TITLE:
Private and Public Debt Markets in Disequilibrium Theory
AUTHORS:
Frederick Betz
KEYWORDS:
Financial Systems, Fiscal Crisis, Economic Recessions
JOURNAL NAME:
Theoretical Economics Letters,
Vol.5 No.5,
October
15,
2015
ABSTRACT: In disequilibrium pricing of
financial markets, excesses in either public debt or private debt can trigger a
financial crisis, with attendant bank panics and recessions. For example, in
the Euro crisis beginning in 2010, financial contagion in the sovereign bond
market has spread among five nations: Greece, Ireland, Cyprus, Portugal, and
Spain. But the reasons for the contagion was initially different for the
countries, due to either disequilibrium pricing in public debt markets or
disequilibrium pricing in private debt markets. In previous papers, we
introduced a time-independent supply-demand model (three-dimensional model) for
disequilibrium pricing in financial markets [1] and a steady-state disequilibrium systems model for the run-up of a
financial crisis in a public debt market [2]. In this paper we construct a time-dependent disequilibrium systems
model for the run-up of financial crises in a private
debt market. We analyze the empirical case
of the 2010-12 Euro crisis in Spain (private debt crisis) and then compare this
to the empirical case of the 2010-2015 Euro crisis in Greece (public debt
crisis).