Steve Keen On Why Debt Matters "All The Time" And The Need For "Quantitative Easing For The Public"

Tyler Durden's picture

Following his somewhat epic blog debate with Paul Krugman, Steve Keen appears on Capital Account with Lauren Lyster to debunk more Keynesian propaganda and the kleptocratic status quo 'debt doesn't matter' arguments. Poking holes in the stable/exogenous shock equilibrium 'model' versus the real-world's dynamic systems, the Aussie economist warms up with the zero-interest rate conundrum and liquidity trap (at around 7:00); moves on to the empirical falseness of the debt-to-unemployment relationship (at around 11:00) - implying 'debt matters all the time' as Keen explains common-sensibly (but not Neoclassically) that the 'change in debt adds to demand' and that involves banks which breaks modern economic theory (since lending is credit creation not savings transfer).

Echoing the deleveraging from the Great Depression, it could take 15 years of unwinding this epic debt bubble before its all over - but not if the status quo of deficit spending is maintained - as Keen somewhat controversially concludes (at around 13:00) "you can't just cure this with deficit spending [since debt is already beyond the black-hole's 'event horizon'], you have to abolish the private debt as well" by "quantitative easing for the public".


Student loan debt and delinquency is also discussed and its self-referential ponzi-like nature (at around 16:00)...

Keen discusses his controversial idea of a debt-jubilee and the Debt Black Hole 'event horizon' that we are already in at around 19:00... (and notably at 24:30 he discusses how to avoid the 'moral-hazard' of a modern debt-jubilee with no 'advantage' to being in debt)

At around 20:30, Keen relates the drop in bankruptcies to the low interest rate environment warning that this will just lead to an endless zombie state like Japan...

Lie-borgate is discussed at around 21:00 with his view being that the outright fraud confirms his feeling that these bankers are behaving like a parasite on the host of the economy...


"The [quantitative easing for the public] solution is not easy and not straightforward but unless we do it we are stuck on wrong side of the debt black hole's event horizon"

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economics9698's picture

The bottom line in economics is government, debt, obstacles need to be removed and people will figure out a way to work producing goods and services.  If that means gold, bankruptcy, revolutions, so be it.

Dr Benway's picture

Steve Keen always has good stuff!


Also, while tenuously on the subject of Australia, look at what those dastardly listed investment companies (LICs) are up to:

The Monkey's picture

From my reading, Steve Keen does not correct for the effects of rising or falling real interest rates on growth. The rate of change in rates impacts debt service costs. Falling rates decrease debt service costs (following rollover). You could have a constant level of debt that is net additive to growth simply via the rate of change in interest rates.

Element's picture

Lauren Lyster should be cloned

jus sayin

GMadScientist's picture

It has a more profound effect on how much credit is created, though affecting how much is paid back can't be ignored, it's certainly not the highest-order term.


BigJim's picture

 You could have a constant level of debt that is net additive to growth simply via the rate of change in interest rates.

That's right, Mr Monkey, you can just keep lowering rates forever, and this will lead to infinite growth!

*bangs self on forehead* why didn't any of us think of that before?

Element's picture



Also, while tenuously on the subject of Australia, look at what those dastardly listed investment companies (LICs) are up to:


And have a look/listen to this also:

Audio file:

Zero Debt's picture

Steve Keen is a total establishment hack, and I can't believe why RT and Chris Martenson let him blurb out his stuff without calling him out for it.

His model is a nominal model that does not consider that when a new loan is taken out, it devalues the purchasing power of money. He even says it outright, "it does not affect your spending on gizmos". That is a complete and utter fallacy. No wonder why his model does not include capital formation, productivity and devaluation of the currency. What will happen when the economy delevers is that the purchasing power of money will rise, which will encourage saving, capital formation and investment. This is going to be seen as falling prices, which allows more purchases, even though the nominal amount may be lower. But, as long as you want good numbers, then, you will have to ignore what the actual life style and living standard is.

The moral hazard of this idea is just mindboggling. No, it cannot be handled, it would amount to a theft, pure and simple. It would make monetary velocity shoot up, bidding up prices of everything, making lives of millions miserable and probably causing deaths in the third world from food price shocks.

And I wonder why he has fans in Spain? Couldn't be because there are millions of people in debt over there looking for a mathematical excuse to get out? Wait until he gets translated into greek.

I predict that this guy could go really far, possibly become a central banker.

