Steve Keen writes another article on debt jubilees.

 

The article is on the “Brave New Europe” site and is entitled “Steve Keen – Spain’s Economic woes….”. 

In his last para he says he’d like to see debts cut by around 100% of GDP by having government print and dish out that amount to debtors. However the amount of money printing he advocates is actually DOUBLE that, as he makes clear in his article entitled “Manifesto” published in 2012.

The reason for the latter “doubling” is the eminently reasonable point that if we’re going to hand out £Xmillion to debtors, that is unfair to creditors: i.e. creditors need to be given an equal amount.

But there’s an obvious problem here: this would be an amount of money printing that would make Robert Mugabe look almost responsible. By way of comparison, and taking US figures, government debt has risen by an amount equal to roughly 75% of GDP over the last ten years, of which a significant proportion has been  QE’d, i.e. turned into cash. See this Fed site.   

However the portion not turned into cash amounts to something very similar to cash: it is essentially cash deposited with government. So let’s say the amount “printed” to deal with the bank crisis and Covid is 75% of GDP.

But Steve Keen’s printing operation comes to 200% of GDP: over twice as much. But worse still, the above mentioned 75% was printed so as to deal with two very serious deflationary events, the bank crisis and Covid. In contrast, Steve Keen’s printing operation, while it addresses an alleged problem, does not address a DEFLATIONARY problem. In other words Steven Keen would presumably want to go ahead with his printing operation even where the economy is at capacity and cannot handle any extra demand. Thus the inflationary consequences do not bear thinking about.

Incidentally, there is a discrepancy between the latter 75% figure and the equivalent figure which I gave in an article on this blog a month ago, namely 15%. Reason is that the latter 15% figure referred just to the amount of actual new CASH created, i.e base money. As suggested above, it is probably more realistic to count government debt as a form of money as well, and in that case the figure rises to roughly 75%. But then government debt is not "immediately spendable" as is cash, though it the debt is relatively short term, say a year or two it could be classified as "spendable fairly quickly". Thus it is difficult to pin down exactly what the percentage should be.

However that does not matter too much for the purposes of this argument: whatever number one chooses between 15 and 75, the basic point remains that Steve Keen is proposing a truely massive money printing exercise here.

Another weakness in Steve Keen’s idea is that household debt service costs as a proportion of household income is currently at a 40 year low, at least in the US. Thus while there are doubtless specific groups badly hit by Covid, the AVERAGE US household does not have a serious debt problem right now.

Having said all that, I’m not suggesting the amount of private debt is optimum. The freedom that private banks have to create and lend out money like there’s no tomorrow during a boom under the existing fractional reserve bank system is clearly a nonsense. Adopting full reserve banking would reduce that problem.