How private debt and credit cause financial crises

It should be obvious: financial crises are caused by the financial sector, and its primary product is debt, which is necessarily created when credit-money is created. And borrowers only commit to additional debt because they wish to spend, so there is an intimate link between private debt, credit, and demand.
But it's not obvious to economists, because they convinced themselves, as long ago as the early 1800s, that money didn't matter: the economy was really a barter system, obscured by the veil of money.
I explain why debt and credit matter, and use them to show why the 2007 crisis occurred, and why several of the countries that avoided a crisis in 2007 are on the verge of one today.

[@darryl1617]

Ausie, ausie, ausie, debt, debt, crash!! I’m a proud Australian but I listen to Steve and I am genuinely concerned for our nation. I feel that most Australians have no idea about what is about to hit them.

[@robfreeman4550]

But most Aussies could rattle off their favourite sport team/players stats .oi oi oi

[@shpensive]

Wow groundbreaking scientific work studying money and productive exchange. This could be the beginning of a whole new field... call it "economics". But seriously, a sober, coherent theory about the dynamics of demand that takes factors affecting the money supply properly into account, is so rare and so desperately needed. Thank you!

[@frac4653]

I have been listening to Prof.Steve Keen public lectures for several days now, after reading his books and breaking my head on these topics for years. Just meant to say, THANK YOU. I am a lecturer with a non economic background, it's quite hard to make it through this landmine of myths and false prophets. Your lectures combine economic theory, history and empirical data. That is brilliant. I have found few authors that useful, just wanted to acknowledge the hard work, I am sure it's not easy.

[@klam77]

Fantastic lecture with concrete example.

[@slovokia]

It would be best if you could directly record the output of the same microphone you are using to drive the sound reinforcement system. A signal splitter would work (after the microphone preamp or after the radio link). That way you remove room reverberation which makes it hard to make out what you are saying. Alternatively use another radio microphone and hook it up to your camera’s sound input.

[@darkofius]

My respect prof. Steve Keen, I am your suporter and follower...and you are economist extraordinaire...

[@webfreakz]

Hi Professor, thank you for the videos on your channel. I've seen a few by now and I understand your argument for a debt-jubilee, but my question is how (after we do that) do we prevent going back to the same situation (high private debt / GDP ratio) as we're in today? Can we keep doing a debt-jubilee over and over again? Or do we do this once, and then put other policies (which?) in place as well? What I'm also worried about is there will be some people that figure out a way to hugely benefit from all this. Basically, what does the post-jubilee-world look like?

[@wolfgangsnotebook]

Thanks for mentioning what Minsky is most important to read. I wonder if you might do a video where you recommend books and essays by people who are actually trying to understand economics (you know, as opposed to the neo-classicals).

[@craigshelton5903]

Brilliant!

[@RCPanzerTank]

More good work.

[@ozwhistles]

Many thanks Steve. Now, with savings: why save? There is a damn good reason - to hedge against the chaotic nature of entropy. This is the element of risk - and needs to find its way into your models?

[@nathanneiman]

Great speech.

[@shaminoranger8588]

Greetings fellow thunderbolter.

[@GhostOnTheHalfShell]

Friegeld is a monetary system (intended to be local) alternative to usury (archaic sense). It’s virtue is the motivation to use it or lose value. But that does not occur via inflation; it is price stable a zero inflation alternative to interest.

[@bleacherz7503]

Why does Steve use the stock mkt as the indicator of a crisis? see 2020

[@Collabadvantage]

Looking at the discussion of employment. Increases in employment in Australia is mostly in part-time employment. There is substantial underemployment which must have impact on demand. Can we see the same impact of 11% unemployment when those who are underemployed do not earn the same as those in this model? There appears to be many more poor household who cannot save money or spend because they just don't have the money. Nor will they be able to pay back debts.

[@gustav4539]

Looking at private savings and net wealth is informative. You can't get away from the fact that an increasing number of people have less and less money. Obviously this will get worse, because young adults are more debt-ridden than ever. A sudden crisis or not, western economies will stagnate. Lower interest rates only increases asset prices, not real economic activity, ie investments leading to actual wealth creation.

[@dingowhittingham1412]

I don't understand something. @16.38. How can there be a total demand of $1,400bn/year and at the same time there only be a turnover of existing money of $1,100bn/year? What happened to the other 300bn? If there is 1400 in demand shouldn't there also be a 1400 in turnover?

[@james1098778910]

Why is expenditure MV+credit? Why isn't credit turned over? Why isn't credit spent more than once?

[@se7ensnakes]

Steve Keen is the only person I donated through Patreon. I even got a free program called MINSKY to follow along

[@unnanointedonesufi]

then people call this guy dumb.... unbeliavable....

[@biglabrador]

Dear Professor Keen - thank you for your enlightening lectures. As a credit analyst I would like to ask you a strange, but serious question: given the fact that banks grant loans (credit) by creating money ex nihilo, why should they care about defaults by borrowers (i.e. credit risk, the risk that they won't get the money back)? If it cost them nothing to create the money they lend, do they lose anything and run the risk of own default if they grant a serious volume of loans which later turn out to be non-performing? If they lent money they previously borrowed from someone else, the risk of bank's own insolvency would be obvious. But given the fact they "lend" money they create out of nothing - do borrowers' defaults really endanger banks' solvency?

