Debt a Great Invention?

Serge Melki/Wikimedia Commons

One of the great things about the Internet is that you find things, you were not looking for, but which can be very interesting. Case in point is a short four-part series about debt by Dutch Associate Professor economics at the University of Groningen, Dirk Bezemer, who is also affiliated with the Institute for New Economic Thinking in New York. The first episode is about how money and debt systems developed over the years into the financial system we have today, a system that can create great wealth. The second episode is about bubbles, basically caused by lending for non-productive purposes, mainly in asset markets.The third episode explains why crises occur, i.e. after the bust of an asset bubble debt reduction will have an impact on the real economy. The fourth and last episode tries to answer the question whether we can have an economic system that does not produce bubbles and crises. Bezemer mentions restructuring unsustainable debt, redirecting bank lending to productive purposes, and reducing the banking sector as solutions to the current crisis, but doesn't answer his own question. He hints that it may take some time before economics can come up with a "better' system. Also, this series gives a good overview of the current crisis, and shows in simple terms why austerity as it's currently practiced in Europe and possibly the U.S. doesn't work. Bezemer explains that the important number to keep in mind is not total debt, but the debt burden,  the ratio between

debt and GDP. If government debt is cut, then this will generally lower GDP, in essence not improving the debt burden of society. That's what we are seeing in Greece, Portugal, Spain, Ireland etc. So, if that's so clear to  a relative mainstream economist, why are the IMF, EU, ECB and those countries pursuing this policy?  Anyway, have a look:

1. Debt a great invention

                                                                 2. How bubbles grow

                                                               3. Why crises occur
                                                                       

                                                                4. The post bubble economy