You have just come from your annual medical checkup, where your doctor assures you that you are in robust health.

 

Walking jauntily down the street, you bump into a practitioner of alternative medicine. He takes one look at you and declares “You have a serious tumour! It must be removed or you will die”.

 

You ignore him as you always have, and continue your merry way down the street. One day later, a stabbing pain suddenly cripples you, and you collapse to the pavement.

 

In agony, your call your doctor, who initially refuses to send an ambulance because he knows you are well.

 

When you lapse into a coma and stop talking mid-sentence, your doctor concludes that perhaps something is wrong, and sends an ambulance to take you to hospital.

 

Initially the doctor waits for you to revive spontaneously, because he still knows there’s nothing really wrong with you. But as your pulse starts to weaken, he reluctantly calls a retired doctor who had experience of a similar inexplicable malady in the distant past.

 

She prescribes massive doses of tranquilisers, painkillers, vitamins, and oxygen—all substances that had been removed from the medical panoply due to recent advances in medical theory. Reluctantly, your doctor follows his retired colleague’s advice—and miraculously, you start to revive.

 

After a year of expensive medical treatment, you return to the same robust health you displayed before your inexplicable illness. Triumphant, if somewhat puzzled, your doctor declares you well once more, and releases you from intensive care.

 

As you stride confidently away from the hospital, you have the misfortune to once again bump into the practitioner of alternative medicine.

 

“But they haven’t removed the tumour!”, he declares.

 

…

 

One shouldn’t have to spell out the details of such an analogy, but in times of widespread denial, one has to:

 

* You are the economy;

* The tumour is a massive accumulation of private debt;

* Your doctor is Neoclassical Economics, and the retired colleague is a so-called “Keynesian” Economist — who doesn’t know it, since her medical textbooks were poorly written, but he’s actually following another economist called Paul Samuelson, not Keynes (and your doctor’s textbooks are so bad they don’t warrant discussion);

* The alternative medicine practitioner follows Hyman Minsky’s “Financial Instability Hypothesis” (which is based on what Keynes actually did say—as well as the wisdom of Joseph Schumpeter and, in whispers, Karl Marx);

* The moment you hit the pavement is the beginning of the Subprime Crisis; The collapse of Lehman Brothers is the moment when you slip into a coma; and

* The day the doctor takes you off life support and declares all is well … is next month.

 

The final reason for me being a bear is that I am that practitioner of alternative medicine. Minsky’s “Financial Instability Hypothesis” has been ignored by conventional economists for reasons that are both ideological and delusional. A small band of “Post-Keynesian” economists, of whom I am one, have kept this theory alive.

 

According to Minsky’s theory:

 

* Capitalist economies can and do periodically experience financial crises (something that believers in the dominant “Neoclassical” approach to economics vehemently denied until reality—in the form of the Global Financial Crisis—slapped them in the face last year);

* These financial crises are caused by debt-financed speculation on asset prices, which leads to bubbles in asset prices;

* These bubbles must eventually burst, because they add nothing to the economy’s productive capacity while simultaneously increasing the debt-servicing burden the economy faces;

* When they burst, asset prices collapse but the debt remains;

* The attempts by both borrowers and lenders to reduce leverage reduces aggregate demand, causing a recession;

* If the economy survives such a crisis, it can go through the same process again, with another boom driving debt up even higher, followed by yet another crash; but

* Ultimately this process has to lead to a level of debt that is so great that another revival becomes impossible since no-one is willing to take on any more debt. Then a Depression ensues.

 

That is where we were … in 1987. The great tragedy of today is that naïve Neoclassical economists like Alan Greenspan and Ben Bernanke allowed this process to continue for another three or more cycles than would have occurred without their rescues.

 

In 2008, they did it again—only with methods they would have disparaged a mere year earlier (“Rational Expectations Macroeconomics”, a modern neoclassical fad, preaches that government intervention can’t influence the level of economic activity at all—yet another belief that reality has recently crucified). This time, while the rescue has worked, the recovery they expect afterwards can’t happen—because there’s almost no-one left who will willingly take on any more debt.

 

This time, there’s no re-leveraging way out. The tumour of debt has to be removed.

 

http://www.debtdeflation.com/blogs/

Yep, Canada can't be the only place like this:

 

http://www.cbc.ca/consumer/story/2009/09/14/payday-to-payday-problems.html

 

[quote=CBC

59% of Canadians live payday to payday

 

Last Updated: Monday, September 14, 2009 | 2:18 PM ET Comments238Recommend137

 

CBC News

 

 

Nearly 60 per cent of Canadians would have trouble paying the bills if their paycheque were delayed by one week, a nationwide survey suggests.

The Canadian Payroll Association survey released Monday found that not only were 59 per cent of respondents living paycheque to paycheque, but they had little ability to put money away for their retirement.

"We were shocked by that number," CPA chairman Janice MacLellan said. "So many Canadians are now living so close to the line that if they miss a single paycheque, the majority will find themselves in financial difficulty."

Financial experts recommend that people should have emergency funds to cover about three months of expenses, such as rent, mortgage, utilities, other bill payments and groceries.

Of those surveyed, the younger workforce said they felt the greatest pinch. Forty-five per cent of people aged 18 to 34 said it would be difficult or very difficult to make ends meet if a paycheque were delayed, with a further 21 per cent saying it would be somewhat difficult.

Single parents were in the most precarious situation, with 72 per cent saying they would have some trouble making ends meet.

The survey also found that 50 per cent of workers couldn't save more than five per cent of their net pay for retirement — half the amount financial experts generally recommend.

About one-third of respondents said they've been trying to save more money than a year ago because of the economic uncertainty, but have been unable to do so. Another 42 per cent said they weren't trying to save more.

When it comes to remuneration, 65 per cent of employees said higher wages were most important to them, while 25 per cent cited better health benefits and 10 per cent preferred education funding.

Asked what they would do with a $1 million lottery win, 70 per cent of people said their top priority would be to pay off debt, while 35 per cent would put as much as possible toward retirement.

Surprisingly, not many people would have a celebration. Just three per cent of Canadians said they would use some of their winnings to throw a party, with Quebecers — at seven per cent — a bit more likely to do so.

And if you're a relative of a lottery winner, don't count too heavily on getting a share. Just 26 per cent of Canadians said they would give some of their winnings to family members.

The CPA survey involved more than 2,800 employees across Canada. The results are considered to have a margin of error of 2.3 per cent, 19 times out of 20.