Transcription
is what's leading to political decay and political instability all around the world, but most dramatically in the UK right now, as well as an increase in household debt.
What households did in response to that was they thought, "Oh, I've got to hang on to money to pay my interest bill, so I should spend more slowly, and therefore I can save more money." Now, that works for a single individual. It does not work for the collective economy. If each of us tries to save more money, what we do is slow down the rate at which money turns over. We slow down the economy, as well.
And this is vividly obvious in the data. This is the American data from the Federal Reserve Economic Database. But the velocity of money turned over about 1.8 times per year all the way from the '60s up to the beginning of the '90s. It rose during the Clinton recession and the beginnings of the of the telecommunications bubble, but once household debt in particular started to rise, we saw this dramatic downward trend in how much money turned over. Effectively, money was becoming less productive at this stage.
Back in 1997, money turned over 2.2 times per year. So, if you had a a billion dollars of money, you have created 2.2 billion dollars worth of GDP. By 2020, we were down to the stage where a billion dollars caused 1.2 billion dollars worth of GDP. So, there's been a decline in the capacity of the money monetary system to generate real economic growth.
And so, now neoliberalism also brought financial instability. There was no really significant financial crisis before 1975. '75 and in fact, you can slot '75 and the the crisis that occurred at that stage back to the oil price rise and to a booming economy at the time, which was leading to speculative bubbles in particularly in commercial property. But there was really no significant crisis until 1975.
Since then, financial crises have become a regular experience. In 1987, there was the stock market crash when the Dow Jones fell 20% in one day. And at that point, Alan Greenspan, who apparently now has left this mortal coil, Alan Greenspan invented what we call the Greenspan put that basically told the financial sector, "Don't worry. If you get caught in a speculative bubble, we'll rescue you. You won't have to pay for your mistakes." So, that led to the the asset price inflation we've seen ever since.
In 1990, we had the Japanese financial crisis. What the Japanese literally call the bubble economy burst and the Japan went from a booming economy to a stagnant one. The Asian financial crisis in 1997. The Russian financial crisis, which took down a firm called Long-Term Capital Management that was managed by a couple of Nobel Prize winners in economics. The 2007 global financial crisis, which the mainstream did not see coming, which I warned about before it happened. We're still in the aftermath to that crisis. So, we have crisis after crisis. We don't have stability. We don't have growth.
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