Credit Zombies and the Walking Dead of Debt

Featuring Steve Keen

Steve Keen is a ‘renegade economist’ who has been debunking classical economic theory for decades. Steve argues that ever-rising levels of private debt are unsustainable in the face of rising interest rates, but that the US Federal Reserve will continue to raise them anyway until the credit cycle implodes – at which point the Fed will turn about and inevitably return to stimulative policies. The economist maintains that until the level of private debt is addressed, the Fed will remain intellectually locked in a never-ending cycle of massive asset bubbles and extraordinary busts. Filmed January 23rd, 2018 in London.

Published on
5 February, 2018
Debt, Monetary policy, US Economy
28 minutes
Asset class


  • DS

    David S.

    1 7 2018 23:22

    0       0

    If give Americans money to pay off their debt, they would just go into debt again. Same with corporation. It would be better to put the money into infrastructure and increase employment and wages. DLS

  • JL

    Johnny L.

    12 3 2018 16:18

    0       0

    why will our CB dive back in to rescue the markets again since it never fixed the economy, just the stock market and inv must know by than that we have a horrible situation that can not be fixed by QE and should make everything worse? Will valuation levels even much higher than todays levels be except able or rejected?

  • ra

    randy a.

    12 3 2018 04:07

    0       0

    the FED bails out companies cause its more expensive to let them fail, insolvent individuals can have a debt jubilee any day they want, just stop paying your debts and after 7 years (in illinois) it will fall off your credit report, and you start over with a 770 credit score, nothing could be easier, only a bleeding heart socialist could believe a government sponsored personal debt jubilee is possible, it would be Weimar Republic 2.0 -there are no debtors prisons, if you are insolvent, take your medicine! without credit for 7 years and become more responsible..sorry, there is no magic pill (or free money) to protect you from the consequences of your mistakes..

  • JW

    James W.

    11 2 2018 04:08

    1       0

    This is another yet another instance of re-hashing commentary from an individual that has been spread far and wide over the past year.

  • TE

    Tim E.

    11 2 2018 03:30

    3       0

    They are interesting ideas. My problem with it is the morality of bailing out people who were irresponsible, and greedy. It rewards bad behaviour. Just as it was wrong to bail out the irresponsible and greedy bankers who ramped up debt ahead of the GFC, is it not wrong to bail out the irresponsible consumers who are in debt over their heads? What about the savers, the pie-makers, not the pie-takers? We (and yes, of course the REASON I feel this way is I am one of them) are to get the short end of the stick? Why? Is that not morally wrong? Yes, you can argue it is for the greater good. But, how can rewarding bad behaviour and punishing good behaviour be right? And won't the incentive for those who get bailed out just to be to go and do the same thing again, with a view that they'll be bailed out again? That's exactly what the financial sector is doing right now! Let the irresponsible go bust. Who cares if the whole economy implodes. When the prices fall to low enough levels those with real savings, who were responsible, will come in and buy the assets that actually have value. Most of the economy nowadays is frivolous and has no real practical value anyway. Let's get back to basics. Excess consumption, materialism and greed fueled by debt is a pretty sad place for the human race to have ended up.

  • DB

    Darko B.

    10 2 2018 01:58

    5       2

    The only way to gain is to allow the pain, Steve solution isn't any better than the feds. We need mass bankruptcies to allow people to feel the pain of their stupid decisions. The smart people can then come and buy cheap assets. The idiot institutions that lent money to people they shouldn't have get to scrub their debts. Debts will be reduced, some people will be wiser, some will continue their stupidity, and capitalism functions as intended.......happy days! The problem with today's society is that we are trying to protect people from themselves. Pain motivates humans......... pain is the greatest gift

  • IL

    Ian L.

    9 2 2018 11:51

    4       0

    I always agree with Steve diagnosis of the problem but I think his solution (peoples QE) is dangerous. It's also been embraced by his friend Ann Pettifor and they have convinced the Marxists in the UK, Jeremy Corbyn and John McDonnell, that this is a sensible policy. Pettifor cites John Law as the economist she takes inspiration from. Governments don't need much encouragement to print money but people like Keen will continue to promote debasement of money which favours debtors (and he is even going to dump money in to their accounts!) and penalises savers. The socialist utopia is alive and well

  • DR

    Daniel R.

