1. Dana in Paris

    Thought-provoking talk.

    A pertinent question raised in the youtube comment section: “What are the differences between the proposed Bancor and the existing SDR?”. It would be helpful to have a response to that query.

    Also, what institution[s] would be created or placed in charge of transactions involving the Bancor? In a day and age when awareness of the monstrous damage done to the world and biosphere by the globalization process [ie, virtual global corporate / financial takeover], it’s downright chilling to entertain the idea of yet another move towards a global, central banking entity.

    How might a global Bancor Institution be shielded from manipulation, if not takeover, by the world’s wealthiest factions who conceived such notoriously corrupt and politically powerful entities as the World Bank, IMF, BIS, ECB?

    A Bancor transaction mechanism would not be unlike inventing yet another global monetary ‘faucet’, the flow of which could be turned on or off by potentially nefarious hands …

  2. TarheelDem

    Some observations.

    1. Keynes’s idea of global full employment and balanced trade would cause wage rates to converge and make arbitrage of wages less profitable.

    2. The US was the almost exclusive high-value exporter after World War II and thought that situation would go on forever allowing it to have a positive balance of trade forever. The US is now a high-value importer and has a huge trade deficit; China however is the high-value exporter. China is in a slightly lesser position than the US was at Bretton Woods; consequently, the attraction of the international currency model as compared to making the renminbi the international reserve currency.

    3. The assumption in the model he presents that all profits are invested is not in fact the case in business enterprises. Substantial profits are mined by the CEOs as entrepreneurial rent that weakens future performance and draws all companies into “Ponzi” style operations to some degree.

    4. There is not consideration of environmental and resource sustainability as a part of the financial modeling, which increasingly will be a huge problem.

    It is nice that an economist can depart enough from the mainstream and discover a periodic and a chaotic model of the economy that explains economic collapse. But is it possible to get the accurate real-world data to use that for policy given the high emphasis on business confidentiality and competitive information asymmetry?

    And how far does the hierarchy of currencies extend? If you had regional currencies like the Euro or a Latin American currency that operated like a Bancor, would you then not need an international reserve currency for those regional currencies?

    Jane Jacobs a couple of decades ago proposed local currencies as a way of absorbing localized resource shocks. Does the hierarchy of currencies need to extend to smaller units? (The regional Federal Reserve Banks were driven by a similar impulse.) If so, are we not getting in a situation of “turtles all the way down”?

    There are two fundamental problems:
    1. Having the money supply match real economic activity, which means having a way to expand or limit the money supply. Any purely peer-to-peer system can run away with speculative transactions.
    2. Having a way of guaranteeing that the expansion or limits are not manipulated to the personal advantage of those with the “invisible hand”.

    1. Mansoor H. Khan


      One major function that the dollar performs as an international “hard” currency is that it “allocates” one very important resource on this planet: OIL

      Almost all countries (with very few exceptions) are net importer of this essential resource. The fact that many oil producers “accumulate” dollars means that the dollar issuer (USA) gets a special boost to its value.

      Currency freedom (allow others currencies to exist) within the boundaries of a state/country (like USA) helps us to deal with the deflation problem. That is why the EURO currency should go away or EURO should be printable/distributable by the ECB.

      The bad part about is that it (local currencies) do not deal with how to distribute global resources (crude oil etc.). which will be able to be purchased by the most desirable currency (probably the future 100% reserve U.S. Dollar) or a new international currency like SDR or Bancor.

      My point is: A new future international currency has to be the one in which the oil exporters “save” money. Let us say it was true. Then what formula would be used to allocate issuance of the new currency to countries around the world?

      Mansoor H. Khan

      1. GRP

        Any new global currency has to secure the current savings of participating countries i.e the current import potential accumulated by the countries in terms of their net foreign currency assets has to be converted to the new currency and those assets transferred to the new currency issuer. It is not very difficult except in the case of the US, UK, Eurozone countries, Switzerland and Japan. While these countries may hold foreign currency assets, their own domestic currencies are held by foreigners. The net foreign currency assets can be considered as their net savings (not straight forward in the case of EUR countries since Euros held by outsiders need to be apportioned amongst the member countries as external liabilities). Some will end up with zero and some negative net savings. It will not be easy to convince any country, like the US, that is likely to start with a negative balance not denominated in its own currency to join the scheme even with a initial balance of zero. Even if not fair, these countries may have to be allotted some initial positive balances to make the system at least somewhat palatable to them.