Event horizon my a**


Pope Clement's picture

Not to mention that the concept (of event horizon, black holes, dark matter) is hallucinatory horseshit physics....

Strut's picture

Not to mention that the concept of the Electrical Universe is hallucinatory horseshit physics.


There, fixed it for you.

Greyzone's picture

Your link goes to a pile of horseshit pseudo-science that doesn't have a lick of actual observed data backing it. You know, the stuff that real scientists pay attention to? Data? Not speculative nonsense? Your link to "plasma based cosmology" is about as real as Bernanke's self-proclaimed mastery of the causes of the Great Depression.

I'm not suggesting Keen is right, by the way. What I am suggesting is that your post is most definitely not science nor anything that would invalidate Keen's analogy - you know, analogies, those things people use to illustrate a concept, not necessarily meaning it literally?


Buckaroo Banzai's picture

Electric universe theory offers a tremendous amount of explanatory power. It also accounts for the rather inconvenient parts of Maxwell's Equations that conventional physics has chosen to utterly ignore.

diesheepledie's picture

"It also accounts for the rather inconvenient parts of Maxwell's Equations that conventional physics has chosen to utterly ignore." Like? ...

This should be entertaining. I always thought Maxwell's Equations were well understood for non-relativistic cases, without any "inconvenient parts" that I noticed. Well maybe you Halton Arp worshipers don't BELIEVE in relativity either ... I don't know. All types I guess. Sometimes I forget this is ZH :-/


diesheepledie's picture

I guess the single junk is the response. Let me know when you want to explain the "inconvenient parts" of Maxwell's Equations. Your words ...

FUCK ALL BULLSHITTERS! There are way to many of you polluting the world with stupidity.

XitSam's picture

Says the guy who fights evil alien invaders from the 8th dimension.

Pope Clement's picture

Okay genius of the normalcy bias to get you up to speed on plasma cosmology start with Anthony Peratt The Physicist from Los Alamos who worked with the Swedish physicist and Nobel Laureate Hannes Alfenn and also has written the authoritive textbook on plasma cosmology

Stoploss's picture

All the way up until your shitting in a hole and showering in the rain.

That is the ultimate low price.

Oh, and no deleverageing has occurred yet, despite all the punditry to the contrary, which is all lies any way.

What happens if debt jubilee is attempted after all the monetization that has happened? What do you think would happen?

The theory is correct without question, the problem is not just "debt", it's the type of debt which is the issue.

When the FED unleashed the housing bubble, they created a new credit sector made up of entirely private debt, not public debt from the govt.

They are trying to inflate away the private debt the exact same way as govt public debt, that's why it is not working.

Since the deflation is in private debt, not public debt, this whole experiment has been in futility since it is not possible to reverse course from here, (go after private debt now) due to the simple fact it would unleash immediate massive global hyperinflation, before your done with your morning shit. To deficit spend away govt public debt, we start wars somewhere else to make that happen. But when it is private debt, using that same theory means we have to blow our own shit up right? Make sense to you? What does make sense is if you have private debt, don't be surprised if your new lender all of a sudden becomes the state. (I hear their collection methods are somewhat unorthodox.)

So, here we are 4 years later with every single retarded govt in the world locked into the worst possible catch-22.

If you don't fight the fire at the source, your not fighting the fire at all.

diesheepledie's picture

From someone who (VERY obviously) does not have any higher education in physical sciences. Nice link BTW. And the earth is only 6000 years old don't you know.

Buckaroo Banzai's picture

And of course established science has never been wrong before.

Oh wait: the history of science has always been that it is ceaselessly and continuously wrong, until some bold thinkers outside the mainstream fix some aspect of its wrongness. Then of course, that has something wrong with it that someone else has to fix, decades or even centuries later.

I always get a kick out morons like you. Einstein got one thing absolutely right: human stupidity is indeed infinite.

diesheepledie's picture

Another person with no physics education commenting on Physics. Probably no technical degree at all, or understanding of the scientific method. Yawn ... The mentioned topics, such as black holes: Well they have been observed and are consistent with the theories. Why not just say that stars are a pile of theoretical bullshit? What's with all this spherical earth bullshit? It is so obviously flat! Just because lesser minds like yours can't understand the observations or the theories, doesn't make the theories unsound. I am sick of moron orc uneducated mouth breathers, who couldn't integrate in one dimension giving their opinions on physics.

