Private and Public Debt Markets in Disequilibrium Theory

Frederick Betz^1,2

¹SUNY Korea, Incheon, South Korea.
²Portland State University, Portland, OR, USA.

DOI: 10.4236/tel.[phone]                

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).

Keywords

Financial Systems, Fiscal Crisis, Economic Recessions

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	Betz, F. (2014) Disequilibrium Pricing Theory. Theoretical Economics Letters, 4, 60-67.
[2]	Betz, F. (2014) Disequilibrium Pricing—Greek Euro Crisis. Theoretical Economics Letters, 4, 897-909. http://dx.doi.org/10.4236/tel.[phone]
[3]	Minsky, H. (1975) John Maynard Keynes. Columbia University Press (Reprinted in 2008 by McGraw Hill Education), New York City.
[4]	Wolf, M. (2014) The Shifts and the Shocks: What We’ve Learned-and Have Still to Learn-from the Financial Crisis. Penguin Press, New York City.
[5]	Burridge, T. (2012) Spanish Banks to Get up to 100bn Euros in Rescue Loans. BBCNEWS, June 12. http://www.bbc.com/news/business-18382659
[6]	Norris, F. (2011) Spain’s Banking Mess. New York Times, September 22. http://www.nytimes.com/2011/09/23/business/spains-banking-mess.html
[7]	Betz, F. (2013) Why Bank Panics Matter. Springer, New York.
[8]	Jolly, D. (2012) Spanish Data Point to Further Decline. New York Times, May 29. http://www.nytimes.com/2012/05/30/business/global/daily-euro-zone-watch.html?_r=0
[9]	Jolly, D. (2012) Spanish Cost of Borrowing Soars After Rating Cut. New York Times, June 14. http://www.nytimes.com/2012/06/15/business/global/daily-euro-zone-watch.html
[10]	Minder, R. and Stephen, C. (2012) Spain Plans New Round of Tough Austerity Measures. New York Times, July 11. http://www.nytimes.com/2012/07/12/business/global/daily-euro-zone-watch.html
[11]	Thomas, L. (2012) Fears Rising Spaniards Pull out Their Cash and Get out of Spain. New York Times, September 3. http://www.nytimes.com/2012/09/04/business/global/money-and-people-leave-spain-as-economic-gloom-deepens.html
[12]	Alderman, L. (2015) Explaining the Greek Debt Crisis. New York Times, April 8. http://www.nytimes.com/2015/04/09/business/international/explaining-the-greek-debt-crisis.html?_r=0
[13]	Alderman, L. (2015) Greece Challenges Creditors with New Proposal to Break Debt Impasse. New York Times, June 2. http://www.nytimes.com/2015/06/03/business/international/greece-debt-ecb-imf-european-commission.html?_r=0
[14]	Minder, R. (2013) Spain Emerges From Two Year Recession. New York Times, October 23. http://www.nytimes.com/2013/10/24/business/international/spain-emerges-from-two-year-recession.html
[15]	Dixon, H. (2015) Financial Engineering to Athen’s Rescue. International New York Times, June 14. http://www.nytimes.com/2015/06/15/business/international/financial-engineering-to-athenss-rescue.html?_r=0