The Breakdown | Explaining Southern California's economy

Debt no more: Steve Keen's radical proposal

The video is of economist Steve Keen, on the BBC's HARDTalk, laying out his plan to escape what he considers a second Great Depression. It's out there. Way out there. But he also presents a very clear analysis of what went so horribly wrong with the global financial system in the lead-up to the financial crisis. Stick around for the part at about 22:30 when Keen talks about being the "non-orthodox" economist with the "biggest mouth."

The upshot is that Keen wants to use the government's ability to "create" money to relieve private debt. Basically, the bank loaned out money it shouldn't have, so the debtors shouldn't be blamed. But you don't make the debt vanish, you empower the debtor — in fact require him or her — to pay it off. You pointedly don't give the money to the bank on the assumption that it will loan it back out.

And you ultimately don't allow the banks to create more debt, by generating more marginal loans. The master plan is to reduce the overall amount of debt in the economy, to historically healthy levels.

Thanks to Yves Smith at Naked Capitalism for pointing to the video. Yves and Keen share a view that it was economic orthodoxy — the idea that the problems of the past had somehow been eliminated — that got us into this mess.

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