    8 2 2018 14:12

    11       0

    Keen's private debt jubilee is a dangerous idea. It just introduces another type of moral hazard. You want lenders to evaluate the risk of each of their own loans. You want the public sector to stop spamming the system with false signals and let prices and people do their thing - it's called a market. This proposal just introduces a new type of false signal - as bad a QE - but such a lovely sounding free lunch that is so easy to fall for.

  • MD

    Matt D.

    8 2 2018 05:25

    6       0

    Might I recommend that you interview Dr Richard Werner, the man who invented the term "quantitative easing" in Japan back in the 90's, which the Bank of Japan took and applied to the version we have come to be familiar with today and which, clearly, has had a negligible kmpact on the real economy. Dr Werner's original prescription was for the central banks to buy non-performing assets from the banking sector at face value, freeing up credit creation to once again take place and reignite economic growth in a similar manner described by Dr Keen. For those interested to learn more I recommend Dr Werner's book "Princes of the Yen" (also available as a documentary on youtube) as well as his quantitative theory of credit, the details of which can be found on the University of Southampton website

  • JV

    Jens V.

    7 2 2018 20:02

    2       0

    Steve’s ideas resonate with those of Richard Koo who also has very convincing explanations for GFC and the slow growth after.

  • JV

    Jens V.

    7 2 2018 19:59

    3       0

    Wow that was some of the best RV videos so far. Great analysis and great ideas to solve the problems we face. And all very logical and convincing. Brilliant stuff.

  • JR

    Jason R.

    7 2 2018 18:39

    3       0

    So glad to see Steve Keen on Real Vision. Absolutely love his voice of reason, and his way of explaining complex economic theory in a logical fashion.

  • Sv

    Sid v.

    7 2 2018 17:45

    12       0

    interesting....... and insane

  • EF

    Eric F.

    7 2 2018 15:54

    0       1

    Fantastic talk and as mentioned below, as much as this makes sense, I do think the debt jubilee proposal via the masses is perhaps idealistic, and I also hope he is wrong about the ability for corrections to avoided with more of the same - that is just a terrifying prospect. Reminds me of the old Vapors song...

  • V!

    Volatimothy !.

    7 2 2018 13:57

    0       0

    Steve wearing his Negan jacket for this one. Nice touch.

  • MD

    M D.

    7 2 2018 13:43

    1       0

    Steve - thanks for this. Would you be willing to share your view on gold as insurance or hedge given your outlook?

  • SS

    Steve S.

    7 2 2018 03:04

    0       1

    Steven Keen is brilliant! Get ready for the QE 4 Cannon which will exacerbate the wealth divide even further.

  • PN

    Paul N.

    7 2 2018 02:22

    21       1

    Wait so ordinary people get $10k to buy shares. Why wouldn't they just sell the shares to buy things they want? Are you going to restrict them from selling? And what shares are you going to buy? Are we going to pump the indices? Also, the rest of the kids get $10k to pay down debt. Great, but that is absolutely going to feed inflation because they can spend the money they would have used to pay interest, and they will take on more debt because of the moral hazard you just created.

    Steve's criticisms of existing economic theory are fair enough but his solutions sound like an explosion of unintended consequences waiting to happen.

  • KS

    Kathleen S.

    6 2 2018 22:38

    8       0

    Steve is very smart guy, but I think the FED knows exactly what it is doing -- goal is to enrich the ruling class at the expense of middle class.

  • PT

    Pamela T.

    6 2 2018 19:22

    1       0


  • NH

    Neil H.

    6 2 2018 19:19

    0       0

    enough said. excellent presentation

  • PB

    Pieter B.

    6 2 2018 18:25

    0       0

    Great value! Thanks a lot!

  • DS

    David S.

