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