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Steve Keen on BBC on How to Get Out of Our Current Depression

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Australian economist Steve Keen minces no words during this BBC interview, calling our downturn a depression and calling for radical measures, namely large scale debt writedowns. I can’t imagine a discussion like this getting airtime on a US mainstream media outlet.

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196 comments

  1. Glenn Condell

    Shorter Steve Keen: too late for trickle down (which doesn’t work anyway) it’s gotta BUCKET down!

    1. Art Eclectic

      The sooner the entire concept of “trickle down” is discredited across the board, the better for us all.

      1. PunchnRun

        Funny, trickle-down was considered absurd when I was in high school (1960s public school) studying American History. What revived it? Can I blame vastly inferior public education in the ensuing years, or did some extremely entrenched interests revive it with extended and well funded propaganda campaigns, or was it something completely outside of my comprehension?

          1. Foppe

            I suspect that’s precisely what PunchnRun was referring to.. His/her point being that discrediting such ideas isn’t as final (or even as useful) as it sounds.

        1. PunchnRun

          sigh. you are of course, both correct. I guess it took me this long to truly comprehend P. T. Barnum’s aphorism “there’s a sucker [idiot] born every minute.”

        2. Vicky Bevis

          Funny, but when “I” was in High School in the early 60′s, the term, “Trickle-down” wasn’t even invented. Nor was it when I was in college econ. in the later 60′s. Blame Reagan for that term.

  2. Brian

    Keen doesn’t make much sense here. He seems to think that somehow (magically) no one is penalized, that is, bad money doesn’t chase out good money. He avoids the real crux of her questions when she brings it down to individuals.

    Um, Mr. Keen, even if the money is targeted systemically it would still have to be distributed to individuals!

    You would still be penalizing individuals who have conducted themselves financially responsible–and to simply say: oh, we’ll just do it this once. But isn’t that what we have been doing for the last 50 years.

    Again, his idea is of the same coin of those who want to bail out the banks to prop the system up: he’s just trying to prop it up from the other side.

    Mr. Keen has a great analysis of how the mess got created, but his “solution” is poorly thought out; and this is due to the fact that he’s still an economist that ignores human nature.

    1. digi_owl

      At this scale, human nature on the individual level is a fart in a hurricane. Do one derail a whole train set to punish the one thief riding in the middle carriage?

      1. Brian

        Again, that’s mistaken thinking. Whether we talk of the ‘Public’, the ‘Nation’, the ‘People’, etc, what is it that we mean by this? All the collected individuals? What do we mean by these abstract concepts?

      2. Colin

        I agree Owl,

        It seems like the one thing Keen neglects here is an overhaul of financial regulation to shut down that thief, but maybe his plan is so radical he was assuming that was in the mix anyway.

        1. Robert Dudek

          Keen mentions in passing (in this interview) that we must make certain that leverage can’t be used destructively in the financial sector ever again, so this implies a radical overhaul of regulations.

      3. tom allen

        To use a movie metaphor (one of my specialties) isn’t this like using a syringe of adrenaline to the heart to revive a heroin overdose victim, a la Uma Thurman in “Pulp Fiction”? Yeah, it’s not something you do every day, but when the economy is lying dead on the floor and Marsellus Wallace is going to wonder why you killed what he loved best, perhaps the utterly unthinkable is the only way out.

    2. Colin

      Brian,

      I respectfully disagree on two points, and I’m not necessarily defending all points of his plan. I hope the community will respond for a lively discussion and correct me if I’m wrong.

      1. Both the responsible and the irresponsible in Japan have been hurt as a result of twenty years of stagnation – this really changes the discussion of moral hazard. We cannot pretend we are giving one firm, such as Citi, or one country, such as Greece, a helicopter drop of cash with no strings attached. In his suggestion debt would be forgiven across the system. Further, we also cannot pretend that this happened solely, or even primarily, because of the actions of debtors. It seems quite backwards to punish everyone for systemic flaws, and a thin use of the moral hazard argument.

      2. I disagree that aiding debtors would be the ‘same thing from a different direction.’ I think he wisely accounts for the fact that there are multiple ways to deploy quantitative easing… and that deploying it to creditors rather than debtors is the wrong way to go: because the banks have merged, consumer loans must compete with equities, derivatives, emerging market debt and other high risk, high return asset classes that are certainly going to outperform unemployed and already heavily indebted individuals. Newly minted cash flowing into the futures market is very different than forgiving debtors – the first may raise oil prices, the second frees up disposable income.

      With gratitude for your time and attention,

      Colin

      1. digi_owl

        I think one of this lecture videos holds a impromptu demonstration of the difference between giving money to the creditor side and the debtor side, with the latter having a much larger and immediate effect on the economy. This within his software model, but a model that seems able to hit scarily close to real life numbers without a bucket load of axioms…

      2. Brian

        Collin,

        I certainly welcome any plurality of perspective.

        One you first point, yes in Japan alot of people have been hurt, however, I would like to make two points: (1) Japan didn’t clear the system, and (2) I certainly make no claim that there is an easy way out. However, I do propose that free market capitalism has little hope of being effective (as does any other system) if we keep undermining due diligence when it comes to economic and personal freedom, that is, we have to allow people to fail–and even the so called “innocent” may not be so innocent if they chose to keep their head in the ground. Again, in order to run a democratic Republic we need two thing: (1) citizen due diligence, and (2) rule of law.

        I’m propose that we neither bailout the lender or the borrow, we bailout neither. If someone is sitting on a house and the proper paper work can no longer be produced, then the house goes to whose ever name the title is in. But we already have laws for this.

        What Mr. Keen wants to do in some way is support the derivative market, his reasoning is that too many things are invested (like pensions, etc). So what?–not to sound cold hearted. However, even payers into a pension fund should be aware of the funds going ons, and if they don’t like it they can band together and either fire the manager or have the fund change policies. One reason why we end up with so much apathy is because we’ve been trained to not pay attention and simply shrug our shoulders and say, “well, someone else will fix the problem.” This undermines a responsible citizen body by removing invested incentive to practice due diligence–of course one always has an invested interest in their environment, however, I’m talking about the practice not the state of affairs per se.

        What Mr. Keen proposes will ultimately have the unintended consequence of undermining citizen due diligence–and I would argue that he commits this mistake because he is in some ways guilty of what other economists are: they only see economics.

        All this being said, I have great respect for Mr. Keen.

        I hope this answered some of your points.

        1. FJ_2

          But now we’ve already bailed out the lenders, we shouldn’t bailout anyone else b/c we should bailout anyone at all? Funny that sentiment comes after the banks got theirs.

          Maybe it’s only me, but for everyone to have to become an expert on investing, fund management, Treasuries, annuities, etc etc, not to mention legal, medical treatment, auto repair, landscaping, farming and food, gold and who knows what else, is staggering, just b/c we can’t have any rules that the professionals have to follow. I’ll keep trying, but is life that long?

          Rule of Law sounds wonderful in retrospect. But is the rule of law always for the debtor, and never the lender?

          1. Brian

            I’m not sure I see the relevance of your arguments. I would if you had shown that I was arguing for something opposite PRIOR to the banks being bailed out or that somehow I wasn’t arguing for the rule of law prior to this discussion–and yes, the rule of law should still be enforced before the statue of limitations expires (which will be around the end of 2012).

            You’re confusing my arguments with your personal emotions and impressions from other sources.

            And what’s the point of adding more regulation when the standing regulation isn’t enforced? The crux of the problem is not so much in the regulatory statues as it is a problem of enforcement, that is, regulatory capture is not just at the legislative process but also in the enforcement.

            And please, feel free to share your “expertise” on this subject matter, but as is you did nothing more but express your personal emotional state.

          2. Foppe

            Brian: How is it that, just in this thread, you have more than once already accused those who disagree with your “personal responsibility” ideology of being “emotional”? It is a fairly tiresome rhetorical trick, especially since you also use this as an excuse to not engage substantively with others’ arguments at all.

          3. Brian

            Foppe,

            So attributing to me claims that I have not made (such as bailing out the rich); saying that I lack compassion for people (because I’m arguing for the rule of law); that I’ve been demonized for arguing that a due diligent citizenry is necessary for a democratic republic (I’ve been here accused of being as bad as cops who pepper spray non threatening people), and so all of this stems from rational contemplation of what I have actually said?

            Please, then, point me to the actual arguments made in regards to what I have actually have said, or where one wasn’t sure what I meant someone asked for clarity before jumping to conclusions (which hasn’t been done). What I’ve seen is nothing more than personal attacks.

          4. Foppe

            Brian: the current state of affairs, in which the rule of law has been turned into a system of class justice, is at least 20 years in the making for white people, and longer for other-colored-americans. It is not going to be turned around via a few protests. Similarly, the bankrutpcy process is simply not up to the task of addressing the current problems, which are an order of magnitude greater than courts can deal with. This is why one needs a political intervention, but given the corruption pervading washington, that is not going to happen in any way, shape or form. (And then there’s the issue that student loans are not dischargeable in bankruptcy.)

            What many people here have set their aims on, then, is procedural reforms that go deeper than simply a few legislative victories and a restoration of a minimal sense of fairness (which, if implemented at all, is likely to only benefit middle class white people).

        2. JTFaraday

          “I’m propose that we neither bailout the lender or the borrow, we bailout neither.”

          I favor a massive mortgage cram-down for all illegitimately inflated bubble properties, during certain dates to be determined. No need to determine individual “innocence” or “guilt,” just an across the board adjustment for the systemic problem of the housing bubble.

          Those who still cannot pay their new lower, post-bubble adjusted mortgages because they should simply never have had a mortgage in the first place, may well still lose the battle. That may depress the housing market a bit more, and homeowners will just have to eat it. OTOH, maybe renters will decide to enter the market.

          Those banks that take the hit in the cramdown should be dissolved by Big Fat Fedgov. I imagine they’ll be busy.

          I also favor mass prosecutions for mortgage and securities fraud to pro-actively correct the moral hazard problem of the criminal scumbags who destroyed the economy and generated widespread pain amongst the thrifty and industrious.

          No bailouts. No mass generation of “moral hazard” in the population. No “get out of jail free” cards.

          1. Hal Roberts

            MORAL HAZARD! It’s not as much about Get out of jail free Card”as it is about “Quit the Victimizing a bunch of Innocent People who didn’t have one thin dime in this BS”.

            Watching a bunch of Market investors sucking up welfare via Leverage in their Dividend payments and what not off of our backs. + Black Market Labor+++It makes for a Real Bad Mojoe.

            I think they got some pretty cool spatial visuals going on in that multi contrast background graphic they got going on in that video.? Frankenstein among others.

            http://www.youtube.com/watch?v=NIldF-pGUCU&feature=related

          2. Hal Roberts

            Let me explain myself better. I made 3 statements on my post to you 2 which were about your post no bail out, but the 3rd was about the Keen video by the BBC and the back ground graphic they are using behind Mr. Keen.

            Do you remember a while back when they had a bunch of weired pictures hanging in the malls that seemed to be of nothing but if you stared at them in the right way you would see a three dimensional pictures in them some were of Dolphins.

            Look at the Video frozen frame on NC at the top of the page right you will see the same type of art work in that frame. There is a lady looking over a bunch of flowers toward Mr Keen in the bottom right and at the top part there are at least three people looking out ward maybe four. When you play the BBC video you will see many more one of which is Frankenstein. Check it out some one put a lot of work into that. Is that photo shop? Have a good day.

