are these data points the exact opposite of what you want if you're talking about an economy recovering and the type of debt accumulation that is positive versus negative here to answer that and so much more is steve keen he's economist and author of debugging economics which is a great book that you see right there and also one of the great guests to have in studio all the way from down under so first thanks so much for being here so how do you as a wise as always we are so pleased so you said when i came down here from reading those headlines you were you were itching to get on one of them about the business investment you have this investment because if you look at how businesses can invest from that they can invest from the retained earnings or they can also invest by borrowing money now when you go to a will function in capitalist economy the substantial part of investment is funded by additional debt and this is stuff which even conservative economists like summer and french have confirmed in their imperial research they say when there is rising when you have rising levels of did it's financing investment in excess of retiring

to earnings and if you have a disk a lot of corporations have been through the great recession and so on one reaction they have to the fact the economy is growing more slowly and they are fright about the level of leverage as well as they have only and this time to earnings and what that means is your level of investment is lower than it should be your economy grows more slowly and it becomes a self-fulfilling prophecy and that's the danger when you when you have firms are starting not to borrow money to invest then you have an economy which is going to stag night well in addition i mean just just break down what is the difference between a corporation taking out a loan to build a factory that's going to produce income that's going to be productive and an american consumer going out and buying a flat screen t.v. on their credit card with no expectation that they're going to have an increase in income to be able to pay for that yeah i mean in some sense human borrowing is necessary and you know i can't afford to go and buy a house you know with our own money and the cars also inaudible you expect to have some finance consumption but debt finance consumption. build productive capacity

for good modern spawn corporations to do that you know that. is consumer spending let's now go and invest and take advantage of that but if you have the again the the the household sector is still heavily that income but it's carrying the level of debt now roughly eighty percent of today pay down from one hundred percent of the peak but still twice what it was counting back and onto a naughty so the level of room of headroom the households have got to go into debt to finance the consumption borrowing or to finance mortgage speculation is limited so you're not going to get a great deal of stimulus coming out again with court in the problem we have a private crossers and as usual the politicians are obsessing about public debt and not seeing the cross was caused by too much profit caused by do leverage ing from that level now getting a bit of relief bridging up of the household sector but it won't go very far so you get a bit of a boost coming out of that and the little paper route so then what does this mean because i can bring up a chart that shows kind of what all of this debt amounts to and it's what you're

talking about that households have the leverage to a little bit you know have corporations so has the financial sector and the government has made up some of that difference so government has been has been taking on more debt as as households and others have been deliberate but that means that cumulative it's pretty much up where it was in two thousand and eight it hasn't gone down very much so what kind of impact does this have on growth what kind of deflationary pressure does this exert and how much more do you leveraging it is going to need to happen still well if you look back historically you going back to the one in seventy seven on the way now if you if you got back to the level of debt in the one in seventy seven you're talking about one hundred ten one hundred twenty percent of g.d.p. reduction this is a very in the level of profit yeah which is astronomical now it's. even if you. did the beginning of that what he called a purely a period of financial for gelati to the american economy to not in sixty six i said before that level you had private debt was predominantly they of finance investment was growing up. it's growing faster than income but still you know it was in the

range where it was necessary did it's productively used one hundred sixty six it's been for jubilee ever since i'm getting more and more extreme why what was that turning point around that time that was really when the devil had about. a slightly the why wouldn't. the fed reserve rather than i see research off on about nine in sixty six about eighty percent or ninety percent private debt to g.d.p. ratio and that point on you had more and more debt claims on the saudi more and more speculative debt turning up there and you began to get more gambling being the usage of debt rather than productive investment the knowledge in fifty years industrial capitalist america was being wiped out by the knowledge in the sixties seventies growth of financial capital have ciphered realty began in sixty six we had the. bankruptcy at that stage and that actually not in sixty six when you deflate the dow jones the consumer price index you find that was the biggest peak in the stock market products of the two thousand paper so i was downhill from there

from sixty six to eighty three it went down then the bubble began in ninety three and we're totally financially driven society so. that pretty fragility has been rising and we now are carrying a level of debt six and seven times what the private sector had back in the fifty years certainly for three to four times what it was in sixty six when fragility again and if we think we're going to get out of it with that level of debt i'm sorry it's going to keep on coming back and hitting us every time. in what way what do you anticipate that to look like going forward in terms of what growth and other pressure if you think about the amount of debt you can carry down the you've got the less you can consider adding on back when we had not in fifty's we had a debt level of fifteen sixteen percent of g.d.p. plenty of headroom now we're running it we had three hundred percent private sector debt back in two thousand and nine now it's to fifty percent if you don't get a bit of a dip driven revival which is feasible at the moment it's not going to take you back up to the three hundred. percent level again ok because you're going to find

