Steve Keen on BBC: Government Should Print Money to Pay off Our Debts

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Economist Steve Keen is one of the few economists who have predicted the global financial crisis and now he says it is time governments gave money to debtors to pay down debt instead of to creditors such as banks who have held onto it.

Watch the interview on BBC here or a longer 25 minute version on YouTube here. 

  “We have two sources of money in the economy: (1.) The banks can create money by extending loans and (2.) The government create money by running a deficit. We had back in the early sixties the ratio of government created money to the overall money supply of about 15%. It’s fallen so far that we’ve got the entirely debt-based system.”

“We have to give the money to debtors rather than to creditors.” 

“The system is failed, not the individuals in it…” 

Steve Keen is a Professor in economics and finance at the University of Western Sydney. He presents a wide variety of critiques on neoclassical economic theory, and argues that they show neoclassical assumptions are fundamentally flawed. Keen’s full-range critique of neoclassical economics is contained in his book Debunking Economics.


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  • steve-Hereford

    I think the term is ‘False Flag’ to ‘discredit’ the whole concept of our government creating real money for the people! He makes the assertion that inept people debts should be paid off! Surely it does not take much imagination to find really good ways of introducing money creatively and constructively into our money supply!

  • Sean scholes

    Printing money would help the free market to move, better than cooking up gov lead schemes to prop up creditors.

    • RJ

      Its not really printing money though is it. No more than a bank loan is money printing.

      The key is the Govt deficit as this creates money or a financial asset needed for consumption and pension savings

  • RJ

    Why doesn’t Steve just promote a big tax cut. Funded either by BoE reserves (or notes and coins as some seem to prefer).

    Govts create new money by running a deficit so the easiest way to reduce private debt is to reduce tax. People will then have more money that can be used to reduce their private debt. Or to spend to get the economy moving.

    Steve is slowly getting there though. At least he has now (hopefully) dropped his debt jubilee idea and realises at last that Govt deficits results in a money OR financial asset (if bonds are issued) increase.

    Either reduces the pressure on the non Govt sector.

    • Peter J. Morgan

      Would somebody please explain, in language that an engineer such as me can understand, exactly how “Govts create new money by running a deficit”?
      Our minister of finance in New Zealand always leads us to believe that government must borrow money to fund its budget deficit and has been reassuring the public during the election campaign this past month that New Zealand is on track for our government to be running budget surpluses again within three or four years. As fae as I am aware, our central bank works in an almost identical fashion to the Bank of England, and both are 100% owned by our respective governments.

      • Nic the NZer

        The government deficit creates a gap in the government books, because insufficient income has been taken in tax. This is sold/borrowed as a bond, which is able to be brought by investors or in some circumstances will be brought by the central bank. When this bond is brought by the central bank then new money is created.

        Also these bonds are able to be used as bank reserves, so more credit would be possible in a fixed reserve ratio system. That is to say as far as the money multiplier model applies.

        This supposed money multiplier mechanism is the main reason so many people are upset with previous government deficits. They believe that these deficits are the source of the inflation and lack of monetary control, but in reality private banks are not really that constrained by reserve requirements.

      • RJ

        When this bond is brought by the central bank then new money is created.

        This is incorrect. As si most of your post. I will explain hwo it actually works below

        • Matt

          Actually nic the NZer is right. So long as the central bank expands its balance sheet in the process it is creating new money (ie it is issuing new reserves above current stock). If/when the central bank choses it can do this with printed currency or reserves, depending on what is required. If it has a mandate to buy private issued bonds then it can do it without buying government debt. simple.

      • RJ


        By money I’m referring to our money (not bank money /bank reserves)

        Most are hopelessly confused by this. Including politicians and many economists.

        Example. The Govt pays you $100,000. This payment is made by a series of journal entries (if you want I can post them for the NZ treasury, NZ reserve bank, commercial bank and for you)

        But the commercial banks journal entry is

        DEBITS NZ Reserve bank reserves $100,000(Reserve banks liability banks asset)
        CREDITS Customer cheque account Peter Morgan (banks liability your money asset)

        So new money is created by this transaction. And the bank obtain an asset reserve (bank money if you like) to offset their deposit liability (our money).

