by Steve Keen shows how private debt, not public debt, causes many of our financial problems, in fact, government debt can help mitigate the worst of looming financial crisis that may be coming due to Covid, but sadly, he says, governments are more likely to do nothing about private debt, while cutting public expenditure, which will make the financial crisis even worse. Is the financial system acting in favour of society’s needs?Far from it! As Marx once put it, the finance sector is a good servant but a terrible master, and that’s what the Neoliberal obsession with deregulation has actually allowed to happen: finance has become the economy’s master, rather than its servant. We need to return it to its servant role: it should provide the money that firms need for working capital, that
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Steve Keen shows how private debt, not public debt, causes many of our financial problems, in fact, government debt can help mitigate the worst of looming financial crisis that may be coming due to Covid, but sadly, he says, governments are more likely to do nothing about private debt, while cutting public expenditure, which will make the financial crisis even worse.
Is the financial system acting in favour of society’s needs?
Far from it! As Marx once put it, the finance sector is a good servant but a terrible master, and that’s what the Neoliberal obsession with deregulation has actually allowed to happen: finance has become the economy’s master, rather than its servant. We need to return it to its servant role: it should provide the money that firms need for working capital, that households need for large consumption items, and that entrepreneurs need to finance innovation, and that’s it. Instead, what it has been doing ever since the 1970s is financing asset bubbles. These can make some people extremely wealthy—or make homeowners think they are wealthy—but in the end it only enriches the finance sector itself.
The only way to stop this happening is to regulate finance: to limit the power that a banking licence grants to create money to ways of creating money that are beneficial to society, as well as profitable for the banks. Without those controls, banks end up financing asset price bubbles, as we saw vividly in the Spanish housing market. The huge increase in household debt from the introduction of the Euro caused spiralling house prices, only to come crashing down into Spain’s worst recession since the Great Depression afterwards.
Brave New Europe
Steve Keen – What is the role of public debt and private debt in the next great financial crisis?