Financial Instability For (Keynesian) Dummies

Tyler Durden's picture


In a little under eight minutes, a plethora of today's more outspoken realists, economists, and journalists provide a simple yet clear path through the financial crisis to critically explain how the so-called equilibrium that so many mainstream analysts and economists trusted as fact has been proven as simple fiction. The hard-to-accept truth is that financial instability is in fact the natural state of our economic environments and that credit and banking lie at the very heart of that difference between Keynesian / Neo-classical dogma and the tough new reality that the world's major economies now face. The political and economic elite have "blind-sided themselves to the role of rising debt in funding what is really the biggest ponzi scheme in human history" and that the "blind-faith in institutions and mechanisms has cracked post-2007". From too-simple DSGE 'economic models' to 'representative agents' to the fact that financial systems are the cause of economic instability, a number of the new normal's best thinkers (including Stiglitz, Keen, Kinsella, and Bezemer), courtesy of INETeconomics, provide a very layman's guide to the (hopefully not so shocking to our readers) new reality of how critical credit and debt is in our brave new world and how entirely misrepresented it is in mainstream thinking. Must Watch, if for nothing else, the crushing conclusion for many neo-classicals that when you can't tweak your models any more, you need to move on to some next paradigm.


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Sun, 04/15/2012 - 23:01 | 2347684 km4
km4's picture


Excellent piece

The Institute for New Economic Thinking (INET) was created to broaden and accelerate the development of new economic thinking that can lead to solutions for the great challenges of the 21st century.

The havoc wrought by our recent global financial crisis has vividly demonstrated the deficiencies in our outdated current economic theories, and shown the need for new economic thinking – right now.

INET is supporting this fundamental shift in economic thinking through research funding, community building, and spreading the word about the need for change. We already are a global community of thousands of new economic thinkers, ranging from Nobel Prize winning economists to teachers and students who have emerged out from the shadows of prevailing economic thought, attracted by the promise of a free and open economic discourse.

follow on twitter @INETeconomics


The Institute for New Economic Thinking provides fresh insight and thinking to promote changes in economic theory and practice.

New York, NY ·



Sun, 04/15/2012 - 23:19 | 2347713 spankthebernank
spankthebernank's picture

It is called greeeeeeeeeeeeeed!!! The economist are owned just like the politicians. The people at the very top dont think 'the smart guy' will act rationally, they know the rest of America will act like a bunch a fucking idiots and they do everything to exploit it. The puppet masters are pushing for collapse to further their power. The economists are in no mans land.

Mon, 04/16/2012 - 00:38 | 2347830 Oh regional Indian
Oh regional Indian's picture

In the middle there somehwere, I think Steiglitz said "Markets Cannot produce Full employment"...

That is a loaded supply-side-ism for me.

The "Market" is now just a grab-bag of "Economy/FInancialSector/Main Street" all rolled into one.

If the market is tasked with everything, supernatural powers to defeat the best of us everytime, be irrational....

Well, any wonder why we are collapsing.

We've given "Market" a personhood. It's a barely functioning chimera is what it is.

It's dissolviing, not being destroyed.


It's Never Too Late


Mon, 04/16/2012 - 01:14 | 2347866 Manthong
Manthong's picture


Nice people.. nice ideas.. one teensy problem..

Not one mention of greed, fraud, theft, or megalomania.

Factor those variables (or are they constants now?) into the model for an accurate and elegant equation.


Mon, 04/16/2012 - 03:07 | 2347963 Nukular Freedum
Nukular Freedum's picture

Agree totaly. All these grandiose theories assume law abiding behaviour, which is their great achilles heel. My thoughts on what is to be done;

Mon, 04/16/2012 - 04:43 | 2348006 Acet
Acet's picture

The problem of Economic theories is that they don't take in account the influence of economists in changing the rules of the game mid-experiment.