a large part of what people to go into debt is the expectation of leverage going on asset crosses now when you look at the mortgage debt for example that being seventy percent of g.d.p. down from eighty thought the center of the peak you don't going to. be five percent again you will hit the wall and go down once more so what you're going to see is like a sucker's rally and house crosses ok told people in then it falls down again once more and i think you're going to see the same structuring lack of progress that japan has had for today ok so it's the japan thing going for and then japan turning japanese now we want to hear something that we have talked so much about debts insidious role in the private sector you're in the toll of it and you have spoken we've spoken together about that you believe as you've called that you have a plan for a modern jubilee and q we wanted to do everything for the public which i'm not saying even people are going to talk lisc is now making the case for an england sign off yeah so it's actually becoming much more mainstream than i ever thought it

would do this early on in the process because i thought you had to have years and years of softening up we have had actually had far the use of crosses now you know it's been quite a substantial period people still thinking business as usual. i know it's so bizarre you don't realize this is a different game so but one where bit kind of does it's interesting that occupy wall street has their own way that they're addressing this and there's you know a really clever what do you think of this there's a broader essentially by distressed debt pennies on the dollar and instead of collecting it like a debt agency a collection agency what they're for giving it would you think of this it's brilliant because it's exposing what actually happens when people actually go bankrupt because when you go bankrupt to a bank let's say you have a debt of three hundred thousand dollars to the bank and you and they sell the property below you still owe the one hundred fifty thousand well rather than given one hundred fifty thousand they sold it to a collection agency for one on one. of the debt collection i got to mention one hundred fifty grams can get out of the. right i will go to one of the half gram of

the bank go to heart a barrister will go to get the sheriff to get them just thrown out there all these sorts of costs and saw it there they might be able to sell the gauze you know twenty collection some of the goal is to come out with about a twenty grand twenty five thousand dollars on the whole thing and that's what actually goes on behind most debt collection actually of his activities but it starts with the lying the debt of the bank for one or two cents in the dollar that will comply will sort of saying let's rewrite let's raise a million dollars we could buy one hundred million dollars with a debt and to give it that way yeah it's a brilliant piece of both it's effective for the small scale for people who get risk you that way but it also exposes what goes on behind the vial of bankruptcy is that we're using is really kind of the most impactful thing here because obviously when you're looking at a consumer that's two point seven trillion dollars in debt if you don't include mortgage debt and you know a few million dollars forgiven is is really interesting and cool and innovative but it's

a very small fraction of that debt so was it do you think it's more intimate in terms of course it is what it will what it shows in terms of the banking system and how it is that's that's my that's my my the reason i savor it i think it's a it's a good for those people that they get out of bed but it also shows what goes on behind bankruptcy and why what we should be really doing is giving up because we think people should pay the whole one hundred fifty grand but the banks get up by saying we'll take one on the house ground thanks write it off on. a loss levels and so on and cope with it with a record effecting on we still go because they've still got the capacity to create money as because they have banking losses they can still create money yeah yeah before we go to break we have a minute we'll get into this after the break but it's interesting that this doesn't get to the kind of the issue of a debt based money system and what kind of creates these booms and busts and expanse of credit but a new i.m.s. paper it's not actually new it's a few months old but if it's gone as cult following and so much attention it's kind of to set it up what is so radical about this why is this so different for the i am that's right a little. that is the song we got somebody who works in

a very conventional what they call dynamics the classic general equilibrium framework but he's saying banks matter thanks to money match up the new classical school in general says let's ignore banks that money market says you can in the last capitalism without including benefit money no more you know that you can do with the do it with the biggest or you framework but i applaud monocle for bringing back step money into the economic equation and is this part of a growing attack on the classical way that neo classical economists look at the economy we'll find out more about what you think about that after the break more with steve keen economist and author of debunking economics in a moment also still ahead investing and hostess twinkies may not be all it's cracked up to be one of the snack makers latest labor disputes mean first sellers hop in the snack on line first their closing market numbers.