    6 2 2018 08:52

    23       0

    Few would disagree that there is too much private/public/sovereign debt in the world today. No government should correct the situation. Governments did not make the bad loans. As interest rates rise, debtors will not be able to make their payments. The debtors will be forced into bankruptcy and the lenders will lose their investments. They are the ones who made the bad loans. Tax payers should not be held hostage to bail out the poor lenders. This just creates incentive for bad loans that hopefully will be bailed out by the tax payers. Bankruptcy is how the real market should function. There is only a minor government function. QE1 should have been the last QE. DLS

  • AR

    Alex R.

    6 2 2018 08:21

    4       0

    Great to see Steve Keen on RV.

  • GO

    Gary O.

    6 2 2018 06:30

    8       0

    Mr. Keen,

    You are dangerous. You are making too much sense!

  • DS

    David S.

    6 2 2018 04:02

    15       1

    Somehow, we need to be much better than Solon the great Athenian lawgiver who instituted all debt forgiveness. As I remember, if you were an Athenian citizen and in debt to another citizen, you and maybe your family became a slave in order to pay off the debt - like an indentured servant. Solon forgave all debts without payment to the owners of the debt. The problem was citizens continued to overspend and went right back into debt. The good news was no Athenian could become a slave again from a debt to another citizen. I am not smart enough to know the answer to our problem, but just doing what the Solon did around 600 B.C.E. will not work now either. The debtors may be made clean, but most of them will just go back into debt - maybe hoping to be forgiven again. Many of the ones you give cash to buy stocks will just sell them. Then the tax payers will just have more government debt. QE was a devil’s bargain. DLS

  • JH

    Jesse H.

    6 2 2018 04:00

    14       0

    Brilliant presentation, as usual, from Steve Keen, and admire the rigour and conviction of his ideas. Feel privileged to know him personally and to be supporting his work.

    The only points in this presentation that I struggle with intellectually / conceptually are (1) the execution of a sovereign debt jubilee, and (2) the idea that QE can continue forever, potentially, in Western countries.

    Regarding the first point, I imagine debt jubilee would have to be a global effort, and am not quite sure how this would play out smoothly, and how the freeing of private debt would overlay with the holding of, say, government debt (especially where countries have significant foreign creditors - think China holding US Treasuries).

    With respect to QE ad infinitum, I respectfully disagree with this theory unless you have a very orderly and repressed society. It seems to me that such a policy can exist in a society like Japan, where a strong social and cultural hierarchy effectively act to prevent revolutions, even when socioeconomic disparities become large. However, in countries like the US and UK, such a policy when extended for years would certainly result in social (political) disintegration and civil conflict (as we are actually now seeing in an incipient form in the US). In the best case, it results in a society you don't want to live in (I was just in the US, and could see signs of the tension everywhere and increasing disparity); in the worst case, it ends in civil conflict and revolution (hopefully, peaceful). Eventually, the social fabric disintegrates when you have a large enough divide between the wealthy "class" who hold assets and those who don't own anything.

  • SS

    Steven S.

    6 2 2018 02:35

    4       1

    Wonderful video. Steve Keen never disappoints. We all have much to learn from his brilliant insights. What is so impressive about Keen is his uncanny ability to marry highly quantitative, rigorous models with realistic economic assumptions. Most economists do not have either, a few have one or the other, but Keen largely stands alone wielding both masterfully. For those who are unaware of his formal research, please see:

  • DT

    Dave T.

    6 2 2018 02:17

    0       0

    Brillig. And we are witnessing the exact first step in the dance now...

  • RA

    Robert A.

    6 2 2018 01:45

    1       1

    Very impressed by this Video. Curious...18 months ago I had never heard of the Debt Jubilee concept....and now it is being bandied about with abandon. Wonder what Harry Browne would have had to say about this Video?

  • JM

    John M.

    5 2 2018 22:07

    1       0

    If Canada has a credit crunch in future and adopts QE what will happen to the value of CAD$....I assume lower?

  • SS

    Steven S.

    5 2 2018 18:01

    13       0

    RealVision - it would be interesting to interview Markus C. Kerber, an attorney and professor of public finance at the Technical University of Berlin.