In hard sciences, like Physics, the processes under study are so fast that a scientist that is conducting an experiment to try and disprove a theory cannot interfere (or, in those processes that are slow enough, they are still fast enough that the scientist can refrain from interfering). Even in softer sciences, like Psychology, there are things like double-blind tests. Not in Economics:

- In Economics an entire cycle from start to end can take decades, even a century, so most economists, human beings that don't have a century to wait and need to make a living, start pushing their theories long before a whole cycle has happened, influencing policy and thus changing the conditions of the experiment.

This cycle it seemingly was worse than before because the profession of Economics was glorified beyond its true value and Economic theories like the Free Market Theory were co-opted as means to maintain the status quo and used to justify policy at the highest levels.


Sun, 04/15/2012 - 23:28 | 2347729 Oppressed In Ca...
Oppressed In California's picture

It's really easy to express valid criticisms of the current state of economics, but building a new and better theory/model is an entirely different thing.

My prediction: INET research will eventually reach the conclusion that a small group of really, really, really smart people should centrally plan the economy. 

Mon, 04/16/2012 - 00:04 | 2347781 Zero Govt
Zero Govt's picture

Yes INET will come up with a major 'surprise' and all fresh thinking

...replace one monopoly on money with another monppoly on money

a Free Market is way too radical to even contemplate

Mon, 04/16/2012 - 01:14 | 2347867 michael_engineer
michael_engineer's picture

Like the authors of this!!

Seems like they almost have everything worked out already too.

Mon, 04/16/2012 - 01:58 | 2347908 A Nanny Moose
A Nanny Moose's picture

ding ding ding!! we have a winner!!

Sun, 04/15/2012 - 23:00 | 2347685 AU5K
AU5K's picture

Politicians want instability.  It creates a voter base.  Economists/CBs want instability.  It justifies their jobs.  Hedge funds want instability.  They can profit through HFT, et al.  When you understand TPTB want what they say they are fixing, everything becomes clear.

Gold is money.  The one fact they can't subvert.

Sun, 04/15/2012 - 23:35 | 2347741 11b40
11b40's picture

Agree that gold is a monetary asset, but the point is, to have any hope of 'fixing' things, there is a lot of educating to be done.  The people and society in general, seek stability, and with a proper understanding of the way credit based systems work [or don't work], we can implement controls on the financial system that are far past due.

From a marketing point of view, the name should be changed to i-Net, and of course, they need an app.

All these theories make my head hurt, and way down deep inside, I think the bowl holding the world's economies has already been flushed.  The swirling around the top of the bowl is just getting underway, but with every rotation, the speed accelerates - slowly at first, then rapidly until we hear that last sucking sound as the bowl drains.  the problem is, once the flush starts and the bottom of the bowl is opened, nature takes her course and the rest is both automatic and inevietable.

Sun, 04/15/2012 - 23:44 | 2347760 TBT or not TBT
TBT or not TBT's picture

NO, people seek to improve their situation and to acheive/attain various goods and services they don't yet have.  

Very few in the game of life seek "stability."

Mon, 04/16/2012 - 00:40 | 2347834 mr. mirbach
mr. mirbach's picture

Most people on the planet today are seeking food, shelter and clothing. Rising numbers in the USA are giving up their iGadets and cable tv in favor of food. The NEW reality doesn't jibe with MMT or Keynesian economics. 

I crossed paths with a young woman today who was obviously having a hard time, she was disheveled and looked rough and only had on one shoe. I asked her how she had lost her shoe and she told me that she hadn't lost a shoe, she had found a shoe.

Things are getting worse in Amerika. 

Mon, 04/16/2012 - 01:56 | 2347902 iinthesky
iinthesky's picture

See.. i like the toilet bowl analogy.. The Bernank heard the flush and is now stuffing the bowl with so much toilet paper that it clogs the toilet. Then all you have left is a still pool of shit water, a couple of floaters, and huge amounts toilet paper and noone knows what happened to the plunger.

Mon, 04/16/2012 - 04:58 | 2348010 Acet
Acet's picture

Some instability is needed.