          3. JTFaraday

            The mall? What’s that? And sorry, I didn’t sit and stare at the Keen video, I was multitasking. The rest of your comment was equally cryptic, but sometimes I just can’t help myself.

            “with your b**** slap rappin’ and your cocaine tongue, you get nothing done.”

        3. casin

          Brian,

          I suppose you are all knowing of everything and can indeed “make decisions” “after due diligence”, however I don’t believe it…..

          Have you ever look at the amount of papers they hand you when signing up for anything? whether it is a 401K or a mortgage or a credit card contract or any other contract? Even if you take the time to read them, do you understand it? Even when you hire a lawyer, accountant or any other pro, do you still get the whole picture?

          Man if you can’t do all that, what the hell are you doing wasting time here, trying to pontificate about “personal responsibility” or any other such demagoguery?

          You and all your acolytes and evangelists of responsible behavior on the part of the individual, while defending the “mistakes” of the rich and powerful should be ashamed of yourselves…. You are worse than the police spraying nonthreatening people, just because they follow orders….

          1. Brian

            Please, stop projecting your overly emotional interpretation onto my words, as you are simply putting words in my mouth and making utterly wild derivations.

            I am not sure where I claimed that the rich should be bailed out, only that the rule of law should be enforced, in this case it would be fraud in general, securities fraud in particular, and this would more than likely be enforced on a lot more rich people than poor.

            My next point is that we have a clearing mechanism: bankruptcy. This in turn would probably bankrupt a lot of the rich as well, as they would not be paid back on loans they made or bundled loans.

            All I’ve pretty much have seen here is emotional resentment to the point that one cannot even argue for the rule of law without being personally attacked–and you say it’s me that is acting as if on a moral high ground? perhaps you would be better served by examining the general behavior of yours and the many respondents.

          2. Foppe

            The only thing you are defending is the status quo, and that means a “selectively enforced” rule of law. Because it simply will not be enforced in the case of the people who caused these problems in the first place, even though it is precisely there that the incentives much change (and a large part of that is that the expectation has to be brought back that white-collar criminal behavior might land you in jail).

          3. Brian

            Foppe,

            Your concerns regarding the inconsistency of the enforcement of the rule of law is not only a valid concern but one that is currently put into practice at a gross magnitude, and it’s a pressing one as we face the possibility of the statue of limitations on securities fraud expiring in 2012. This is where the people need to take to the streets and force the enforcement of the rule of law.

            What I am arguing for is a protection of private freedom and the rule of law instead of simply arguing (implicitly or explicitly) that because the “1%” got theirs that I should get mine (as this is not a solution to the problem but an enlargement of it). Wall Street should have never have gotten what they got, but it can still be taken away and fraud can still be enforced–which would lead to 20 yrs jail time for many CEOs.

            I would further add that it is not bailing out the borrows that will work, what will work is reframing the bankruptcy laws to favor the borrower as this would do two things: (1) check bad lending, and (2) allow one to start over on a clean slate (albeit, they probably won’t get much credit in the near future, but that’s probably a good thing); and a third outcome would be to encourage risk taking in the business class in starting new businesses.

            In what has transpired over the last 30-50 years, forcing the rule of law equally would not benefit Wall Street.

          4. JTFaraday

            “All I’ve pretty much have seen here is emotional resentment to the point that one cannot even argue for the rule of law without being personally attacked”

            I agree with your comments about the rule of law, but I also agree with the point your interlocutors are ALL making, that the rule of law is in no way applied equally in the US. To the point where it is becoming a complete joke, a form of pure predation on the less powerful, and practiced on the population by the state, no less.

            Consider, for example, the case of Pennsylvania’s crooked judges:

            “he “Kids for cash” scandal unfolded in 2008 over judicial kickbacks at the Luzerne County Court of Common Pleas in Wilkes-Barre, Pennsylvania. Two judges, President Judge Mark Ciavarella and Senior Judge Michael Conahan, were accused of accepting money from the co-owner and builder of two private, for-profit juvenile facilities, in return for contracting with the facilities and imposing harsh sentences on juveniles brought before their courts in order to ensure that the detention centers would be utilized.[1][2] Ciavarella and Conahan pleaded guilty on February 13, 2009, pursuant to a plea agreement, to federal charges of honest services fraud and conspiracy to defraud the United States”

            http://en.wikipedia.org/wiki/Kids_for_cash_scandal

            How do you propose to resolve this discrepancy in the application of the rule of law, when the corruption reaches down into every local court system?

            Historically, when our constitutional protections have not been equally extended to all citizens, the federal government has intervened. Indeed, this is how we come by the equal protection clause in the US constitution, for which, based upon your comments about upholding “the rule of law,” I assume you have tremendous respect.

            http://www.law.cornell.edu/wex/equal_protection

            However, in the case of what you admit to be a criminally driven housing bubble, you seem to be averse to the establishment of a class for the purposes of the pursuit of justice, preferring to toss powerless individuals into the meat grinder of a corrupted system, regardless of their “guilt” or “innocence.”

            In your mind, anyone in foreclosure is de facto “guilty,” and should be on their way to bankruptcy, regardless of the circumstances surrounding the “loan” they were given by what you yourself acknowledge was an organized crime ring.

            How do you come by your personal, essentially “class action” judgment about the recipients of these loans without even hearing a court case?

          5. JTFaraday

            In other words, Brian, in a democratic Republic, sometimes you need to perform some “due diligence” on your own personal opinions.

    3. hoops

      “You would still be penalizing individuals who have conducted themselves financially responsible–and to simply say: oh, we’ll just do it this once. But isn’t that what we have been doing for the last 50 years.”

      Who is to say these individuals are really “responsible”, or that saving is inherently good. Is the hoarding of cash really something noble? Money needs to flow for it to be of any use, so in essence savers are actually villains, since they are a drag on the economy reducing aggregate demand.

      Why should we reward this unproductive and deleterious behaviour?

      Further, such individuals seem to feel entitled to be paid for having their “hoardings” stored. Shouldn’t they actually be paying for this privilege? I know i pay to have my other things stored.

      All this moralizing over how savers are punished while evil spenders are getting away with it is tiring. Most of these “savers” were probably just lucky. Get off your high horses, the problem is bigger than that.

      But if you want the world to endure a 20 year depression so savers can hold themselves up as martyrs, go ahead. Have a nice depression.

      1. Dan_in_KC

        hoops says “..Who is to say these individuals are really “responsible”, or that saving is inherently good. Is the hoarding of cash really something noble? Money needs to flow for it to be of any use, so in essence savers are actually villains, since they are a drag on the economy reducing aggregate demand…

        I really hope that is said humorously but suspect otherwise. Your argument reminds me of a movie ‘Vampire in Brooklyn”

        “..If every day is a sunny day, well, then, what’s a sunny day? Well, the bottom line, what I’m trying to tell you tonight, is that evil…eeeevil… is necessary.
        Evil is necessary, thereby, if it’s necessary, evil…
        - Evil… – …must be good. Evil is good.
        That’s what I think. Evil must be good, must be good.
        - Let me hear y’all say it… – Evil is good. ”

        That movie at least WAS intended humorously. I can only infer that you are one of many who is underwater on a mortgage but that you probably would have still struggled to pay it even if it were a standard 30 year fixed rate loan and the market had not collapsed because you bought into the sales pitch that you should buy more than you can afford NOW because (of course) your wages will increase over time (hah!) and it was ‘..never a better time to buy..’.

        I can understand that pain – but striking out at ‘savers’ (disregarding the one percenters for now) who don’t want to live on cat food in their old and calling them villains simply makes you sound bitter and petty and is not going to pass for a persuasive argument.

      2. Brian

        I couldn’t discern an argument here beyond some ranting.

        First, I never made the claim that people SHOULD save, only that savers shouldn’t be punished for being savers. One can and should do with their money as they see fit, if they want to save with it, so be it; and if they want to consume with, good for them.

        The point is, who takes on the debt and what are their obligations, and why should others be committed to those obligations when they were conducted and employed as individuals, and not as a collective society?

        However, in your rhetorical fervor, you failed to notice that I am not arguing for bailing out the lender neither, that is, the borrow simply files for bankruptcy, and it is here that I would make the crux of my argument: we already have a process for clearing out a debt burden: bankruptcy.

        What should be done is first undo the ’06 changes to bankruptcy. And then clear the bad debt. If large banks don’t survive, so be it, and yes, it will be hard to manage through it, however, it is more important to preserve the necessary atributes that are required for a Republic citizenship.

        Also, I’m not using “responsible” as a moral term, but simply as an obligation that one has voluntarily taken on as a private individual.

        The solution you seem to propose (but I’m being generous) would simply recreate the problem.

        1. Christophe

          Brian, you are correct that Hoops does not make much of an argument, but his ideas are far from ranting. There is an intriguing gem embedded in his post: “Further, such individuals seem to feel entitled to be paid for having their ‘hoardings’ stored. Shouldn’t they actually be paying for this privilege? I know i pay to have my other things stored.”

          This radical question upends a multitude of assumptions undergirding the foundations of our economic and political systems. Who produces value? Who should be rewarded? Which incentives produce the most stable society? What distribution of virtual surplus (money) produces the best, which is not necessarily the greatest, real surplus?

          By questioning our assumptions of what is valued socially, it calls the whole argument of who behaved responsibly and who deserves to be punished/rewarded into question. Perhaps the idea of rewarding the “responsible” or punishing those “responsible” has more to do with not substantively changing the system, but instead resetting it back to a more “responsible” time. Fixing a crisis that is unsettling the very foundations of our society will most likely require more than a reset.

          Reconsidering what we value, who produces that value, and how it will be rewarded is not a bad place to start.

          1. Brian

            I certainly welcome a questioning of any and all assumptions–however, I’m not sure where the notion comes from that people get paid for saving when an interest rate is the price of money, that is, a bank pays you an interest rate to induce depositing or induce lending; no one pays you to simply store money in the mattress.

            And I have argued that we already have a mechanism for clearing: bankruptcy. In this case the lender would have to eat the loss and of course this in turn ruins the creditibility of the borrow temporarily. However, we need to lessen the bankruptcy laws to favor the borrower, and that would include adding student loans.

          2. Joe

            If I hoard banknotes I have to pay too, only if my money is lent out do I get a return. I will, in fact, charge anyone + everyone (leaving friends+family out of the picture here since for them other conditions apply) to borrow anything of mine, be it a car, a flat, land, money – makes no difference (altho’ the individual loan rate will be different since land is hard to steal, for example).
            Ie don’t confuse storing ‘stuff’ in a warehouse and cash in a bank account since the ‘stuff’ will not be lent to sbdy else by the warehouser but the cash in an a/c will.

      3. Moneta

        Many people seem to assume that savers are deserving and spenders not. Many seem to assume that everyone “deserves” their money. However, our system is so out of whack that many households with enough income to save probably work in sectors that have been propped up by government… or the Fed. Bankers, health care…

        A lot of important jobs need expensive degrees and offer peanuts in terms fo wages.

        BTW, savers helped contribute to this mess by investing in MBS and other crap. And they were quite happy with that until it all blew up.

        It’s amazing how brainwashed everybody is.

        1. Dan_In_KC

          “…probably work in sectors that have been propped up by government… or the Fed. Bankers, health care…”

          “..BTW, savers helped contribute to this mess by investing in MBS and other crap..”

          Do you actually KNOW anyone who has put aside some money in a 401K or IRA, if so – have you asked why they do it? Did your parents save to put you through school? Save for ANYTHING??, or are you also simply spewing your own version of garbage?