    He shares some views with Prof Keen - but he's trying to stop what appears to be a highly unethical coordinated global central bank Ponzi scheme. "Professor Suing ECB to Stop QE Warns of Legal Surprises in Coming Weeks. It’s out of control, it’s acting like a dictator…not a rules-based Institution, says German law professor" ex WSJ 18May16

    This attempt was unsuccessful - and the media response was 'crickets'....
    "Germany’s Top Court Denies Request to Halt ECB Bond Buying Granting a temporary injunction ‘would go beyond the mere safeguarding of the status quo,’ court says" ex WSJ 18OCT17

    He's also wrote the book: "Resist, Citizens - How the European Central Bank is Destroying our Money". Which I have not read.

    Where is North America's version of Prof Kerber? Has there been any notable legal attempts on the Federal Reserve's use of QE? Where's the accountability?

    In my mind endless QE slaughters open & fair price discovery -officially turning the market into a Bernie Madoff-like investors Disney Land. The economy (money) needs to be a reflection of our natural environments' health, a symbiotic-like relationship as endless credit incentivizes unproductive, destructive industries in their mad pursuits at the expense of the earths delicate ecosystems.

    FIAT Paper $ is infinite in supply / Earth's Resources are finite in supply - in my mind this is deadly serious & the path forward is clear.

    Will we wake?

  • LN

    Lucy N.

    5 2 2018 17:46

    1       0

    the whole truth and nothing but the truth

  • HJ

    Harry J.

    5 2 2018 17:16

    1       0

    How could we force feed this to all fed members?
    To answer my own question not likely!
    Sad state of afairs, that will lead to much pain for those the fed is supposed to be working for.
    Good luck to al

  • BK

    Brian K.

    5 2 2018 17:08

    3       0

    He has similar views to Richard Duncan.

  • NF

    Nat F.

    5 2 2018 17:02

    0       0

    Its hard to see how the choking levels of Debt to GDP are not just postponed for another day unless the argument is that sufficient growth and innovation is emancipated as a function of the jubilee so as to permanently influence the denominator. In any case it has to be better than the status quo.

  • PD

    Paul D.

    5 2 2018 16:28

    3       0

    $10,000 each for 250 million Americans is $2.5trn - more or less equivalent to QE2 + QE3

    I don't think the economy would be as unbalanced as it is now if they'd tried Steve's idea instead.

  • AS

    Alex S.

    5 2 2018 16:20

    9       0

    I love Steve Keen but I've found a few of his most recent perspectives to be a little harder to digest.

    To give a couple examples - saying demographics isn't important but growth in credit is, I feel that he brushes over the fact that a higher population is thought to increase individual productivity as each person has a greater ability to specialise in one particular area and thus enhace their ability to take on and service debt. (maybe it's better to say they're both important?)

    And another that wasn't specifically mentioned in the video - he says that a government deficit should always be in place. Again I feel that he unduly dismisses the argument that perhaps the government isn't the best means to allocate capital as they essentially draw a revenue from seizing wealth rather than offering services that you are more likely to know for sure are demanded. I know that we get to vote for our politicians but I don't think that comes close to the influence we have in allocating our own money through personal spending.

    I admit I'm a hardcore libertarian sort but I wish he would tackle these ideas with a little more dissection sometimes as it feels like having someone swipe away your beliefs without, what feels like, an adequate explanation.

  • IH

    Iain H.

    5 2 2018 15:15

    1       0

    Thanks Steve, I think you will be proven right. I do have one question. If your ideas were put into practice and worked as suggested, what stops politicians from promising helicopters of cash at election time? Especially without the the cavities you suggest.

  • JS

    Jim S.

    5 2 2018 14:55

    14       0

    I agree that debt levels are a good (inverted) barometer for future economic growth. I also agree that fed/government policies encouraging debt (especially at the expense of equity in corporate & personal capital structures) pulls forward that future economic growth capacity.

    However, I am curious how helicopter money into "main street's" bank accounts will do anything but create one more artificial stimulus? Won't the people simply re-max out their credit cards once the fed has paid them off? What then- another helicopter drop? If so - how does that not turn into hyper-inflation - which I assume Mr. Keen would agree does not end well?

