Dirk Bezemer: Creating a Socially Useful Financial System 3/5

Dirk Bezemer, Associate Professor, University of Groningen, speaking at the breakout panel entitled "How Can We Create a Financial System That Is Socially Useful?" at the Institute for New Economic Thinking's (INET) Paradigm Lost Conference in Berlin. April 14, 2012. #inetberlin

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  News & Politics

[soberaniafinanciera]

"I don't mean to bash macroeconomics as it is today"

Well, why not?

This presentation contains scientific proof that macroeconomic models are wrong, so how scientific is it not to claim for a refundation of them?

[MatteNoob]

I know I'm a nerd, but I have to say that I get excited about this!

[DavidByrne85]

Outstanding talk. Favourited

[zadmku]

Awesome talk. One of the best of INET.

[jstncbllr]

Uh... but GDP is a *flow*, it doesn't represent assets that can be used as collateral.

I believe the point he was making is that when the private sector generates "too much" credit, you have excess money not being put to productive use, but rather into destabilizing, purely financial activities.

The reserve ratio doesn't really matter. The money supply is endogenous and the fed will always provide enough reserves to prevent any payments system meltdowns.

[ApocalypticAang]

"I don't think one could prove that exactly 100% is the "correct" ratio, "

100% is the "natural" ratio or limit because that would be amount of FULLY SECURED debt (loans with recourse to assets in the event of non-payment) that could be created.

IOW, if debt/loans can only be created up to the full value of the economic assets used as security/mortgage, 100% debt-to-GDP means 100% of all economic assets are mortgaged... > 100% means leveraging and/or fractional reserve banking exists.

[Benjamin Kaplin]

There's an analytic justification for *anything* in this field?

[Notubename]

Straight analysis and brilliant presentation!



[jstncbllr]

Right... but I'm saying I don't think his point depends on a 1 year period. Pick any time frame you want, doesn't have to be a year. It's just a ratio of flows. Look at a the flows over a five year period if you prefer.

I don't think one could prove that exactly 100% is the "correct" ratio, but we can see that bad things happened at %400. When it gets that high, you have excess money creating asset bubbles, not funding useful activity.

Cheers.

[LCTesla]

I don't disagree with that. I just don't think there is anything "special" about 100% debt-to-GDP like Bezemer implied, because that "100%" is just the result of the arbitrary 1 year time frame that is chosen for the GDP aggregation. I've heard a lot of people imply that private debt-to-GDP "should" be 100% but there is no basis for the claim. Maybe empirically that happens to be the "healthy" rate, I just don't think there is an analytical justification for it.