Steve Keen is Professor of Economics & Finance at the University of Western Sydney, Australia. He was named by Forbes as the most accurate economic forecaster in this economic disaster. He received the Revere Award from the Real World Economics Review, also for his accurate predictions. He wrote the book Debunking Economics.
Now in a recent interview with former Wall Street broker, Timothy Maxwell “Max” Keiser, Keen says there is nothing governments can do to save the economy, because it is actually an inherent part of the banking system’s sinister operations!
No amount of tax increases, or government spending cuts (austerity), or government spending increases (Keynesian spending), or even corporate bailouts will help save the economy. It’s called deleveraging: “The reason it hasn’t worked….this is massive deleveraging. The private sector has borrowed its way into enormous levels of debt over about 40, 50 year period….from owing about half a year’s GDP as the debt level in the 1950s to [owing] three years GDP now!”
I’ve already written about the IMF’s order to continue deleveraging of households (that’s you and me), Keen is saying this is part and parcel of the too big to fail banks policies.
Deleveraging (retracting credit) means the banks try to get rid of their debts. Those debts include the mortgages and credit cards they’ve issued to the general public.
They deleverage households by calling in your chips, saying pay up now. It doesn’t matter if you’re credit rating is good or not. Many of the foreclosures involved people who had never missed payments, even people who had paid off their homes! And deleveraging attacks corporations as well.
A recent case of deleveraging, involving a major corporation, was the shut down of Air Australia. The airline was shut down when it’s creditors (too big to fail banks) refused to leverage (issue credit) for Air Australia’s fuel purchases.
Steve Keen says the too big to fail banks are now deleveraging everyone because the too big to fail banks became addicted to debt themselves! This goes back to the 1980s, and includes personalities like Alan Greenspan and Mitt Romney.
Keen says it’s the vulture capitalist mentality that is destroying the country: “…capitalists in euphoric states, and certainly finance capitalists…they borrow money, they gamble on asset prices, they’ll cause a bubble…of course the borrowing is badly thought out, projects don’t work, they’re ponzi schemes in many ways to begin with…you go through periods of ratcheting up levels of debt, until you get to the point that there’s so much debt the system simply can’t cope with it and you go into a terminal downturn, and that’s where we are right now.”
The 1980s saw the beginning of the trend of vulture capitalists, like Mitt Romney, using leverage (loans) to take over companies, carve them up and sell them off. Not only did it make big money for people like Mitt Romney (while causing millions of U.S. workers to lose their jobs between the 1980s and now) it made big money for the too big to fail banks.
In steps Alan Greenspan. The Federal Reserve is the central bank of the U.S. It actually makes money off issuing loans to the too big to fail banks. So, it is in the interest of the Federal Reserve to keep this game going. It’s not about jobs at all, it’s about making money purely through loans.
Presidential candidate Ron Paul is correct about the Federal Reserve being part of the problem, because Keen says Greenspan is responsible for what is about to become the biggest depression ever: “…Alan Greenspan turned what would have been a garden variety small depression, back in 1987, into the biggest depression in human history by rescuing the financial industry from each of its mistakes. Which simply meant that it [finance industry] would go looking for another social class to lend money to, expanding the level of debt…If the central banks hadn’t been trying to rescue us from each of the individual financial crisis we would’ve had a minor depression…we’re now in for the biggest of all time…now we’re dealing with the biggest financial crisis ever, and we can certainly blame the central banks for the scale of it.”
Keen also discovered, while working through his mathematical models, that when the shit hits the fan it’s not the banks and vulture capitalists who pay for the debt they themselves created, it’s the working class: “…So, as the level of debt rose, it wasn’t the capitalists who paid for it, even though they were the ones doing the borrowing, it was the workers in terms of their income share…the ones who are now paying for it through austerity actually are the ones who’ve been paying for it through a lower share of income, not the capitalists….”
Here’s what Keen had to say about the too big to fail banks: “Having a large financial sector is a sign of a sick economy.” Because banks represent finance capital and “…finance capital doesn’t make money!” Keen explained that banks are there to help true industries operate, and make money the old fashioned way, by earning it through providing products or services. In other words you should not have too big to fail banks making up the majority of your country’s GDP, which is in fact what’s happening in the U.S.
Towards the end of Keen’s interview with Max Keiser, he predicted that Australia’s economy will begin to crash within six to 12 months, and he thinks the Australian government will attempt the same pro-bank, anti-worker, rescue policies as that of the United States. Keen calls the U.S. policy “…rescuing the parasite [banks, Romney style capitalists, etc] rather than rescuing the host [true industries, working class].”
In the early 1990s Keen came up with an economic model that takes into account vulture capitalist debt financing. He used mathematical chaos theory to prove what film maker Oliver Stone tried to warn about in his movie Wall Street: Mitt Romney style capitalism doesn’t work, and doesn’t create more jobs in the long run. Back in 1993 Keen warned that any apparent tranquility caused by the out of control crony capitalist debt financing was actually “…the lull before the storm.”
Check out debtdeflation.com