With great timing Steve Keen has just published at debtdeflation a masterly draft paper – ‘Dude wheres my recovery’ which uses some of the latest thinking to explain why we my be heading for a double dip when most economists predicted a rapid recovery – the credit accellorator hypothesis.
The equations didnt come out so the full pdf is here
the rate of change of asset prices is related to the acceleration of debt. …
There isn’t a one-to-one link between accelerating debt and asset price rises: some of the borrowed money drives up production (think SUVs during the boom), consumer prices, the fraction of existing assets sold, and the production of new assets (think McMansions during the boom). But the more the economy becomes a disguised Ponzi Scheme, the more the acceleration of debt turns up in rising asset prices.