:00:09. > :00:15.That's it from me. Now time for Another great depression is all but
:00:15. > :00:19.inevitable. That is the view of my guest today. No wonder he has been
:00:19. > :00:24.called the Merchant of Gloom. But then, Steve Keen is one of the few
:00:24. > :00:28.economists to have predicted the global financial crisis. More and
:00:28. > :00:32.more people are now listening to him. His way of avoiding
:00:32. > :00:42.depression? Write off the debt, bankrupt the banks, nationalise the
:00:42. > :01:05.
:01:05. > :01:09.financial system and start all over Steve Keen, welcome to HARDtalk.
:01:09. > :01:17.Delighted to be here. Do you really think we're headed for another
:01:17. > :01:21.Great Depression? We're are already in one. People did not call it one
:01:21. > :01:27.until afterwards. You are always hoping that there is change around
:01:27. > :01:32.the corner. Only after you have been through it will you look back
:01:32. > :01:39.and say that it has been going for years. The Great Depression was not
:01:39. > :01:43.called the Great Depression until some time in the 1930s. For those
:01:43. > :01:48.people watching, thinking, OK, I can cope with things as they are,
:01:48. > :01:55.it is OK because things will be the same? The situation that we're
:01:55. > :02:05.hoping is transient will be drawn out. Japan is talking about having
:02:05. > :02:07.
:02:07. > :02:11.a lost decade. The best we can hope for is it the last two decades? If
:02:11. > :02:15.we leave it to the ordinary mechanisms, once we get back down
:02:15. > :02:23.to the local debt system that we need which is far lower than what
:02:23. > :02:30.we have now, the depression will be over. And that could take 20 years.
:02:30. > :02:33.You have also suggested it could take a rising level of violence.
:02:33. > :02:36.The trouble is that when you have a growing population and an economy
:02:37. > :02:40.that is used to present people expecting to get employed, that
:02:40. > :02:50.means that the population is a lost generation. That generation only
:02:50. > :03:00.
:03:00. > :03:09.has the outlet of violence. It is not the way to manage an effective
:03:09. > :03:15.society. As we know from the last great depression it had a profound
:03:15. > :03:19.effect on things like the rise of Hitler. Absolutely. He got there
:03:19. > :03:27.because he influenced the economic behaviour of his time. He built a
:03:28. > :03:34.huge war machine in the process. We had the catastrophe of the Second
:03:34. > :03:39.World War. He would never have risen to prominence had there not
:03:39. > :03:44.been a total hysteria. You can have very bad social outcomes out of
:03:44. > :03:53.problems like this. Even if people get enlightened about what caused
:03:53. > :04:01.it and have more wisdom after it, the transition will be dreadful.
:04:01. > :04:06.What we have seen so far is movements like Occupy Wall Street.
:04:06. > :04:12.When you think about their anger, it is neither left nor right.
:04:12. > :04:16.not right wing. That is one of the positives. The Tea Party was their
:04:16. > :04:26.predecessor in terms of a visceral reaction. Occupy Wall Street is
:04:26. > :04:29.
:04:29. > :04:33.progressive and a few politicians have typecast them as left. It has
:04:33. > :04:38.been very broadly based. It is youth-based but also large numbers
:04:38. > :04:46.of people who were led off industrial work. People who would
:04:47. > :04:50.not normally sit in a tent. Why is it heartening? A major part about
:04:50. > :04:59.their attitude is that they feel that they have had their trust in
:04:59. > :05:02.society betrayed. They want to bring about a harmonious society.
:05:02. > :05:10.They are not socialists in the old fashioned, overthrow capitalism
:05:10. > :05:14.They are emphasising that society should be something you can trust.
:05:14. > :05:22.That has been destroyed by what has happened in the financial sector.
:05:22. > :05:29.They are trying to rebuild that trust. They're not trying to man
:05:29. > :05:34.the ramparts and burn everything Some of them are against capitalism.
