Steve Keen, has long supported debt jubilees, e.g. see this 2012 article of his. But he has recently piped up on the subject again. (Titles of the two articles are respectively, “Manifesto” (published by “Steve Keen’s Debtwatch”) and “We need a private debt jubilee”.
Note that dealing with debt jubilees in the latter more recent publication does not actually start till quite late in the discussion: around 50 minutes.
I actually looked at his debt jubilee ideas a few years ago here, and explained that his jubilee involved printing hitherto unheard of quantities of money: several HUNDRED percent of GDP, or so I claimed. The paragraphs below deal in a bit more detail with the absolutely vast money printing exercise he has in mind (wittingly or unwittingly). The latter phrase “several hundred percent” is probably over doing it, but “much more than 100%” won’t be far out: indeed, the cash hand out proposed by Keen seems to be around 200% of GDP for reasons given below.
In contrast to the above mentioned 200%, the amount of central bank created money printed so as to deal with BOTH the 2007/8 bank crisis AND the Covid crisis is a mere 15% of so of GDP. If you think the latter may ultimately prove inflationary, then you ain’t seen nothing.
As to where the latter 15% figure comes from, this Fed chart shows the stock of base money rising from 0.8 trillion in 2008 to 3.8 trillion in 2020. That’s a rise of 3 trillion. Taking US GDP as 20 trillion, that means the amount of cash (aka base money) created and distributed was 15% of GDP.
The latter “15%/200%” comparison is of course only a VERY ROUGH guide to the total effective stimulus that results from sundry stimulatory measures over the last ten years and from Keen’s jubilee proposal. But the disparity between those two number should at least make supporters of the Keen proposal do much more thinking then they seem to have done to date.
Keen does not actually specify how much money printing he has mind: bit of an omission given that he attaches importance to maths, equations, charts etc. As Michael Reddell (who spent most of his career at New Zealand’s central bank) said of Keen and debt jubilees, “…..I have had difficulty finding anything online that sets out in very specific terms exactly what he has in mind.”
So how much printing, exactly?
In the above mentioned 2012 work Steve Keen says “Most of this debt should never have been created..”. It’s not entirely clear what “this debt” refers to, but presumably it’s the increase in debt that he refers to in the preceding charts which show for example Australia’s private debt rising from around 25% of GDP in the 1950s and 60s to around 150% in 2010.
The difference between 25% and 150% is 125%. But let’s call that 100% to keep things simple.
Then in the 2020 work / discussion he says “Norway, Denmark, the Netherlands, the UK, America as well, because you're still carrying a debt level of 1.5 times GDP versus a minimum level before this whole crisis began of a bad rap in the 1940s, pardon me, of about 40% of GDP. We're all carrying about three or four times as much private debt as we should.”
Well now 150% less 40% comes to roughly the same: i.e. about 100% of GDP.
So it’s reasonable to assume he proposes printing enough to dispose of an amount of debt equal to GDP. But remember that he also proposes printing an additional and equal amount to be given to non-debtors so as to make sure they are treated fairly. So that’s roughly 200% of GDP all together!
The inflationary consequences.
He does propose some ways of stopping that astronomic increase in the money supply sparking off instant hyperinflation: e.g. he proposes that those in receipt of some of it are encouraged to buy corporate shares rather than spend the money immediately, with that additional funding for corporations being used to pay down corporate debt .
Well there’s a couple of problems there, as follows.
First, presumably those in possession of those shares can sell them at some stage (otherwise they’re essentially worthless). So what would you do if you were aged forty or fifty and were give half a million dollars worth of shares which you could sell in ten years time? I’d make plans to retire ten years early!
The result would be a huge reduction in aggregate supply, which again, would be inflationary, assuming constant aggregate demand. Or if demand was cut pari passu, then GDP would decline dramatically.
Unfortunately neither Steve Keen nor Edward Harrison (who discusses jubilees with Keen in the 2020 publication) seem to be aware of the latter problem.
Second and re the “paying down corporate debt” idea, all that does is to shift the newly created money into the pockets of those who have their corporate bonds confiscated with cash being given to them in return. I.e. “paying down corporate debt” idea does not reduce the total and astronomic amounts of new cash shovelled into the pockets of households and the private sector in general.
Conclusion: I’m not impressed. Or in the words of Queen Victoria, “We are not amused”.
No comments:
Post a Comment
Post a comment.