The Coming Financial Crisis of 2021

Economist Steve Keen predicts that even if the covid-19 health crisis subsides next year, a brewing financial crisis on par with the 2008 Great Recession is in the making.

He sees the pandemic as having delivered an “unprecedented shock” to the global economy, and the response from authorities as nothing less than a “catastrophe”.

With tens of millions of households having lost their income this year, personal savings becoming exhausted, government support programs on their way to drying up, and lots more company layoffs/bankruptcies/closures ahead – Steve expects a punishing recession to arrive in full force in 2021.

And on a larger scale, he sees modern neoclassical economics – which ignores the importance of natural resources and the health of our ecosystems – as completely unsuited for the reality in which we live today. He warns that if we don’t adapt a more informed approach to managing the global economy, we will only continue to make the mess we’re in worse:

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This is a companion discussion topic for the original entry at

totally insane argument. let’s simplify this people. if you create massive amounts of something that requires no work nor effort to produce (the dollar)…distribute it to the masses…and allow them to purchase real tangible goods…it will result in a tsunami of unintended and catastrophic consequences. this guy should work at the FED. wish Adam would have pushed back on his inane arguments.
it’s not even worth discussing his premise that renewables are the future. this is a pipe dream. we don’t have the resources or energy to convert our system to, or maintain, a renewable energy system in the future. where is the pushback on these insane arguments? i expected a deeper and more thoughtful response to Mr. Keens arguments. disappointed to say the least.

OK we know everyone can’t be an expert on everything. He knows a lot I don’t; I know some things he doesn’t.
Just got to the point at about 10:30 where he says something close to "we know the only way to successfully control this virus is lockdowns…wrong. Clearly as a doctor I’ve done a lot more reading on that topic than he has, but I’m not alone. Plenty of people with MD, MPH, and PhD [and other health degrees] after their name are disagreeing with lock downs for health reasons, let alone economic reasons. Lockdowns, in addition to questionable results for this virus, create or exacerbate depression, addictions, suicides, fear of going out to continue their cancer, diabetes, heart, kidney, mental health, and other treatments, etc., etc. It is INSANE to quarantine an asymptomatic working-age population who statistically has a very low rate of illness from this virus. Protect the vulnerable.
We don’t know how much herd immunity is possible, but we also don’t know if a safe and effective vaccine is possible. They will make one; the profit and political motives are too strong not to. But check out the polling percentage of people who have stated no way will they get this vaccination. It is quite high. By the way, MANY doctors do not get vaccinations [or are very selective] for themselves and their families.
At least three strains of coronaviruses are among a few other viruses causing the common cold. In DECADES no one has come up with a vaccine for these coronaviruses, despite the incentive of billions in profit that could have been made.
I’ll have to decide if I want to spend more time listening if that is a major premise of his.
I’ll listen politely to someone’s discourse, dialogue, or monologue, but sometimes I hear something I consider so “off base” [a “disqualifier”] I don’t continue to listen or read it anymore.
There are a lot of valuable things & people to read or listen to, and not time for all of them.

“it’s not even worth discussing his premise that renewables are the future. this is a pipe dream. we don’t have the resources or energy to convert our system to, or maintain, a renewable energy system in the future”.
I agree. “Renewables” are not as renewable as people think. Worn out windmill blades are buried in landfills. Worn out photovoltaics like solar panels become environmental waste when they wear out. It take one Hell of a lot of fossil fuels to mine, refine, manufacture, transport, and maintain these “renewables”, and they don’t stack up well with an immutable law of physics…Energy Returned on the Energy Invested [EROEI].

i reckon you have to get to herd ammunity: even larry williams the trader in a video pointed this out 6 months ago. and so did professor knut wittkowski
debt jubilee?. you discriminate against those who did not take on debt.
for me i disagree with steve on the debt jubilee, giving out free money, and the lockdown
then steve talks about energy rationing. how can you do this without having a lockdown based around energy?. imagine the bureaucracy required!
this is a good article regarding gov and the fed stepping away from the market :
it would good to see him debate saifedean ammous

“He warns that if we don’t adapt a more informed approach to managing the global economy, we will only continue to make the mess we’re in worse.”
Don’t worry, the billionaires at Davos 2021 (moved elsewhere next year to avoid catching covid from the hoi polloi) are very informed and are planning to make sure they’re in control, titling the conference The Great Reset. The plan will be to screw working people to bail out huge banks for greedy malinvestments but in way big time involving currency changes.

