Sunday, July 10, 2011

Why we need to clear out bad debts

On The Edge with Max Keiser

Quite a long video interview with Max Keiser and Steve Keen. Keen does most of the talking and covers a wide range of subjects including the role of bankers in asset bubbles, shadow banking debt, credit default swaps, inflation and deflation, money creation and ponzi schemes. Unfortunately, the focus is on America rather than the UK but it's worth a look if you have 25 minutes to spare.

Posted by quiet guy @ 01:52 PM (1514 views)
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6 thoughts on “Why we need to clear out bad debts

  • general congreve says:

    Haven’t got 25 mins. So, in a nutshell, how does he propose clearing our debts? Also, I assume Keiser presses him for his views on gold/silver/real money (Keiser being the bug that he is). What is Keen’s response to this?

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  • @General Congreve

    “how does he propose clearing our debts?”

    He says that America should have avoided going down the Japanese route of bailing out the big banks and until they do force bad bank debts to be written off, their economy will suffer.

    “I assume Keiser presses him for his views on gold/silver/real money”

    At 18:45 gold gets a brief mention. Keiser raises a question about the performance of the of the gold standard in inhibiting ponzi financing. Keen reckons that it doesn’t really matter all that much because all money schemes depend upon credit which is fundamentally a system of promises (when you borrow, you promise to pay it back,) including the gold standard. I’m inclined to agree with Keen about this.

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  • general congreve says:

    @2 – I assume Keen means all bank-based ‘money-making’ schemes in a world of fractional reserve banking? Hence you still end up in a debt-ponzi on a gold standard that can be remedied of sorts by going off the standard onto fiat, so the game can run for a bit longer until it all blows up, as has happened many times in history, most recently with Nixon in 1971 until what is coming to fruition today.

    At least in this world of ‘money-for-nothing’ usury, gold still exists as an unofficial currency anchor and citizens can use it to set their own de facto gold standard through private purchases.

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  • @General Congreve

    ‘I assume Keen means all bank-based ‘money-making’ schemes in a world of fractional reserve banking?’

    No, that’s not what I said. You seem to be superimposing your beliefs onto the conversation. Have you seen the video yet? It’s not about gold but well worth a look IMO.

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  • general congreve says:

    @4 – Well if it’s just a case of borrow and pay it back, then it shouldn’t lead to a debt ponzi if it is paid back within the framework of sound money.

    1. Borrower borrows money from someone who lends it under agreed terms of repayment (capital + interest)
    2. Borrower uses money to buy capital and labour and starts business.
    3. Borrower either a) makes money and returns original sum with interest b) Doesn’t make money and defaults.

    The problems only arise when the lender isn’t allowed to go bust for making poor decisions but instead gets a freshly printed bailout to cover his losses, or where the lender is able to create money the don’t have to lend into the economy (fractional reserve lending).

    But no, didn’t have time to watch it, but have watched some Keeno before. From what I have seen of his work so far, I have to agree with all he says.

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  • “where the lender is able to create money the don’t have to lend into the economy (fractional reserve lending).”

    That’s the norm. It happens every day and is a central part of Keen’s thinking about how banking really works. Anybody interested should have a look at My property debate presentation

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