          I do try to save – do not work in an industry “propped up by the government…” do not and did not invest in MBS – don’t even know what you mean by “and other crap” except is sounds like mental laziness to not even try coming up with another example..

          But I’ll play this ‘game’ – What is your alternative? Do you want everyone to live under a daily hand-to-mouth subsistence existence? After all – if you can’t save then you must work today for the food you eat today..but what happens when you get sick? what happens if your son or daughter or mother or father get sick and you cannot work but must stay home to care for them – [we are, after all, talking about a world where you have demonized "savers" as if they are the root of all your problems so you have abolished saving] – what do you live off of then? Handouts? Or is there a dollar threshold below which people are allowed to save? Where would you set it? (One week of salary? two? 3 months? what?)

          I think you have your own source of ‘brainwashing’ going on and should attend to it before you and hoops broadly categorize all savers as villains.

          1. Moneta

            FYI, I worked throughout my studies and graduated without any debt. My parents only have RRSPs (401K equivalents) and have been retired for 7 years. They sold their house at a good price and downsized at the right time. I made them switch to cash before the market tanked.

            My father used to complain that savers were getting screwed until I showed him that his portfolio would be much smaller if it weren’t for the spendthrifts and the bubbles.

            Here in Canada, everyone and his uncle owns bank stocks and treasuries. If you keep on feeding the beast, you are to blame. The boomer bulge has been promised too much and is just too big for our current system to work.

            Sorry but I don’t believe our current retiree heavy system, even if it were well managed, could support everyone saving 10-20% of their income. Our system is set up for most people to make ends meet and take on debt if they fall short. It worked for a while because we had a growing populations and lots of boomers to pay the bill during their most productive years but that era is coming to an end. I know a lot of hard working people who are having trouble saving. I also know a lot of couples making over 200K having trouble saving. So I refuse to shove them all in the same basket.

            BTW, wveryone sharing the profits is socialism… not what we planned for. When you build something on the wrong foundations you get something that is fubar.

        2. Brian

          investing in MBSs doesn’t make you a saver, it makes you an investor, this is true by definition. It’s neither savers nor consumers that have attributed this mess to, as a healthy economy will go back and forth on saving and consuming. What caused this mess was a break down of the rule of law in the financial system in general, and apathy for this break down amongst the general populace in particular.

          1. Moneta

            Unless you make an incredible amount of money, there is no way you can save without investing and expect to have enough for retirmenet. A saver is by extension an investor.

            Therefore, we can say that savers invest in bonds and equities. A lot of their savings have gone into bank stocks, MBS and treasuries. Basically savers who invest have been feeding the beast… lending money to the cheats and misallocators of capital. It takes 2 to tango.

            What I notice on most blogs is that many still believe that savers are not to blame in this fiasco. Something tell me that most of these complainers are somewhere in the top 10% and are pissed they are not in the top 1%.

          2. Moneta

            I still believe the system broke down because our foundations were wrong. We had to keep growth coming whether it made sense or not. No one wanted to face reality.

            This mess has been in the making for decades.

            There are 5 boomers per retiree living in bungalows. We’ll be 2 Gen-X/gen-Y per boomer which still expect to keep their big life. It does not add up. We don’t have to be a rocket sicentist to see this.

            When the foundations are wrong, the house does not stand a chance.

          3. Brian

            Moneta,

            I had to respond under my post as there was no reply option under yours. I agree with most everything you say, and I would like to add to two points.

            1. You are correct that it is impossible to be a working class saver, however, we should ask why that is. Obviously inflation has been much higher than wages and when this occurs it does force one to have to speculate into the market in order to try to keep up with the cost of living. This is what I contend is a punishment for savers is that they can’t take a sound position in saving at all! This has been a combination of bank and government caused in allowing credit to expand recklessly. But the blame is not with the savers. Also, I would further add that there is some causation in wages not increasing being due to the US labor market being comprised more and more of relatively unskilled labor.

            2. You are correct in claiming that the break down of the rule of law is a symptom of growth at all costs, but how this notion came about of course is a complicated picture (and one that probably no one fully understands), but part of it has been our over emphasizing of the consumption side–and yes, the savings side can be over emphasized as well. Of course consumption is needed and there are times that consumption should be higher than savings (such as a glut of savings), but the problem is that we’ve had a tremendous imbalance between savings and consumption.

          4. MRW

            Moneta,

            “We’ll be 2 Gen-X/gen-Y per boomer which still expect to keep their big life. It does not add up. We don’t have to be a rocket sicentist to see ”

            Then you’re claiming that fertility is the clue to the monetary system, which is patently wrong.

          5. MRW

            Moneta,

            The Gen-Y generation number exceeds that of the Boomer generation, by far. it is the largest generation ever created in the history of humanity.

            So your 2 Gen-Y/Gen-X per Boomer claim is false. If anything, it wil be the other way around, if not more.

    4. CMike

      Brian,

      I think you might be missing what it is that Steve Keen is proposing. You write:

      >>>>>Um, Mr. Keen, even if the money is targeted systemically it would still have to be distributed to individuals!

      You would still be penalizing individuals who have conducted themselves financially responsible–and to simply say: oh, we’ll just do it this once.<<<<<

      The money would be distributed to all individuals. Those who had debts would have to use their share of the distribution to reduce their personal debts. Those who were not in debt would be able to save or spend their share of the distribution as they saw fit.

      Therefore, those individuals “who have conducted themselves” in what you call a “financially responsible” fashion would be getting the same sized share of the distribution as those who were not “financially responsible.” The “responsible” would see their personal cash assets rise, the irresponsible would see the level of their debt fall.

      In the meantime, financial institutions, which would benefit from the distribution by being paid back by those individuals who owed them money, would be subject to regulations that would keep them from financing speculation in the price of equities and other assets going forward.

      For instance, banks might be restricted to making residential real estate loans, henceforth, only to buyers who were both qualified, according to an objective government standard, and who paid 10% to 20% down in cash
      on the price of the property at the closing.

      1. F. Beard

        Yes, savers would receive an equal amount. And if we wished to do the bailout without increasing the money supply then:

        1) Ban further credit creation.
        2) Meter the bailout checks to just replace existing credit as it is paid off.

        Since the total money supply (reserves + credit) would not change then neither price deflation nor price inflation should be expected.

        1. mansoor h. khan

          F. Beard,

          You need continue hammer the point that:

          Payment of principal and interest to the commercial banking system by a borrower reduces, destroys, removes from circulation the currency by amount equal to the principal and interest paid back!

          That is why replacing base money coupled with credit money paid back coupled with stopping banks from creating more credit (currency) will NOT cause inflation.

          http://aquinums-razor.blogspot.com/2011/11/here-is-how-bankers-game-works.html

          Mansoor H. Khan

          1. FJ_2

            Thanks for this clear simple sub-thread of Mr Beard’s points. I always have trouble understanding them exactly.

            Who could oppose this? The only problem seems to be it doesn’t bail out the banks at everyone else’s expense, and so does not push everyone else further down, thereby raising the banks even higher.

            Even the banks should support it, but maybe crushing the economy is their true hope?

            On a different but maybe related note, maybe companies oppose healthcare for all even though it is so clearly in their interest in so many ways b/c it wouldn’t let them keep a boot on the neck of employees?

        2. Another Gordon

          And, as Keen points out, the banks would be shorn of a huge amount of interest income and would have to downsize smartly.

      2. Brian

        We’re still back propping up large financial institutions, but now creating a moral hazard on an institutional scale and an individual scale.

        The distribution of income first of all would have to have a source? Of course government creation of money, but this would punish savers but devaluing their savings. And as we recapitalize the banks this way it would keep interest rates too low and that would undermine savers and capital formation.

        I’m not proposing that one should save or not save, one can do with their money as they please. Financially responsible only means meeting the obligations one has taken on in a financial capacity, and when one can’t fill that capacity they go bankrupt. We already have a system for clearing debt, however, we do need to loosen the bankruptcy laws. If this drives lenders out of business, so be it.

        And of curse this all begs the question: how much money do we send to each person?

        1. Andrew not the Saint

          Brian, read above what F Beard succinctly stated:

          1) Ban further credit creation.
          2) Meter the bailout checks to just replace existing credit as it is paid off.

          There wouldn’t be a risk of massive inflation if debt money is getting destroyed at the same rate as credit money is getting distributed.

          1. Jessica

            As long as it does not exceed the current shortfall in demand, money created and put into the hands of ordinary people will not create inflation either. Even if it increases the money supply.

          2. Brian

            Yes, I read the above post you refer to, however, I fear that it is you that is missing the point. If we do what you propose, then in the future we run into the problem of people thinking: let’s do it again, after all, we were able to get out of it last time.

            And banning credit creation is absurd on the whole. It’s control credit creation that we need, that is, the credit needs to be secured by an underlying asset. There are many profitable and legitimate uses for credit, however, consumption is probably not one of them.

            Further, any rule you pass will simply be undone later, or is subject to manipulation and lack of enforcement. But yes, I would agree that we should set limits of credit creation (probably one mechanically tied to population growth).

            This all being said, I still don’t see how we avoid a situation where bad money doesn’t chase out good money–that is, at best, you would still be “punishing” those who didn’t jump into the mania, and enacting large scale policies that promote social injustices (that is how it’ll be seen by those who conducted themself differently) will undermine your political and legal system.

            Further, what Mr. Keen doesn’t seem to ever mention is that we already have a bankruptcy process and laws on the books (such as fraud) that are not being currently enforced. The problem is that the rule of law is not being enforced and hasn’t been for some time–that is, the issue isn’t one of economic, but one of law enforcement.

    5. Foppe

      Brian: what do you want more: Punishment for the “bad actors”, with the knowledge that this will also hurt the rest of the population, or fix the problem?
      It’s all well and good to punish the wicked, assuming that they can indeed be identified as wicked in the way you describe, but since the elites aren’t getting punished either way, I don’t really see the point in punishing the rest of society.

      1. Brian

        What you seem to be supporting would not only not fix the problem, but make it worse, that is, you would undermine the rule of law, and undermine the due diligence that is required in a citizen if a democratic Republic hopes to survive–but I suppose that doesn’t quite matter to many anymore.

        I have a lot of respect for Mr. Keen, but he seems to have thought little on what the impact would be in this regards. And yes, it is my stance that the rule of law and preserving a democratic republic is more important than propping up the economy.

        1. Blunt

          “… you would undermine the rule of law, and undermine the due diligence that is required in a citizen if a democratic Republic hopes to survive–but I suppose that doesn’t quite matter to many anymore.” and “… it is my stance that the rule of law and preserving a democratic republic is more important than propping up the economy.”

          What is it about “morality” that seems to be such a wonderfully overused crutch for those who merely wish to set up straw dogs to fend off and so inflate their own sense of how great they are as human beings?

          First, Brian, you do well to lose the passive-aggressive “but I suppose that doesn’t quite matter to many anymore.” What an enormous load of self-serving bs you’ve served up. If you’re such a great fella then why must you be bothered to inflate that notion by setting up easily knocked aside disputants? BS meter ticking over rather nicely, eh?

          Second, how does one purport to be “moral” when one thinks not at all of fellow human beings and their good, instead barking on about “democratic republics.” Look around and read the tea leaves, Brian. There is no democratic republic. The systemic thieves have captured the republicans and paid them well to keep the system fixed. The democrats cost less and are so glad to be relevant that they too fall straight into line, with or without Clinton’s southern drawl.

