Mike Maloney mentioned an economist he was studying as part of his research for a new book, so I ordered one of his books.
The core message in this economist’s book pulls no punches: There is no escaping another debt-related crisis. And while he doesn’t specifically state the crisis will be worse than the Great Depression, the data he shares and conclusions he draws make that clear.
The book is Can We Avoid Another Financial Crisis? by Steve Keen, past Professor of Economics at Kingston University in the UK. For those who follow economic theories, he is closely associated with the beliefs of Hyman Minsky, who some credit as providing the best explanations of the causes of financial crises.
According to Mr. Keen, there are two reasons we will have another financial crisis and that it will be nasty. Both are based on debt, but may not come from the angles you expect…
#1 Private Debt Is Too High
It’s hard to do much financial reading these days without running into an article on debt. While most analysts reference public or government debt, Mr. Keen says that history shows it is private debt that is the real culprit.
- “The USA’s financial crisis is not over, because the level of private debt has remained high.”
Consider why this is true. A government or central bank can print money or tinker with interest rates to deal with their debt load. The private sector can’t do these things, so their options to escape debt are very limited and thus tend to have a greater drag on an economy.
Because of this, it is inevitable we’ll have another financial crisis. Mr. Keen points out that...