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

[@der9f]

An excellent analysis, Dirk! It also offers a prescription for avoiding land price-induced recessions in the future. My 2007 "Unlocking the Riches of Oz: A case study of the social and economic costs of real estate bubbles 1972 to 2006" did likewise and forecast the global collapse using the Australian real estate market as a proxy.

[@zadmku]

Awesome talk. One of the best of INET.

[@MatteNoob]

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

[@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.

[@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.

[@jstncbllr]

His point was about the credit/GDP ratio, I don't think the time period is relevant. You could look at a 6 month period, or a 2 year period -- the point would be the same: having a lot higher credit level relative to GDP is bad.

[@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.

[@RadioNul]

Dirk for ECB president!

[@DavidByrne85]

Outstanding talk. Favourited

[@yvettesematuro9081]

U''' ' K'' '' K ''' '😮 😮''l '😮 'U'😮l😮😊'u'U'ku . K😅😮 😮 U😊😊😅l' 1:35 Ou 'k ' 1:35 1:35' 1:35 'k''😮' ' 😮 'k''u KK'u'u '''😮k K 😮'k''' ' U'😮😮😮'kL 😊'' K K''k ' '''''''' 😮u ' K' ' ' 'l '' U' 😊😊 U ?'k U'' 'u I' '' U 😮 O'k😮u😊 UL😮😊' 😮 '' ' U'' K

[@yvettesematuro9081]

U''' ' K'' '' K ''' '😮 😮''l '😮 'U'😮l😮😊'u'U'ku . K😅😮 😮 U😊😊😅l' 1:35 Ou 'k ' 1:35 1:35' 1:35 'k''😮' ' 😮 'k''u KK'u'u '''😮k K 😮'k''' ' U'😮😮😮'kL 😊'' K K''k ' '''''''' 😮u ' K' ' ' 'l '' U' 😊😊 U ?'k U'' 'u I' '' U 😮 O'k😮u😊 UL😮😊' 😮 '' ' U'' K

[@yvettesematuro9081]

U''' ' K'' '' K ''' '😮 😮''l '😮 'U'😮l😮😊'u'U'ku . K😅😮 😮 U😊😊😅l' 1:35 Ou 'k ' 1:35 1:35' 1:35 'k''😮' ' 😮 'k''u KK'u'u '''😮k K 😮'k''' ' U'😮😮😮'kL 😊'' K K''k ' '''''''' 😮u ' K' ' ' 'l '' U' 😊😊 U ?'k U'' 'u I' '' U 😮 O'k😮u😊 UL😮😊' 😮 '' ' U'' K

[@yvettesematuro9081]

😊K'' K OlK '😊 3:48 K 😊😮' 'k😊i ' K K 😮😊K' K''kk Ku'k''k 😮😊' ''k'' Ku 😮' '😮 '😅 U '😢 U😮 3:48

[@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.

[@michalchik]

Well said

[@milothereporter]

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

[@LCTesla]

7:10 Credit should be 100% of GDP? Why one year's GDP? What makes the 1 year mark special? I don't buy this argument at all. Also, the appropriate credit level is dependent on interest rates. When credit is cheap, it is rational to make use of it more.

[@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?

[@harrisjm62]

"Does it grow the economy?" well, he misses the point of credit and accounting then. It's not about growing the economy, its about holding people accountable, making people predictable, evaluating trustworthiness. He even shows suspicion about GDP because he's aware it doesn't measure production and we have no measure of growing heterogeneous goods. He begins by noting how the barter economy is a myth, and yet still believes there is a "real sector" distinct from finance.