:05:34. > :05:39.You are not. I am opposed to capitalism parasiting itself. It
:05:39. > :05:42.generates far more debt than we need. Before we get into that, as
:05:42. > :05:50.far as these protesters are concerned, you have told them that
:05:50. > :05:56.they should be going further. should be to occupy the economics
:05:56. > :06:00.You do not get into as disastrous a situation without extraordinarily
:06:00. > :06:06.bad thinking. The economics departments were the source of that
:06:06. > :06:10.How far should they go? Will you be telling everyone to go out on the
:06:10. > :06:19.streets? We have to change the political power balance at the
:06:19. > :06:28.Fundamentally, the creditors of the world were dominant politically.
:06:28. > :06:31.They have set the political agenda for the past 30 years. We need to
:06:31. > :06:36.reverse that and turn the power back towards the debtors rather
:06:36. > :06:42.than the creditors. Your argument is that politicians will not listen
:06:42. > :06:46.until there is something to make Politicians are not leaders but
:06:46. > :06:51.individuals, mostly. They have been going along with the general trend
:06:51. > :06:59.of believing that large financial sector is a good thing. Their
:06:59. > :07:05.campaign donations come from there. To get them to change that they
:07:05. > :07:10.have do see it as negative. They need to see it as a way to lose
:07:10. > :07:13.elections. Your solution is remarkably radical. You said we
:07:13. > :07:22.should write the debt off, bankrupt the banks, nationalise the
:07:22. > :07:32.financial system and start all over If we have a situation of the 1930s
:07:32. > :07:32.
:07:32. > :07:36.were the banks own all the debt it would be easy. The banks have not
:07:36. > :07:45.simply created far more loans than they should have, the debts have
:07:45. > :07:54.been bundled into pension funds. It is too interconnected? It is far
:07:54. > :08:04.too interconnected. You have used the phrase, old-fashioned jubilee.
:08:04. > :08:08.It is something that has happened historically. Writing off the debts.
:08:08. > :08:18.If you take a look at the Forum in Italy, they are burning the books
:08:18. > :08:19.
:08:19. > :08:24.of debt. It is a regular activity in pre-capitalist societies. If you
:08:24. > :08:31.hadn't had that, none of the societies would have lasted. Whose
:08:31. > :08:36.debts are you writing off? You have to see whether the debt is a good
:08:36. > :08:46.or bad thing. Some of the debt is a good thing. Rising debt finances
:08:46. > :08:50.
:08:50. > :08:54.productivity and new technology. It is the good aspect of debt. The
:08:54. > :08:58.negative side is when we borrow the money to gamble. That is what we
:08:58. > :09:01.have been doing. I want to borrow �1 million because it is a fabulous
:09:01. > :09:07.idea and there will be a new innovation and society will benefit,
:09:07. > :09:13.good. I want to borrow �1 million because of want to gamble on Wall
:09:13. > :09:23.Street is bad. That is right. The current level of debt in America
:09:23. > :09:28.
:09:28. > :09:35.peaked at 300 % of GDP. Five times the level of government debt. That
:09:35. > :09:40.is not all bad debt. People want to own a house and in order to do so
:09:40. > :09:48.they have to take the loan out. But that has caused a bubble in house
:09:48. > :09:53.prices. The cause of it was borrowing money in the first place.
:09:53. > :09:57.Without it they could be back to 75%. Where we are now, are you
:09:57. > :10:04.saying that you should write off the mortgages and debts of people
:10:04. > :10:08.like you and me? Yes. Even people who can afford to pay? We have to
:10:08. > :10:15.look at the situation and to think about what we face if we continue
:10:15. > :10:25.to try and buy out the debts. The best example of that is Japan. It
:10:25. > :10:27.
:10:27. > :10:35.is a far more cohesive society. They have been in a 20-year slump.
:10:36. > :10:44.We face two decades of that. It is an extreme change. But the benefits
:10:44. > :10:48.should be obvious. In terms of what the solution is and we can get into
:10:48. > :10:58.the details of why you think it is good, you are saying write off the
:10:58. > :11:00.
