Debt Deflation Academic Paper: Theory and Evidence

Debt Deflation Academic Paper: Theory and Evidence

Here’s an interesting debt deflation academic paper that our deflationist pal Carson sent along.  It’s written by Steve Keen from University of Western Sydney.  In the paper, Keen compares the debt deflation environment of the 1930’s with today.


My 1995 paper on modeling Minsky’s Financial Instability Hypothesis concluded with thestatement that its “chaotic dynamics … should warn us against accepting a period of relativetranquility in a capitalist economy as anything other than a lull before the storm” ((Keen 1995, p.634)). That storm duly arrived, after the lull of the “Great Moderation”. Only a Fisher-Keynes-Minsky vision of the macroeconomy can make sense of this crisis, and the need for a fullyfledged Minskian monetary dynamic macroeconomic model is now clearly acute.

You can read the entire paper here. It gets pretty dense and complex towards the middle and end, but the first 12 pages are definitely worth a quick read.  A lot of interesting charts that left me even more in awe of the similarities between our current economic environment and the Great Depression…with the wrinkle that if anything is different, it’s the fact that debt is even worse this time around.