Steve Keen’s debt jubilee doesn’t provide any moral hazard since everyone - debt or no debt - gets the same $100,000. If you do have debt, you are required to spend that $100k to pay it down. If you only have $50k debt, then that gets paid down and you keep $50k. No debt? You keep $100k to spend on whatever you like.
With 253M adults x 100k each, that’s 25.3 trillion, much of which goes to private debt repayment.
Consumer Credit: $4.2T (motor vehicle, revolving, non-revolving)
Student Loans: $1.67T
Real Estate Loans: $4.7T
I’d say most of that just all goes away. So no more student loans, no more credit card balances, no more payday loans, and maybe half of all mortgages just vanish.
The money that goes into debt destruction is not directly inflationary - except the payments formerly being made are now available for spending. The people who don’t have debt get cash to spend, and that would definitely be inflationary. But where?
The question to ask Steven Keen is - what have his models shown to be the impact on asset prices from the debt jubilee. He has modeled it out for sure. These are the specific questions I would ask him:
“How much private debt would be eliminated as a result of this operation?”
“How much would end up as cash in people’s hands?” - he already knows these numbers.
“What would the private debt/GDP look like 5 years after this operation concluded?”
“What would be the change in the CPI be over that 5-year period?”
"How would people on fixed pensions fare 5 years after such an event?
“If you knew a $100k debt jubilee was coming, which assets would you purchase in advance of this event?”
“Who are the winners and losers of this event?”
He has done the math on all of this.

I don’t think a debt jubilee makes the debt just go away. What it does is nationalize the debt. It’s trading individual debt for sovereign debt.
Disclaimer before I continue: I confess I have not read the MMT economists - I find the notion that it’s possible to print money at the sovereign level with no ill effects absurd on the face of it, and so (as DisappearingCulture said in a different context) I haven’t bothered to go deeply into it; there is other, more sensible and (for my life) germane material to read and ponder.
That disclaimer made, it seems to me from the exposure I have had to MMT (and Keynesians before them) that these academics are operating within narrow, self-serving theoretical and strictly academic horizons.
In the real world, the world outside the posh academic circles, the US does look to be getting away with deficit spending with a degree of impunity - but it is an apparent impunity not shared by any other nation in the world. I’ll go a little further and say that if the US were to stop supporting other governments in the world with our combination of direct government give-aways and indirect economic boosts through Department of Defense infrastructure and personnel (forward deployed military bases for the most part) injecting hundreds of millions of US dollars into other nations’ economies every year, many already troubled economies would have sunk, while yet others would be more seriously listing.
The US is able to print dollars into existence quite willy-nilly because of two factors. Domestically, the rate of technological innovation reduces the cost of producing consumer goods faster than the rate at which the Fed injects new fiat into the domestic economy. As a result, domestic injections that trickle down to Main Street meet production cost “holes” and fill them up, keeping prices constant or slightly inflation oriented. If not for that printing, the purchasing power of our dollars would actually be going up. (That’s supply side deflation, and it’s good for the consumer, while bad for the government that funds itself on borrowed money.)
Internationally, there exists a higher demand for dollars than there are extant dollars because so much of international trade is denominated in USD. Everybody struggles to earn money in their local currency sufficient to purchase enough USD to pay for their portion of the 80-odd percent of international trade that’s priced in USD. That high demand means the Fed can print and inject dollars into foreign economies with limited dollar-inflation effect.
In fact, the Fed has to keep printing to prevent the shortage of dollars overseas and the efficiency of technology at home from driving the dollar’s strength up, which would bankrupt foreign treasuries on the one hand, and create a crisis at home on the other, due to domestic supply side deflation. Supply side deflation (the reduction in cost of goods, allowing a dollar to buy more each year) means the repayment of debts would have to be made with dollars that purchase more when paid back than they purchased at the time borrowed. That reversal of our current inflationary policy would destroy our zombie corporations, and our near-zombie government. (But it would enrich the wage earner.)
As nearly as I can noodle it out through my admitted cursory interest, MMT economists ignore the macro elements that cast doubt on their assertion that governments can print money without a negative impact. It’s not true; just ask Greece, Zimbabwe, Spain, Italy, even the entire EU. All of them are in trouble and, as I suggested above, many more countries would have already sunk if not for US injections of fresh buying power.
We are holding up the world’s economic system. And we can do it because of the huge demand for dollars to fill the gap between local currency values and dollar-denominated debts. But that does not mean the US economy is stable, much less the world’s economy; nor that the debts we’re building don’t have a “best used by” date. We just don’t know what that date is, and that allows MMT theoreticians to pretend there is no spoilage coming.
MMT lifts it’s theoretical head just far enough to see that there’s plenty of printing room in the fiscal landscape, with no boundary immediately ahead, and concludes that there are no boundaries anywhere, ever, if it’s sovereigns doing the money creation. It’s bad reasoning, and it requires ignoring certain evident and growing structural cracks and strains to make its case - which ignoring MMT does by asserting that those problems exist not because of too much money creation, but because of inadequate money creation. They don’t lift their collective theoretical head high enough to see the wall at the end of the alley they’re urging us down.
In reality, the US dollar is only the best floating turd in a flushing toilet bowl. Relatively speaking, we look buoyant - but only relatively. We’re still subject to real market influences, and they’re all, in the longer term, sucking the dirty fiscal water out of the bowl. We will likely go down last, but we will get sucked down. Unfortunately, MMT hastens that moment of reckoning.

Yes there is no free lunch! Those at the top of this country are leading us down a path that leads to the last 8 years very soon:

Great interview that gave me a lot to think about. However, can we all be adults and use the correct terminology of DEPRESSION? What is this recession nonsense? Sets me nuts to call the biggest crisis in modern history a recession…as if it’s just a blip on the radar and we will be back to normal in no time. ??

