[86] Steve Keen: “Loans create deposits!” aka No One Understands Banking

Our lead story: Erin talks net neutrality. Netflix CEO Reed Hastings called for rules that ensure that big broadband providers like Comcast can’t charge companies like Netflix a fee to connect directly to their networks. What do you think? Erin gives you the details.

For our interview today, we invite economist Steve Keen to talk about some bold assertions made by the Bank of England about how money is created. Turns out that your economics textbook on banking was wrong: there is no money multiplier in this story.

To round out the week, check out Edward Harrison and Erin’s discussion of the viewer feedback, or “Accrued Interest,” the Boom Bust team has received over the week.

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23 thoughts on “[86] Steve Keen: “Loans create deposits!” aka No One Understands Banking

  1. Great show Erin.
    Who ever heard of the term “endogenous money” until the BOE starting
    blabbering about it?

  2. Ha I liked the pushback on Mauldin as well, I would love to see the same
    for a Rickard’s interview and you would soon see the education gap between
    the two
    Rickard’s is so on another level.

  3. Steve is passing the buck, government gives private banks the authority to
    create fiat money. Not only does government give the banks the authority,
    it also forces people to accept that money and goes as far as to insure
    that bank created money.

  4. Netflix uses Amazon to stream its content, what is Hastings talking about.
    Netflix is just pure marketing!

  5. it would seem to me that governments, corporations and financiers simply
    complicate the simple laws of economics, supply and demand = value, to a
    degree where they instill them selves as the parasitic gatekeepers of
    production and wealth. thereby ensuring their own prosperity at the expense
    of those that actually create wealth and prosperity. they have taken the
    simple equation of 1+1=2 and fraudulently sell the concept of 1+1=3. i
    trust the laws of mathematics, physics, nature and even the jungle more
    than the laws of fraudsters. not to mention their predisposition to
    monetize and profit from what was independently created for the public
    domain and the benefit of all humanity in the first place. the solution is
    simple. common sense. they overcharge for their service to the economy by
    extorting more than they’re worth. and a failing economy is the
    indisputable proof of their incompetence and/or deliberate fraud.
    the fleas are now bigger than the dogs.

  6. OK. So the 10 lb note says that the government promises to pay the bearer
    10 pounds. OK, so you give them the 10 pound IOU, and they give it back to
    you? The problem is you can’t get rid of it. There are no pounds any more –
    just promises to pay pounds. It’s some kind of kabbalah.

  7. I don’t really agree with Keen saying that the government is that kind of
    responsible entity while the banks alone are the trouble makers. Surely,
    having the government trying to massage yield curves the closest to zero as
    possible counts as being very complicit in that ‘trouble making’ if you
    will. Also, if ‘private’ banks create most of the currency out there (and
    they do), why would you absolutely need massive government deficits ? The
    Federal Reserve system and its member banks create new currency. If
    anything, the Treasury is just another participant connected through the
    FedWire system.

  8. I forget where I first saw Edward Harrison – maybe, Capital Account. I
    never thought that much of him because he never says anything profound.
    But he grows on you. He speaks common sense in an easy to understand way.
    He is logical and measured. His views on bitcoin are a good example
    whether you agree with him or not. 

  9. Steve Keen provides no solution to the issue of creep. That is what the
    whole issue is. With a intrinsically backed monetary system, you are
    anchored and creep is only possible when the intrinsic value is
    subsequently raised too. This informs the monetary holders of any movements
    in the fiat circulation. He’s one of the more enlighten economists around.
    Still he’s far off the mark. Also, Bank of England is the ultimate source
    of the private banking cartel. Rothschild controlled through millennia.

  10. So what does Keen think all these private banks would do if the FED told
    them we’re not going to be your lender of last resort anymore? For a self
    proclaimed non-mainstream economist, he sure does like to shift the blame
    away from the government.

  11. Steve Keen is a clown, he’s just throwing words around.
    He obviously doesn’t understand the difference between currency and money.
    He should watch some Mike Maloney videos.

  12. Wrong. Banks use a system called factional reserve system and use deposit
    money to create money. If I deposit $1,000 dollars the banks keeps $100
    just In case I want a withdraw and use the other $900 for loans but here
    where the fractional reserve system becomes the scam. $900 from my deposit
    is multiplied by 9, so now the banks just created $81,000 for loads. All
    the people’s money is not in the bank. If everybody went to the bank and
    ask for all of their money back, it’s not there! 

  13. I just don’t understand how Steve Keen could be so favourably impressed by
    the fiscal responsibility and restraint of the Western nations + Japan. The
    Fed is just monetizing the fiscal debt — so where is the problem emanating
    from? The government, no?

  14. Steve Keen is wrong about deposits not being lent out. They are lent out,
    this is why we still have a FDIC today to protect depositor money, which
    the protections increase, or vary, for example Reagan increased FDIC
    coverage for larger sums of deposits. Steve Keen is insinuating that
    deposits are not at all part of a bank’s balance sheet. He is very wrong
    about that. Now do banks only need deposits to loan out money? No they
    don’t. Central Bank can create reserves whenever they want, which become
    reserves of member banks, or the member bank can borrow cheaply using the
    discount window. Before member banks use to abuse the discount window,
    until the Fed discouraged it it’s use. The creation of money is regulated
    by the Central Bank. When discussing reserves, we are not discussing vaults
    of real cash per say, it’s just computer entries that represent money. This
    is the same true of government bonds, they are merely computer entries that
    represent the legal tender, and only made whole with real cash via cashing
    in via treasury direct for example. This is what over night loans, or the
    Federal Fund Rate is that regulates interbank loans between member banks
    loaning to each other. There is no physical currency being transferred,
    only when the bank needs it to pay to make whole a promise, that’s it.
    Steve Keen also being typical left winger seems to defend government over
    private entities. Remember, this guy studies Marx. Central banks regulate
    money, this is why there is a huge credit expansion, and bubble in Asian
    economies for example in China. It’s not because of private banks are willy
    nilly creating money out of thin air out of their own power. It’s bazooka
    central bank policies of collassol credit creation that increases on net
    more private debt, because they create, and issue currency!!!

  15. Aggh, you got to be kidding me for leaving issue with Netflix open ended.
    Clearly Netflix has had a free ride until now. Also, people pay higher
    charges for internet since the ISP’s have offloaded the cost of upgrading
    infrastructure to the consumer. So If I don’t use Netflix, my neighbor
    does, I essentially subsidize my neighbor for streaming. Ideally the
    neighbor pays twice : one for streaming movies from Netflix and other to
    ISP. ISP’s are asking their due cost ! Hastings is a liar i think.

  16. Steve Keene is right about the fact taht currency is not a commodity but
    wrong about private banks creating too much money to cause inflation. This
    will not happen and cannot happen because government has limits on what
    private banks can do. Private banks are restrained by deposit ratio limits
    and in most countries do not control the amount of money in the economy.
    Reserve banks or their equivalent control the amount of money through their
    interest rate setting. He even says “it isn’t just the government that
    controls this money”. No bank apart from the central banks set the
    interst rate or have legilative power to limit lending. He also says ” they
    can go too far … but they don’t normally do that” so he is admitting they
    can and the word “normally” is not a definitive word. It is an admission
    they sometimes do !! Private banks don’t because the can not. If some bank
    could lend ad infinitum the they would continuosly lend more and more
    money at lower interest rates. You only have to look at this in the light
    of what he is saying to see the obvious weakness of Steve’s argument. 

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