We are now in the fifth year of recovery from the worst financial crisis in 50 years — fueled by expanding household debt, rising from 50% of GDP in the 1980s to close to 100% in 2008. Contraction since the GFC has brought US household debt back to 80% of GDP…
But a worrying sign is that consumer debt has started to rise
And Steve Keen points out that margin debt is also rising, fueling the latest stock market rally.
[click on the image to view the video in a separate window]
Holding interest rates at artificially low levels for an extended period risks fueling another credit bubble. The Fed/central bank needs to react quickly to expanding credit in any area of the economy. We all hope for a recovery, but it must be sustainable — with consumption fueled by rising employment rather than rising debt — and not another debt-fueled boom-then-bust.
Please do not pass on interviews and reports from Steve Keen. He hasn’t a clue and basically never gets it right. He is an economist, and knows absolutely nothing about trading markets. DO NOT promote these people. They should be given no airtime at all. What is wrong with humans that they want to listen to him?
How can you trade markets if you don’t understand what you are trading? I suggest that readers listen to this interview carefully. There is a fundamental change happening in economics and Steve Keen is one of those at the forefront: recognizing the effect of changes in debt levels on aggregate demand. In other words, expanding credit gives us a false sense of prosperity — and a bull market to boot — while a slowing in the rate of credit creation can cause an economic down-turn — and a bear market.
Colin,actually it is dead easy to trade without having a clue what the instrument actually is. your comment shows a lack of depth and understanding. Also, economics CANNOT fundamentally change LOL. It is what is it. Only people’s interpretation of what to look at changes, and then another layer of interpretation of what it means, then another layer of interpretation as to its probably impact, and when, to be followed by another layer of decisions on how to actually trade the information. By the time you have gone through all those layers, your account will be long gone. Steven Keen is only at the ‘forefront’ of his own mind. While he is clearly intelligent and often provides fascinating analysis and graphs, his key mistake is then foolishly trying to predict markets based on them. He clearly has never done his research on that. It is the textbook flaw that so many make, that predict market A you must predict market B, never even realising that they cannot predict Market B in the first place, even if it might seem 100% correlated to Market A. Then as time goes on they discover the two start to diverge, and are forced to forever get on the reversion to the mean bandwagon and proceed to lose all their money. That is of course if they even take their advice, and I’m sure Steve doesn’t as he know he’s be broke in an instant.
My wife accuses me of the same thing: “a lack of depth and understanding…” 🙂
I agree that economists tend to overreach when they start making predictions. But we will have to disagree on whether insight into how a market works will improve your trading.
I agree with the first comment, anyone who listens to Steve Keen needs to think again. I doubt if he has got anything right. Has he climbed up Mt. Kosciusco yet. ( a bet he lost )
Here is an indication of how stupid the world is, and how irrational and fundamentally flawed humans are. Steve Keen will eventually (maybe) be proved right, as even a broken clock is right twice a day. The thing is, when or if he is eventually right, at some unknown point down the track, he will get a ton of airtime and be referred to as a guru. The Press has decided no one wants to hear from the quiet achiever, but rather the guy who shouts the loudest and makes the biggest call. Does that make the journalists stupid? yes and no. Yes because they are, and no because they know the world is full of dumb people who will read their stuff. Just like people allow Kim Kardashian to become wealthy, even though she has nothing to offer society at all.
@Colin You are welcome to disagree, but make sure you don’t change your quote as you just did. Initially you implied you needed to understand what you are trading to trade markets. Which factually is WRONG on many different levels. Now you have made a subtle change, saying having insight into how a market works will improve your trading. Two completely different statements. The mere fact you have done that, tells me you aren’t in total grasp of what you are actually saying, which therefore implies you aren’t in a position to make such categorical statements : ) In the financial world, a little knowledge is a dangerous thing. And in addition to that, a LOT of knowledge is a dangerous thing.
ps Colin, I constantly get told by my Comodo firewall program that the URL I am being directed to, to make comments, has malware content on it somewhere, making it hard for me to even reach this page.
“You are welcome to disagree, but make sure you don’t change your quote as you just did.”
Actually I was responding to your statement “…. it is dead easy to trade without having a clue what the instrument actually is.”
Don’t agree with that at all.
Thanks for alerting me regarding Comodo. I will contact them.
Colin, what you are saying by disagreeing, is that you feel you have completely mastered trading by price action alone, and feel that, In light of that experience, it would not be possible to trade another market if you were not told the symbol. If you have not mastered trading by price action alone, then you are NOT in a position to disagree with any authority. Behind this point is another point. Too many people are proliferate with their ‘opinions’, but in the vast majority of cases, those opinions are not based on concerted research and practice, but merely hear say and flawed beliefs.
I would also add, that 99%+ of investors/traders have NOT mastered price action, and therefore perceive the NEED for other information to help them along. Of course that does not mean the extra information is useful to them, and in fact will often worsen their performance, that’s if they have a positive performance in the first place.
I’m actually 100% confident that there are a LARGE number of people around the world, who would have absolutely no problem at all trading a market successfully over a period of time, without being told what instrument it is. Someone like Al Brooks would be a textbook example of a person who could do it.
Also, have a think about this. All those people and funds that run successful trading models across multiple markets (and there are many), do you think the model cares what the symbol is? To the computer they are just price data. And you can’t say that, oh, the models have been tuned to the market, as that is exactly what any good price action trader would do anyway, whether they knew the symbol or not.
We (Bruce Vanstone and I) have developed mechanical trading systems that trade on price and volume data alone, but in every case I have find that an understanding of market fundamentals can improve overall trading system performance. I don’t say it can’t be done — the shorter the time frame, such as HFT, the less important fundamentals probably are — but for most traders (>99%) I would say they are essential. It’s OK to disagree — there’s more than one view of the market. We tend to support, and argue for, the approach we are most comfortable with.
Mr. Keen seems to be operating on the basis of a string of cause and effect suppositions that are very likely untrue. When making conclusions that have anything to do with debt of any kind there are so many variables that unless you have all of those traced and controlled for it is virtually impossible to draw the conclusions he has. For example, the connections drawn between government debt and what is good for business, and nothing correlates: high debt and booming stock market?, Republicans arguing that government debt is the problem, but they didn’t when Bush or Reagan were presidents? Democrats arguing the same thing or the reverse and rarely does that happen which is predicted? These are political footballs. I wish people would just forget about these debt issues and be more concerned about what needs to be done to make our country grow?
Expanding private non-financial debt at above the rate of GDP growth is one of the primary causes of the GFC. Should we ignore this or are you referring to government debt?
When education starts to EDUCATE about economics, maybe, just maybe,
grandchildren will take off blinders.
Economics is still in its infancy. Economists are only now starting to figure out how the economy actually works.
Two Examples: NGDP targeting as proposed by Market Monetarists and Monetary Circuit Theory by Steve Keen.
Some of these ideas have been around since the 1930s but were largely ignored by the mainstream until their models of the economy broke.