And from the above web link . Look at the contributers. Have any of them studied physics? They are all disciples of Halton Arp. I personally met Arp and got to watch him speak as an undergrad. Astrophysics prof thought it would be good to invite a speaker with alternative views. He was almost laughed out of the room. Even green physics undergrads had him over a barrel technically and mathematically. Our prof had to reign us in as we had so much fun destroying the guy. It was really embarrassing for Arp.



Ek Onkar's picture

"Ain't I at the pinnacle of understanding."  Wonder how many times this thought has occured in the mind of man.

P.S. Anybody seen Higgs' boson? He needs it back.

Pope Clement's picture

Hey priestly robed dipsheep - Halton Arp is the Galileo of our age and you do not have the gravitas (gravity?) to suck his balls - Please provide us all with a good laugh and bloviate on one of the many hallucinatory theories of 20th century physics may I suggest space/time continuum or maybe the big bang. It because of academic dipsheeps such as you that Arp was even denied access to the large telescopes in the US and had to leave to go to the Max Planck Institute in Germany where BTW he is revered as an intellectual icon of our age.

P.S. Fuck You - advances in science have always been made by an inspired individual and not by a consensus of priests earlier or by academicians today.

diesheepledie's picture

This: " it has become increasingly simple to test Arp's postulates directly. A recent study stated that:

"... the publicly available data from the Sloan Digital Sky Survey and 2dF QSO redshift survey to test the hypothesis that QSOs are ejected from active galaxies with periodic noncosmological redshifts. For two different intrinsic redshift models, [...] and find there is no evidence for a periodicity at the predicted frequency in log(1+z), or at any other frequency."

Nonetheless, Arp has not wavered from his stand against the Big Bang and still publishes articles "

And any researcher that has rabidly blind cult followers (of which you have demontrated), should be placed under even further scrutiny.

emersonreturn's picture

diesheepledie: clearly you are still in need of your prof to reign you in.

The Watchman's picture

So you just give the QE money to the banks? How's that working so far? Giving that money to folks to do "Gods Work" is a moral hazzard to me!!!!!!!!!!!!!!!!!!!!!!

Buckaroo Banzai's picture

Um, did you watch the video? He wants to give the money to the people, NOT the banks.

The idea actually makes a ton of sense.

Cruel Aid's picture

Cash for Clunkers. Here is a bunch of money or no debt. Now keep saving or go back into debt. Buy it now and kill demand later.

This plan would be more pushing it down the road, because people will screw it up and continue to do the wrong thing.

And yes, bank bailouts ad nausium was and is not the right answer.

And debt probably does matter. We shall see.

Buckaroo Banzai's picture

Programs like Cash for Clunkers is NOT what Keen is talking about.

diesheepledie's picture

A disastrous idea. Like the moron zombie horde that is the American sheeple should be given the money? That's insane. It needs to be fully controlled by intelligent educated elite. The Alpha class. They best know how to make productive use of both capital means of production and the lower class labor. Don't trust knuckle dragging pharma-lobotomized celery-people with that!  

The Watchman's picture

Didn't you look at what I responded to? My point was it's a better idea than giving it to the banks and that the moral hazard is already broken because we've already tried giving it to the banks and it didn't work.

fattail's picture

The velocity shooting up would cause asset prices to rise, which could be another back door bailout of the banks and the moribund housing market, but it may just allow them to put the shadow inventory on the market, and have only a more subdued affect on housing.   I doubt food prices would go up because of the debt jubilee, as americans do not need food, with the size of the caloric stores they are carrying around with them and the fact 46 million are on food stamps.  I doubt the new spending from the debt jubilee will go into food purchases causing food inflation, more likely flat screens and iGizmos.

BigJim's picture


 What will happen when the economy delevers is that the purchasing power of money will rise, which will encourage saving, capital formation and investment. This is going to be seen as falling prices, which allows more purchases, even though the nominal amount may be lower.

I haven't heard what Keen's said about capital formation. If he's like a lot of modern economists, he may well have a blind spot there. But falling prices do not necessarily mean more purchases, because if people are up to their eyeballs in debt, it doesn't matter if prices fall way below manufacturing costs, because they simply have no money, or job security to give them the confidence that they will be able to buy things on credit. Meanwhile, businesses are going bust, left, right, and center. A deflationary spiral is a real possibility in a debt-based monetary system where decades of artificially-low interest rates have distorted the economy to the point we find ourselves.