          What seems to be important to you is the ongoing status of a system that is neither democratic or republican: a system of debt and asset servitude that’s been promulgated by some of the most heartless, uncompassionate and extortionate psychopaths ever to gather in two or three professions simultaneously. Banking, economics and insurance.

          Your mistaken notion that a “democratic republic” is, de facto, a synonym of “neo-capitalist economics” hardly makes it a necessity for the rest of us. In fact some of us are quite versed in seeing the separation of the two as being quite bracing for the entire existence of democratic republics.

          Others of us see that the very notion that ‘people’ should be at the core of any system of economy and government leads us to the realization that the only sincerely good way of reforming the system is to base it in socialism. A socialism that is all about the ways in which people work and live together, understanding the simple and incontrovertible fact that without society humanity doesn’t exist. We aren’t rugged individualists, we are hairless apes who get slaughtered by the predators without a cohesive social organization. Such an organization is not the result of a vast grouping of psychopaths following the dictats of Ayn Rand, Milton Friedman and Freddie von Hayek.

          1. Goin' South

            When someone is peddling “rule of law,” they out themselves as 1%-ers or wannabes. The “law” they revere is the creation of the 1%, and to add insult to injury, even its unfair terms are only selectively enforced for the benefit of the 1%.

            Justice, not this corrupt concept of “law,” is what is required.

          2. Carla

            @Blunt: thank you for this cogent response to Brian. “Democratic Republic” and the “Rule of Law” do indeed seem to be code phrases for “I’ve got mine and that rabble constituting the other 99% better not try to touch it.”

          3. Another Gordon

            @ Goin’ South

            When someone is peddling “rule of law,” they out themselves as 1%-ers or wannabes. The “law” they revere is the creation of the 1% …

            No so. The “Rule of Law” is the concept that everyone, regardless of rank or wealth, is equal before the law and as such is one of the highest and most civilizing forces in society. Naturally, in the real world it doesn’t work perfectly – wealthy and connected folk will tend to be believed by police and courts alike more than, say, vagrants. Nevertheless its the proper ideal to hold to.

            In the play, “A Man for All Seasons,” Sir Thomas More questions the bounder Roper whether he would level the forest of English laws to punish the Devil. “What would you do?” More asks, “Cut a great road through the law to get after the Devil?” Roper affirms, “I’d cut down every law in England to do that.” To which More replies:
            “And when the last law was down, and the Devil turned round on you, where would you hide, Roper, the laws all being flat? This country’s planted thick with laws from coast to coast . . . and if you cut them down . . . d’you really think you could stand upright in the winds that would blow then? Yes, I’d give the Devil benefit of law, for my own safety’s sake. ”

            The tragedy of America today is that, to a remarkable extent, the forest of laws that once existed have been cut down in the name of deregulation (regulations being the less formal sibling of the law). I suspect also when wealth inequality becomes extreme it becomes very difficult to keep to the ideal.

            Without the Rule of Law America is just the world’s largest banana republic. Obama please note.

          4. casin

            Blunt, what a way to go!!! The clowns thingy is some thing of beauty…. yet it truly paints the correct picture!!! I wish to grow up and be able to express my views half as good as you!!! WOW

          5. Brian

            I find it ironical that you should complain about the state of politics and then turn around and arguing for more government, albeit, some vague and abstract utopia.

            I also find it interesting that you’ve at the same time argued that I’m being passive-aggressive while resorting to name calling and moral denouncement–you talk as if you personally know me or are aware of my history of stance I’ve taken. Please, control your emotions and stick to only what I have said, or at least only attribute to me what I have said and don’t put words in my mouth that have come from other sources.

            That being said, I fail to realize, and find it utterly puzzling, how arguing for the rule of law and preserving a democratic republic is somehow a dehumanizing position to take. without the rule of law all one is left with is exerting their position through violence.

            What I suspect is that you, and the others cheering you on, have taken is a position of resentment, that is, you simply argue: well, they (the “1%”) got theirs, so I should get mine.” Instead what I am arguing is that we should reinstate the rule of law and enforce it, and that would hopefully entail that people guilty of securities fraud go to jail.

            Whether we currently live or don’t live under a democratic democracy is beside the point because I am arguing that we should uphold or exert it. Yes, of course, laws are not always enforced, as the Greek thinker Solon said, “laws are like cob webs, they are strong enough to hold the weak creatures, but not the strong.” However, you seem to have simply adopted an attitude of giving up, and before one grumbles about not living in a democratic republic perhaps it might be best to look are one’s self and see what they’ve done to ensure that they do live under one?

            And of course we can argue for socialism, and I suppose not matter how many times it fails, it will always have proponents (as it proves to be unsustainable economically and environmentally as socialism will inevitably lead to forced austerity)–not to mention that there may be an unhealthy underlying psychology to socialism (as examined by the philosopher F. Nietzsche), but that is for a different time. And yes, economic freedom and personal freedom are tied together, as nothing exists in a void in reality: those kinds of voids and compartmentalization only exists in the mind and academic departments.

            I’m not sure how else to respond to you as there is no argument presented, per se, but only some personal accusations and moral condemnation.

          6. Foppe

            Ooh, lovely. Something is found “ironical”, Nietzsche is mentioned both directly and indirectly (via an accusation that Blunt’s behavior should be understood as defeatist “resentment”), we find a subtle reference to the wonderful folk wisdom that “socialism just doesn’t work” (“of course we can argue for socialism, [but all the Serious People Know]“). I ask you: what’s not to like about this wonderfully indirectly formulated reply?
            Yet for some reason (perhaps because you were so busy crafting this most erudite of rebuttals) you seem to have missed the multiple suggestions, made at various places in this thread, that the suggestion that there is such a thing as a “rule of law” (insofar as that term implies procedural fairness) is kind of a cruel joke, because it only applies to those on the “bottom”, broadly defined. (See Greenwald’s new book for more.) So, by passionately defending the idea that everyone should try to do his bit to maintain the “rule of law”, what you are actually doing is advocating the continuation of something close to something that’s usually referred to as “class justice.”
            It is hard to miss this, though. I mean, just think of the impressive list of show trials of bankers that we’ve been seeing these past few years. First, there was the Madoff conviction. And then there was Madoff, and Madoff, and… Oh, wait, this list is actually fairly short compared to the amount of ordinary citizens who are being kicked out of their homes every day.

          1. FJ_2

            The Rule of Law is a cornerstone of liberalism. Liberals should defend it to the death.

            Make them live up to it, for everyone.

        2. Foppe

          Dear Brian,
          Your notion of due diligence also seems to imply that you are guilty for allowing neoliberalism to become the dominant ideology. Ideally, that should tell you something about the importance of “due diligence” at the individual level. Namely, that it is overrated.
          Yet I suspect that you mostly blame that on “other people”. Next best conclusion: you should’ve been much more politically active, warning people of this terrible moral hazard years ago, as the only way to do something about it. Were you doing that? I doubt that too, since you’re much too invested in the whole “due diligence”/”individual responsibility” crap that keeps people from actually invest in being caring citizens.
          As for the rest, I find myself in agreement with Blunt’s assessment of you.

          1. Blunt

            *smile* Thank you, Foppe, for reminding me of that niggly little item I was certain I’d forgotten in my estimate of Brian, “due diligence.”

            Yes, that very important addition to the moral imperative, due diligence. I think all we are lacking is a definition for what that quality is. Judging by circumstance, appearance and from what I read from those who use the term abundantly, due diligence appears to be that quality of maintaining focused awareness in matters financial in spite of the party of the first part having made your winning your bet or paying your mortgage contingent upon your deriving the secret formulaic algorithms concocted by 6 MIT computer science honors graduates while a clown car filled with 16 honking, whistling, joking, screaming, grabbing, slugging and chattering clowns drives around you as you are jostled unendingly by 37 planted co-conspirators who basically undress you while party of the first part then adroitly lifts your wallet as you lie semi-conscious and bruised on the ground. Obviously if you haven’t been duly diligent the theft of your wallet is actually your fault since the pick-pocket should have been detected by you before he extracted your valuable.

            Yep. Due Diligence. A fine Moral Tonic!

          2. Foppe

            Yeah, that’s the other thing that bothers me about ‘due diligence’ — the idea that you should be on your toes 24/7, lest you be found guilty of being insufficiently distrusting of your fellow citizens.
            Certainly such an attitude is warranted sometimes, but given that loansharking by mobsters is still outlawed (I think, anyway — but who knows, the days), it doesn’t strike me as that unreasonable to be allowed to expect that an institution as established as the banking sector to not to be allowed to do exactly the same thing, but at a larger scale. Yet for some reason, you may have no such expectations whatsoever. Can you imagine what it would be like for a society to consist only of people who behave in this way? Yuck..

          3. Brian

            Blame what “other people” people for what? I have no idea what you are referring to in anything I have said. I have “blamed” no one for anything. I have only claimed that the “innocent” should not be punished (albeit, implicitly), and that it is better to let the guilty go if it means punishing the “innocent” to punish the “guilty”: all rule of law loses its respect and collapses at that point.

            I have only claimed that democratic republics require a certain type of citizenry, whether we are capable of that as a society is a separate question (and seeing these responses I have my doubts).

            Further, I fail to see how you would know or not know my personal historical involvement: talk about jumping to conclusions and making wild assertions.

          4. aet

            If the “law” is unjust and inequitable, it does not deserve to rule.

            If “the laws” in their operation or enforcement yield injustice and equity, they cannot be truly laws, but merely rules – unjust and inequitable rules.

            One must still justify WHICH rules or laws one supports with rational argument: that rules simply happen to be “the law” means precisely NOTHING as to their worth or value – for there are and have been unjust laws, enforced by men complicit in the injustice those “laws” bring about.

            Not the rule of law, but the rule of justice, is what America is and has always been all about – otherwise, there would have been no Revolution possible!

          5. aet

            You are not qualified – who could be? – to judge what qualities are “required” of any citizen of any democratic republic.

            Anyone who would even embark on such an exercise demonstrates by that very action that she fundamentally fails to understand the central tenet of democracy, its very touchstone: that ANY citizen, regardless of her station or lot in life, may publicly and without fear express her beliefs as to the form and content of the laws or rules adopted or proposed to govern the public of which she is a part; and has, as an inherent and integral part of that right, the further right to have those views considered and discussed upon their rational merits – and not to have the worth comments summarily determined or dismissed due to the existence (or not) of some personal or accidental attribute of the speaker, or in their character or personality: for it is in PRECISELY this way that ALL CITIZENS ARE EQUAL IN A DEMOCRATIC REPUBLIC.

            All that is “required” of a citizen of a democratic republic is that they simply BE a citizen. That’s all – nothing else! Even though some apparently feel that that attribute alone is not enough – at least, for their liking.

        3. Blunt

          “twould be nice, Sir Brian, to discover what year of college you are currently passing through. My guess would be that you’re a 1st semester junior and probably majoring in Bidniz and minoring in Poli Sci or whatever they call taht in this day and age. My guess would also be that your school reasonably upper crusty. Although you very well could be a graduate student. But graduate students are unlikely to have the time or inclination to branch out their bodies of knowledge, tending to focus instead on single vision for the topic of the department or school in which they reside.

          Your writing, acquaintance with a body of knowledge and, thus, education are good, which rules out community college or regional state universities most likely. I suspect you had either an upper middle class school district or that you are the product of a prep school pre-college.

          Your writing holds the odor of someone who senses that they were born to be smart. As others pointed out to you, being born on 3rd doesn’t mean I’ve hit a triple.

