Debunking

Income and substitution effect

For more than 1 person in the market:

Multiple levels of demand for the same price

Marx etc divided the economy into social classes assuming that each class exhibited similar behaviour internally as opposed to using a model of society as a single individual

Neo assumptions of rationality:

Rational behaviour is where the person choses the best option, bounded rationality is where the person choses a suitable option given a finite amount of time constraint

Assume a Benevolent dictator distributes income to maXIMISE THE SOVIAL WELFARE OR UTILITY OF THE INDividuals. Or that a family distributes income fairly within and society is just one big familyRedistributing Welsh from rich to poor may be taking wealth which is highly utilised by the wealthy and given to the poor who drives little utility from it. Even though the way the aggregate demand curve is formulated must include this redistributionnMarx divided economy into social class's assuming each class exhibited similar behaviour as opposed to a one individual societyTruly rational behaviour is not choosing the best option but choosing the best option within a finite amount of timeMarginal cost infinitesimal, competitive markets, monopolies, no supply curve

“In this chapter I outline four different but consistent non-equilibrium theories of finance – ‘Behavioral Finance,’ the ‘Fractal Markets Hypothesis,’ the ‘Inefficient Markets Hypothesis,’ and ‘Econophysics.’ The chapter concludes with two proposals to institutionally limit the capacity of the finance sector to entice us into debt.”

“The first factor indicates the aggregate burden that debt imposes upon society. Since the level of debt is a stock, while the level of GDP is a flow (of income per year), the ratio tells us how many years of income it would take to reduce debt to zero. Of course, a target of zero debt is neither feasible nor desirable – as explained earlier, some debt is necessary to support entrepreneurial innovation. But the ratio indicates how debt-encumbered an economy has become, and the larger it is, the longer it will take to get back to any desired lower level.

It also provides the best measure of the burden the financial sector imposes upon the economy, since the net cost of the financial sector is the level of debt (multiplied by the inflation-adjusted gap between the rate of interest on loans and that on deposits – a gap that has been relatively constant, though the nominal and real rates of interest themselves have been very volatile).The second factor indicates how much aggregate demand is being generated by rising debt – or reduced by falling debt. When the economy is growing, so too will credit, and again this is[…]”

“The Credit Impulse is also the key financial source of capitalism’s inherently cyclical nature. To maintain a stable rate of employment, the rate of growth of aggregate demand has to equal the rate of growth of employment and labor productivity, which are both relatively stable. But since the rate of growth of aggregate demand depends on the rate of growth of GDP and the acceleration of debt, a stable rate of growth of aggregate demand requires a constant acceleration of debt.”

The slowdown in the rate of growth of debt Can trigger a recession

Do Not rely on government figures, take their advice and look at the ,armed to see the actual state of the economy

“I now use my double-entry bookkeeping methodology to develop models like the one in this chapter, and a simulation tool has also been developed for me to showcase this method. It’s free, fairly easy to use, and you can both simulate the models I’ve shown in this chapter and build your own using it.It’s called QED – which stands for Quesnay Economic Dynamics – and can be downloaded from my blog at www.debtdeflation.com/blogs/qed/.”

The best on wall street, the new finance, the in efficient stock market 

“in the real world of uncertainty, few if any stock market speculators trade on the basis of new information. Instead, they trade on the basis of how they think other market participants will, on average, expect the market to react to news.”

“The result of the FCO can be tracked at the website www.er.ethz.ch/fco. The voluminous literature of the Econophysics movement can be tracked from its website unifr.ch/econophysics.”

“A bank is not constrained in its lending by its reserves, but by the willingness of borrowers to take on additional debt (see Holmes 1969; Moore 1979). It therefore faces a ‘soft budget constraint’: to expand its operations,

all it has to do is to persuade borrowers (firms and households) to borrow more money, and its income will grow – as will the level of debt.This growth in bank income and debt is in turn dependent on the willingness of borrowers to incur debt. If this is based solely on their income, then the ‘hard budget constraint’ that households and firms face will put a limit on the amount of debt they will take on.If, however, a Ponzi scheme develops in some asset class – so that people are willing to borrow money in the expectation of future capital gain – then the amount of borrowing will no longer be constrained by incomes. While capital gains are made, the borrowers also operate with a soft budget constraint: any deficiency of revenue over costs can be covered by selling an asset whose price has been inflated by the increase in leverage.Initially banks – after they have forgotten the previous crisis – will[…]”

