The Clinching Argument In The “Private vs Public Debt” Debate

5 Jul

“He’s pretending that he’s elected by the people, and he’s actually elected by the banks”

In the following interview, Professor Steve Keen discusses how government “stimulus” or “help” programs that hand out borrowed (by the government) money to entice prospective house buyers, are actually Ponzi schemes.

But the most important truth of all is revealed from 10:14sec onwards:

INTERVIEWER: The Chancellor of the Exchequer, George Osborne, says he wants to reduce debt in Britain, while simultaneously launching the “Help To Buy” scheme which is an increase in debt. So my simple question is, Is the Chancellor lying?

KEEN: I think the Chancellor, like most politicians, is focussing on the level of government debt, not on the level of household and private debt, and they think that’s the real problem. The cause of this crisis was an out of control private banking sector lending to the private sector to encourage it to speculate on assets….

INTERVIEWER: (interrupts) Let me, let me, let me jump in for a second, because what we have found out in 2008 and going forward is that there really is no such thing as private debt, because when these private debts become unsustainable the private sector simply gives them to the government. So ultimately taxpayers always end up footing the bill for this debt, all the combined debt of household debt, bank debt, government debt, it’s all the same debt, that’s all underwritten by the same abused taxpayers, and the Chancellor — by ignoring this — is pretending that the UK people are brain dead!

KEEN: Well, what he’s pretending is that he is elected by the English people and he’s actually elected by the English banks. All this happens because the banks have got the politicians by the intellectual balls. They believe that the economy has to have a growing banking sector to be healthy, and that’s just like believing that you have to have a growing cancer to be a healthy human being. Past a certain stage the financial sector becomes a parasite. But it becomes such a strong and powerful parasite that the politicians think that if they let it die the economy will die. That’s precisely the opposite of the case — you’ve got to get the financial sector to shrink, you’ve got to cut it down, say in England, by a factor of at least 2 — and then in terms of abolishing debt, writing it off, not honouring the stuff, and standing up for the debtors, rather than standing up and voting for the creditors which, unfortunately, is what the politicians around the world have been doing this time around…

Unfortunately, Steve sidestepped the critical observation made by the interviewer — that because banksters simply palm off their out-of-control debt problems to the government, aided and abetted by compliant politicians, what this means is that, in the end, private debt and public debt must be considered in sum, not separately.

This is why Barnaby is right.

Although relatively “low” compared to that of “other advanced economies”, nevertheless Australia’s ever-rising public debt trajectory does matter a helluva lot.


Because — even though (sadly) Barnaby never points this out — Australia’s private debt levels are the highest in the world.

Our Household Debt sits around 150% of household disposable income.


Our government-guaranteed banking sector is massively leveraged to Australia’s world-leading house price Ponzi.

So, simply stated, because of our massive private debt problem, our nation absolutely cannot afford the added risk of an ever-rising public debt level too.

7 Responses to “The Clinching Argument In The “Private vs Public Debt” Debate”

  1. Kevin Moore July 5, 2013 at 3:00 pm #

    This info I thought would interest you. But I’m worried that if it was made too public, like for instance posting here, that it will disappear.

  2. JMD July 5, 2013 at 4:18 pm #

    Government bonds form the core ‘asset’ of commercial banks, supposedly risk free, good (even better) as good. The public v private debt debate is meaningless.

    • JMD July 5, 2013 at 4:19 pm #

      as gold

    • The Blissful Ignoramus July 5, 2013 at 5:51 pm #

      It’s an excellent tool of distraction. Keeps folks divided. Taking “sides”. Arguing peripheral points, so never able to see the forest for the trees.

  3. mick July 5, 2013 at 9:18 pm #

    Australia is high but other countries are much higher. The source (see link) I googled only showed Australia at 44% in 2011:

    I do not agree with the concept of “too big to fail”. Many American commentators also express this view. Fundamentally badly run businesses should fail so that those who run them go onto the unemployment scrapheap. It does nobody any good to help these to survive in the long run and any short term pain will soon be replaced by new better run businesses in their place. The net effect is nil. But at the same time it does not take money from the public.

    • The Blissful Ignoramus July 5, 2013 at 10:07 pm #

      Australia is high but other countries are much higher.

      Yes, and that is the central point — our private debt has not (yet) been dumped onto the public balance sheet, because our private debt/housing Ponzi has not (yet) collapsed. So, taking a “she’ll be right, we’ve got low public debt” attitude to our steeply rising public debt trajectory (see masthead of this blog) means that we are blithely weakening the public balance sheet, even before the SHTF and huge mountains of private debt are added to it … just as happened in Ireland, UK, USA, etc.

      You’re quite right about TBTF, and that many commentators (and indeed, public figures) are (now, belatedly) against it. Which only raises another grave problem — as I’ve posted elsewhere, the G20 governments have all secretively agreed to a new “bank resolution” regime dictated by the unelected, internationalist, Bank for International Settlements (BIS)-funded Financial Stability Board (FSB), wherein we will now be magically “saved” from TBTF, by stealing bank depositors’ money (“bail-in”) to prop up failing banks, before going to the taxpayer. See G20 Governments All Agreed To Cyprus-Style Theft Of Bank Deposits … In 2010.

  4. Hupalog July 5, 2013 at 11:34 pm #

    I think the cancer analogy is a good one. Instead of treating the obnoxious tumour with durgs that shrink it, or operate and excise it, the doctors (politicians, economic ‘advisors’) keeps pumping the patient full of carcinogens at its nodal point (bail outs, QE, privatisation agenda). The tumour keeps on growing and getting heavier. And all the secondary tumours keep on growing with it (shadow banking, ‘free’ market wealth). The doctors then says “Look, the patient is getting back to a healthy weight. In fact, she’s gaining weight. Everything is looking good!” (fractional economic ‘growth’, ‘green shoots’) The patient believes them as she is mostly unaware of what is happening to her, being in a state of near coma (cognitive dissonance, the work of the ‘shock doctrine’, popular culture and entertainment, media bias) and the patient’s immune system has now stopped fighting the tumour due to being starved to death (austerity). The tumour is now GROSSLY huge and at risk of bursting. The patient then reports feeling ‘a little better thank you. I could manage a cup of tea now, if that’s not too much trouble…’ (consumer ‘confidence’) But the tumours stills swells and sucks and drains until it can’t grow any more. And then…

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