Superstar economist Steve Keen may not blog often as some other folks in finance – but when he does put something together, it’s usually awesome analysis you won’t find anywhere else.
Steve’s latest post Deleveraging with a Twist takes a look at the latest deleveraging statistics in the US. He writes that the US is deleveraging at a pace not seen since the Great Depression – but there’s a slight wrinkle to this, as Steve has found it’s not the absolute trend that counts, but rather the second derivative. In other words, the acceleration/deceleration of the pace of deleveraging is what gives us the impression of an economic bounce, or drop.
Over the past year-plus, the situation has continued to degrade, but not as fast – hence, the appearance of an economic upturn.
Bet you didn’t think you’d ever use high school physics again!
Take one look at his charts, and you’ll probably conclude, like me, that we’ve got a long way to go in the deleveraging cycle. And we’d better have a doctor on call in case we start to accelerate to the downside again.
Which, incidentally, is Robert Prechter’s scenario – he thinks we’re destined to see debt defaults accelerate to the downside as social mood rolls over. More on Prechter’s take here.
Note – I’d love to have Steve Keen on our new podcast series – if anyone is connected to him, I’d greatly appreciate an intro…otherwise I’ll reach out direct to him in the near future.