Via Mish, here’s an interesting 19-minute presentation by Australian economics professor Steve Keen. It’s geared somewhat towards the Australian economy, but the theme reflects what we’re experiencing globally.
Two troubling trends Keen outlines:
–This decade we reached the highest debt level since the Great Depression
–Over the last three decades, employment growth has corresponded with debt growth. In other words, employment grew when debt-financed consumption grew, and it fell when outstanding debt dropped.
This paints a bad picture looking forward the next few years. We have a massive amount of debt to de-leverage:
“What we are going through is a deleveraging crisis and we haven’t experienced one of those since 1930. Last time it took 10 years and a world war to get rid of it, and this time we are staring up with 1.7 times the level of debt in America, not even mentioning the derivatives catastrophe that is also there.”
“And deleveraging which is the attempt by the private sector to reduce its debt level can overwhelm the government’s stimulus. The whole problem was caused by irresponsible lending and the only way out of this ultimately is to eliminate that debt. The debt has to be written off”
For consumers, de-leveraging means saving more and buying less. And less consumption means slower economic growth.
Employment growth could be weak for several years.