          The problem with strolling in here with the current education and the current sense of self that you display is that this isn’t Free Republic or some buncha yahoos you’re dealing with.

          Yves manages to attract a bright and informed clientele to her blog. I’d suggest you scope things mo betta if you wish to avoid being called out for what you betray of yourself in your writing.

          In a sense you are correct: possibly none of us here know you intimately through acquaintanceship. However, I imagine most of the regular posters to these comments sections know you quite well through our experience of others who show up and attempt to blind us with their brilliance.

          We’ve used very dark glasses for years to avoid being blinded by brilliance, having learned that parsing words for what’s actually present is a much more sensible means of doing due diligence. Speaking of which, do some due diligence on socialism, Brian. It’s not a government or a political application or even a set of economic principles. It’s a way of life. That being true let me suggest that you puzzle out just a bit more education than Mankiw is likely to have given you.

          @ casin: thanks so very much. Please aim higher than I. I’m but a literata who sometimes likes to swim in the deep end just to show herself she can do so. And I absolutely love clowns. They are without doubt some of the more precise and poignant renditions of humanity one is ever likely to study and still be able to laugh as well. *smile*

          1. Brian

            Brilliance?! I only made the claim that the rule of law is vital and that we have a clearing mechanism called ‘bankruptcy’; hardly what I would consider an insightful remark. However, as you make the claim about the great and sacred learning and how you are the great torch bearers of truth’s eternal flame, then it would be greatly appreciated that arguments were presented as opposed to mere name calling, which is what this thread has boiled down in regards to the cult of regular on this site responding to me.

            I’m sure you’re done a great service for the site in your infantile name calling and absurd analogies. More than likely the mean-spirited of many posters here have chased away many that would be willing to engage in discussion and now simply passingly read in quietude. Good work, you should pat yourself on the back.

          2. Blunt

            @ Brian,

            Woah there, tiger. I have ignored the FACT that you actually do seem to act as though you’re on Freep. You have that accuse. accuse, accuse adroitness that’s then followed immediately by the sorts of attacks you claim are being pressed on you.

            (I got the privileged undergrad bidniz right, didn’t I? I see you avoided addressing anything that was actually written. And the times you chose to post are a dead give away as well! Relax. It doesn’t really require a lot of skill, just a matter of paying attention. That’s what you seem to lack just at the moment, Brian, an ability to pay attention to what’s important.)

            Go back and count the times in this thread that you’ve accused others of what you are doing. No, my dear, I don’t think you’re at all brilliant. I simply think that you wish others to think you are brilliant. There’s a huge difference there. Hope your classes go well tomorrow.

          3. Brian

            In actuality you were way off concerning undergrad or graduate school and I avoided because I simply could not see the relevance–and even if it were true, how would that amount to a refutation to anything I have said?

            No where in any of my posts have I attacked anyone personally expect when the name calling and undue labeling became rampant. You say it is I that am guilty in adopting an “accuse, accuse, accuse,” stance, however, I may advise you to read through the responses directed towards me; and if you have, then perhaps read them more carefully without the rose colored glasses on.

            Let me see, I’ve been labeled a 1%er (which was employed as a device for insulting); I’ve been equated with police officers pepper spraying non-threatening people; I’ve been somehow interpreted as arguing that the law should only apply to one lass of people and not another; I’ve been accused of lacking any humanity; it’s been implied that I am a hypocrite (that someone who doesn’t know me claims that I am now only arguing that the rule of law should be employed); and even your own posts are riddled with implied and explicit personal insults (or intended as), and my response to this has been to simply reply that one should be less emotional about the discussion so that a discussion an be had and that it doesn’t bring out the worse in us.

            To my point, you haven’t made any point or argument in regards to my response to Mr. Keen–perhaps you would like to argue that we shouldn’t live under a democratic republic, or that we should fore sake the rule of law, or whatever it may be; however, instead you have opted to simply continue on trying to make some personal analysis of me that really couldn’t be further from the truth, and then you inform me that it is I that should be careful of being exposed? Exposed for what? And how would any exposure that you had in mind have any bearing or relevance to my response to Mr. Keen? It would amount to nothing more than an ad hominen attack.

            And I am at an utter loss as to the time I post having any relevance at all, especially since you know nothing about me and have only proven that you can present poorly constructed psychological derivations.

            But yes, you have convinced me that there is little to be gained in further dialogue here, and you may attribute it to your grand and stunning reasoning and the infinite library of knowledge that’s tucked away in your head.

    6. Justicia

      If I understood Keen’s proposal, savers wouldn’t be ‘punished’ or disadvantaged. The money distributed by the government would first have to be used to pay down debt. Anyone not in debt gets the money to spend as they choose.

    7. Francois T

      Please talk to us about the phenomenal moral hazard of letting the banksters get away richer than ever after having fucked up the whole economy of the world.

      Which disease to you want to let fester? The cold of letting “irresponsible borrowers” off the hook, or the cancer of the banksters who have so financialized every corner of the economy that nothing of value can be created without having these blood suckers latch on to it?

    8. jake chase

      Imagine that you distribute $100,000 to every living American. Who gets penalized other than usurers? Then you reinstate Glass Steagall, limit derivative bets to private investment banks and outlaw future bailouts. Finally, imagine that you break up giant commercial banks into hundreds of local banks and limit these to commercial and residential lending. Who loses from this approach?

      1. F. Beard

        Who gets penalized other than usurers? jake chase

        Even the banks would be fixed in nominal terms. And if the bailout was metered as I mention elsewhere then no one would lose purchasing power per unit either.

      1. Robert Dudek

        This is a direct message to Brian,

        If you live in the USA, everything you seem to hold dear is gone. There is no democratic republic; there is no rule of law.

        There is only the rule of the overlords who are in the process of making the rest of the citizens serfs. In light of this most basic fact, the threat of moral hazard is like a flea on a dog.

        If you really care about the future of your country, now is the time for revolution.

    9. WillamAshbless

      So Keen has a rubbish solution, Bernanke, no doubt, has a rubbish solution, Brian’s solution is?

      Oh wait, your post seems to have been cut-off there because I didn’t quite catch what your solution is. Perhaps you’d be so good as to re-post it?, or at least elaborate on it.

      It seems bizarre to prioritise ethics over real world welfare. Is that really your solution: 20 years of misery?; but at least we did the right thing because we’re good Christian people (or good neo-Kantians == same thing).

    1. JohnB

      BBC World News is not “available” for US viewing, (keep us dumb)
      BBC America is “approved” programming for US domestic consumption.

      1. Bhikshuni Lozang Trinlae

        Not generally available to those who do not have internet access, that is, unless you live in a developing country, in which case the World Service is your main connection to the global population via your shortwave radio!

  3. Flying Kiwi

    Nice idea. As one of the patient savers I’d love the Govt. to hand me $50,000 to repay debts I don’t have.

    1. Otter

      The alternative is to watch your patient savings leak away, while you hold down the unpatient debtors.

      The banksters won’t even notice you, let alone thank you, for doing their dirty work.

  4. Cathryn Mataga

    It’s a compelling point, that perhaps we are due for 20 years of paying down debt — this is going to really suck. The real recovery begins somewhere around 2028. It’s an interesting idea. There are moral hazard issues here, but then, moral hazard — never a problem for the financial sector bailouts.

    One idea I was thinking of for the USA, is we go to zero income tax for all employees involved in physical manufacturing. That the USA manufacturing base needs to be rebuilt, and this kind of tax break (no no not a subsidy!) would help move these jobs back here.

    Of course, the missing piece in all this is criminal prosecution. I think we could use a system similar to what China has, where those get caught causing a lot of financial damage simply get the death penalty. It doesn’t have to be a lot of executions, but I think just seeing one or two big bank higher-ups receive lethal injection would help alleviate some of the anger on the street these days.

    1. digi_owl

      Well the very criminal justice system hinges on a moral hazard in that respect, in that it assumes it better to let 10 criminals walk then put 1 innocent man in jail.

      1. ambrit

        Dear owl;
        The present US criminal justice system has opted to put them all in jail. As the neocynical joke puts it, “What’s not illegal today?”

    2. tom allen

      Sounds like a reasonable mid-to-long term plan. We need the adrenaline shot in the near term to get there though.

  5. vikx

    Two quibbles:
    1. He does not really answer the question of moral hazard. He only says that that is something that needs to be enforced in the future. Huh! That will never happen.
    2. He says that the banks ‘persuaded’ the individuals to take on loans (and that the banks were at fault for extending the credit.) What crap! Individuals that took on the excessive loans (that they couldn’t service) or those that treated their houses as ATM (by refinancing every couple of years) are equally at fault. And what about the speculators who bought 2 or 3 or 4 (or more) houses?

    What about the savers? Writing off debt of the bad actors (willful or not, irresponsible or not) and printing money to do that would dilute the holdings of the savers is essentially punishing the savers. This goes back to the first point that Steve Keen didn’t address (in at least this video.)

    Bad actors, regardless of their intentions, have to pay their fair share of price.

    1. Foppe

      But there is no way to make all of the bad actors pay, because it is simply impossible to find them. Certainly you could punish management of firms, but beyond that? Unless you want to put all citizens in lie detectors to see whether they realized what they were contributing to..

    2. ambrit

      Dear vikx;
      I think he’s taking a pragmatic view. Identifying the “bad actors” as individuals will sieze up the entire system, simply as an economy of scale issue. Action needs to be general and inclusive, not only as a technical matter, but also as a ‘moral hazzard’ issue as well. The level of acrimony that a general economic ‘witch hunt’ would engender could destabilize the entire society. I’d call it another manifestation of ‘shared sacrifice.’

    3. gs_runsthiscountry

      Re your point number 2: So, then, you dismiss what was once known as “underwriting” and “risk management”?

      The onus was on the financial institutions, whether they were the banks themselves or their intermediaries (agents, brokers etc). It is the creditors, not the debtors, that caused this mess.

      Re your point 3 what about savers: watch the video again, it sounds like a biased ear is not letting you hear what he is actually saying.

    4. F. Beard

      and printing money to do that would dilute the holdings of the savers is essentially punishing the savers. vikx

      1) Preventing price deflation is not the same as causing price inflation. No one is entitled to a risk-free return on their money just for holding it.

      2) The bailout could be done without increasing the money supply IF we:

      a) Ban further credit creation.
      b) Meter the bailout checks to just replace existing credit as it is paid off.

      Since the total money supply (reserves + credit) would not change then neither price deflation nor price inflation should be expected.

      1. Brian

        “No one is entitled to a risk-free return on their money just for holding it.”

        That thinking is economic suicide, that’s what collapses a currency. When one saves their money what in effect they are doing is saving their productivity for some kind of future consumption. If one was not able to do this or have any faith that they could, then they would stop accepting whatever was being used as the medium of exchange (in this case dollar bills).

        Now, we could argue that one is not entitled to have a risk free investment, and lending out money is an investment; but simply putting money under the mattress should be considered risk free (as one is making no investment) in we want to hold faith in our currency. Yes, in reality, it is the case that one does take a risk in putting money under the mattress as they have central bank counter party risk, but again, I’m talking about preserving the soundness of one’s currency, and not the ultra bare bones reality.

        1. mansoor h. khan

          Brian,

          “government printing money” meme is just fear mongering by the bankers. Banks print money (currency) everyday when they fund a loan request from a borrower.

          In a given timeframe banks print far, far, far more money than government ever, ever, ever does.