It's a bit like the situation with forest firest in some parts of the world:

- These are places where frequent forest fires are natural. They clean the accumulated brush but don't kill the large trees. However when people started managing those forests, they started putting down fires as soon as they started. So tinder started accumulating, fires got bigger and bigger, requiring more effort to put out, and eventually you would get a fire which is so large that it can't be put out, laying waste to a large area and, because so much tinder has accumulated, actually killing all the bigger trees.

As it turns out, the frequent small fires when allowed to run its course help maintain the forest in prime condition and thus major fires are impossible. They are even helpfull for larger trees since they do things like killing parasites.

A very strong parallel exists in Economics: social and economic systems tend to accumulate worthless, parasitical and even nefarious tinder. Random small fires will get rid of those, helping to keep the whole system healthy. I believe this what's called creative destruction. Look at the current economic cycle and you'll see that all the way back to the Greenspan put, central banks were stopping the small, natural fires that helped keep the system clean, with the end result that so much tinder accumulated that we now have a major fire.

Mon, 04/16/2012 - 06:06 | 2348031 Mitzibitzi
Mitzibitzi's picture

Good analogy.

Sun, 04/15/2012 - 23:06 | 2347690 HyperLazy
HyperLazy's picture

Ah yes, the good old blind faith. Crutch of normalcy bias. Wanna shatter some of that?

American Dream Film - half hour cartoon about the FED, good for showing normals wotz happening:

Inside Job - movie that will help normals understand what happened financially a couple years ago:

Margin Call - dramatic movie representing a financial threat, from the bankster perspective:

Chekist - movie about the socio-political purge in the beginning of communism in Russia:
I can't help but wonder if America will get its own version of the Cheka...

PS: On July 12th, ISPs and the big media distributors will start tagging people who download stuff. May as well grab these goodies while you can.

Sun, 04/15/2012 - 23:09 | 2347697 TBT or not TBT
TBT or not TBT's picture

How is this starts July 12th?

Sun, 04/15/2012 - 23:13 | 2347702 Caviar Emptor
Caviar Emptor's picture

I can't help but wonder if America will get its own version of the Cheka...

You can check the answer, comrade, at the minitsry of secret police.

You know, the one that gave you the idea to write that silly post in the first place through the micro chip implanted in your brain. 


Sun, 04/15/2012 - 23:20 | 2347714 HyperLazy
HyperLazy's picture

Yer right, twas a silly post after all. I best turn myself in to be liquified and then congealed into Soylent Green.

Sun, 04/15/2012 - 23:33 | 2347739 Caviar Emptor
Caviar Emptor's picture

Thank you, number 78934761. Have a pleasant journey. 

Sun, 04/15/2012 - 23:04 | 2347694 Vlad Tepid
Vlad Tepid's picture

Don't know why but this verse from Byron seems approriat about now...and I'm not a very big fan of Byron.

"The mountains look on Marathon---
And Marathon looks on the sea;
And musing there an hour alone,
I dream'd that Greece might yet be free
For, standing on the Persians' grave,
I could not deem myself a slave.A king sat on the rocky brow
Which looks on sea-born Salamis;
And ships, by thousands, lay below,
And men in nations;---all were his!
He counted them at break of day---
And when the sun set, where were they?

And where are they? and where art thou,
My country? On thy voiceless shore
The heroic lay is tuneless now---
The heroic bosom beats no more!
And must thy lyre, so long divine,
Degenerate into hands like mine?"

Sun, 04/15/2012 - 23:05 | 2347695 traderjoe
traderjoe's picture

Economics is NOT a science. It is witchcraft pitched by banker/PTB shills to cover for the theft and fraud perpetrated against the people. 

Sun, 04/15/2012 - 23:08 | 2347696 Caviar Emptor
Caviar Emptor's picture

Charming little vignette. But very smuggly self-reassuring to the economists that their ideas were never really wrong, that they saw it all coming and that their notions and theories are somehow still  undisturbed in a world that hungers for them. 

Sorry, the crisis and the aftermath have shattered old economic theories forever. There is a very clear demarcation line between the old and the new world. The old theories failed as they inevitably do. They have a life-cycle. Trying to deny it, thinking that somehow this time is different is stupid as it is futile. 