[@ireneuszpyc6684]

[1] professor Keen replies only on his Patreon page (to people who gave him money), not on KZbin; [2] it's not true that banks create money out of nothing: were it true - then money would be worth nothing; prof. Keen makes many simplifications in his lectures

[@ewanrobertson9524]

Hi Matthias M. There are no immediate costs for banks when making loans. The reason for why making loans is risky comes from considering the balance sheet. When a loan is made, the asset column is increased (because of the loan), but the liability column is also increased by the same amount (the borrower gets a deposit, which is a liability of the bank). Considering the banking sector as a whole, the natural tendency is to create as many loans as possible as this maximises earnings. However, if the loans are defaulted on, the banks have lost the assets but still have the liabilities (the deposits). This is the key reason why banks have to be somewhat cautious (even though they often aren't very careful) when making loans.

[@ireneuszpyc6684]

@@thomasd2444 people, who understand how the economy works, invest in the stock market, and outperform major indices, and showcase their strategy on their KZbin channel; your channel is empty, which means you have nothing to showcase

[@djangogeek]

13:23 - 17:23 How credit crisis comes about

[@COVID...19]

A nation need not have private-held central bank assisting in the creation of a nation's currency - one in which the population pay interest on.

[@thenavido]

Dear Mr Keen, can you please employ some firm to simplify your presentations into 10 mins ?

[@lmcfigs4874]

Definitely use some of that patreon money for better quality videos.

[@mftgdeserteagle]

Be grateful that he even puts these videos online for free.

[@se7ensnakes]

I believe that you are frustrated because this is not a cartoon and its simplicity.

[@Waynesworrldexcellent]

You underestimate the power of low interest rates and government intervention. Nothings going to crash. Inflation is the preferred option by those in power, not deflation

[@MG-xy9rn]

Yes, they do like inflation because they can tax it but not deflation. They hate the increased purchasing power of cash in a deflating world, because treasury departments don't see a cent of that relative wealth gain. The western world is ageing and wants to deflate, but governments keep fighting it with credit and immigration. Japan has shown over the last 30 years that if you do it with just credit you can't ever recover. Steve's work is correct, but the motive to distort the system is so strong for central banks and governments. Which makes the bust events worse as when it comes governments are spent, and any recovery stimulus mainly benefits the rich. I think governments should reduce their reliance of GDP as a measure of success. Look at Australia. GDP growing off the back of mass immigration (import more debtors), but share of GDP per capita declining, quality of life declining. The economy is less diversified than ever (minerals banana republic). Look at birth rates, youth unemployment and suicide rates in places like Spain and Italy. Emigration in Ireland. Chasing endless GDP growth is a mugs game, and does it really serve society as a measure of social progress and prosperity? Its a guess at best. The lived experience of citizens is bad. And its the poor and middle class who carry a lot of debt in places like the US, while the rich are accumulating wealth in savings and assets, which puts downward pressure on GDP as Steve discussed.

[@jameskaye9729]

You think central backs can hold back deflation forever? Why couldn't they do it in 2008?

[@HardStickman]

I don't know. The ECB prefers desinflation. They stopped QE and I think they will be back to a pro-exports agenda.

[@MMTMacroTrader]

Low interest rates cause disinflation not inflation, while high interest rates cause inflation. The CBs, governments, and "economists" have it backwards.

[@learnedhand7647]

@Dane Taylor Ah, but when debt is too high and interest rates rise, that's when things go bust. During the World Economic Forum of 2017, this was brought up among the heads of leading banks. One of the panelist brought up the question, stating that debt is currently too high (I would have brought up QE at this point, but it was not part of the subject), and that if interest rates went above 5% that most banks (and debtors who's interest rates would be around 10%) would not be able to pay off their debts. The CEO of Goldman Sachs replied that they are not making plans on how to prevent the next financial crisis, instead they are looking for ways to profit off of it (to the horror of *half* of the other bankers). That being said the one metric that tends to be ignored in economics is the overall rate of private savings. If the majority of society doesn't have any significant savings, society as a whole will not be able to withstand the shock. Leaving only room for the economic vultures to fly in to pick the bones. I'm not ignoring the fact that people also need to spend money, but without a savings or an ability to save one would also not be able to spend on other things other than necessities or petty purchases. Ignoring this sector, at a time while central banks are trying to ween off of QE, just may be the black swan that breaks the Bernanke back. The 1-5% will not be their to bail out mom and pop, that's a sad truth. The greatest catastrophe of the Titanic is not that it sank, it's that they didn't have enough life boats.

[@AntonHinxman]

If you agreed with and understand what this video presentation is saying then you should look at, and back, the positivemoney.org campaign. In my view, the model should include bond yields where loan to government interest rates increase during times of fear of non-repayment. A good example is the current Italian high debt spending proposals by the Italian government. The increasing bond interest rates are a symptom of non-repayment fear and a subsequent precursor to money supply contraction. There is a risk that a hard UK Brexit will reduce economic activity and cause Italian bank failures. This can then spread to the highly dependant and integrated Spanish and French banking system. Wealthy people might fear such a banking crash and withdraw their money by purchase of gold. Gold does nothing for positive GDP and only reduces the velocity of money. The only real answer is to control the supply of credit but we can not trust politicians to do this. Meanwhile, the Italian infrastructure literally falls apart. We ARE the people who vote for our politicians so WE are ultimately to blame.

[@susomedin5770]

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