Steve Keen on Max Keiser Report

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Another good Keiser report. Steve Keen talks about the money creation process in the second half, and how the assumption of 99.9% of neoclassical economics that savings and debt cancel each other out in an economy is completely misguided as it is ignorant of the fact that nearly all new money is created as debt by private banks in modern economies.

Interview with Steve Keen starts at 12:43 min:



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  • Douglas Struthers

    When we have ‘ignorance’ of such epic proportions, are we dealing with a psychological/ideological blind spot and/or a cult?

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  • RJ

    “1000 times GDP”

    This is obviously not correct. I assume the poster means 10 times GDP.

    But even this figure (10 times) seems very suspect. How can financial debt be greater than non financial debt. It obviously can not be unless there is double counting of financial debt.

    And money out of nothing. I assume the poster means money is a financial asset created by a journal entry not a physical asset. Yes it is. But this does not make money fraud.

    And saving and debt do in fact cancel each other out. But so what. Too much money and non Govt debt does cause all sorts of economic distortions as we are now finding out.

  • Peter Verity

    It is utter nonsense to say that UK debt is “1000 times GDP”. It is not even 1000% (10 times), nor is it the 600% (6 times) that Steve Keen quotes.

    Total UK Bank debt, as given by the Bank of England “M4 lending” statistic, is £2.32trn and UK GDP is £1.45trn. This means that UK debt is 160% of GDP.

    • Ben Dyson (Positive Money)

      Peter – the following article might be of interest, and is probably what Steve Keen was referring to:

      • Robert Searle

        As far as I understand Steve Keen does NOT believe that banks create more money than they have. Rather it is continually being backed up by borrowing capital elsewhere. In other words, the books are balanced at the end of the day.

        The above would thus contradict a fractional reserve type banking system in which the creation of new money is based on a small proportion, or fraction of the banks reserves. In other words, the new money created is largely backed by “nothing”. As the principal is paid off it is deleted, but ofcourse interest is charged on the “funny money” created by a private, unelected private bank.

        • Nic the NZer

          No Keen doesn’t mention it here, but he is absolutely unequivocal. Banks often create additional spending power when they extend credit.

          • Robert Searle

            Thank you for your response. However, I hoped Dyson would reply to this.

            The problem here is that fractional reserve banking involves a huge creation of new repayable money as credit. But Keen seems to think that this is not the case based on his statistical research. Chris Cook is also of the same mind.

            However, what appears to put the cat amidst the pigeons are the claims of official banking data from “credible” sources (as claimed by the book produced by NEF called Where does Money come from?)that suggests fractional reserve banking is indeed the key system in place. This also has the notable backing of an old publication produced in America entitled Modern Money Mechanics from the Federal Reserve Banking system( )which also seemed to accept this interpreation. In other words, the claims of Keen, and Cook are in doubt even though they are more credible.

          • Ben Dyson (Positive Money)

            Robert – Steve Keen isn’t under any doubt that banks create money. What he disputes (rightly so) is the textbook version of the money multiplier, which implies that banks just reactively lend out their deposits, and that the Bank of England (or whichever central bank) can limit the amount of money in circulation. His statistical research shows that banks create credit (by lending) first, then look for the central bank reserves afterwards, which is consistent with what is described in Where Does Money Come From?

          • Robert Searle

            Ben Dyson,

            Thank you for your considered response. Yes, I am sure that SK believes that new repayable money is created out of thin air by banks. That is without doubt. The only question that remains ofcourse is when, and indeed, to what axtent it is backed up by anything. The SK interpretation seems to indicate that new repayable money is quickly backed up in full, and the fractional interpretation seems to indicate that new repayable money is backed up ONLY by a fraction of reserves held as “security”. I suspect there are variations of all this but it can make life confusing….

  • Chris

    To Peter: Steve Keen is referring to the report on ZeroHedge that Ben mentioned above. You can read his blog about it here:

    The research was carried out by Morgan Stanley so I wouldn’t be so quick to dismiss it as ‘nonsense’ before actually checking it out for yourself.

    RJ if you’re having trouble understanding how financial debt can be so much greater than non-financial debt then I’d highly recommend checking out this episode of the Keiser Report on re-hypothecation as well, as it sheds (some rather shocking) light on this:

    Also highly recommend giving Extreme Money by Satyajit Das a read. I’m reading it at the moment and it’s really helped my understand how financial sector debt has spiralled so completely out of control in relation to the ‘real’ economy

    • Peter Verity

      Thanks Chris. Apologies if my rather abrupt post was misinterpreted. The comment “utter nonsense” referred only to the suggestion in the trackback at the end of this blog that total debt is 1000xGDP, confirming what RJ had said earlier.

      The Morgan Stanley figure of 10xGDP is quoted on numerous websites. The original graph shows approx 6xGDP as “financial sector debt”, and adds this to various other types of debt (including National Debt) to come up with just under 10xGDP total. I don’t have any reason to doubt the accuracy of this, though I agree with RJ that there must be a lot of double counting (money being borrowed and re-lent) since total (M4) money supply is only 1.5xGDP. For instance if money is borrowed on a mortgage, and the person who sells the house invests in gilts, that money is only created once but would count twice in Morgan Stanley’s total. A long chain of debt can grow – especially in the financial sector – which increases total debt (and increases risk of a collapse), but I don’t believe it increases money supply.

      My figure of 1.6xGDP is, I believe, the debt that is directly associated with money creation, and it is the correct figure to use in this context. It is the M4 lending (M4L) figure that Positive Money have used on their graph of debt vs money, and that nef quote in “where does money come from”.

      I have watched the Steve Keen clip again. He is spot on with his description of how money is created through debt (at 16:00 minutes), but I think he is drawn by Max Keiser into linking money creation to the 6xGDP ‘financial sector’ debt, which is misleading.

  • David A. Jones (Guest Author)

    My favorite comment from Prof. Keen was this:

    “The whole idea that you can model capitalism without including money and debt in your models – and that’s 99.9% of neo-classical models include neither money nor debt – is a bit like trying to model how a bird flies by assuming that it doesn’t have wings. It’s just RIDICULOUS that it’s left out.”

    So very true! When I first started seriously looking into neo-classical economic theory, I was amazed at the extent to which there is just nothing there. I mean, before this I gave economists the benefit of the doubt, extended some professional courtesy their way, assumed there was some intellectual substance to it all. But no – the whole edifice is built on quicksand. As Prof. Keen’s book shows, in hilarious and horrifying detail.

    • Robert Searle

      Brilliant quote!

  • Robert Searle

    What is more”frightening” is the fact that virtually all money is ELECTRONIC DATA. In other words, the banking system can be seen as an ICT System of gargantuan proportions. Tbis is where my evolving project of Transfinancial Economics comes to the fore…

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