Sectoral Balance 1

In 1999 Wynne Godley penned “Seven Unsustainable Processes” where he, based on a new-Keynesian concept of sectoral financial balances, predicted the forthcoming recession. Godley pointed to seven unsustainable processes within the US economy that rendered it vulnerable to sudden shocks. More specifically, Mr. Godley found that the US boom of the 1990s was based on;…

GDP

The idea of an imminent US recession may seem moot as all the self-proclaimed experts and talking heads still acts as we are well into a recovery and patiently waiting for the forthcoming escape velocity which will take care of all ills plaguing today’s over-indebted society. Never do they stop to think about why things looks…

Expansion_weak

Keynesian policy of manipulating economic “aggregates” through countercyclical macro-measures appeared to work when balance sheets was not stretched to the brink. As we wrote in “Goebbelnomics” “If collective exuberance and apathy is the sole cause of the business cycle, then it logically follows that human emotions need to be manipulated accordingly. Only by doing so…

Pavlov

As the Keynesian revolution was merged with the models of Robert Lucas, it eventually morphed into something called neoclassical economic thought. The general gist was that economic agents can be tricked into changing their behaviour through surprises in monetary policy, which yes, has somewhat miraculously become the mainstay of central bank economists. As Jeffery Snider…

Capture

In Why the Fed will change its exit strategy…again we argued that the added net supply of TSY from the Federal Reserve over the next coming years will create problems for elevated markets as the reallocation of funds held by the private sector and corresponding higher interest rate will pop the bubble the Federal Reserve…