When the music stops

Heading for the next financial crisis?

When it comes to the topic of economics there are few trustworthy academics who know what they are talking about. However, an excellent one is prof. Steve Keen at Kingston University. He uses dynamic models and includes banks and credit/debt as key parameters to understanding financial crises. Something neoclassical economists totally ignore, which is ridiculous of course.

In one of Steve's latest blog posts, at debtdeflation.com, we find this interesting slide showing countries with rapid credit growth and accumulation of private sector debt since 2008. According to Keen these are the future debt-zombies, with a debt ratio of over 150% of GDP. Sweden (brown line) is among the worst of all countries and headed for a crisis. With private debt soaring to 237% of GDP and growing 15% of GDP per year it becomes clear that this is unsustainable and will have to end. Changes in the massive property bubble in Sweden will likely be a key indicator to the coming downturn. The new mortgage repayment requirements may function to slow down credit growth, and if so, most likely popping the bubble. We can't  predict when the crash will happen but that it will happen is a sure thing. 

Source: Steve Keen, presentation on growing private sector debt and financial crises
As for the US we can see in the chart below how credit growth picked back up again in 2010 after some deleveraging (2008-2009) but has once again started a downturn. A pattern similar to Japan's zombie-economy with rising and falling credit leading to recessions and ever more financial trickery from central banks.

Source: Steve Keen, presentation on inequality, debt and credit stagnation
This will affect the unemployment levels as, Keen shows in the chart below, there is a strong correlation between changes in credit and unemployment rates. More than 45 million Americans, about 20% of the population, are already on food stamps. According to shadowstats, real unemployment in America is at 23% as of May 2016, not 4.7% as the government claims. Not counting people who have stopped actively looking for a job, cherry picking data, is very dubious and has lead many mainstream media pundits to scratch their head as to "why so many americans are on food stamps?". 

Because there is so much misinformation and propaganda regarding the true state of affairs most people will be surprised when the next crisis hits. They will be angry as to why politicians have not informed them of the dangers and will be even less happy when the government asks for more tax money to once again bail out the banks. But certain homogenous societies may still be stable despite such hardships, as is the case with Japan. While others may experience uprisings and mayhem. 

Taking action to protect yourself and your community, getting out of debt, is all one can do at this point. Governments around the world are so blinded by their addiction to credit growth that they will do anything to keep the bubble going. Even if it only increases the income gap between the rich and the poor. Getting out of debt and investing in alternative energy sources and food production is the safer bet. And something we should all do to protect our families and future generations.


Out of the ashes into the fire

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