Max Keiser and Stacy Herbert do a fantastic interview of Steve Keen. It covers a lot of ground here, and clears up a lot of things about Steve Keen's theories.
I have not studied economics, but I have always wondered that if banks create the money out of nothing then why is it they are so bothered if they don't always get their money back when no one has actually lost anything. Well, Steve Keen says exactly the same thing - so wow, would you believe it? And that they should write off debts at regular interviews to get the economy going again. Micheal Hudson says that debt destroyed The Holy Roman Empire and it could do the same thing to our civilization.
" they should write off debts at regular interviews to get the economy going again."
ReplyDeleteThey do thats called the bailout...
'...called the bailout...' but only for the elites. SK means for everyone, indebted recipients would be required to pay off existing debt , non-debtors (any?) receive an across the board economic bonus.
ReplyDelete"A major reason why the 1% have increased their gains since 2008 is that the Treasury and Federal Reserve bailed out banks, their bondholders and uninsured large depositors instead of obliging them to absorb the loss from having lent much more than borrowers were able to pay." Michael Hudson.
ReplyDeleteSteve King is not calling for a bail out of the financial sector but for the people under the heal of finance. The debtors should have been bailed out instead of the creditors.
Steve Keen’s debt jubilee idea is bizarre. He proposes printing money and paying off all debtors. Plus just in case creditors feel left out, an equal amount of money is printed and distributed to them.
ReplyDeleteGiven that according to Keen’s own figures total debts in the US came to three times GDP at one point, his jubilee would involve printing and distributing an amount of money equal to SIX TIMES GDP. That’s enough to make even Robert Mugabe blush.
Even if that was toned down a bit (e.g. only half of debts were “printed away” and the process took place over say five years) we’re still talking about a hyperinflationary amount of stimulus. See:
http://ralphanomics.blogspot.co.uk/2016/08/steven-keens-debt-jubilee.html
I did think about that. If there was a debt jubilee, people would just use the money to buy bigger houses. There isn't enough houses and so people would just bid the price of them up because they need somewhere to live. In the end the bankers would get all the money, they always do. As the private market won't, or can't, supply enough houses then the government should step in and build them. That would stop the debt jubilee money getting sucked into mortgages.
DeleteBut would people be happy with the price of their house falling? Well, it makes no difference to me what price my house is worth. If it was worth 2£million then all the other houses like it would be worth the same, so I couldn't move and realise the money. A lucky few may buy a cheaper house abroad, but most of us don't want to live in a foreign country and make all new friends again. So not many people are going to get hold of the money wrapped up in their house.
High house prices have only ever made me poorer, not richer. I have had to take our big mortgages to very somewhere half decent to live. I ended up with no spending money and doing too many hours at work. What a life, a slave to the bankers.
Actually, your have a good point there, even if there was enough houses lots of people would want to move up and buy a bigger house if they had more money. After a debt jubilee there would be a run for all. Hmmm, much to think about. I might even ask Steve keen about it.
DeleteWe've tried your way, and look where it has got us, a dead economy. It's been slowly dying for 40 years. Or maybe capitalism just doesn't work for the majority of people on the planet.
ReplyDeleteHi Kaivey,
ReplyDeleteAnother objection I have to Keen's jubilee is that it interferes with people's freedom to do perfectly legitimate business with each other. I'll explain.
The jubilee could be made to work if nanny state takes huge additional amounts of tax off everyone, and then let's them have the money back on condition that (in the case of debtors) they use the money to pay off their debts. In that way aggregate demand would or could be made to stay constant. But that would involve a very big cut in living standards for debtors. It would cause riots. And I'd be on the side of the rioters.
Having nanny state interfere where there is fraud or deception is fair enough, and that probably applied to NINJA mortgages and to some elements of pay day loans. (The UK recently introduced stricter controls on payday lending).
But in the case of Keen's native Australia, only about 1% of mortgages are "non-performers". So what's the big problem Keen is trying to solve? Seems he's concerned about the deflationary effects of total debts falling (or even staying constant). Well my answer to that is that it's the job of the state to use stimulus to counteract changes in demand, regardless of the source of those changes. In contrast, FORBIDDING would be lenders and borrowers to do business with each other, even when the lending is 99% responsible and non-risky is not the way to solve the problem.
It's not about about whether people can service their loans, it's about whether they have any money left after they have serviced them. The ability to make money out of thin air is a force outside of market forces.
DeleteBut you have a point that if people have more money to spend, many will buy bigger houses and get themselves right back into debt again and the economy will slow. I might ask Micheal Hudson about this as well. He sometimes replies if I catch him in a quite day.
In contrast, FORBIDDING would be lenders and borrowers to do business with each other, even when the lending is 99% responsible and non-risky is not the way to solve the problem. Ralph
ReplyDeleteDe-privileging depository institutions would make their deposit/liability creation much more dangerous and would thus tend to reduce new credit creation but without any forbidding.
Also, the proper abolition of government provided deposit insurance would REQUIRE an equal fiat distribution to all adult citizens in order to provide the new reserves necessary for the transfer of at least SOME currently insured deposits to inherently risk-free accounts at the central bank.
