Maximillian Walsh has just re-discovered the classical theory of the cycle. This is from today’s AFR: The crises are different, but the cause is the same. Here is the sub-head:

In a global era, the next crisis is always just around the corner. The continuous expansion of debt is the cause at the bottom of all of them.

I suspect that we have been living in a “global era” for the last 250 years at least so technically I suppose he’s right, but I think he is trying to say there is something new in the world. He could, if he cared to look, find the same kinds of instability across the whole of the nineteenth century. If he would like to go back farther, I could send him to The Wealth of Nations, or he could investigate the Mississippi or South Sea bubbles, both eighteenth century.

The point, of course, is that with the advent of Keynesian economics, the classical theory of the cycle has disappeared and to my knowledge a full discussion is available from only a single source at the present time, although the Austrians are pretty close.

So yes, there is always another crisis around the corner, all the more so since those who manage our economies are the single most certain cause of it. The real question, then Max is this: what should we do, right now, to prevent this crisis from coming full term, or at least what can we do to make it less of a problem? For this, too, you need to go back to the classical theory of the cycle. They had no guaranteed answers either, but at least they knew what you should not do. And if you would like to see the kinds of things they would not have done in action, check out the Federal Reserve in the US, along with most of the other central banks now in charge, and see what they are doing right now.