          Mansoor H. Khan

          1. Brian

            First, the banksters are not opposed to money printing by the government as they can front run the bonds through the primary dealership. Also, I would argue that the government have not printed money, that is, the Fed monetizing governmental debt is not necessarily money printing (although it could lead to that); however, that is a side note.

            Further, you have to take my comment in the context it was presented in, and not in a void. There are many times where the government would have to create money, but under the context of my reply is that it would be on an extraordinary scale as to what’s being proposed.

            Whether banks or government print more money is irrelevant to my point.

        2. F. Beard

          When one saves their money what in effect they are doing is saving their productivity for some kind of future consumption. If one was not able to do this or have any faith that they could, then they would stop accepting whatever was being used as the medium of exchange (in this case dollar bills). Brian

          What I said was that money should not gain purchasing power. Why should anyone be able to “bury their talent in the ground” and have it gain purchasing power?

          Nor am I advocating that money should lose purchasing power in the long run (Some short term loss in purchasing power due to dilution is acceptable if the new money is issued in an ethical manner).

          1. Siggy

            What you’re seekng is a unit of exchange that is constant rather than relative. In such a regime you would see declining price.

            We have to make a choice; declining prices due to increased productivity and a constant unit of exchange – Or, increasing prices due to an increasing unit of exchange.

          2. F. Beard

            We have to make a choice; declining prices due to increased productivity and a constant unit of exchange – Or, increasing prices due to an increasing unit of exchange. Siggy

            Suppose a common stock company uses its own common stock as money. Suppose the value of the stock has risen due to increased demand for it. On one hand, the stock holders might wish to sit pat and issue no more stock. OTOH, they might wish to issue more stock and use it to buy more plant and equipment. In the short run, the new stock issue would dilute the value of the existing stock but in the longer run the new stock issue might pay for itself.

            By accepting some short term dilution greater long term gains are often had.

          3. Brian

            The argument is quite simple as to why one should not lose their purchasing power. Let’s say I only make $100 a year 9for simplicity’s sake) and yet I wish to purchase an item for whatever cost so long as that cost exceeds what I can afford immediately after paying my expenses. So what I in effect do is save until I have the mean of purchasing the said item (this is called capital formation, and many times people do it in order to start up a business). Now if I am unable to do this, not only does it make purchasing of large priced items impossible, but it would make starting a business almost impossible. at some point, once one realizes that they can’t save their purchasing power then they will stop using whatever medium they were using to attempt this, in this case the currency.

            The devaluation of purchasing power primarily only hurts the working class and poor as the wealth have enough disposable income to make up for devaluation.

            Further, in order to live in a somewhat free society one should be able to do what they see fit with their talents (of course within rational limits).

    5. Another Gordon

      @ vikx

      It takes two to tango. On one side you have self-styled “masters of the universe” who extend loans all day every day fir a living and might reasonably be called experts in the business. On the other side you have private individuals with limited experience – often none at all – and little financial savvy.

      On the expert side you have loan products designed by them and variously described as “teasers”, “liar” and “NINJA”. There is ample evidence of fraudulent documentation and, for futher character witness to the nature of these “experts”, we now know what happened next – an epidemic of robosigning and the rest.

      Now, tell me again with a straight face that it’s ALL the fault of the borrowers and that you put no credence at all in the alternative possibility that the “experts” were a bunch of spivs and crooks.

  6. Schofield

    Everybody focused on the 9/11 terrorism attack but seem to have missed that we’ve been exposed to twin attacks of Debt Terrorism from the private banks and the ideological one of Deficit Terrorism from the Neo-Liberals who made sure the stimulus response was inadequate to the scale of the problem and continue to try to redact even that.

  7. raintonite

    As his arguments stand: Good news for consumption. Bad news for the environment. Why do all economists simply ignore resources and the enivronment in their models?

    At least he should acknowledge the rising price of oil, which is in some ways the energy life blood of modern economies. Or does he assume that easy credit is blowing an oil price bubble, just like the housing bubble? (Would tar sands be economically viable without a obtaining a certain price threshold?)

    On another note, I can’t also help wondering if his thesis of debt use as some sort of magical device which produces creative tension leading to new products isn’t just a re-warming of the invisible hand of the self organising markets meme.

    On the whole, I just see a neo-keynesian who starts from old economic axioms and who wishes to perpetuate the existing system without thinking of new alternatives, but simply adds a somewhat novel debt forgiveness twist. He mentions Rome and their debt forgiveness policy. Yet Rome disappeared into the mists of time with such policies. Does he expect we are different using the same thinking? – especially in the context of the reduction of non-renewable resources and the heightened global competition for those same resources?

    1. ambrit

      Dear raintonite;
      The problem with all ‘peak’ resource arguements is the unwillingness of people to consider game changers like new tech and system realignment. Resources come and go, people carry on.

      1. raintonite

        Thanks, KC. I’m glad to know he acknowledges such conditions. I’ll just have to access your link to find out. Still, I’m not that hopeful, based on his near term solutions and how he couches his arguements in this video, that he offers anything more than a more benign and slower use of resources under an existing system. The time factor changes, the outcomes don’t.

        Ambrit – you mention “peak”. I don’t. I frame the resource sitution in terms of use of non-renewables which we currently rely upon and the relative costs of bringing different sources on-line which cost more to extract. I also mention competitions for resources on an equal footing, as competition might well result in increased costs.

        Your terse dismal of such physical limitations and cost effects doesn’t alter the sitution. Current technology doesn’t produce oil, it uses it.

        1. ambrit

          Dear raintonite;
          I can’t fault your analysis of resource use as currently employed. I used ‘peak’ too loosely, agreed. However, I was trying to reintroduce the evolutionary arguement here. The first example that pops to mind is the horse collar. Before the introduction of this device, which spreads the load being pulled by the poor brute over a wider area of ‘his’ body, loads and animal exhaustion were signifigantly limiting factors to how much ‘work’ could be extracted from a ‘beast of burden.’ After its introduction, civilization took a large leap forward in its abilities due to the surplus produed by the simple re-imagining of the capabilities of an already extant resource.
          My arguement here is that the impediments to progress are mostly political, and not at all technical.Solar Photovoltaics are poised to cross the Rubicon of cost efficiency relative to fossil fuel electric production. Once that happens, the Djinni is out of the bottle. Cheaper, less centralized electric power is just the first of the effects. As history shows, it’s the later, unexpected effects that produce the major effects. (I wonder, could any of the fine folks at the Cavendish lab in the nineties and zeros have imagined that iPads and laptops would follow from their experiments?)

    2. Otter

      In any case, few economists ignor resources and environments. Corporations hire legions of economists (and lawyers) to figure out how to get resources as free or cheap as possible, and how get others to repair the latter.

      Two more examples of corporate socialism.

  8. ambrit

    Friends;
    The ‘can’t happen here’ comment is spot on. Contrast the BBC interview with our esteemed hostesses recent appearance on News Hour. (Just a thought, but, consider the origins of the Eurotube vs. the Ameritube.)

  9. gs_runsthiscountry

    On Steve Keen’s point on how to reset the system. There were people saying this back in 08 during the TARP debates. I remember saying to coworkers “It would be better if we mailed every man, woman, and child 15k and be done with it – for what this is going to cost the taxpayer in money and pain.” Of course my co-workers thought I was nuts. “You can’t just give people money, that will never work.” Right, “but, giving billions to banks will?”

    Many Americans held this opinion, lay people, not economists – never the less, still correct. We had no voice and still don’t.

    Steve Keen – now added to laundry list of reading.

  10. YankeeFrank

    If you are going to comment, please carefully listen to the interview for chrissakes. Keen proposed giving money to everyone, not just debtors. Only the debtors will have to pay off debts with the money first. Those without debt will get free money to use as they see fit. Its a lot better than the massive transfer of money to those most responsible for the crisis who use it to speculate and rob us with usurious interest rates.

    I’d also like to point out that I am disgusted by all the economic moralizing by people who through the luck of the draw found themselves in a comfortable economic position over the last few decades: you are the exception to the rule and I presume, due to the limited imagination such comfort has resulted in, can only see immorality and sloth amongst the indebted. Never could you imagine the desperation of the poor, who get roped into awful credit situations by predators and their own desperate circumstances. There but for the grace of god go you. The disgusting Calvinist/protestant work ethic bullshit you spew in your selfish ranting shows your true unchristian nature. Most of us who have money and comfort are just damned lucky, and would do well to observe the difficulties we DIDN’T have in attaining that comfort. Oh yes, you walked ten miles to school and made a “success” by the age of 21. But that’s only a small percentage of you, who were mostly born on 2nd or 3rd and thought you hit that ball yourselves. And let’s not forget that the world can’t be completely made up of money-hungry capitalists. Some of us have to work in the mines you own, some of us have to care for and teach the children, some of us have to pursue more noble goals than lucre in order for the world to be something better than a cesspool of wasteful competing capitalists. Its disgusting and you should be ashamed of yourselves. And don’t try to tell me there is anything of the teachings of Jesus or spirituality in your harsh judgment and condemnations. Your lack of compassion for, and interest in, the world around you is as depressing as it is lazy and blind.

    1. Brian

      Money creation punishes savers qua savers. It’s not about whether one should save or not save, it’s that one shouldn’t be punished for saving. This is a fairly simple point to grasp, I think.

      1. Blunt

        I quite agree that “savers qua savers” shouldn’t be punished, just for the sake of some sinners in the hands of an angry god meme.

        However, I’m puzzled. Should spenders qua spenders or debtors qua debtors be punished, Brian. And if so why?

        What sort of unexamined bias do you have that demands punishment and a set of folks who get punished? All things being equal why not just punish those who work as economists and those who work in banks and hedge funds?

      2. mansoor h. khan

        Brian (Dude),

        fiat money is a claim. No actual goods and services were saved just traded for fiat. Proper adjudication of this claim requires the government to manage deflation and inflation.

        Both are bad. deflation screws people like just inflation does.

        Mansoor H. Khan

        1. Brian

          The soundness of purchasing power can be maintained in a fiat money system just as it can under any other item of exchange. However, yes, in practice this is rarely, if ever, true. But even Spain experienced hyper inflation and deflation with using gold and silver (and so have other countries).

          Next, it’s not exactly true to say that no exchange of goods and services take place under a fiat money system since if that were true, well, goods and services wouldn’t be exchanged or performed. When one holds onto their “money” what they in effect due is delay the exchange of goods and services for a future date, for whatever reason that may be (to save for larger purposes or simply they see nothing they desire). This same thing happens when we use gold as a medium of exchange, although the added benefit of gold, one might add, is that gold as a medium of exchange is more politically neutral than fiat money.

    2. Glenn Condell

      Agreed. All this moralising gets in the way of clear thinking about the best solutions to what may well be an existential crisis. What works, not what ‘should happen’.

      The beauty of the Keen proposal is that there is no relative disadvantage to those who have theirs, whether by dint of hard work, thrift and skill, or via Dad’s legacy. While those beastly working poor who were too lazy or stupid to ‘get ahead’ will use the dough to pay debt down, leaving not much to paint the town red with, for the savers (hardworking go-getters or indolent scions) the money is all cream, to do with as they see fit. They might speculate with it I suppose, but in the post-public bailout landscape Keen envisages I don’t think they could feel confident their mad gambles would this time be backstopped by their fellow taxpayers so would be less likely than it once was. Or they could add it to their savings, no bad thing if a significant chunk of the population were spending like mad. Or they could join the consumer-led recovery by adding to demand and spending the dough into the economy, adding jobs and therefore increasing government financial stability via increased tax revenue.