Mon, 04/16/2012 - 00:13 | 2347792 Zero Govt
Zero Govt's picture

i agree economists are rubbish 

what they all seek to ignore is the central system that is destroying our economies: Govt and its central banking monopoly on money

Govt is the cancer that is eating every economy alive.. it's not like it hasn't happened hundreds of times before but they still don't 'get it'

Sun, 04/15/2012 - 23:11 | 2347701 slewie the pi-rat
slewie the pi-rat's picture

it looks like the markets are starting to get ready to melt up at the close tomorrow...

Sun, 04/15/2012 - 23:16 | 2347708 WoodMizer
WoodMizer's picture

The Heritics speak out; to bad it felt like kony 2012.

This is smacks of my favorite summer drink, moonshine and koolaid.

I guess, softballing the current temple overlords will be more effective on those fence riders.  Most Econ professors, I have met, believe themselves infallable; I doubt they will win many converts.

Sun, 04/15/2012 - 23:19 | 2347715 Bear
Bear's picture

Soros is everywhere have just given INETeconomics $25m this year and $100m over ten years

Sun, 04/15/2012 - 23:43 | 2347757 11b40
11b40's picture

links to that?

Mon, 04/16/2012 - 00:13 | 2347794 Amish Hacker
Amish Hacker's picture


Looks like INET hasn't been around for ten years. Their first conference was in April 2009, funded by a Soros donation of $50 million.


Sun, 04/15/2012 - 23:21 | 2347716 q99x2
q99x2's picture

Humble gooey smiles. Where's Hugh Hendry?

Sun, 04/15/2012 - 23:22 | 2347718 jimmyjames
jimmyjames's picture

It's well known that the availability of money supply-abundant or scarce has the power to herd the masses in either direction-

The problem for the Keynesian mind set is-that sentiment can unexpectedly switch-like it did when houses "stopped" selling and prices stopped going up-

Sentiment changed and it still has Bernanke stymied-

Sun, 04/15/2012 - 23:22 | 2347721 hairball48
hairball48's picture

Stiglitz, et al are just wrong....and have been wrong, and will never be right.

Rednecks like me go here for our economic wisdom


Sun, 04/15/2012 - 23:59 | 2347776 AMack
AMack's picture

Likewise. Stiglitz is a shill for central banking and a fiat monetary system. He isn't a "new" thinker. He's part of the same old paradigm that got us here.

This video makes me sick. Please tell me Tyler isn't convinced by this trash.

Sun, 04/15/2012 - 23:33 | 2347731 proLiberty
proLiberty's picture


Ralph Raico is professor of history emeritus at Buffalo State College.  In his 2008 article, Was Keynes a Liberal?, he wrote:

Throughout Keynes’s career, however, clear indications appear of his longing for a much more radical social order—in his words, a “New Jerusalem” (O’Donnell 1989, 294, 378 n. 27). He confessed that he had played in his mind “with the possibilities of greater social changes than come within the present philosophies” even of thinkers such as Sidney Webb. “The republic of my imagination lies on the extreme left of celestial space,” he mused (1972, 309). Numerous statements strewn over decades shed light on this somewhat obscure avowal. Taken together, they confirm Joseph Salerno’s (1992) [1] argument that Keynes was a millennialist—a thinker who viewed social evolution as pursuing a preordained course to what he conceived to be a happy ending: a utopia (O’Donnell 1989, 288–94).[2]

Please observe that Keynesian economics assumes absolute power to manipulate and impose an arbitrary value on money, even money held in private hands.  Thus, Kenynes proposes that government has title to all income and assets of those who use its currency.  This is coveting and theft on a scale never before achieved in human history.


[1] Joseph Salerno, 1992. The Development of Keynes’s Economics: From Marshall to Millennialism.Review of Austrian Economics 6, no. 1: 3–64, link to PDF:

[2] Ralph Raico, Was Keynes a Liberal? The Independent Review, v. 13, n. 2, Fall 2008, ISSN 1086–1653, Copyright © 2008, pp. 165–188.  link to PDF:



Sun, 04/15/2012 - 23:36 | 2347744 Caviar Emptor
Caviar Emptor's picture

You mean we don't live in a utopia? 