 It would make monetary velocity shoot up, bidding up prices of everything, making lives of millions miserable and probably causing deaths in the third world from food price shocks.

It would make money velocity shoot up in developed world nations that have high levels of debt. That does not describe the third world. We wouldn't be bidding up prices for global commodities particularly because our currency would drop in value.

Beyond reducing corruption, regulation, and taxes, the idea to 'fix the economy' is to re-establish the fundamental link between the price of credit-bought, inelastic assets (houses, chiefly) and the consumer's ability to buy them at non-artificial interest rates, and to shrink the financial sector down from what it is presently - a counterfeiting cartel - to where it belongs, which is being a genuine intermediary in capital transformations (eg risk, time and geographic).

What's the best way to do this? Keen recommends a flood of fiat going out to consumers. The ones in debt would be obliged to pay off their debts, the ones who aren't would be able to spend their 'dividend' (this means debtors are not being unfairly 'advantaged' by the giveaway spree). Banks would have many of their loans paid off, meaning their revenues from interest would shrink drastically. Most of the weaker ones would go into insolvency, and these would be wound up.

Yes, savers would be hit to some extent, because, although the 'dividend' would go to them to spend as they like, the concomitant inflation would lessen the purchasing power of their previous savings. But what's the alternative? For debtors to go bankrupt and the banksters wind up owning everything?

What Keen doesn't address (here, at least) is how we re-arrange the monetary system to stop it all happening again after the jubilee.

Poor Grogman's picture

Agreed, in fact I am certain that a great many people have already had that "Great Idea"but shelved it because it is just too damn hard getting it past all the bureaucratic hurdles only to see all the cream skimmed off by the government in the name of.....  "Fairness".

Al Gorerhythm's picture

Disagree. The system is in need of reboot. No need for war, no need for hardship, no need for the debtor to carry the burden in a system that operates with broken code. 

The bankers have a responsbility in this as well. They pushed for a new system, for the code to be infected, ie they wanted Glass Stegal revoked being fully cognisant of the consequences. The code was rewritten by them to promote unlimited credit extension. They know that crediit brings consumption forward thereby unbalancing the system. They know that the unsophisticated "plebs" would go for it. They had no choice. Grab it or be left behind. Save it and be economically destroyed. They knew, therefore they have a burden to tote as well. Both sides get bailed or the system folds. Equations simply work that way.

Al Gorerythms say so.

All Risk No Reward's picture

Debt Money Tyranny has to end...  that's the STRUCTURAL PROBLEM *NOBODY* in the establishment wants to talk about - or anyone put on establishment TV.

It's FRAUD.  The wealth of the inner party criminals, the bailouts of the inner party criminals, the systematic asset stripping of the inner party criminals...  it is all OUR DEBT - AND WE CAN'T PAY IT BACK UNLESS THE INNER PARTY CROOKS HAVE THEIR WEALTH ZEROED OUT!

Poverty: Debt is not a Choice

Systematically asset stripping society for about 7 decades via Debt Money Tyranny enriched the criminal [D]elites enough that they captures all the major institutions and were able to run their Weapons of Mass Debt bubble / bust operation and create a phantom "dual mandate" to cover for their black letter law crime spree.

I really like Steve Keen, but he's missing one simple point that is CRITICAL - a nation use its debt to generate more profits when its money IS debt.  Sure, a company can within the greater economy - but the nation state can NOT!

The TBTF&J banks or, more correctly, the OWNERS AND CONTROLLERS of the TBTF&J banks, are soveriegns...  nation states are subservient debtors...  the borrow is SERVANT to the lender.

If you want to leanr more about the group that running this con game (Big Finance Capital) and how they justify their crimes against humanity...

The Ultimate History Lesson:

The Ultimate history Lesson Commentary:
WTFx10's picture

The world is a colony of the Rothschild's racketeering empire. That has to end for anything to actually change anything else just keeps them in control. Take off the head and the body dies, it would take balls whacking the current Dons but they seem to play by mafia rules so we should too?

Buckaroo Banzai's picture

You are correct, but Keen's solution is a short-term step to get us out of immediate danger within the context of the debt-money system we are trapped in right now. Once the debt has been resolved, only then can the entire system be changed. If you try to blow up the system before you resolve the debt, it will create tremendous imbalances.

All Risk No Reward's picture

A couple problems:

1. Keen never discusses changing the entire system that I've heard.  Nor does he discuss the fundamental flaw in our current system.

