and so much more is steve keen he is 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 about 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 each until you're out 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 returning to innings 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 farmer and french have confirmed in the empirical research they say when there is rising when you have rising levels of did it's financing investment in excess of retiring to earnings now 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're fright about the level of leverage as well as they only invest for 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 a saudi not to borrow money to invest then you have an economy which is going to stagnate well and 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 the consumer borrowing is necessary you know you can't afford to go and buy a house you know with our own money and a car is also an automobile you expect to have some good finance consumption but that finance consumption doesn't build productive capacity it modern spawn corporations to do that you know the. consumer spending let's now go and invest and take advantage of that but if you have the the again. the household sector is still

heavily debt income but it's carrying the level of debt now roughly eighty percent of today pay down from one hundred percent at the peak but still twice what it was counting back and on to an audi so the live a lot 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 of that again we're caught in the problem we have a private process and as usual the politicians are obsessing about public debt and not seeing the cross was caused by too much profit it caused by delivering from that level now we're getting a bit of relievers going up by the household sector but it won't go very far so you get a bit of a boost coming out of that and that it will paper out 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 is made up some of that difference so government has been has been taken out more debt is as households and others have been deal of ridging 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 terry in the level of profit yeah which is astronomical now it's . even if you. did the beginning of that what he called a peer earlier period of financial for jodi to the american economy and not in sixty six i said before that level you had private debt was predominantly they of finance investment was growing up at a time growing faster than income but still you'd see it was in the range where it was necessary did it's productively used once you hit sixty six it's been fragility ever since i'm getting more and more of a. stream why what was that turning point around that time that was really when the

devil had about. to 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 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's 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 via the consumer price index fund that was the biggest peak in the stock market products of the two thousand paper so it was downhill from there from sixty six to eighty three it went down then the bubble began in ninety three were 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 profit sector had back in the fifty's . certainly for three to four times what it was in sixty six when fragility began and if we think we're going to get out of it with that level of debt on 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 that. 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 then 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 because you're going to find a large part of what interests people to go into debt is the expectation of leverage going on asset crosses now when you look in the mortgage for it. about

being seventy percent of g.d.p. down from eighty thought the scent of the pig 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 cool people even 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 yet in the toll of it and you have spoken we've spoken together about debt you believe as you've called you have a plan for a modern jubilee and q we wanted to do everything for the public which i'm noticing of even people are going to talk lisc is now making the case for an englishman saying ah 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 thought of 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 if 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 you a week later what do you think of this there's greater essentially buying distressed debt pennies on the dollar and you instead of collecting it like a debt agency a collection agency what they're for giving it what you think of this it's brilliant because suddenly 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 can and they sell the property below you still was one hundred fifty thousand well rather than charging of the one hundred fifty thousand they sold it to a collection agency for one of the thousand on the debt collection i actually think right i've got to mention one hundred fifty grab it and get out of this sucker right i will got one of the half term of the bank go to harbor 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 twinkie collection. yeah i've come up with about

a twenty grand twenty five grand cost makes last thousand dollars on the whole thing and that's what actually goes on behind debt collection actually of his activities but it starts with the line the debt off the bank for one or two cents in the dollar and will comply well short of saying what's really a rise of 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 what you think 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 is it do you think it's more into trouble 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 good for those people that they got out of debt 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 of the half crown thanks rod we'll find out on a loss levels and so on and cope with that 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 less radical about it is the finally 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 management because the new york times. school in general says let's ignore banks that money market says you

can in the last couple of them without including bench that money will move for you if you can do with the do with it to get straight from work but i applaud mochel for bringing banks that 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.

well with. science technology innovation all the list of bellemont from around russia we've got the future covered. live.