        After that point, the balances will reflect the net trade surplus of the participating countries. A country that runs constant trade deficits will see its balances deplete, while a country that runs constant trade surpluses see its balances increase. Those with positive balances may loan or invest their balances in willing participating countries that wish to run a trade deficit but have no balances to do so.

    1. Massinissa

      Jim Haygood, you shall not put a crown of thorns upon america, you shall not crucify America upon a Cross of Gold!

    2. R Foreman

      I’d like to hear Prof Keen or another MMTer comment on his statement about a ‘dramatically reduced role for the USD in international trade’. It sounds something like a USD drop against other currencies, but it’s hard to be sure.

      Far fewer dollars would mean money destruction (deflation), but at the same time dramatic fall in demand internationally would cause the dollar to drop (highly inflationary for domestic US citizens).

      Either way I think the outcome would be very bad for people living in the USA. Define bad? Well, you know how they defined it in Ghost Busters.

      1. GRP

        The proposed system will definitely mean a serious readjustment within the US. Even if all the existing external liabilities of the US are extinguished (something the US definitely likely to bargain for and get) and US will become liable only for future debt it incurs in Bancor terms, US will still have to restructure significantly for them to run a balanced trade or a small trade deficit that can be financed by external borrowings in Bancor or investments from abroad.

        So I don’t see the US joining this immediately. What is likely to happen is that the members of Bancor will insist on Bancor payments for their exports to the US. The US cannot accumulate Bancor since the Bank already has a huge store of USD assets wchich can be used to pay for Bancor countries imports from US. If the US doesn’t repudiate all the USD assets held by foreigners/the Bank, the first Bancor the US will earn will be after its exports cross the combined USD assets held by the Bank. This would leave the US with one or more of the following options (1) Cause a hyperinflation internally to let the value of the USD holdings of the bank to shrink rapidly, (2) Make do with what is available for sale in USD or (3) Attract investments or loans from Bancor nations.

        If this system becomes a reality and participation is wide, there are no painless options for the US in the near term. However, balancing trade is a healthy and desirable objective for any nation in the long term.

  3. RepubAnon

    Once a country’s debts are denominated in a currency that it does not control, it opens the doors to becoming Greece (or Italy, Spain, Portugal…) under the Euro.

  4. JEHR

    I am always impressed with Keen’s presentations even the ones that are truly complicated by math. Whenever I get depressed about what is going to happen in our world, his ideas bring optimism to the fore. What a great mind!

    1. Chauncey Gardiner

      Thanks, JEHR. Concur. Keen’s observations are very insightful. Especially found his comments on the hierarchy of the sources of money, and system flows and feedback loops useful.

  5. susan the other

    I like Steve Keen alot. But I like him most when he talks about economic entropy. Then he is really talking. About our debt to the resources of the planet and our commitment to manage them. About fixing our environmental disasters. About the basis for an economy: Energy. That is, oil for now.

    1. Susan the other

      Just to conflate Kelton and Keen: Stephanie makes sense for our domestic balance sheet; a flexible balance sheet because time is an illusion. Steve makes sense for a global balancing; he says Keynes was more accurate than White in 1946. If we had attempted to balance our growth globally we really shouldn’t ever have used the dollar. But we Americans were either ignorant of global finance or self motivated. I suspect self motivated. But doomed. Because Karma. The US globally has become the same as Germany regionally. But rock and a hard place because deflation drives private/national (pre current debacle) debt – the true killer.

      My problem with both K & K today is that neither one factors in the environment. And clearly competition is not a good plan. Like productivity for the sake of productivity is not a good plan. We actually don’t have a plan.

      1. Massinissa

        We do have a plan, Susan!

        We plan to fail, of course! To not have a plan is to plan to fail!

        And I say, if failure is the goal, we are right on track!! Lets pump up the gas to the Earths dystopian future!!

        /sarc off

      2. Massinissa

        Oh, and I find it terribly amusing that White was a communist spy…

        Maybe thats the reason capitalism has been so fucked in the last half century… Would be so ironic if its the legacy of the USSR that is killing capitalism from beyond the grave…

      3. MRW

        If we had attempted to balance our growth globally we really shouldn’t ever have used the dollar.

