Forgive us our debts

Australian economist Steve Keen predicted the global financial crisis years ahead of when it broke, and doesn't think it is over yet, not by a long shot. He has given a somewhat lengthy and graph-heavy interview over here, in which he doesn't have a great deal of good news to offer.

For those without time to read it, he thinks the government response to the crisis (throwing lots of stimulus money at it) has mainly just masked the underlying debt problems (or rather deferred and increased them). America is already in a depression (hidden by misleading unemployment figures). A significant further period of deflation is inevitable. Australia (largely) avoided the bullet in 2008-09 through propping up a speculative property bubble which will come back to bite us (as speculative bubbles are wont to do). And he claims that the only responsible mitigation policies at this stage would be perceived to cause a crisis when really they would simply be unmasking the crisis that is currently ongoing. Here is his graphic analogy:

"[I]f my preferred remedies were enacted now, they would be blamed for causing an ensuing crisis, when in fact all they would do is make the existing crisis more obvious. I make the analogy between my situation and that of a doctor who has as a patient a comatose mountaineer who climbed too high without sufficient insulation and now has gangrene. If you operate before he regains consciousness, he might only lose a foot, but he’ll blame you for making him a cripple. If you wait till he regains consciousness and sees what the alternative might be, he’ll thank you for saving his life when you remove his leg.

"America in particular — but also much of the OECD — has substituted essentially unproductive Ponzi speculation for real productivity growth in the last four decades, which the rising debt bubble has obscured as it simultaneously allowed Americans to live the high life by buying goods produced elsewhere using borrowed money. There’s no way to come to terms with that without suffering a substantial fall in actual incomes."

He's a cheery chap. But then we get to the kicker: "I regard Peak Oil and Global Warming as far greater challenges to our species than the financial crisis — which I refer to sometimes as Peak Debt".

Keen is articulating something similar to the idea I put (briefly) here, namely, that of the three crises of economy, energy and ecology, the first is most immediate temporally, but is actually a smaller threat than the second, which in turn is closer to us but likely less significant in ultimate ramifications than the third (which, I would argue, is broader than climate change).

Fasten your seatbelts.