    As I understand the example given of a "healthy" consumer deleveraging (WWII), it was the spending side of the equation that was the driver of the benefit - i.e. rationing prevented the newly healthy consumer balance sheets from repeating prior excesses until the war ended. I am curious whether there is a piece of Mr. Keen's proposal that would address that key factor in a durable private sector deleveraging?

  • BT

    Brian T.

    5 2 2018 14:07

    43       1

    I have been following Steven Keen for years. He is a brilliant economist who gets it. This interview only scratches the surface of his work. I saw a video several years ago where he was demonstrating an economic model predicted the 2008 crash perfectly based on the change in the change in credit levels (the 2nd derivative). I have had conversations with Princeton PHDs who just flatly reject Steve's work as wrong and refuse to consider the possibility that he is right. And these were independent folks not working at the Fed. The orthodoxy at the Fed will - very unfortunately - never permit them to accept what Professor Keen is saying.

    The good news is that because he is right, we can fairly accurately predict what is going to happen - which is a significant reduction in asset prices followed by a lot more QE. Last time the U.S. Fed printed around $4 trillion in QE, I've seen private folks (such as Paul Brodsky at QB Asset Management a few years back) estimate the next QE round will need to be at least $10 trillion to have the same effect.

    What does this mean for investors? Don't accept an overly bearish outlook on equities. Accept that there will be buying opportunities, and that when there is an inkling that the Fed is changing direction following an asset price reduction, BUY. The time frame he lays out makes a lot of sense too. The Fed does not reverse direction quickly except in extreme circumstances. They are likely to see the current pullback as healthy and overdue (in fact, even desirable...). The pullback needs to be more extreme before they will act. I've seen several reputable folks - including Oliver at MSA and Martin Armstrong (who has a colorful reputation to say the least) - both argue against the idea of a near-term outright crash (although Oliver has recently relaxed his view a bit and raised the idea that a crash is possible now but not likely). The key is that there is no need to front-run the Fed's thinking. They will act when the asset price reduction become severe enough, but there is no need to buy in advance of that.

    If you buy what Keen is selling, it is also a reasonable conclusion that putting on short positions with a multi-month duration - probably put leaps with 2019 expiry - may make sense because it is reasonable to conclude that prices must drop quite a bit more before the Fed will act.

    The real interesting thing to consider is where does it all end? The idea that Keen raises that this can go on forever is, in my view, unlikely. The apple cart will get upset when "the people" lose confidence in the system. Admittedly that can take a long while.
    Armstrong has written extensively about this and his arguments make sense based on the historical record. The price of gold, in Jim Grant's view, is the inverse of the confidence level in a country's government and fiscal management. When gold breaks out and starts to rise back to and above its all time highs, which will happen at some point, it is likely to coincide with a drop in confidence levels in government. A rise in gold - when it is reflected in every currency not just the dollar - is a reflection of a drop in confidence in paper money. At some point, Jim Sinclair has argued extensively, the central banks of the world will have to shore up their balance sheets to regain the confidence of the people. To do this, one likely scenario is that gold gets revalued upward significantly. This is out in the 2020's somewhere though. I'm not arguing we go back to a gold standard which I think is very unlikely. The view I am proposing is that gold once again becomes an important part of a central bank's capital reserves.

  • HB

    Heini B.

    5 2 2018 13:52

    0       0

    QE for the people than leads to a democratization of equity rather than debt, brilliant. Wonder how this compares with the privatization following the dissolution of the USSR. Much rather that program than never ending increase in control of the State.

  • CL

    Cameron L.

    5 2 2018 11:36

    6       3

    We need more Steve Keens teaching at universities across the world. Steve I hope your training up an army of upcoming professors to help shape the next generation. Brilliant. Thanks Steve

  • LS

    Leigh S.

    5 2 2018 11:28

    4       1

    The credit argument has aleays been key tonundetstanding asset prices and it still confuses me as to why there are not more Steves arguing the case. Kerp it up Steve history will prove you right. The

  • JS

    John S.

    5 2 2018 11:07

    19       1

    An economist that lives in the real world. Such a novelty!