        You then buy a $100,000 Govt bond from the Govt

        The banks journal entry is

        CREDIT Reserve bank reserves $100,000
        DEBIT Customer cheque account P Morgan $100,000

        So Govt spending creates NEW MONEY

        Taxes and bonds drain money and reserves unless purchased by a bank (in which case only reserves are drained)

        So a deficit will only create new money if it is not drained by Govt bond issues. Or if the bonds are purchased by a bank (instead of a non bank)

        • Matt

          Nic the Nzer:When this bond is brought by the central bank then new money is created

          RJ: This is incorrect. As si most of your post.

          RJ: So a deficit will only create new money if it is not drained by Govt bond issues. Or if the bonds are purchased by a bank .

      • RJ

        “Our minister of finance in New Zealand always leads us to believe that government must borrow money to fund its budget deficit”

        And this is not correct. Govts choose to sell bonds because bonds drain (reduce) bank reserves and money.

        So bonds are issued to stop monetary inflation when Govts run a deficit.

        Example. You receive 100,000 from the Govt and invest this money in a pension fund. The money in your bank account transfers from your account to the pension funds account. You now hold a pension fund asset rather than money (bank deposit).

        The pension fund then buys Govt bonds. In effect a bank deposit has been transferred to the Govt. Money in the pension funds bank account has been replaced by a Govt bond (the pension fund now holds a interest earning bond rather than money). And the bank settles with the Govt using bank reserves

        So the NZ Govt MUST spend first so that the banks have NZ reserve bank reserves. These NZ reserve bank reserves are then used by the banks to settle with the treasury for bond purchases and tax paid.

        So Govt spending = plus reserves held by a bank
        Bond purchases = minus reserves held by a bank
        Tax payments = minus reserves held by a bank

        Govts and banks work hand in hand. The NZ Govt can always fund its spending by a simple journal entry. Banks will always buy bonds (if the market does not) because bonds attract interest whereas reserves do not.

        And banks MUST accept reserves when Govts spend money.

  • Peter Verity

    The clip on this blog is a 3 minute extract from a 25 minute talk Steve Keen gave on BBC news channel. It is worth watching the whole thing! His approach to distributing debt-free money is quite radical, and probably not as robust as Positive Money’s, but otherwise he has a lot of interesting things to say.

    • RJ

      Calling money debt free is very misleading

      Money can not have value without either Govt or not Govt backing.

      That’s what money is. A financial asset backed by another party as a financial debt (liability) obligation.

      • Peter J. Morgan

        Under a Positive Money financial system, when the MPC creates ten million pounds and gifts it to the government to pay for the building of a new school, how could it possibly be misleading to call this money debt-free? The MPC has not incurred a debt, any more than a bank would have under the present system. The government has not incurred a debt, as it has merely received a gift from the MPC.

        • RJ

          It may be interest free but can never be debt free. Even if this debt is never paid back.

          If a Govt collapses and the new Govt refuses to back this money. Then the moeny is worthless.

        • Nic the NZer

          Yes, I have been trying to understand what RJ means by this for some time. Its a statement, usually put by commodity money supporters.

          In this its not a debt in the sense that it must be repaid. What the statement means is that the money must have some value, e.g that it only has value due to peoples being willing to use it.

          I think calling this obligation to maintain value of the money a debt is pretty poor use of language. A very confusing way to say something very obvious.

          • RJ

            Money is a financial asset. Created by journal entries.

            And ever financial asset journal entry created by one party MUST be offset by the opposite offsetting journal entry created by another party

            Bank loans

            The banks journal is offset by the customer journal.
            -Our MONEY asset equals the banks liability
            -Our DEBT liability equals the banks asset

            When the Govt spends (pays someone) equal offsetting journal entries are made by

            The treasury
            The central bank
            The commercial bank and
            The recipient of the Govt payment

            NB We often do not actually do journal entries but in reality the impact of the journal (asset and liability) does exist.

      • Peter J. Morgan

        “That’s what money is. A financial asset backed by another party as a financial debt (liability) obligation.”
        How about: Money is anything that the government decrees that it will accept in payment of taxes.
        This definition, please note, does not require money to be a debt, nor a liability, nor an obligation — just a store of value.

        • RJ


          The payment of taxes.

          In other words Govt will write off an asset (tax due) in exchange for otherwise worthless paper notes.

          So these paper notes are a GOVT DEBT (and are correctly recorded by the treasury as debt).

          Notes and coins (and BoE reserves) only have value as both can be used to settle a future tax obligation (BoE reserves for the bank to settle with the treasury when tax is paid).

          The Govt spends today using BoE reserves or notes and coins. And accept these back in the future to pay tax (or buy bonds).