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right enough. but wasn't. me when i was. here can. certainly can't do it. only effective social changes can be the afghans themselves ask and many women. cannot. but. it's up to the shop and. stuff people. well in the obama administration talking about how much they care about the women of afghanistan it's not true they don't care about the women of afghanistan.

more news today bolland says once again flared up. and these are the images the world has been seeing from the streets of canada. trying to corporations rule the day. welcome back we're talking about debt and the very instrumental role of private sector debt which steve king is always so illuminating on first before we get more into our discussion i do want to bring up this graphic because we thought it was very interesting it shows the household debt in various countries and the ones in red have seventy five to one hundred percent debt to g.d.p. ratios and you can see the u.s. canada britain spain south korea all fall into that category well australia

unfortunately wasn't on that map but but steve king knows his country well and says australia is included so before we get further into our discussion we have steve king here and we are talking about the i.m.f. paper which i want to get to but why do those countries have so much household debt . because the financial sector persuaded us to get involved in a ponzi scheme called speculating on house prices and she is so it's a financial sector saying one intrinsic to thing this the financial sector creates profit for itself by creating did and if they can persuade us that they'll do it given time and over time if you go from across just like the great depression when you get in you know the jimmy stewart soft bank attack side which my father was that classic talk of banker oh yeah oh yeah oh yeah and then he wasn't quite as good looking but he was nonetheless you know the jimmy stewart top and now of course you get would you like you know a credit card with banking words. and so on and the best way they can get us to take on more debt than we would take our income is if we've got to believe that there's going to be raj singh as a process and we can make a leave it go and that's

a process ok so that's unique to those economies also one of the things the banking system does to increase credit i mean fractional reserve banking is how this really all all works that some misleading is that the man ok so what do you think about your friends if i am asked which wrote this paper that essentially isn't an attack on fractional reserve banking they have one hundred percent it's in the reserve fund a pension attack on private money creation ok this is our guide to what this report and i will be the reason that conventional economists ignore it completely and the crew and statement i'm all for including banks where the real thing. why why they important a story about dead in the leverage the reason they ignore that they say that will one person assets is another person's liability and that's regarding banking as a being into major is between. on the side of her and you're a borrower i give you some money listening to how you've got more and we cancel each other out that's not what banking actually is banking is where lending is way banks have an asset side of the ledger and a lot of bill of these sawed in the liability side is out of plazas and if they

equally grow their assets in the liabilities a number of liabilities in circulation rises which is an increase in the amount of money and it's an increase in the amount of demand if it so that's what this reserve this is the. line that banking the paper is talking about saying that's what the banks actually do now people think what they do is loanable funds thing and if you give it to you and they say the mistrust into major is so they're irrelevant and what he's trying to do what the what the objective of that particular paper is in terms of the policy recommendation of my ex which is the chicago plan is to make banks behave the way people think they do which is just getting into majors between ciphers and borrowers and not being capable of creating money which is what they can do right now but when this from court was described as an assault on fractional reserve lending you're saying that that's a myth that yeah it is a myth that the fractional reserve lending itself is a myth this is one thing of myself in the modern monetary theory group quite emphatic about when you look at the structure of how banks do double entry bookkeeping on the assets and liabilities side of their account they can't lend

reserves which have been deposited with them which is the whole idea of the money multiplier candle in reserves they borrow from other banks will borrow from the federal reserve so that they can they can but if it's feasible but they can't lend reserves that have been deposited with them by somebody walking in and whacking the savings in the system it simply doesn't work in a double entry bookkeeping accounting assets and liabilities framework ok interesting so then what impact would the plan proposed this i.m.f. report have is it a feasible plan if this reality would actually. collapse the growth then this cancel system this is one way i am skeptical about the large scale change the financial system like that on a much more will of god willing to say we need to prevent the financial sector doing what it does which is damaging right now which is finance speculation on the process but that plan actually says let's abolish the capacity to create money completely so the any money being created be created by the government system and then the government would effectively have a reserve into which it put money from which the banks could do the could could

borrow and then on lend that money but it would be entirely because of that they didn't have the money in the government account they couldn't lend the money out so they would they feel being intermediaries as they currently regard as being now one of the dangers that ossie there is that it's actually you see the list of the legitimate capacity of the banks to be able to create money and because they can create money rather than needing to to borrow what it to do in length of pipe am between what they borrow and what they lend out. you could actually steamy the capacity to be profitable now on it all in favor of profitable banks i'm not in favor of profitable parasites yeah that's what we're hearing right now with the shadow banking system and so on which is they came out bigger than expected to be you know so that's a important part to look at right you can't look at the amount of debt without talking about the liabilities that shadow banking and how you interact with it for those what do they actually find as the shadow banking of shadow banking actually financed true industrial capitalism ready to be

a beneficial thing but shadow banking finance the shadow capital what you see them doing is financing mergers and acquisitions tyco is share buybacks speculation on property leveraged buyouts all that sort of nonsense which doesn't add to the productive capacity of the economy and frequently actually destroys the productive capacity so the shadow banking system saw as a sort of a secret call me not a healthy one so the fact that it's increased more then then believe. it's a bad sign and i have a sick economy and if you go back to the nineteenth not in fifty two when the fed was a began recording the flow of funds data at that stage the the borrowing of the financial sector from the banking sector was equivalent to two percent of g.d.p. well that rose to one hundred twenty percent first by a factor of sixty before the process really hit us and then it's now down to about i think about about not one hundred percent of g.d.p. ok it's all financing speculation and i said i i ok well that's enough to make your

