Home > Uncategorized > Causes of global financial Crisis: House of debt

Causes of global financial Crisis: House of debt

from Asad Zaman

This is a review and a summary of some of the key arguments presented by Mian and Sufi in their recent book “House of Debt.” It highlights the contribution of Mian and Sufi by showing how they have solved the mystery of why there was a huge drop in aggregate demand during the Great Depression of 1929 and also following the recent Global Financial Crisis of 2007-8. The article shows how major economists like Keynes, Friedman, Lucas and others tried and failed to provide an adequate explanation of this mystery. The key to the mystery is the huge amount of levered debt present during both of these economic crises. The solution suggested by Mian and Sufi is to replace interest based debt by equity based contracts in financial markets. This solution resonates strongly with Islamic teachings on finance. The lecture below covers the first three chapters of the book.

Atif Mian and Amir Sufi open their book “House of Debt” with a MYSTERY. It describes the . . . read more

  1. Geoff Davies
    December 23, 2020 at 12:51 am

    This sounds like what Steve Keen has been saying for some time – that ‘demand’ must take account of changing levels of debt.

  2. Craig
    December 23, 2020 at 7:23 am

    Keen has been right about debt deflation and Minsky’s Financial Instability Hypothesis for years now. He’s also partially recognized the importance of accounting, but not having looked at the strategic monetary importance and power of the accounting and algebraic equation convention implemented at the point of retail sale, has missed its economic problem resolving and paradigm changing effects. It’s all so easy, simple and deep….when you actually look at it.

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