PRIVATE Debt Is the Main Problem

138 years of economic history show that Keen and Minsky are right and the mainstream economists are wrong.

"The National Bureau of Economic Research has published a new paper analyzing 138 years of economic history in 14 advanced economies, which proves that high levels of private debt cause severe recessions."

Read the full article here

Professor Keen is author of Debunking Economics and Hyman Minsky (1919 - 1996) was an American economist who's research attempted to provide an understanding and explanation of the characteristics of financial crises and argued against the accumulation of debt.

Professor Steven Keen has pointed out that credit demand increases the money supply as banks make new loans and the money supply shrinks when loans are repaid. Keen argues that Banks don't limit their lending according to their reserve ratio, they lend the money and then look for the reserves. Therefore property bubbles (which are really land value bubbles) are a major factor in the growth in credit in the boom and subsequent bust. Economies grow artificially on easy credit during the boom (i.e. Labour years, although Ed Balls appears to suffer amnesia on this point) and then go into recession (1929 and 2008) as the growth in private debts becomes unsustainable and the debt is paid down.

Vince Cable touched on this in 2003 when he questioned Gordon Brown's claim to "the end of boom and bust"...."Is it not true that...the growth of the British economy is sustained by consumer spending pinned against record levels of personal debt, which is secured, if at all, against house prices that the Bank of England describes as well above equilibrium level?" Gordon Brown replied: "The Honourable Gentleman has been writing articles in the newspapers, as reflected in his contribution, that spread alarm, without substance, about the state of the economy..." Well we all know what happen next.