:11:00. > :11:04.debts of anyone who owns a mortgage? No. There is a certain
:11:04. > :11:09.level of debt which is necessary. There is a proportion of people who
:11:09. > :11:14.wish to own their own homes. We should look at what level of debt
:11:14. > :11:20.in terms of ratio to the GDP. In Australia that level of debt was
:11:20. > :11:30.about 10%. It has since risen to 100%. Most of that extra 90% simply
:11:30. > :11:32.
:11:32. > :11:37.financed the rise in house prices. Somebody under your solution is
:11:37. > :11:40.saying that is a good debt, that is a bad debt? No. If we do it on an
:11:41. > :11:45.individual basis that we will be here forever. It has to be an
:11:45. > :11:54.intelligent Modern Jubilee. We can't say, unworthy borrower,
:11:54. > :11:57.unworthy borrower. We need a systemic approach. Households did
:11:58. > :12:00.not make the bad decisions. The bad decisions are made by the banks. In
:12:00. > :12:10.trying to understand what the solution is, this systemic approach,
:12:10. > :12:12.
:12:12. > :12:18.who are deciding in this new system It is not a choice between one
:12:18. > :12:21.individual and another. It has to be a systemic process where we
:12:21. > :12:26.reduce the level of debt and increase the level of government-
:12:26. > :12:31.created money. We have two sources of money in a capitalist economy,
:12:31. > :12:38.the banks and the Government. Back in the early 1960s, the ratio of
:12:38. > :12:46.government created money to banks was 15%. It has fallen so far that
:12:46. > :12:55.we have a debt based system. We need to create the government money.
:12:56. > :12:59.We need to try and rebalance and reduce the private debt. The
:12:59. > :13:05.government and the central banks prints money to pay off people's
:13:05. > :13:15.debts? What I am worrying is about write-off debts. It is private debt
:13:15. > :13:25.
:13:25. > :13:35.you want written off. How is it working? Up we would have to give
:13:35. > :13:57.
:13:57. > :14:03.him money to the creditors. It up job would give the money to the
:14:03. > :14:13.public. You could give the money to the public. If the person received
:14:13. > :14:22.
:14:22. > :14:25.it was in debt be first thing they It pays the debt down first of all.
:14:25. > :14:30.If you don't - you give money to everybody.
:14:30. > :14:34.It's a tax cut? No. It's different to cutting a tax.
:14:34. > :14:42.If you give the money to everybody and requires those in debt to
:14:42. > :14:47.reduce their debt, they are better off. The debt write-off, what about
:14:47. > :14:52.It's a moral hazard argument. You are rewarding failure.
:14:52. > :14:56.The system has failed, not the individuals in it. If we don't
:14:56. > :14:59.admit that, we will spend another 20 years miss guiding it.
:14:59. > :15:04.You will have people running businesses who hear this and say
:15:04. > :15:08.they have been managing themselves well, their rival who was a badly
:15:08. > :15:12.run business and should have gone out in the process of a recession,
:15:12. > :15:15.would have weeded them out because they weren't well run, are they
:15:15. > :15:20.going to get a boost? Everybody gets a boost. We are not
:15:20. > :15:24.trying to boost individuals, we are trying to eliminate a mistake in
:15:24. > :15:29.the financial sector thas been going on for 40 years. The scale of
:15:29. > :15:34.what I'm talking about sounds ex- terrorism in contrast to normal
:15:34. > :15:38.policy. But normalcy has allowed a 40-year build-up to unsustainable
:15:38. > :15:41.scales. One of my colleagues, Michael Olmert son puts it
:15:41. > :15:46.beautifully. Debts that can't be repaid, won't be repaid. You have
:15:46. > :15:50.to work out how you don't repay them. This is a sophisticated
:15:50. > :15:55.approach to eliminating a systemic debt.
