one of EJs articles years ago pointed out the high level of US private debt back when the conversation was dominated by talk of public debt levels.
Perhaps Metalman can provide a link back to it.

[jneal3]

Re: Steve Keen : Outlook 2015 (private debt trap)

Nice find, chene, thanks.

The full PDF available at your link gives one quit a bit to think about.

I believe one of EJs articles years ago pointed out the high level of US private debt back when the conversation was dominated by talk of public debt levels.
Perhaps Metalman can provide a link back to it.

+1 - loved the 3-sector explanation of why austerity has failed. I'm sure it's not news to most here but i've been trying to get my tiny brain around the topic for quite a while.

[Raz]

Re: Steve Keen : Outlook 2015 (private debt trap)

It is a good read, chene.
Thank you for posting this.

[DRumsfeld2000]

Re: Steve Keen : Outlook 2015 (private debt trap)

Good read, but another economist who mis-states US debt in the mid 80% range. The debt is around 104% as shown here:-
http://www.usdebtclock.org/

[chene]

Re: Steve Keen : Outlook 2015 (private debt trap)

One interesting aspect of Steve Keen work is his emphasis on private debt

The point (correct me if I am wrong) is that once the level of private debt is very high then the economy recovery can’t be sustainable. The economic activity is smashed back into recession each time it is restarted (by government spending) by the private debt deleveraging.

The only way out is to reduce private debt level relative to income and the current Centrals banks policies does not seems to address this problem directly.

It seems to me (I would be interested to have analysis of experienced user of this forum) that this situation will lead at the end to currencies (all of them) depreciation relative to gold since gold is the only asset that can hedge risk in the face of massive government debt needed to get out this private debt trap. Meanwhile, the volatility of currencies relative to each other may be very high.

[vinoveri]

Re: Steve Keen : Outlook 2015 (private debt trap)

Thanks for the article.


From p8"The last US long boom lasted 15 years from 1992 until 2007; we expect this one to run out of steam within 5 years. "

Maybe I'm misunderstanding, but Uh, well a lot can happen in 5 years - is he saying , that the US will continue to "boom" for 5 more years? How is that consistent with his thesis that over-leverage is restraining growth?

[chene]

Re: Steve Keen : Outlook 2015 (private debt trap)


Over-leverage private debt is restraining growth on the long run because it is a big drag on futur economic activity.
High private debt is the underlying cause of economic problems of our time

That does not mean that US cannot have a decent economic activity a few years.
Japan and Spain went up to more than 220% of GDP of private debt... US has some time...

But policy not adressing this problem will fail to produce self-fueled economic activity.

[chene]

Re: Steve Keen : Outlook 2015 (private debt trap)

In EJ last article he recalls his debat with Keen...
"In 2007 I debated respected deflationists like Steve Keen who agreed with me that a credit crisis and recession were imminent. However, he and they were convinced that a price deflation and debt default spiral was to follow. It was my view that the Fed was going to throw everything and the kitchen sink at the credit markets and halt the deflation process. " - EJ

Keen underestimated the central bank's ability to reflate the economy.

Is Keen now underestimating the ability of central bankers to wait enough before a rate hike so that job growth can acheive real wage gain that lead to inflation expectation ?
I am not sure what EJ thinks about that now...

"The stronger job growth that we have seen in recent months is certainly encouraging, but it will take several years of job growth at this pace to strengthen the labor market to the point where most workers are able to achieve wage gains. Premature rate hikes from the Fed will derail this process." - Dean Baker

[shiny!]

Re: Steve Keen : Outlook 2015 (private debt trap)

In EJ last article he recalls his debat with Keen...
"In 2007 I debated respected deflationists like Steve Keen who agreed with me that a credit crisis and recession were imminent. However, he and they were convinced that a price deflation and debt default spiral was to follow. It was my view that the Fed was going to throw everything and the kitchen sink at the credit markets and halt the deflation process. " - EJ

Keen underestimated the central bank's ability to reflate the economy.

Is Keen now underestimating the ability of central bankers to wait enough before a rate hike so that job growth can acheive real wage gain that lead to inflation expectation ?
I am not sure what EJ thinks about that now...

"The stronger job growth that we have seen in recent months is certainly encouraging, but it will take several years of job growth at this pace to strengthen the labor market to the point where most workers are able to achieve wage gains. Premature rate hikes from the Fed will derail this process." - Dean Baker

Looks to me like both EJ and Keen were right. As EJ predicted, the Central Bank did throw the everything and the kitchen sink at the credit markets, creating an asset bubble. And as Keen predicted, we seem to be in a deflationary phase now. Crazy times.

I don't buy the jobs growth story. Lots of low-wage, part-time jobs flipping burgers does not equate with real economic growth. There were lots of jobs created in the shale oil industry, but that's collapsing right now.

[chene]

Re: Steve Keen : Outlook 2015 (private debt trap)

Looks to me like both EJ and Keen were right. As EJ predicted, the Central Bank did throw the everything and the kitchen sink at the credit markets, creating an asset bubble. And as Keen predicted, we seem to be in a deflationary phase now. Crazy times.

Both have great merits, indeed. They have both tried (and succeeded in so way) to analyze and sort things out in a rigorous way which I am very grateful of.

Nevertheless they are not on the same scenario if I understand correctly (I may be wrong) .
The difficulty is that a lot relies on political prediction... that's the problem....

Keen : Usa turning Japanese... endless small boom and bust with a general trend to deflation for years

EJ : still on KA-BOOM scenario ? mid-2015/2016 : KA , 2017 ? : reflation policy that turns more or less badly : BOOM (high inflation through currency depreciation)

I would be interested to know what are your own scenario.
Anyone wants to elaborate one ? It will not be used against you...

[Verrocchio]

Re: Steve Keen : Outlook 2015 (private debt trap)

The difficulty is that a lot relies on political prediction... that's the problem....

You've put your finger on the basic policy problem. What is the time frame of the decision-makers? Keen is talking about the economy over the long term, but fiscal and budgetary policies (including central banks) are expressions of short-term political will. Politicians in Western democracies have a strong preference for policies that support their personal success. This preference results in decisions that look good in the short-term, but may not be rational in the longer run of time. We may eventually get to a better place but should prepare for a messy slog.

[chene]

Re: Steve Keen : Outlook 2015 (private debt trap)

KA may come fast....




The breakeven inflation rate represents a measure of expected inflation derived from 5-Year Treasury Constant Maturity Securities (http://research.stlouisfed.org/fred2/series/DGS5 ) and 5-Year Treasury Inflation-Indexed Constant Maturity Securities (http://research.stlouisfed.org/fred2/series/DFII5 ). The latest value implies what market participants expect inflation to be in the next 5 years, on average.


Let's pay attention...

[dcarrigg]

Re: Steve Keen : Outlook 2015 (private debt trap)

Good read, but another economist who mis-states US debt in the mid 80% range. The debt is around 104% as shown here:-
http://www.usdebtclock.org/

I assume he's only counting public debt, not gross debt. The difference is intergovernmental debt - money the government owes itself (mostly ss trust fund).

[chene]

Re: Steve Keen : Outlook 2015 (private debt trap)

Anyway it is more the importance of private debt in its relation with governement debt that he is interested in.
Honestely 80% or 104% I don't know if it is changing the dynamic...