        Ridiculous statement. The US wasn’t interested in balancing its growth globally in 1946. What for? The war was over. It was concerned with the huge deposits in US bank accounts as a result of Americans not being able to spend on anything during the war. It could have led to rampant inflation (more dollars for too few products). It didn’t because of some smart people who knew how to handle it, like Herb Stein, and Beardsley Ruml.

      4. MRW

        My problem with both K & K today is that neither one factors in the environment.

        How the economy and monetary operations work is completely separate from scientific or political considerations of any aspect of the economy.

        There is no reason to conflate the environment with the economy the way Michael Hoexter does. He piggybacks on the two decades work of Mosler, Kelton, Wray, Forstater, Fullwiler, Hudson, Black, and Galbraith like a parasite that it trying to convince the host it is indispensable. Apparently, he can’t get any (climate change marketing) work recognition any other way so he resorts to intellectual subterfuge.

        Michael Hudson on parasites at Rimini:

        I’ve read in the Italian newspapers—coming over on the airplane—that people talk about parasites. And people think about parasites, as taking the host’s energy and lifeblood. But, in biology, the smart parasites do something else: They take over the brain of the host. They make the brain think that the parasite is part of the body, to be protected.

        1. MRW

          [I click Submit Comments too fast.]

          Scientific or political considerations of any aspect of the economy are reserved for the people to vote on. It is their consideration after public debate, and based on their desires for the future. At least, this is how it’s supposed to work.

          How the economy and monetary operations work are 1-2-3. They are a-political, a-scientific, and a-social. These monetary operations shouldn’t be sullied with concerns that make it difficult for people to understand how their basic economy works because they’re too pissed off with someone tacking on abortion or homosexual policies, or gun policies, or environmental or scientific policies. The economy works independent of Republicans, Democrats, Independents, or, even, Scientologists. And we need to keep it that way. Find out how it really works first, which the public needs to know at its basic level because they don’t.

          1. jrs

            If one is purely being descriptive and not prescriptive fine. I don’t expect explanations of gravity to become climate change discussions.

            But to be prescriptive on public and economic policy and not address the #1 concern of any sane person, environmental destruction to the point of collapse and possible human extinction, which is being CAUSED and exacerbated by the economic system, does not exactly recommend one’s prescriptions.

          2. Alastair

            Sounds an awful lot like that rational actor canard of economic fantasy, I mean science. Economic decision making is not rational and has a large sociopolitical basis to the extent it is rational. An if you externalise the enormous productive ‘common-wealth’ of a safe climate you’re really up the creek now that the climate and therefore present and future food production is tanking fast. A good many social disruptions/revolutions in all parts of the world were preceded by crop failures and famine. Kind of interruptive of economies famine is, MRW.

    2. Gaylord

      I agree, however structural economic changes will not solve these enormous problems. This needs to be an approach that accounts for all the externals that include not only the sustainability of the planet’s ecosystem, but also the health and sustenance of all people — which brings us to a resource-based economy that is incompatible with capitalism. We have already passed critical tipping points with climate change but the growth imperative keeps doubling down on the destruction, so “fixing our environmental disasters” is no longer an option. I don’t see any possibility of reforming the current system, therefore only collapse will make limited survival on this planet possible. Mass extinction seems inevitable.

  6. Banger

    Keen is one of the great minds of our time–his critique along with the group he mentioned of modern economics is accurate and I hope more people see that the Emperor has no clothes. Most contemporary economists are courtiers to the rich and the various power centers.

    Having said that the problem with Keen’s ideas is that without political reform there is no economic reform. Those that profit and gain by today’s system have the power and can enforce that power at least in the US and EU. All of our collective problems have rational solutions that, if implemented, would create great marvels. But, again, in the EU, US and their satellites and client states no reform is possible as long as the current power structure remains stable.

    Latin America has the possibility of moving somewhere because most countries in the region have had, in the past decade or two, at least som political reform and have achieved some independence from Wall Street and the the U.S. security establishment which is, fortunately for them, confused and divided as well as focused elsewhere in the world.

  7. The Dork of Cork

    A disturbing lecture from Keen – showing his true central bank colours.
    A fiat global reserve in control of the bankers.
    The $ was bad enough……..

    A general characteristic of central bank friendly economists such as Keen is a quest for constant & increased standardization.
    But where is the redundancy in such a system ?
    The apex just gets taller and even more remote.
    There is a huge inherent conflict in his arguments.