I tweeted Steve Keen with the question that if people got a debt jubilee they would just buy larger houses and get right back into debt again. So the bankers would get the money instead again. He hasn't answered it yet.
ReplyDeleteThe only answer I think, would be to restructure society towards a socialist one. I think the right have had their day now, their system failed .
DeleteThere is a large misunderstanding about many historical "debt jubilees", they were usually jubilees of *tax arrears*, and in particular of tax arrears owed to foreign merchants.
ReplyDeleteKings would assess tax on their populace, and put those in the tax-owed records. Then they would sell at a discount the tax-owed records to foreign merchants for cash, that is precious metal, that they would use to pay their soldiers. Then the foreign merchants using the tax-owed records would collect the taxes from the populace, charging large fines for late payments, to improve their profits. An arrangement called "tax farming".
Periodically the king would know that the foreign merchants had become very unpopular with brutal tax collection (enforced by the king's soldiers), and would declare a cancellation of tax arrears, with a destruction of tax-owed records; or they would simply let the populace lynch the foreign merchants and destroy the tax-owed records. Either way posing as the great and generous king that protected the populace from the greedy foreign merchants, having already collected the precious metals from the same. For this system to work well it was important that the tax collectors be detectably different from the populace (one or more of accent, language, color, features, dress, ...).
The scheme over history has been extended and modified, but it has lasted to this day in various forms.
The best way to prevent banks from becoming TOO BIG TO FAIL, is to just let them fail.
ReplyDeleteMichael Hudson came back to me said that a debt jubilee would return normal living standards. And to make housing more affordable, a land tax would be necessary, and
ReplyDeletewithdrawal of interest exemption for speculation ‹ and stricter bank
regulations.
Michael Hudson says that Steve Keen knows all of this. And that he rightly sees that nothing can be fixed without solving the debt problem.
I think these are valid points and a land tax should counter many people trying to use their debt jubilee money to buy more property.
The mega rich can't offshore their land, and capital gains can be made far more transparent. Michael always argues that income and sales taxes should be reduced or removed completely and the tax put on land and capital gains instead, i.e., on unearned income. Sounds fair to me.
If we hire enough public servants and maybe started a special police division to chase the tax avoiders these services will pay for themselves many times over. It would be not only be self funding, but will help lower peoples taxes overall. It would also provide good jobs for people who would have a real incentive to track cheaters down as it pays their wages. This would be a big win, win, or any true progressive party. The Green party is getting there.
Keen's proposal is to reduce debt, not liquidate it entirely. For example, goving each household $100,000 with a requirement it be used to deleverage. Anything left over can be kept. You'd get effective liquidation of most personal debt while leaving institutional debt unchanged.
ReplyDeleteAs for going back into debt, eliminating tuitons and mandating underwriting standards will prevent a repetition of the problem.
Delete"Keen's proposal is to reduce debt, not liquidate it entirely. For example, giving each household $100,000 with a requirement it be used to deleverage."
ReplyDeleteWhat's the difference between giving households $100K to deleverage, and forgiving $100K of household debt? For that matter, why not just cut taxes to a sufficient level to enable people to deleverage as they see fit?
1) Remaining funds can act as stimulus.
Delete2) For many, if not moat Americans, tax reductions would only marginally increase incomes. It could still take many years to deleverage rather than doing it quickly and efficiently. Keen thinks current levels of debt are inhibiting spending and that it makes more sense economically to restore that spending now rather than later.
Warren Mosler's proposal to suspend the Social Security payroll tax back during the credit market collapse was spot on. How do you turn bad debt into AAA debt? Reduce the tax burden enough to make it possible to service that debt. Aside from that, if you want to go beyond giving households the wherewithal to service their debt, and wipe it out altogether, what's wrong with declaring bankruptcy?
ReplyDeleteIt isn't easy to declare bankruptcy, at least in the U.S. A lot of people will get left out. Mass bankruptcy also leaves insolvent the banks making the loans. If we liquidate the debt by paying it back all they lose is their interest incomes.
DeleteKeep in mind Keen is very much a Minskyan. To Minsky debt crises are natural and inevitable in a capitalist system and government's role is to hold the crisis off for long as possible, then take action to prevent it from triggering a recession. So Keen wants to see rolling debt jubilees become part of the institutional framework. One-and-done on recurring basis to pe-empt unsustainable debt accumulation rather than each person filing for bankruptcy in a deleveraging process that would be uncertain and require many years.
Delete"It isn't easy to declare bankruptcy, at least in the U.S. A lot of people will get left out."
ReplyDeleteIt's not that hard to do it either. There is a process to it and an entire legal profession devoted to guiding individuals and businesses through bankruptcy.
"Mass bankruptcy also leaves insolvent the banks making the loans."
My heart really bleeds for the banks. Best way to prevent banks from becoming TOO BIG TO FAIL, is to just let them fail. That will prevent moral hazard of banks making bad loans with expectation that they will always be bailed out.
"If we liquidate the debt by paying it back all they lose is their interest incomes."
Reminds me of callable debt.
When a banking system fails people can't spend or make deposits. It's about protecting the customers.
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