2. I don't think you know what "resolving the debt" means when a bunch of criminals, and that's not hyperbole - they are cold blooded criminals on record, run the show.  It means saturating society with unpayable debt, busting society and then taking all of society's chit.

3. The Debt Money Tryanny fraud NEEDS to be exposed, the Debt Money Tyranny needs to end and the Debt Money Tyrants need to be criminally prosecuted and their wealth clawed back so society has the ability to pay back its debt - WHICH IT DOES NOT POSSESS RIGHT NOW as illustrated in the linked PDF, below.

#3 is the only "solution" that doesn't mean empowering the criminals and burying society.  Stockholm Syndrome, while popular, will get you to the dungeon of criminal oligarch h*ll even faster.

Buckaroo Banzai's picture

Maybe he does get the bigger picture, maybe he doesn't. It is clear that he DOES understand our short-term problem, and his solution for that is spot-on.

Wars are fought one battle at a time. Let's win the first one, please?

All Risk No Reward's picture

Keen is a good guy and extremely intelligent and infromed - much more so than I. 

But he's never said anything I've heard that indicates he understands the bigger picture:

His short term solution will not be implemented because predators don't bail out their prey.

Keen doesn't understand this...  so his "solutions" won't be real.

Not that he's a bad guy, just that he doesn't wrap his head around the idea that evil runs the system from the top down.


Of course, they won't tell you this, you have to analyze the data and logically figure it out yourself.


  The Ultimate History Lesson:

The Ultimate history Lesson Commentary:
Dr Hackenbush's picture

The quandary is that "money" is "designed" to be elastic and as such, every cent of the M2 supply is loaned into existence with a theoretical "gradual" retraction.  Therefore a 'large payoff' would dry up all liquidity in the "system".  In such a system, "money" saved is the richer person's way to put the interest off onto the poorer person, wittingly or not, because someone, somewhere, is continuing to pay the compounding interest on introduced "money".   If jubilee were enacted, the only possible way to prevent an utter depression, would be to contract the consumer prices in proportion.  The jubilee concept could serve well as a temporarily fix, as segue into more democratic money system.  But if left as simply bottom up QE, without replacement, it would become far worse the next time around.  

Debt-Is-Not-Money's picture

99 years ago, the Congress assigned what it is obligated to do under the Constitution (issuance and control of our money) to a private international cartel. This was an unconstitutional act. The Federal Reserve, fraudulent in name, does not issue money, they issue debt based currency, the opposite of money. The passage of the 16th and 17th amendments, the 16th to collect the interest for the FRN's, the 17th to remove control of federal government spending by the states, was a coup d'etat of the United States.

There is salvation here, but it is not widely recognized: neither the 16th nor the 17th amendments were constitutionally ratified. The states should declare them null, void and of no effect. The state legislators would once again APPOINT their United States Senators to go to D.C. to represent the interest of the states. This action would de-fang, kill and bury all lobbyists foreign and domestic as they would have to "work over" each state capitol. An Presidential Decision Directive followed by an Executive Order to declare the Federal Reserve and the 16th amendment unconstitutional, a cancellation of ALL interest owed to the Federal Reserve and the immediate conversion of all FRN's to US Notes (interest free real money) would return the U.S. to our Representative Republic.

All it would take to do this is brains and balls.

Oh well, I can dream can't I?

Poor Grogman's picture

For every problem there is a solution, sometimes even more than one.

Society ( not ZHs) is still in "Recognition of the actual problem" phase.

Keens work is useful as it provides another view of the problem that challenges the academic profession head on.

Skeen is not talking gold standard ....


Dr. No's picture

I never understood the desire for the populus to elect the senator.

Debt-Is-Not-Money's picture

That's because there wasn't one.

The establishment of the Federal Reserve System requires income tax (to pay the interest to the Fed) and removal of state limits to federal government spending. It was a package deal, all three were needed to make the scam work! That's why all three must be removed to cure the problem.

Buckaroo Banzai's picture

The rationale for direct election of Senators was that the individual state legislators could be bought off or otherwise compromised by interests that could then install the Senator of their choice. Allegedly, according to the history books, this was happening at the time.

The logical way to look at this is as a struggle between local Interests and national interests. Direct election of Senators allowed larger, national interests (like large corporate interests whose operations were on a national or even international scale) to better compete with local county-level or state-level Interests who were in a better position to apply leverage on individual State Legislators.