head spin but before we go i do want to give you a minute to tell us what the heck is going on with your university and why is this change your view perhaps on government's involvement in the economy always being. the only people i regard as was potentially is more than all the bankers the politicians and so on not upon the bill is the government's going to be this been interested external authority i would rather have the government providing a cash flow when the private sector doesn't do it but not trying to manipulate and fondren markets and what they've done back in australia is try to manipulate and fall into the market which used to be regulated and think well let's deregulate because we're all favor of competition these days and less regulation the more competition a very linear way of thinking and what they've done is they've told the universities and in my country that rather than having a limit on how many places like an office offer as many as you like and what that actually has done is rather than students saying well i think i might get enough marks to get into sydney university from not sure or so all put one bit into sydney

but i'll put a couple of good for you ws university of technology in the. griffith university right all right yeah they're saying everything sydney and what has happened as a result rather than getting say one hundred students saying they want to do economics with us as a first bid we've got twenty and as a result there's another look at the whole program not the department done completely so by trying to enhance competition it's actually eliminating competition and on top of that as well of course my department is one of the very few you can count them. hands of you know fingers of one hand how many of the problems teacher pluralist approach to economics around the planet we're one of them we're about to go. ok well i know you're a rock star so i'm sure they'll be a huge demand for you but as far as the kind of this mixed view of really what happens with certain regulations and the government's role it's a really interesting insight about because reality is that all the students won't get into those great schools in sydney and there will be students for your program but by then it'll be shuttered and they'll have to go back and look closely

twinkies selling twinkies if they exist. all right will steve thank you so much for being here it's always such want to hear he's an economist and author of debugging economics. let's round up with loose change before we go dimitri. we need an opportunity to talk about. i've got a first something after an ongoing labor dispute hostess brands the maker twinkie announced that it may be going out of business but now maybe they are negotiating and it's going to work out but anyway it's leading many to wonder about the future of the cream filled treat. so you know that's about. what's

a troll what's the next question what do you got it's a question about you know there's. if you can get me you think you're behind this market for having me talk about this is the set up and i know what you people are the worst but don't know that it's brilliant i'm chris christie. just spawn so much i mean there's all these local news reports about people forwarding tweenies there are people trying to hawk them online there was one box posted on e bay boxes are up for auction one full box starting bid of two hundred thousand dollars ok you know we don't know what the fate of twinkies is evidently the bankruptcy judge is kind of working out a negotiation between labor and twinkies but that's part of this issue. but between he could find a buyer even if they do go belly up my question is who cares i'm twenty eight they're going to last forever anyway i think these things are made out of like you know that's not our look at our look at. our heard that they don't last forever

actually i don't want you to walk or even a junk scientists said that well that's what you're doing exactly what i was hoping you would i want you to think these are there from our producer also koch not on our show she was she was on the lawn of show there and you could hear for a while i move in her past what i've been told is the expression of these things so is that right take a boy and let's see how do you know. it was going to grow through it. you could handle it you know we don't have a problem the rest of us there are sort of. so why don't they how does he like it now that was the delivered million dollars for a box of you know what actually is going to do it thousand dollars i mean is this. see i'm really going to use the notes if you are there are two hundred so you don't even know what i was under says prices and there were two of those dollars called the opening bit or yeah right i mean that the opening ask no you ask anyway. if there are any beds whatever bridges are going to be around this thing but will they

plan to find a buyer and and all of this but i just think it's interesting too that the bakers were going on strike and i didn't realize these were big i picture them coming out of a test you were probably big you're exactly right because i know there's no way you want to do it on screen but i'm not going to go buy. the burgers they're a baker's the big. ceramic tiles get big so they're probably bakers like that they're like adults still bakers and they want to strike but see that's going to weaken ambition i want to show you that we're going to fall through other. traffic controllers there's various things in twenty games and i understand it is over greed is distraction folks we have other stories to do i want you for human brains are growing you know all right you've got all of which are some morning and some of those. ok we'll leave it there i've got a twenty to finish that's all we have time for thanks so much for watching be sure to come back tomorrow and in the meantime you know you can follow me on twitter at lauren lyster you can go like our facebook page tell us what you think about twinkies give us feedback on any show question you missed it you tube dot com slash capital account or on hulu and have yourself

a great night. with . technology innovation all the developments around russia we've got the future covered. kids in sorrow. and hope for escape. barely surviving longing for a godsend. they live in a search for gold.

why doesn't it bring them well.

i. thank. you. lou.