“We therefore need not merely reforms, but changes to the incentives that encourage people into debt – because so long as those incentives exist, we can be sure that at some point the financial sector will find a way to entice the public into debt, leading to yet another financial crisis.I have two simple proposals to achieve this objective. Neither of them has any chance of being implemented immediately, but there is some prospect that they might be considered more seriously if, as I expect, this crisis causes a prolonged slump for America that resembles Japan’s two ‘Lost Decades’ since its bubble economy collapsed in the early 1990s. They are:

1 Jubilee shares: To redefine shares so that, if purchased from a company directly, they last for ever (as all shares do now), but once these shares are sold by the original owner, they last another fifty years before they expire; and2 Property Income Limited Leverage: To limit the debt that can be secured against a property to ten times the annual rental of that property.”

“If instead shares on the secondary market lasted only fifty years, then even the Greater Fool couldn’t be enticed to buy them with borrowed money – since their terminal value would be zero. Instead a buyer would purchase a share on the secondary market only in order to secure a flow of dividends for fifty years (or less). One of the two great sources of rising unproductive debt would be eliminated.”

“If we instead based the level of debt on the income-generating capacity of the property being purchased, rather than on the income of the buyer, then we would forge a link between asset prices and incomes that is currently easily punctured by rising debt. It would still be possible – indeed necessary – to buy a property for more than ten times its annual rental. But then the

excess of the price over the loan would be genuinely the savings of the buyer, and an increase in the price of a house would mean a fall in leverage, rather than an increase in leverage as now. There would be a negative feedback loop between house prices and leverage. That hopefully would stop house price bubbles developing in the first place, and take dwellings out of the realm of speculation back into the realm of housing, where they belong.”“There are numerous theorems in economics that rely upon mathematically fallacious propositions. There are basically four ways in which this manifests itself in economic theory:

logical contradiction, where the theory is allegedly ‘saved’ by an assumption which in fact contradicts what the theory purports to show;omitted variables, where an essential aspect of reality must be ignored to derive the mathematical results that economists wish to prove;false equalities, where two things that are not quite equal are treated as if they are equal; andunexplored conditions, where some relation is presumed without exploring what conditions are needed to make this relation feasible.”

“The PAECON (‘Protest against Autistic ECONomics’) movement that began in France with the rebellion of a group of young economics students has since spawned an international movement, with both a network that unites the many academic opponents of neoclassical economics (www.paecon.net/PAEmovementindex1.htm), a publicly accessible journal, the Real-World Economics Review (www.paecon.net/PAEReview/), and an active blog (rwer.wordpress.com/).”

“Yves Smith at Naked Capitalism: www.nakedcapitalism.com/• David Hirst at Planet Wall Street (website currently not available)• Dan Denning at www.dailyreckoning.com.au/author/dan/• Max Keiser at The Keiser Report: maxkeiser.com/”

“• Mish Shedlock at MISH’S Global Economic Trend Analysis: globaleconomicanalysis.blogspot.com/• Chris Martenson: www.chrismartenson.com/• Doug Noland at The PrudentBear: www.prudentbear.com/index.php/commentary/creditbubblebulletin• Harry Dent at www.hsdent.com/• Edward Harrison at Credit Writedowns: www.creditwritedowns.com/• Zero Hedge: www.zerohedge.com/• The Automatic Earth: theautomaticearth.blogspot.com/• The Levy Institute’s program: www.levyinstitute.org/ and its blog The

Multiplier Effect: www.multiplier-effect.org/• The University of Missouri Kansas City Economics Department’s blog New Economic Perspectives: neweconomicperspectives.blogspot.com/• The Institute for New Economic Thinking’s (ineteconomics.org/) blog The Money View: ineteconomics.org/blog• Bill Mitchell’s Billy Blog: bilbo.economicoutlook.net/blog/• Michael Hudson – one of the Bezemer 12 who foresaw and warned of the 2007 financial crisis, and a leading contributor to the academic literature on the origins on money – at michael-hudson.com/• And my own Steve Keen’s Debtwatch: www.debtdeflation.com/blogs/”