:15:55. > :16:00.You give this money to individuals or companies, there is that measure
:16:00. > :16:05.of how you give to companies. They pay back to the banks who they have
:16:05. > :16:11.loaned to. You said if we keep the banking sector alive, the economy
:16:11. > :16:16.dies. Under your model, these parasitic banks, as you call them,
:16:16. > :16:21.would die? If you did a normal debt write-off,
:16:21. > :16:24.the banks would have to be bankrupted and resold back into
:16:24. > :16:27.private ownership. If you did this, they wouldn't need to be. What they
:16:27. > :16:33.would lose in loans, they would gain in loan repayment. Their
:16:33. > :16:38.assets wouldn't change. But what would happen, they make money out
:16:38. > :16:40.of the loans so their cash flow would decline radically. You would
:16:40. > :16:44.still have organisations which would be financially challenged by
:16:44. > :16:48.that, their cash flows would drop drastically. The banks would still
:16:48. > :16:54.have difficulty, we need to manage them in some fashion but it
:16:54. > :17:00.wouldn't be a case of shutting them down. Most of them on current
:17:00. > :17:08.conditions are insolvent. But if if you are effectively
:17:08. > :17:10.ensuring their survival, what do you say "We need to kill off these
:17:10. > :17:15.parasites". A small amount of money for
:17:15. > :17:19.consumption, that's the positive role of banking. It's become a
:17:19. > :17:24.negative role. They are financing Ponzi schemes. They are giving us
:17:24. > :17:28.money to gamble on schemes but it is causing asset price toes rise.
:17:28. > :17:32.This misbehaviour has taken over the financial sector in the last
:17:32. > :17:39.30-40 years. That is the the pass sitic behaviour. It goes to the
:17:39. > :17:45.heart of your argument about what has been wrong with the model of
:17:45. > :17:48.economics for decades. I mean you talk about the instability there
:17:48. > :17:53.which your argument is that actually instability is a good
:17:53. > :18:00.thing or at least it can be a good thing.
:18:00. > :18:08.This is a classic argument that instability is part of life.
:18:08. > :18:13.Instability means you can see a potential opening for a solid state
:18:13. > :18:17.recording device over walk man's or iPods that are part of Occupy Wall
:18:17. > :18:23.Street on a grand scale. That is a creative instability. That also has
:18:23. > :18:30.over the top of it, the possibility of financial instability. I'm
:18:30. > :18:36.trying to promote what I see as creative instability and reduce the
:18:36. > :18:40.destructive instability. Your argument said it is unchanged
:18:40. > :18:44.Frankenstein monster. If you look at Robert Harris's book,
:18:44. > :18:49.he starts with a quote from Frankenstein. The danger in the
:18:49. > :18:52.system is that banks make money by creating debt. Most of us will
:18:53. > :18:56.decline the opportunity to take that debt on because debt's not a
:18:56. > :18:59.good thing. Having debt is an obligation. For example, mortgage,
:19:00. > :19:04.the meaning of mortgage is a death contract in Latin, not a charming
:19:04. > :19:10.thing to be in. The only reason we take on more debt than we need is
:19:10. > :19:16.because we get persuaded we can make again out of it by leverage
:19:17. > :19:20.speculation that. Lets banks to per said swayed us to take on more
:19:20. > :19:24.department than they have. You talk about banks persuade us to
:19:24. > :19:28.take on more debt. It sounds as though your model, which is
:19:28. > :19:33.people's debts could be written off. Yes.
:19:33. > :19:37.Would persuade them to do it again. You have to prevent the possibility
:19:37. > :19:42.of asset bubbles being financed by leverage.
:19:42. > :19:49.The example is Greece. They look to the figures, the EC task force is
:19:49. > :19:55.trying to sort it out. 60 billion euros of outstanding unpaid taxes.
