Debt deflation icon Steve Keen is circling the wagons – he’s got a new blog post, and as usual, it’s well worth a read.
Keen, a true thinking man’s economist, sees continued deleveraging that will in turn continue to drive down asset prices – likely to much lower levels. His core thesis is that asset prices in the US have run way past consumer prices – and they must eventually revert to trend:
The stock market could easily bounce again from its current levels if, once again, the rate of decline of debt slows down. But in an environment where deleveraging dominates, deceleration will be the dominant trend in debt, and the unwinding of asset prices back towards consumer prices will continue.
How far could it go? Take another look at Figure 1. The CPI-deflated share market index averaged 113 from 1890 till 1950, with no trend at all: by 1950 it was back to the level of 1890. But from 1950 on, it rose till a peak of 438 in 1966—which is the year that Hyman Minsky identified as the point at which the US passed from a financially robust to a financially fragile system.