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. 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 this 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 it's like the great depression when you get the you know the jimmy stewart soft bank attack side which my father was that classic top 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 talk and now of course you get would you like a credit card with that top banking word. and so on and the best way they can get us to take on more debt than we would take we've got our income is that we've got to believe that there's going to be raj singh as a process and we can make a living guyon and that's that 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 out so misleading is that a man ok so what do you think about your friends if i am asked which wrote this

paper that essentially is an attack on fractional reserve banking and seven hundred percent it's in the reserves on the 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 relevant. why did why the important story about that 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 cyber and you're a borrower i give you some money listening to how you've got more and we can slip 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 liability is sawed and the liability side is out deposits and if they equally grow the rest it's 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 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 i mean if you give it to you and they say the mistrust into major is so they're irrelevant and what he's trying to what the what the objective of that particular paper is in terms of the policy recommendation of my ex which of the chicago plan is to make banks behave the way people think they do which is just being in two majors between ciphers and borrowers and not being capable of creating money which is what they can do right now but when this report 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 federal reserve lending itself is a myth this is one think 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 they candle in reserves they borrow from other banks will borrow from the federal reserve so that they can camp but 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 why 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 a 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 if they didn't have the money in the government account they couldn't lend the money out so they would therefore be intermediaries as they currently regard it as being now one of the

dangers that ossie there is that it's actually you see the legitimate capacity of the banks to be able to create money and because they can create money rather than needing to do to borrow what. length of pipe. 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 not in favor of profitable parasites that's what they are iraq now but saw as the shadow banking system and so on which 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 of shadow banking and how you're on with it for those laws what do they actually find as the shadow banking of shadow banking actually financed true industrial capitalism right it'd 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 this sort of nonsense which doesn't add to the productive capacity of the economy and frequently actually destroys that 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 than then believed. bad sign and i have a thick economy if you go back to the nineteenth not in fifty two when when the federal 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 j.d. pay well that rose to one hundred twenty percent first by factor of sixty before the cross was really hit us and then it's now down to about i think about about ninety one hundred percent of trade if they all financing speculation that's that ira 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 changed your view perhaps on government involvement in the economy always being.

the only people who got as much as potentially is more than all the bankers the politicians and so on not a plan that believes 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 because of what they've done back in australia is try to manipulate and fall into a market which used to be regulated and think well let's deregulate because we're all favor of competition these days and all this regulation the more competition a very linear way of thinking what they've done is they've told 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 to get into sydney university from not sure so all put one bit into sydney but i'll put a couple of good for you w. with university of technology and you know. griffith university right all right yeah they're saying everything in 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 they're going to go 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 the pavane is one of the very few you can count them on. hansen you know i think as of one coming to the poppins teacher 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 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 wilco selling twinkies selling twinkies if they exist it's put up some it's not all right well steve king 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 twinkies i've got there were something after an ongoing labor dispute hostess brands a 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 it just to make you sorry it was a troll what's the next question about that sort of question about you know there's . not i have enough you can get me you think you'd be hard to support reform over

the talk about this is the set up knowing you people are the worst but the worst of all that is brilliant and chris christie. just spawn so much i mean there's all these local news reports about people hoarding tween there are people trying to hawk them online. and 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 what i looked at i looked at that and i heard that they don't last forever actually i did what are you going to junk scientists said that well that's why you're doing exactly what i was hoping you would which is think these are there from our producer also koch not on our show she was she was on the lawn and so

there are you could hear for a while and they've been you're past what i've been told is the expiration of these things so is that right take a boy 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 hasn't he like it now that was the delivered million dollars for a box of you know what actually is going to do one thousand dollars i mean is this is see him really want to give the notes if you're under two hundred so you don't you know when i was understands prices and when it was over two hundred thousand dollars called the opening bit or you know get that i mean that you know you ask anyway. if there are any beds whatever previews are going to be around this thing but will they plan to find a buyer and then 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 you just know where

you're going on screen they're not going to go buy. the burgers they're a big big. ceramic tiles get big so they're probably because like they're like bakers and they want to strike but say there's going to we can this in the want to give it we're going to fall through other. traffic controllers. there's some various things in twenty games and i learned as a man is always great when there's distraction folks we have other stories to do i want you for human brains are all i mean you're all right you got all of which are some mornings and some of those. ok we'll leave it there i've got a twenty to finish that's all i 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 lester 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. mission

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