:19:55. > :20:00.That is effectively private debt owed to the government. You know,
:20:01. > :20:06.those people, if it's wiped off... We are getting confused between
:20:06. > :20:09.private debt and sovereign debt and the peculiar nature of the Greek
:20:09. > :20:14.taxation... They wouldn't have a debt problem
:20:14. > :20:18.if people paid their taxes We have a sovereign debt problem.
:20:18. > :20:21.America has rising levels of sovereign debt. Why? Because the
:20:21. > :20:25.private sector is reducing et cetera debt, having caused far too
:20:25. > :20:30.much to begin with. All this emanates across most of the globe
:20:30. > :20:34.back to a private debt bubble. Greece is an anomaly. If we focus
:20:35. > :20:38.upon the anomalies and analyse what to do in their cases, we will
:20:38. > :20:44.mislead ourselves. Your argument has been, you did
:20:44. > :20:49.have a light bulb moment which you identified at 1am in the morning
:20:49. > :20:53.back in 2005 where you looked at the private debts figures for
:20:53. > :21:01.Australia, growing exponentially, which you wrote and checked and
:21:01. > :21:08.thought hold on a second, it is I had written the word the debt has
:21:08. > :21:14.rids even exponentially compared to incomes in a court case. I'm not
:21:14. > :21:20.the barrister, I can't use high per boli a. That was in the back of my
:21:20. > :21:24.mind. I plotted the data. A perfect curve from 1964 through to 2005. I
:21:24. > :21:27.thought this process has to change. When it changes, and debt starts to
:21:27. > :21:30.reduce, we will have an enormous financial crisis, somebody has to
:21:30. > :21:34.raise the alarm and I'm that somebody.
:21:34. > :21:36.You were called a tall poppy for doing so?
:21:36. > :21:39.Yeah. People weren't taking account of
:21:39. > :21:44.private debt. They didn't think it was necessarily important. They are
:21:44. > :21:47.worried about government debt but not what rationale individuals were
:21:47. > :21:54.taking. Economists have a mythical view of
:21:54. > :21:58.how money is created. They see banking being an intermediary
:21:58. > :22:02.between people who save money and people who spend money. You can
:22:02. > :22:06.forget about the average level of debt.
:22:06. > :22:12.You say, and when you read a lot of your material t's very much you
:22:12. > :22:19.alone are clever enough to see this. I'm standing on the shoulder of a
:22:19. > :22:24.true giant which is Minsky. As other economists around the world
:22:24. > :22:29.and identified by Minsky, I've just got the loud evident mouth.
:22:29. > :22:37.You referred to things won't change until things change
:22:37. > :22:40.I was using an analogy about Max Planck annex plaining why he failed
:22:40. > :22:44.to convince his colleagues and abandoned the possibility they are
:22:44. > :22:50.doing it and waiting until each of them die off and the young kids
:22:50. > :22:54.come through who can cope with something as far as Kwan tam
:22:54. > :22:57.mechanics. A similar thing applies in all sciences. They are so wrong
:22:58. > :23:02.and you are so right? They are so wrong and they should
:23:02. > :23:04.know they are so wrong. They don't know their own literature well
:23:04. > :23:11.enough to know they are wrong. You do?
:23:11. > :23:17.And a large number of non-orthodox economists. 10% of economists would
:23:18. > :23:23.call themselves Austrians, some maerksists, evolutionary economists.
:23:23. > :23:29.We have been watching this deludeed majority and been derided ourselves
:23:29. > :23:32.by that majority, knowing they are following a totally foolish vision
:23:33. > :23:37.of how capitalism functions. The only way they can convince
:23:37. > :23:42.themselves they are wrong is after they cause a spectacular economic
:23:42. > :23:45.cries. Now we are coming out of the woodwork. We have been there for 40
:23:45. > :23:49.or 50 years. Just a final thing, can you see a
:23:49. > :23:53.politician bold enough to do what you think is necessary?
:23:53. > :23:58.Not yet. Obama had, had he been elected in 2012 rather than 2008,
:23:58. > :24:02.it might have been possible. Somebody of his charisma could have