Mon, 04/16/2012 - 00:34 | 2347826 TBT or not TBT
TBT or not TBT's picture

On the bright side, we live in the best of all possible fiat currency / fractional reserve banking worlds....that are in this solar system.

Mon, 04/16/2012 - 05:46 | 2348023 Belarusian Bull
Belarusian Bull's picture

Did you know that aliens are drilling the other side of the moon? I bet their fiat and central bank are better...

Sun, 04/15/2012 - 23:40 | 2347755 jimmyjames
jimmyjames's picture

Throughout Keynes’s career, however, clear indications appear of his longing for a much more radical social order—


Well his partner that helped lay the rules of  Bretton Woods certainly had that mindset-


Harry Dexter White: the man behind Bretton Woods, the World Bank and the IMF was a Soviet Spy

Harry Dexter White (1892 – 1948) was an American economist and senior U.S. Treasury department official. He was a primary mover behind the Bretton Woods Conference, the formations of the World Bank and the IMF (International Monetary Fund).


Sun, 04/15/2012 - 23:34 | 2347740 Grand Supercycle
Grand Supercycle's picture

The Big Picture Wile E. Coyote Equity Top.

Prepare for a substantial USD rally.

Sun, 04/15/2012 - 23:40 | 2347756 steelrules
steelrules's picture

No econimic model works where banks can bet against the fraudulent loans they make and sell all over the world.

 What economic model ever took into account a thousand trillion dollar derivatives market?

Mon, 04/16/2012 - 00:01 | 2347782 Real Estate Geek
Real Estate Geek's picture

Well, that rang about as true as the commercials touting BP's environmental credentials.

Mon, 04/16/2012 - 00:19 | 2347805 Lost Wages
Lost Wages's picture

Just noticed I'm getting tired of interview-montage style documentaries.

Mon, 04/16/2012 - 00:46 | 2347817 mr. mirbach
mr. mirbach's picture

Sciences are capable of producing repeatable and provable results within a very small margin of error.   Economics is a contrivance born from sociology and philosophy. Sociology uses scientific methods and statistics to draw broad conclusions about observed events, behaviors and trends.  Philosophy is not a science, it is mental masterbatiory speculations about things that cannot be proven with complete certainty.

Therefore, economics is a mental masterbation that uses math to model sociological events, behaviors and trends in an attempt to manipulate people and public policy towards profit maximization and to explain failed attempts to manipulate people and public policy towards profit maximization.

Economic writings date back to Mesopotamia, Aritotle wrote on economic subjects. Early economics was simple forcasting (such as plant in spring, harvest in fall, drought is bad, keep stores for bad times, winters are cold) and understanding value, interest and monetary alternatives to barter. Economics was not distinguihed from Philosophy as a seperate discipline until Adam Smith's The Wealth Of Nations treatise in 1776. 

It is irrefutable tha many of  Keynes most basic assumptions were antiquated (such as the assumptions regarding the 40% agrain society), flawed (assumptions about the nature of "utility") or just totally wrong (infinite growth, infinite resources).

Keynesian Economics will eventually be discredited just as blood-letting to balance the humors was abandoned for real science. Austrian Economics is better than Keynesian economics in the assumptions, but still ALL economics is based on assumptions and historical trends. 

I have more faith in astrologers than economists. 

Mon, 04/16/2012 - 06:04 | 2348030 Belarusian Bull
Belarusian Bull's picture

Austrians are sane and careful in their assumptions, because they take into account not only previous trends, but nature of those who create them - humans.

Economics is, first of all, psycological study (not science).

Mon, 04/16/2012 - 07:30 | 2348076 Vince Clortho
Vince Clortho's picture

"Keynesian Economics will eventually be discredited ..."

Eventually?  Does the patient have to die before this realization occurs?

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