    • Peter J. Morgan

      The BBC will not let those of us who live outside of the UK watch TV replays, but it will let us listen to soundtrack replays. The URL for the audio recording of Steve Keen’s HardTalk interview is

      It certainly makes fascinating listening. I don’t know about the rest of you, but at 71 I don’t want to wait for 20 years for the economy to get back to 5% growth again. I want to help it grow even faster, right now, and it’s obvious to me that a Positive Money financial system is the way to make it happen! I’m hoping that Steve Keen gives the Positive Money solution some serious thought.

    • Phil Smith

      Second that! This guy is so lucid, gets all the key aspects across with ease.

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  • Ed S

    If govt pays off private debt with massive amounts of printed money then individuals and businesses will find themselves with dramatically increased disposable incomes. What happens when there is more money in the economy but no corresponding increase in the amount of goods? Answer: inflation. More £s or $s must be used to obtain the same amount of goods, in other words prices go up more or less proportionately to the new amount of money in the economy. So the value of the individual money unit drops dramatically and there is no increase in real wealth. Money is not wealth per se. In fact, such a level of money printing would quickly lead to hyper-inflation, which in turn would rapidly bring about economic collapse, just as it did in the Weimar Republic, Argentina and Zimbabwe. If wealth creation were that simple govts would have printed trillions of £s years ago and made us all millionaires.

    This is basic economics, guys. How does a supposed professor of economics propose such idiocy?

    • Matt

      Fail. Hyperinflation comes about via monetising government debts, in conjunction with high government deficits. As the monetisation damages the value of the currency the government prints more to support their deficits. This cycle comes about through supporting unsustainable government deficits.

      Keen is advocating a one off layering of money accross economies. Those in debt have to use it to pay their debts down and those not in debt get a bonus. It will lead to inflation, definitely, but it will be limited to the one-time effect (so long as it is known that it is a one-time proposition). Like doing a stock split but on a currency, rather than entering a longterm printing process.

    • Jeremy Bernier

      You’re assuming that none of the newly generated money would go towards productive investment

  • Joseph Hitselberger

    I’d rather extend this further out. It might be economically useful to redistribute the assets of the top .1%. I digress.

    Keen’s favored placement of positive money to debtors exclusively is not correct as it weakens economic incentives for the proper functioning of an economy. Not to get all Adam Smithy, but there do need to be incentives. It would be a better try for gradual placement of positive money to the general public, with some progressivity, but not to debtors in particular. At some point, the placement of positive money will take out the debt, but you shouldn’t do it with one stroke and it should not be exclusively favored to debtors, particular debtors who have lots of assets. There still needs to be fairness and incentives within the economy, even with positive money.

    • Nic the NZer

      Actually this is what he is advocating. He is making the point that whatever distribution is done the money has to reach debtors and they should immediately pay down their debt with it.

      But the plan he is suggesting gives away money to a very wide pool of people. The non-debtors get a large bonus. Giving money could also include supporting useful jobs I think.

      If you look at his 1.25 hour long video of his talk an Cambridge he had something to say about full reserve banking at the end (during questions).

      • Joseph Hitselberger

        Very good. This is the first time I have seen Steve Keen and I am satisfied that his conclusions are mostly satisfactory to those who advocate positive money.

        I haven’t seen Keen comment on trade deficit or technology matters and I’m wondering if he reduces the importance of these.

        Large trade deficits decrease employment, income and productivity. This contributes to higher debt levels and weaker aggregate demand, which can initialize deleveraging and debt-deflation.

        Although technology improvements increase productivity, they also decrease employment, income and aggregate demand (less wages received in production). In point of fact, by definition, if the economy were 100% automated there would be 100% unemployment. The early Luddites were probably the earliest to understand the problems of industrialization and technology. On the other hand, a positive money solution would solve the weak aggregate demand problem caused by more technology, but high trade deficits would substantially weaken the effectiveness of a positive money solution. The Aussies do have the advantage of commodities and mineral wealth so perhaps Keen is less sensitive to trade issues.

  • Richard Petigrew

    for the benefit of those outside the uk

    the full interview can been seen at the link above

  • Ralph Musgrave

    I read plenty of Steve Keen’s stuff long before I had anything to do with Pos Money, and I have plenty of respect for him. But in the above clip he is totally incoherent.

    It would be perfectly feasible to print money and pay off a big chunk of the NATIONAL debt (not that there is a big urgency to do this). I’ve set out details as to how to do it here:

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