      What’s not to like? It’s a win-win-win situation. Of course there would be losers, but who cares about them? It couldn’t happen to a more deserving bunch.

      1. Ian Ollmann

        Part of what it would do is soak up the real estate shadow inventory backlog, as the nation’s renters now armed with down payment+, go out to buy a home of their own. Curiously, our effort to wipe out debt could trigger a lot of new debt. Presumably the new debt would be on more sober terms.

        1. F. Beard

          Curiously, our effort to wipe out debt could trigger a lot of new debt. Ian Ollmann

          The difference is that (hopefully) the banks would not be allowed to extend so-called “credit” but instead limit themselves to genuine loans of existing money.

          We need genuine reform in addition to a bailout to prevent the problem from reoccurring.

  11. Judy C

    It’s too late for any kind of “rescue” or “fix”. The time for that was 2008. What did they all do? They doubled down in their casino world and betted faster and more furious than ever, raising the stakes to more than $700 TRILLION $$$.

  12. Hal Roberts

    Give all people 150,000 (or what ever the sum may be) out of the cash flush leverage pile with the stipulation that they pay off their debt first, then they may spend the rest to stimulate our individual economy. ( trikel up to business as it should be in the first place)

    The key being that all Citizens in their respective countries get the same amount of money, and we all get no blood shed in return. But leverage regulation will have to be put in place so it won’t happen again.

    1. Blunt

      Well done, Hal Roberts. Trickle-up certainly seems the proper flow.

      It does seem to be the case quite often that “democratic republicans” manage to argue for top-down democracy. I like your bottom-up democracy much better.

    2. JTFaraday

      “Give all people 150,000 (or what ever the sum may be) out of the cash flush leverage pile with the stipulation that they pay off their debt first”

      Oh, now I see the basic problem here. You think floating a corrupt system on great sea of sh**–just so long as you get yours– is a good public policy and I don’t.

      I’m glad we established this fundamental philosophical distinction before you decide to troll me again.

  13. JohnB

    BBC World News is not “available” for US viewing.
    BBC America is “approved” programming for US domestic consumption.

    1. Francois T

      “Approved”?
      Who does “approve” that kind of stuff around here? After all, we have this disaster called Fix News.

      1. ambrit

        My dear Mr T;
        Please consider:
        Britain has BOTH the BBC and the Murdoch ‘Empire of Evil.’
        America has Fox and…PBS? Supreme Diety, help us!

  14. Mohit

    An entire interview about excessive debt, and not one word about either:
    - the role played by central bankers in making money so cheap
    - US policy towards housing finance

    None so blind as will not see.

  15. joebhed

    Keens rhetoric doesn’t measure up.
    And neither does his understanding of public monetary economics.
    To his credit, he has been out there warning of the crisis coming before a lot of others.

    On the rhetoric, I heard nothing specific about a debt-jubilee or on any hair-cutting to the dastardly bankers that caused the crisis.

    Rather he seems intent upon using the government’s latent power to “create money” to pay off those debts.
    Where’s the beef?

    From about 12:10 in:
    “” we have two sources of money in a capitalist economy – the banks can create money by extending loans..the government creates money by running a deficit.”"

    Sorry, Steve, when government runs a deficit, it does NOT create money. The government MUST borrow its deficit balances from the private bankers who create the money out of nothing. There’s no reduction in private debt from government deficits – only an increase in government debt.

    If you want to change THAT dynamic, first identify how to enable the debt-free funding of government ‘deficits’, and the answer is in the Kucinich monetary reform Bill.
    http://www.monetary.org/wp-content/uploads/2011/10/HR-2990.pdf

    Finally, Keen seemed to not want to come right out and say that we MUST end the power of unregulated private ‘shadow’ bankers to CREATE leveraged, $-denominated debts for speculative purposes in the first place.
    THAT would be the radical corrective measure necessary.

    This was probably Keen’s most prescriptive attempt to lay out his debt-jubilee proposal in public. Hooray to the BBC for pushing on specifics. But I didn’t come away with any more understanding of the fix.

    1. FRauncher

      Why does the Treasury have to borrow the money? Why can’t they just print it? Before your gut reaction paralyzes you, think about it a little. In my opinion, inflation danger would be relatively mild, given the level of unused resources in most of the G20. And a devalued currency wouldn’t hurt US exports.

      1. joebhed

        Please note I am not saying that it MUST be that way or that it should be that way, I’m saying that’s the way it is.
        I agree with you.

        The Treasury should have the power to create the nation’s money in accord with national monetary policy objectives – general price stability and full employment.
        Inflation danger does not exist up to that point. Again, I agree.

        But, that’s not my gut reaction on the need for borrowing deficit balances, it’s the law.
        It’s the law that the Kucinich Bill would change.
        Thanks.

    2. _o_

      I think you are mistaken

      you are one of those deluled persons who want so see conspiracy theories everywhere

      ‘evil banks’ blaa blaa blaa

      go see a head doctor

  16. JohnB

    HAPPENING TODAY:
    The worldwide indefinite detention without charge or trial provision is in S. 1867, the National Defense Authorization Act bill, which will be on the Senate floor on Monday. The bill was drafted in secret by Sens. Carl Levin (D-Mich.) and John McCain (R-Ariz.) and passed in a closed-door committee meeting, without even a single hearing.

    1. Francois T

      R.I.P. Posse Commitatus
      R.I.P. Civil Rights

      Nice meeting you; too bad you have so many enemies in DC and the White House.

  17. Gil Gamesh

    Keen would have a shot at getting on US networks, if he were willing to be interviewed in a hot tub, bikini-clad woman on each arm, and make his points in thirty second (shorter would be better: consider the poor audience). He’d have to be more snarky, and for crissake, more cheerful.

  18. MarkJ

    One must look at Mr. Keen’s work on Credit Acceleration within an economy (http://www.demandsideeconomics.net/2011/06/transcript-445-steve-keen-and-credit.html) to gain an insight into how his prescription would work. (IMHO, Mr. Keen should be nominated for a Nobel Prize for his work on Credit Acceleration and its effects in the economy.) Remember, Mr. Keen is not an elected official and those in his profession are relied upon to recommend sound policy choices to policymakers.

    Unfortunately, most of his colleagues have been co-opted by a system that rewards agreeing with an a la carte conventional economic wisdom instead of applying scientific rigor in their recommendations to policymakers. Maybe the condition of these charlatans are changing as Greg Mankiw was recently boycotted (http://johnhively.wordpress.com/2011/11/03/harvard-students-boycott-bush-economic-advisor-as-instructor/) by his students for lecturing about economic ideology instead of sound economic principle.

  19. Susan the other

    When Keen related his story that in 2005 he decided to do the math on Australian debt because he was skeptical that it was as bad as some had said and found to his surprise that it was even worse, a parabolic trajectory, I wondered why he only discovered this in 2005. For 60 years we financed the cold war (we western “civilizations”) by using our banking system. And only 10 years into it we were busted flat. The “error” in our model, as Greenspan put it, is that we just didn’t care. The purpose of the system is to survive. Ironic that in our zeal to ensure capitalism survived, we utterly destroyed it. Capitalism worked theoretically, on a small scale for a long time. But nobody understands the system today. Not one single soul. We would do well to start over. Wipe out debt in the most equitable way possible. Nationalize the banking system. A new capitalism, a more contained version, could then be born. We are just a wounded beast right now.

    1. Carla

      “But nobody understands the system today. Not one single soul. We would do well to start over. Wipe out debt in the most equitable way possible. Nationalize the banking system. A new capitalism, a more contained version, could then be born. We are just a wounded beast right now.”

      Thank you, Susan the other, for these very wise words. Especially “we are just a wounded beast right now.” And what do wounded beasts do? They bite.

  20. Kelly

    Just finished reading Graeber’s Debt: The First 5000 years. Offers some interesting insights into what is debt and how it became so sacrosanct that it must be repaid. He’s an anthropologist, so he present it from the historical record, as opposed to a neo-classical economist’s fantasies.

  21. Bruce

    his “solution” makes no sense and he seems very unsure of himself trying to explain it. I think it is a stupid idea.

    1. F. Beard

      and he seems very unsure of himself trying to explain it. Bruce

      Agreed. Steve Keen still thinks banks are necessary for investment and that hinders his thinking.

  22. steelhead23

    OK, let’s all agree that the debt balloon is too big and simply cannot be paid off. The usual solution is liquidation. That is, the hapless borrower gets foreclosed, the stupid banks take big losses and may go broke, and there are fire sales of assets. An enormous deflation would take place and bankruptcy would become a growth industry. Everyone knows that the truly wealthy would do very well in this as they have the disposable wealth necessary to capture undervalued assets, the poor would remain poor, and quite a few in the middle class would slip down. Recovery would be likely, but slow as deflation would destroy hope and consumer confidence. As this process is “normal”, politicians would have to do virtually nothing for it to happen, making it less of a minefield for political leaders.

    In a debt jubilee kind of solution (which would be politically very difficult) the banks would be forced into receivership, prudent investors, including pension and insurance funds, would suffer losses, but the suddenly freed income of the debt-laden would very likely boost the economy like nobody’s business.

    Note: in either case the banks are toast and undeserving folks would enjoy a windfall. Would someone please explain why the bankruptcy model is better than the jubilee model?

    1. F. Beard

      You have noticed that Keen’s idea (a general and equal bailout of the entire population, including savers)would fix the banks too?

      1. steelhead23

        Actually, no, I didn’t quite get that. Perhaps my listening comprehension is not quite as good as my reading comprehension. If the CBs made all depositors and bondholders whole in the jubilee model it would be somewhat inflationary, but the truth is, I have no idea how big such a printing would need to be to make everyone whole. But, I would bet that Keen could do the math to roughly estimate how much the money supply would need to grow. But, you know what Mr. Beard, Keen could detail this out to the last farthing – and nothing would come of it. Why? Simple – POWER. It isn’t mere wealth that makes banksters powerful, it is the holding of other’s debts that makes banksters powerful. So not only is Keen talking about taking away bankster wealth, he is also taking aim at their power. It ain’t gonna happen.

        1. F. Beard

          It ain’t gonna happen. steelhead23

          I disagree. It fixes everyone, debtors, savers, and the banks. And if the bailout is metered so as to prevent an increase in the money supply, then even foreign holders of US dollars are not hurt. In fact, the restored demand for their exports should help them.

          A metered bailout requires that we ban credit creation at least during the bailout period but that is no problem since there would an adequate amount of new legal tender to honestly lend.

          1. Cathryn Mataga

            I kind of believe the current system is caught in a death spiral of increasing debt, cutbacks in expenditures, and then, economic shrinkage and then even more debt. We have exponentially growing debt with a shrinking economy — it goes bad quickly. Finally, when there’s no more blood to squeeze out of the potato. The physical economy becomes irrelevant and the banks play poker with each other.

            I think possibly jubilee/debt reduction plan is the only way out. That no other solution will work. But it’ll take another 10 years of hell before this idea becomes widely accepted. It’s a good opportunity for aspiring fascists. Because they could take power, bring in the jubilee, and the nation will be saved. They will be loved, that is until the other problems with fascism become apparent.

          2. F. Beard

            It’s a good opportunity for aspiring fascists.

            Exactly. Hitler pulled off a seeming miracle with the German economy and became a national hero (for a while).

            Let’s hope better communications allow us to rapidly reach a consensus and preclude a similar disaster.

