1) Flawed assumption on money and debt that led to 2008
2) Bad economics, neoclassical economics, that the whole project runs on and was used to design the Euro.
I realised something was seriously wrong in 2008 and looked into it and had to get right down to the most fundamental of all fundamentals to find the problem, money and debt.
After doing it the hard way, I found others that had also came to the same conclusions. They write books, do interviews and lecture round the world trying to tell people what is going on but no one takes any notice.
Twelve people were officially recognised by Bezemer in 2009 as having seen 2008 coming, announcing it publicly beforehand and having good reasoning behind their predictions.
They all saw the problem as being excessive debt with debt being used to inflate asset prices (US housing).
They all think you can’t use debt to solve a debt problem.
They all think that as we have used debt to solve a debt problem a bigger crash is coming in the future.
They write books like “De-bunking Economics” and “J is for Junk Economics” detailing the problems of the economics being used to run the global economy and that was used to design the Euro.
Richard Koo’s ideas were actually taken on board by Ben Bernanke who made sure the US didn’t go over the fiscal cliff with austerity. The rest of the West ignores him and harsh austerity has its predicted effect in Greece and the Club-Med nations.
Professor Werner from Southampton University is an expert on money and coined the phrase “Quantative Easing”. He is coming to conclusion, but doesn’t have the concrete evidence, that this bad economics and ignorance of money are quite deliberate and they are gradually destroying everything and will continue to do so until sound ideas come into play. Current economics allow desirable conclusions to be incorporated by working down from the conclusion to find the necessary assumptions to make that conclusion valid.
Current theories of money and economics are yielding short term rewards for certain vested interests but in the long term they can only destroy things.
It is the mistaken beliefs about debt that have allowed everything to run so far and debt has been used to paper over all the cracks, this comes at a tremendous cost to the future as this is where this money has been borrowed from.
Collapsing asset prices also destroy money on bank balance sheets, the cause of 2008. This is the problem with borrowing to fund speculation, in housing and all assets. Housing booms proliferate nearly everywhere.
Current mainstream economic and mainstream monetary theory have no mechanisms whereby money is created or destroyed and 2008 wasn’t sufficient for them to look again at their theory.
We are on the road to ruin.
Alternative and I would say much more accurate realities:
1) Michael Hudson “Killing the Host”, “J is for Junk Economics”
The knowledge of economic history and the classical economists that has been lost and the problems this is causing. Ancient Sumer had more enlightened views on debt than we have today.
2) Steve Keen “De-bunking Economics”
His work is based on that of Hyman Minsky and looks into the effects of private debt on the economy and the inflation of asset bubbles with debt.
3) Richard Werner ”Where does money come from?”
The only book generally available that tells the truth about money, I don’t think there are any other modern books that do and certainly not in economics textbooks
4) Richard Koo’s study on the Great Depressions and Japan after 1989 showing the only way out of debt deflation/balance sheet recessions.
Milton Freidman was half-right with his monetarism, a steadily rising money supply does give a healthy economy, but this is not controlled by Central Banks. The private banks lend and the Central Banks create the reserves. This is why monetarism didn’t work as the Central Banks are not in direct control.
Milton Freidman understood the effect of the money supply, but didn’t really know how money worked.
Monetarism was abandoned and sometime later we saw this:
Let’s look at the US money supply leading up to 2008:
M3 is going vertical before 2008.
Money = debt and a credit bubble is blowing up.
Steve Keen understood and saw it coming in 2005.
Look at that tiny graph ………
Everything is reflected in the money supply.
The money supply is flat in the recession of the early 1990s.
Then it really starts to take off as the dot.com boom gets going which rapidly morphs into the US housing boom, courtesy of Alan Greenspan’s loose monetary policy.
When M3 gets closer to the vertical, the black swan is coming and you have a credit bubble on your hands (money = debt).
In debt deflation/balance sheet recessions the private sector isn’t borrowing and the money supply is going down, this is the nightmare scenario Central Bankers fear.
As Central Bankers are the lenders of the last resort, Governments are the borrowers of last resort and the only player capable of keeping the money supply stable. This is why austerity makes things worse.
The truth is out there, finding it is another matter.
Professor Werner moving from reality to fantasy:
“Classical and neo-classical economics, as dominant today, has used the deductive methodology: Untested axioms and unrealistic assumptions are the basis for the formulation of theoretical dream worlds that are used to present particular ‘results’. As discussed in Werner (2005), this methodology is particularly suited to deriving and justifying preconceived ideas and conclusions, through a process of working backwards from the desired ‘conclusions’, to establish the kind of model that can deliver them, and then formulating the kind of framework that could justify this model by choosing suitable assumptions and ‘axioms’. In other words, the deductive methodology is uniquely suited for manipulation by being based on axioms and assumptions that can be picked at will in order to obtain pre-determined desired outcomes and justify favoured policy recommendations. It can be said that the deductive methodology is useful for producing arguments that may give a scientific appearance, but are merely presenting a pre-determined opinion.”
“Progress in economics and finance research would require researchers to build on the correct insights derived by economists at least since the 19th century (such as Macleod, 1856). The overview of the literature on how banks function, in this paper and in Werner (2014b), has revealed that economics and finance as research disciplines have on this topic failed to progress in the 20th century. The movement from the accurate credit creation theory to the misleading, inconsistent and incorrect fractional reserve theory to today’s dominant, yet wholly implausible and blatantly wrong financial intermediation theory indicates that economists and finance researchers have not progressed, but instead regressed throughout the past century. That was already Schumpeter’s (1954) assessment, and things have since further moved away from the credit creation theory.”