28-07-2009, 02:34 AM
I agree with Peter. Calling this economic crisis a recession is a misnomer---it's a depression.
Zero Hedge is right but I think Steve Keen explains it better. Those commentators desperately searching for the 'green shoots' of recovery are doomed to disappointment. It's the deleveraging that packs the punch.
Keen explains that Australia has experienced two previous bouts of deleveraging; in the depressions of the 1890's and 1930's. In both cases deflation and falling real output drove the debt to GDP HIGHER after the onset of the crisis--something we have yet to experience--after which the painful process of deleveraging began.
Keen notes debt to GDP in the 1890's depression began at 100% and fell to roughly 40% after 15 years. In the 1930's it began at 75% and fell to 25% over a similar period---but WW2 accelerated the deleveraging process which prior to then was running more slowly than the 1890's depression. In 2009 we are starting with a debt to GDP of 165%. Assuming as Keen does that a debt to GDP of 50% is the point where normal economic activity can recommence, he estimates that this point should be reached by about 2028 (in the absence of other factors accelerating the deleveraging process like WW2 did in the 1930's). If recovery is this far away for Australia, then it's probably even more dire for the US and the UK.
http://www.debtdeflation.com/blogs/
Zero Hedge is right but I think Steve Keen explains it better. Those commentators desperately searching for the 'green shoots' of recovery are doomed to disappointment. It's the deleveraging that packs the punch.
Keen explains that Australia has experienced two previous bouts of deleveraging; in the depressions of the 1890's and 1930's. In both cases deflation and falling real output drove the debt to GDP HIGHER after the onset of the crisis--something we have yet to experience--after which the painful process of deleveraging began.
Keen notes debt to GDP in the 1890's depression began at 100% and fell to roughly 40% after 15 years. In the 1930's it began at 75% and fell to 25% over a similar period---but WW2 accelerated the deleveraging process which prior to then was running more slowly than the 1890's depression. In 2009 we are starting with a debt to GDP of 165%. Assuming as Keen does that a debt to GDP of 50% is the point where normal economic activity can recommence, he estimates that this point should be reached by about 2028 (in the absence of other factors accelerating the deleveraging process like WW2 did in the 1930's). If recovery is this far away for Australia, then it's probably even more dire for the US and the UK.
http://www.debtdeflation.com/blogs/