    1. F. Beard

      Then the debt is just heaped right back via taxation. indio007

      Government can (and does) create money from thin-air without borrowing. The only limit is price inflation in the dollar. Taxes don’t fund Federal Government spending. Rather they are a means to drain purchasing power from the economy. If inflation is not a problem then taxes don’t need to be raised.

        1. mansoor h. khan

          F. Beard,

          Again, please emphasize what matters is the productive capacity of the economy. Money is just an accounting system.

          It is an authorization to allow the money holder to use up to certain amount of capacity of the economy. And if money is NOT spent real resources in the economy are NOT used no matter how much money is printed.

          Mansoor H. Khan

          1. Cathryn Mataga

            My take on this is that thing is that the mainstream liberal side, Krugman-side view seems to be that they recognize that the economy is paying down debts, but they support additional government debt to substitute government consumption for individual consumption. They still insist that everyone pay down all of the debt, and we just wait out the decade until this happens.

            I think this is an important distinction. Do we have to lose this decade to pay all this stuff down. It’s my suspicion only, though this seems how it’s going, that with the entire planet trying to pay down debt, that it is simply impossible, even with government stimulus, no one will ever succeed and the entire planet remains stuck in recession hell forever. That Japan had the advantage of being able to export to other countries in less of a sever situation. The planet has no one to export to.

    2. MichaelC

      WOW

      Effectively the proposal is a gov’t funded bailout of bankers and investors in debt instruments.

      But the beauty of the idea is that it funnels govt money to the various creditors, banks and non banks (i.e your pension funds) through individuals who will also benefit from reduced debt levels with minimal disruption to the financial system and society at large.

      Individual mortgageess will still be on the hook for their adjusted mortgages, but house prices will adjust to a new reality. Relative to the adjusted house prices their mortgage debt will still be large relative to their income, but it won’t be at the unsustainable levels of today.

      Their new debt levels might enable them to spend again, perhaps more productively this time, in a normalised, non asset bubble environment.

      At a minimum it subdues the foreclosure crisis and buys time to develop an equitable solution to the quiet title crisis the banksters imposed on anyone who’s bought a house in the last decade.

      The bankers will have to pay for that solution, Better to keep them solvent to pay that tab.

      Hell, people may even be able to find a job in the restored economy.

      All this can be funded by a small increase in the tax rate of the folks who brought this on in the first place and reaped the rewards.

      Payback isn’t really such a bitch after all in this scenario.

    1. Glenn Condell

      Hi Katie

      I too have been interested to know Keen’s take on MMT; he appears to be close to people like Bill Mitchell, Randy Wray and Warren Mosler, but has never to my knowledge made a public judgement one way or another on MMT.

      Then yesterday at Keen’s site I listened to a lecture he gave at Cambridge where there was some subsequent Q and A. During this he was asked about Wyn Godley and while he professed great admiration for and had found much useful in Godley’s theories (some of which I believe form an underpinning for MMT), he also disagreed with some of the key assumptions, which he feels have flowed into the thinking of those who have followed the path Godley pioneered.

      From about 57:00 at the link below, Keen answers a query about Godwin’s model. Keen disagrees with the ‘discrete time’ approach, preferring a ‘continuous time’ assumption in the modelling which he feels more closely mirrors the real world. Also some issues with definitions of events as either ‘stocks’ or ‘flows’.

      More to the MMT point, he isn’t convinced that the MMT assumption that the economy is a ‘conserved system’ – implicit in the accounting identity doctrine where sectors must balance out or sum to zero – is accurate. He thinks that in nature, while conserved systems such as the weather/climate exist (though even these have aberrant episodes) other types of systems also exist, such as ‘dissipative systems’ where over time things cease to add up (or down) to zero – nothing is being ‘conserved’. Sounds like entropy. Anyway, Keen feels the economy is more a dissipative than a conserved system.

      He mentions Wray, Mosler, Mitchell when casting doubt on the MMT assumption that government deficit must equal private saving – a conservation law. This sounds right to me. When reading some MMT stuff a while ago, I was seduced by the argument but worried that something seemed ‘not quite right’ about the (to me) unexamined assumptions that underpinned it.

      Of course, Keen’s own assumptions (on the primacy of debt acceleration for example) might well face similar challenges but what I like is how it all comes down to the evidence for him (how it is, not how it should be) and also his tendency to favour rationales that reflect a deep appreciation of how random, arbitrary and chaotic all actual systems are, as opposed to the attempts by so many to fit ungovernable realities into their favoured frames of reference.

    2. Glenn Condell

      Ha! So busy addressing what was bothering me I failed to actually read what puzzles you, sorry. So above is Keen on MMT, what the MMTers think about his work, I don’t know.

      1. Katie

        Typing on hand held, and not good at it…..
        But you actually did a great job in answering my question …. I listened to the same lecture.

        Keen says he is going to address mmt in the near future on his blog.

        Thanks again, much appreciated, and would love to have a cup of coffee with you.

  23. Foobar

    1. I magically create a bunch of money N such that N=0.9 * outstanding_mortgage_debt.

    2. As an individual, I receive T = N/adult_population.
    2.a. If I am in debt, that money must be paid to removing my debt. Call the amount I use to pay off my debt D. Since we are in a fractional reserve system with 10% reserve requirements, 90% of D (It was lent into existence).
    2.b I can spend T-D into the economy. This is necessary so that there is no moral hazard: people who save are rewarded.

    The result is then that the money supply is diluted by an T-D + 0.1*D, so we will suffer some inflation I = (M+T-D+0.1*D)/M where M is the money supply.

    The value of each person’s cash holdings will therefore change by (C + T) / I , and his salary will decrease by 1/I. So people holding a great amount of cash (rather than assets, like say China’s sovereign funds) will suffer most, as will people on a salary. Banks will also suddenly suffer a loss of cashflow.

    Compare this to the current scheme of lending/giving money to banks hoping they’ll lend it to others. At this point it’s clear they don’t… and it only creates inflation by (M+A)/M where A is the amount given to the banks, hurting us all for no benefit.

    Overall his proposal makes a lot of sense, since most people would prefer living in a productive 1st world society where they can get another job if the current one fails, rather than living in a 3rd world society with a few haves and many have-nots.

    1. mansoor h. khan

      Foobar,

      Now we just have to convince the bankers to stop making the public and government officials all confused about how money works.

      I am truly scared they would rather have us descend into third world status then realize the truth (the true nature of money and the fact that bankers issue currency and cause depressions).

      Mansoor H. Khan

  24. Foobar

    90% of D disappears (It was lent into existence)

    (The word “disappears” disappeared in my comment above…)

  25. Cathryn Mataga

    I see the political problem. That the USA decided to opt for the ‘service economy’, that is to make money in the giant casino in NYC, and the country essentially gave up manufacturing and the creation of physical goods. Perhaps with a jubilee what happens is that the power that comes from holding all that debt is diminished, and countries that retain the ability to actually create goods become more powerful. The elites are not going to like this.

    1. Lafayette

      That the USA decided to opt for the ‘service economy’, that is to make money in the giant casino in NYC, and the country essentially gave up manufacturing and the creation of physical goods.

      No, the USA did not “opt” for a service economy, which came about because too high a wage structure (Comp&Ben) shifted jobs off to the Far East. Fully two-thirds of our economy is driven by the Services Sector, which typically means lower pay-scales for those working there. (Except of course Wall Street. Finance produces, in recent years, 70% of all profits.)

      And why did those jobs semi-skilled manufacturing jobs go off to the Far East. Because Americans followed the Sam Walton’s Siren Song and bought cheaper products built by nimble-fingers in the China that were cheaper than the American versions.

      That is the way of the world. If World Commerce beat a path to American exports, it was because of their price-competitiveness (once upon a time). That same law of the market is now taking a toll on American jobs.

      Let’s not blame the world for a situation that America very largely deserves because it has been sleeping on its own laurels for thirty years (or more).

      We went binging on cheap credit, spending far beyond our means, whilst undertaking trillion-dollar wars over in the sandbox. Now it’s time to Pay the Piper.

      Fundamental reforms are necessary in this country and we have a Congress in LaLaLand that has its head stuck up its backside. And who elected those do-nothings from another era?

      We, the sheeple.

      1. F. Beard

        Now it’s time to Pay the Piper. Lafayette

        Our money system is essentially a government backed/enforced counterfeiting cartel. Is debt to counterfeiters morally valid?

        But let’s assume it is. Steve Keen’s plan would allow the debt to be paid off without disadvantaging savers. And if further counterfeiting was forbidden, the bailout could be metered so that the banks are repaid with equal value money.

  26. FRauncher

    I left similar comment as a reply up toward the top, but few will go back to read it. Many commenters are assuming the Treasury would borrow the money, but I don’t think that is his idea. Why does the Treasury have to borrow the money? Why can’t they just print it? Before your gut reaction paralyzes you, think about it a little. In my opinion, inflation danger would be relatively mild, given the level of unused resources in most of the G20. And as Foobar points out, the possible negatives would be small. And a devalued currency wouldn’t hurt US exports.

      1. F. Beard

        Yep. At least some of it. That which repaid debt would disappear but that which went to savers would remain unless it was later taxed out of the economy.

        1. Ian Ollmann

          Its not to hard to ensure that. You could set up savings accounts for all citizens that could only be used for one of a few things:

          1) pay off debt (mandatory)
          You’d have to limit it to debts incurred before a certain date to prevent people from taking out new debt.
          2) pay taxes
          3) buy up to a better social security payout grade — for retirees who have neither mortgage or significant taxes
          4) a few special items you want to encourage like home energy retrofit, electric cars, education…. (Watch these things inflate!)

          Of course money is fungible and all that.

  27. Lafayette

    You have noticed that Keen’s idea (a general and equal bailout of the entire population, including savers)would fix the banks too?

    The “bailout” is happening by means of Quantitative Easing, meaning that the Fed buys bank bad-debt, thus allowing them to free up credit lending.

    It hasn’t worked so far because the American Consumer is not spending.

    Why is it that we expect miracles from the government when the real problem is Consumer Demand. Blaming someone else is not going to get us out of this economic-pickle.

    Besides, Keen is suggesting something far more radical, called “write-off”. Meaning America defaults on its debt, which is like putting a bullet through Uncle Sam’s brain.

    1. F. Beard

      Why is it that we expect miracles from the government when the real problem is Consumer Demand. Lafayette

      Because of consumer debt. Keen’s plan would enable that debt to be paid off without disadvantaging savers.

  28. Hal Roberts

    I know there were at least 2 post up here on this thread arguing that Keen ideas were not feasible do to Moral Hazard those post are no longer on the thread, but the responses to the post are still there. Has some one hacked the thread or is one of NC helpers a little on the dirty side?

  29. Foobar

    Let’s not lose sight of the purpose. Moral hazard only matters because it is necessary to preserve the monetary system, so that people still feel like lending money to others.

    Usury (lending at interest) was invented in Mesopotamia. When peasants suffered a bad harvest they borrowed money. If they suffered another, they went bankrupt and could be sold into slavery. Instead they tended to flee Mesopotamia. After a while there were no peasants to produce food, and the lands fell into disuse. Obviously this was a problem… Monetary systems only exist when people exchange money, not when the population has starved to death. The solution was that every so often the king would wipe the debt slate clean, and the peasants would return.

    We should be asking what would improve the health of the monetary system (and the economy supporting it) rather than making moralistic arguments. As I argued above, Keen’s solution is an improvement on this idea in that it cleverly avoids moral hazard and only causes minor inflation.

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