    We cannot put our trust into bankers which wrap trade and especially energy via monetary means to conform to their sick globalist agenda.
    A simple question…
    Who controls the bankor ?
    Certainly not the outsiders who will not be allowed to hold it.

    People need to usurp the local banking middle management within their countries and then they would be free to return to their villages – the natural state of the human mind & relationships.

    Bankers and their reps including Keen are a pox.
    Another more devastating phase of this inside job is coming.

    Keen is just another commie bastard.

    1. Banger

      Most social-democrats believe that an international system is better than a system of nations or any number of neo-feudal entities competing and warring is better. The ideal is that the policies of these central authorities included the welfare of humanity not just the elites. While I prefer a somewhat anarchistic political agenda in the long-term, most people are not equipped to handle that form of government form a cultural perspective.

    2. Massinissa

      How does Supporting Central Banks = Communist?

      Stalin pretty much got rid of Russias bankers, dude.

    3. F. Beard

      Don’t give up on Keen yet. Seeds take time to grow.

      Meanwhile, I appreciate solid critics of the banking system even if their solutions are bogus. Keen is a solid critic and his “A modern debt jubilee” is brilliant even if I say so myself. :)

  8. JohnB

    Interesting, my first introduction to Bancor – the thing I disagree with about that though, is if a country needs to borrow Bancor in order to run a trade deficit (after a point – after Bancor reserves run out), and borrowing from the international bank carries interest, then this is unnecessarily punitive.

    I don’t see why countries shouldn’t be able to run a trade deficit (even unlimited trade deficits), and in order for any countries to run a trade surplus, some have to run a deficit (since World Exports = World Imports), so it makes absolutely no sense to have punitive measures placed on such deficits, i.e. on one side of that accounting balance.

    Imagine also, a country struck by natural disaster, needing to go into deficit both to rebuild and because of industrial destruction – makes no sense to have that country unfairly burdened with debt-bearing interest (not like they could help the natural disaster).

    There has to be a better means of managing problems with deficits/surplus (needing to define when that’s actually a problem first), rather than tacking on interest that is compounded and accelerates the growth of debt, which can become unsustainable and used for the purpose of controlling countries/economies.

    1. reason

      You want countries to be able to run large surpluses or deficits for ever?

      Are you not aware that the US has been running a large deficit that for a considerable time, at the expense of its own workers? Not to mention world financial stability.

      Or that China and Germany have been running large surpluses at the expense of their own consumers, and workers in their trading parters?

      Now do you get it?

      1. JohnB

        Good points :) I guess it’s something I’ll need to put more thought into over time, as international trade (and the ethics/mechanics of it), is not something I know in great detail.

  9. MRW

    Keen makes an essential false assumption #1

    At minute 14:29 (approx), Keen says that the “Central bank loans to government effectively.”

    No. It doesn’t. Not the Federal Reserve, our Central Bank.

    Basically, the government, the US Treasury, spends first to provision itself on whatever Congress has authorized. This adds new money issued by the Treasury into the economy. THEN, the US Treasury issues treasury securities in the same amount to be sold at auction to the American public, and the foreign sector, which brings the money supply back to balance.

    The Central Bank cannot buy those securities by law (it can only buy them on the open market by law). It does not control their issue, it does not have those dollars to “loan” to the government, and it does not create dollars to loan to the government.

    Here is Frank N. Newman, former Deputy Treasurer of the US Treasury explaining it:

    When the Treasury distributes funds, the nation’s deposits are initially increased. Where can the bank money go? Let’s look at an example, excluding the portion covered by taxes. Typically, before the Treasury issues $20 billion of securities, the government has distributed $20 billion to the public from its account at the Fed: redeeming maturing Treasuries, paying companies that provide goods and services for the government, for payments to individuals, etc. Many investors simply “roll over” their Treasury securities, replacing maturing ones with newly issued ones, and taking just the interest. For example, perhaps $10 billion of the $20 billion issue might be in that category. The Treasury pays out the other $10 billion to the private sector. At that point, a set of participants in the U.S. financial system will have the extra $10 billion in their bank accounts and will look to place those funds.

    The money supply has been increased by $10 billion, and the new dollars move around within the overall US financial system. All the Treasuries previously available are already owned by investors, and prior auctions had demand that exceeded the amount offered.