I admit to being financially unsophisticated, but if we print and gift citizens with cash to pay their debts, doesn’t the money simply pass through their hands going directly to the lenders: That is, the bankers?
Reminds me of when the EU “bailed out Greece” and the money went directly to the German banks that had loaned money to Greece.

i used to respect steve but after this less so. his arguments were odd. it seems that mmt assumes all spending occurs down at retail level. what about the miner buying a new set of bearings for a motor. i like the austrian theory. savings = investment = jobs

Actually - surprisingly - bankers lose.
See, the bankers don’t make money on the loan - they make money on the interest payments on said loan. They really would prefer that you never repay it.
Their “assets” are all these loans. If you repay them all, they then have no assets. No interest payments. Basically - they die. Steve Keen knows this.
And this is probably why it will never happen. The bankers will basically be toast.
If you go back to the loan origination & payment process:

  1. bank does a credit check
  2. if you pass, the bank creates money from thin air, hands it to you, and then adds your “note” onto their balance sheet as an asset.
  3. you pay P&I every month. That “loan asset” declines every month by the “P”, and the “I” is added to their income statement.
  4. When you pay off the loan, the last bits of that “loan asset” is removed from their balance sheet, they receive no more interest payments, and they are very sad.
    [EDIT: the bankers don’t pocket the money you pay back and throw a party - the money you repay disappears - it goes to “money heaven.” The same magic (legal) power that allows them create money from nothing based on your promise to repay, requires them to destroy the money you pay back on that same loan. Debt repayment is deflationary, just as debt creation is inflationary.]
    Credit cards where the borrowers pay minimum are their favorite assets.
    This is why I say “getting out of debt is a revolutionary act.” It is the very worst thing you can do to a bank - repay that loan.

steve assumes bitcoins energy consumption is a negative and that all else remains equal. when you think it through bitcoins energy consumption is paltry when compared to the current banking system, its malinvestments and the inefficiencies of the fx markets. bitcoin promises no banks because each of us will be a bank. imagine the energy savings!!!

Reform can be done, if this is any indicator. An excerpt from this excellent article (bold my emphasis):

With the light cast firmly upon the dark shadows where vile creatures like J.P. Morgan and other financial gremlins reside, the population was finally able to start making sense of what injustices befell them during the years of post-1929 despair. While not every banker went to prison as Wheeler or Pecora would have liked, examples were made of dozens who did and many more whose careers were shamefully ended. Most importantly however, this exposure gave Franklin Roosevelt the support needed to drain the swamp and impose sweeping reforms upon the banks. In the first hundred days, FDR was able to: 1) Impose Glass-Steagall banking separation (forcing Wall Street banks to break up their functions and preventing speculators from gambling with productive assets) 2) Create the Federal Deposit Insurance Corporation (FDIC) that protected citizens’ savings from future crises 3) Create the Securities Exchange Commission to provide oversight to Wall Street’s activities and on whose body Pecora was appointed commissioner in 1934. 4) Unleash broad credit through the Reconstruction Finance Corporation (RFC) which acted as a national bank bypassing the private Federal Reserve, channeling $33 billion to the real economy by 1945 (more than all private commercial banks combined) 5) Impose protective tariffs on agriculture, metals and industrial goods to stop dumping of cheap products in America and rebuild America’s physical economy 6) Create vast public works, like the Tennessee Valley Authority, Grand Coulee dams, Hoover dams, St Lawrence development and countless other projects, hospitals, schools, bridges, roads and rail under the New Deal that acted in many ways then as China’s Belt and Road Initiative has in our modern age. Unfortunately, Roosevelt died before this new form of political economy could be internationalized abroad in the post-war years as an anti-colonial program. A beautiful outline of FDR’s struggle is showcased in the 2008 film ‘1932: Speak not of Parties but of Universal Principles’.–oozjFwo4?feature=oembed
The need for these reforms is dire and immediate, as so cogently explained by Gail Tverberg in her most recent blog post which is so excellent, as per the norm. An excerpt:
We need a new, very inexpensive energy source that buyers will willingly pay a disproportionately high price for right now, not 20 or 50 years from now. The alternative may be an economy that does poorly for a long time or collapses completely.
Very sobering reading, both articles. Given that I see no "Ferdinand Pecora" types ready, willing and able to step up and do what needs to be done on a critical urgent & important basis, I do not have a lot of hope. It is likely the collapse has to happen, as dictated by the Fourth Turning cycles, before we can begin anew. It is also likely we have been doing the slow burn collapse up to this point, but with each passing week start to unfold faster and faster, with reactions escalating accordingly depending on where one lives. If Gail's predictions for 2021 oil become true, coupled with the USA imploding from election chaos, there will indeed be serious repercussions felt far and wide. To ignore known and proven information and not take action is to set yourself up for hardship. I think the saying better a day too early than a year too late is rather prescient, worthy of paying more than lip service too.