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Paul Hanly
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Paul Hanly, B.Comm, Ll.B., ACA, has 20 years in banking and finance. Paul has experience in major corporate workouts after 92 recession and commercial real estate bust in Australia.
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Thorts On Investing
  • Keen: GFC not over 1 comment
    Jun 13, 2010 9:43 AM

    One of the few economists to predict the Great Recession says it is not yet over.

    Steve Keen, one of the 16 individuals identified in Bezemer (2009) and (Fullbrook (2010)) as having anticipated the Global Financial Crisis followed non-mainstream approaches to economics. 

    He argues that the GFC is not yet over:

    He uses US and Australian data to show the relationship between , houshold debt, GDP, demand and unemployment and concludes that household debt deleveraging has further to go and this has implications for demand, GDP and asset prices.

    "On the indicator of choice by the group that anticipated the GFC, it therefore appears that the GFC is far from over. This raises one final empirical issue before I consider the theoretical foundations of the Bezemer-Fullbrook Group: if private sector deleveraging this time round is falling from a greater level and at a greater rate than in the 1930s, then why has the economy stabilized (to some extent) now, versus the almost relentless decline of the Great Depression? The answer appears to lie in the scale of the government response to this crisis. Figure 13 (on page 14) includes the impact of government debt on aggregate demand. While this added substantially to demand during the depths of the Great Depression (more than 7% of aggregate demand between 1931 and 1933 was financed by government debt), in 1930–2 years after the peak rate of growth of private debt in 1928—government debt added a mere 1.2% to aggregate demand. This time, given the fear of another Great Depression that policymakers had in 2008, the government response has been far larger and more immediate. In 2010, government debt was responsible for over 12% of aggregate demand, and this almost counteracted the -15% contribution from private sector deleveraging. While this success is heartening, the figures indicate that growth cannot be expected to continue if the government deficit is reduced. Private sector deleveraging is still accelerating and has some time to go before it could be expected to slow. In the absence of net government spending, it is highly likely that the downward spiral in output and employment would continue."

    End Quote.

    So, based on the analysis of one of the two major groups of economists who forecast the Great Recession, if you want a double dip, reduce government stimulus before the household/private sector finishes deleveraging.

    Disclosure: 30% in Stock market through emerging, commodity, Australian and international funds, 70% mixed bonds (plus Australian real estate exposure)

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  • mbkelly75
    , contributor
    Comments (4544) | Send Message
    I love history and this is an interesting look at it. I appreciate you sharing this and your conclusions. Thank you - well done
    14 Jun 2010, 10:22 AM Reply Like
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