    [paragraph break inserted for reading ease]
    As the new Treasuries are auctioned, the demand is filled by exactly the $10 billion offered, and the money supply returns to its prior level. In the whole of the U.S. financial system, the only place to put the money is into the new Treasuries that are being auctioned— or otherwise just leave the funds in banks. If some investors choose to buy other financial assets with those new funds, such as corporate bonds or stocks, then someone else— the sellers of those assets— will end up with the bank deposits, and will be looking for a place to invest them. There are no other USD financial assets to invest in that are not already owned by someone. And the dollars cannot go to another country [MRW: again, this is by law]; an individual investor can choose to invest some dollars in assets in another country, but then the foreigners who sold those assets would just own the same dollars in U.S. banks. The aggregate of all investors have, in the end, two choices: leaving the extra $ 10 billion of cash in bank deposits, which earn very little, if any, interest, and are not guaranteed by the government beyond $250,000; or exchanging some of their bank money for the new Treasuries, which pay interest and have the “full faith and credit” of the United States.

    Newman, Frank N. (2013-04-22). Freedom from National Debt (Kindle Locations 255-271). Two Harbors Press. Kindle Edition.

    More: Frank Newman wrote this on Page 18 of his Freedom from National Debt.

    In the process of Treasury issuance and redemption, the money involved changes hands but cannot leave the U.S. financial system. There is a huge, deep market for Treasuries, with an average of over $500 billion per day traded. Typically when the Treasury issues securities, it has already distributed funds to the bank accounts of investors redeeming securities and to recipients of government payments, from the Treasury account at the Fed. Treasury has been generally keeping about $100 billion, sometimes up to $300 billion, on deposit at the Fed— that is in addition to the hundreds of billions of other assets, including gold and silver, held by the Treasury. Sometimes the Treasury issues securities temporarily in advance of disbursement, mostly as part of planning for seasonal variations. Generally, the Treasury uses bank money newly received from tax collection and Treasury issuance to replenish its deposit accounts at the Fed.

    Our Central Bank, the Federal Reserve, does not loan to the government.

  10. MRW


    Apart from the United States, which owns and issues the dollar, what is the difference to any other nation in the world between a Bancor or a dollar? In either case, the other countries would have to convert their currency into either the Bancor or the dollar for international trade. So what’s so special about the Bancor other than to remove the US currency as the reserve currency?

    Furthermore, now the IMF and the International Clearing house (ICU) would control the issuance of this Bancor.

    Who controls the IMF under Keen’s plan? Who elected those officials? Who will elect them? Is he proposing a global government? Does Keen propose to put the power of global trade into the unelected hands of a few powerful people? He is creating the same mess that he says he faults Keynes for suggesting at Bretton Woods about who has governance.

    All I see is Keen replicating the Euro mess with a governing ECB with no fiscal responsibility to people who elect them (not), creating more Greeces and Spains on a far grander scale.

    1. reason

      They trade with the US. And US macro-policies are dictated to it by it having the international currency.

  11. MRW


    Every dollar of the US trade deficit is in US Federal Reserve checking (reserves) or savings (securities) accounts. Every dollar. US dollars cannot leave the US banking system. Every US dollar, with the exception of $100 cash bills in mattresses in Russia, Argentina, Korea, and other countries where their citizens hoard them, is in the US banking system. At the Fed.

    So what does Keen propose? That the US convert those dollars to Bancors and give the foreign nations their Bancors, a currency that every nation would have to accept first before it had any value, and which no government—because there isn’t a government issuing Bancors–can guarantee?

    1. reason

      “Every dollar of the US trade deficit is in US Federal Reserve checking (reserves) or savings (securities) accounts”

      No its not. Try going to Uzbekistan with US dollars in your pocket and see how it goes.

  12. MRW


    Keen gets the causation of the inflation in the 1970s wrong. It was not the result of a business cycle. It was caused by the Yom Kippur War (price of oil rose from $3 to $38 creating inflation on the cost side) and Volker not understanding Federal Reserve accounting.

  13. MRW


    Keen uses Goodwin’s theory of cycles (37:52min). But Goodwin has the real world way capitalism works backwards. You don’t start with capital. You start with sales. You start with demand. In our system, if there are no sales, the federal government steps in to jumpstart them by spending. Why? Because it can.

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