Bailing out the Titanic with a Thimble

Solving the Paradox of Monetary Profits

“…Our current crisis is, of course, more than merely a "credit crunch"-a temporary breakdown in the process of circulation of credit. It is also arguably a secular turning point in debt akin to that of the Great Depression (Keen 2009), as Figure 8 illustrates. While the model developed here cannot assess this claim, 14 it can assess the differential impact of a sudden injection of fiat money 15 to rescue an economy that has experienced a sudden drop in the rate of circulation and creation _________________________ 14 A model that can assess this claim will be the subject of a later paper.…”

Debt and investment in the Keen model: a reappraisal of modelling Minsky

“…Chapman and Keen (2006) and Keen (2008;2009a; modelled the mechanism of money creation from banks, taking inspiration from Graziani (2003) This coupling purportedly provides an explicit representation of the financial counterparts of the physical production of the Keen model. The next section discusses the role of money creation in the Keen model and the meaning of debt, and will investigate whether the coupling of the financial sphere and the real production achieves the full integration that is claimed.…”

“…He himself relied on his model on many occasions to explain the global financial crisis (Keen 2009a;2009b;2009c;2013a) and warn about a possible future crash (Keen 2013b). The Keen model has thus gained considerable attention, inside and outside academia.…”

“…Keen (2008;2009a) developed a dynamical system describing the mechanism of a monetary economy, which he connected to his Minsky model in Keen (2013a). The latter finally rejoins the two hobby-horses of Steve Keen: the importance of debt in explaining economic crisis and stagnation, and money creation from banks as the main channel of debt formation.…”

Solving the Paradox of Monetary Profits

“…Even though this model is still very simple, in Keen (2009a) I show that it reaches substantive policy conclusions that differed from neoclassical and "Keynesian" equilibrium doctrine, by considering the effectiveness of a government stimulus injection in response to a "credit crunch". The "money multiplier" perspective on money creation asserts that a government stimulus would be more effective if given to the banks than the debtors, since this would create additional money equivalent to the injection divided by the reserve ratio-so that there would be a "multiplier effect" if the stimulus were given to the banks, but no such effect if the stimulus were given directly to the public (and indeed Obama used precisely this argument to explain his stimulus package in April 2009; Obama (2009)).…”