The Global Financial Crisis according to Steve Keen

Global Financial Crisis Survey

Steve Keen is a Professor of Economics & Finance at the University of Western Sydney and the author of the recently updated book Debunking Economics. Keen predicted the financial crisis as early as 2005, and in 2010 he received the most votes (by far) for the Revere Award from the Real World Economics Review for being the economist who most cogently warned of the crisis, and whose work is most likely to prevent future crises. His predictions are also documented and summarized in "No One Saw This Coming" by Dirk Bezemer. He blogs (and began warning of the pending crisis) at Debunking Economics and DebtWatch.

1. Which FCIC View best represents the causes of the Financial Crisis?

None of the views. See also The FCIC Report: Sound and fury, signifying nothing (1/30/2011)

2. Which narrative presented by Douglas Elliott and Martin Baily of the Brookings Institute in Telling the Narrative of the Financial Crisis: Not Just a Housing Bubble best represents the causes of the Financial Crisis?

It was Wall Street’s fault.

3. I believe the crisis is ongoing and I project the Global Financial Crisis will end in the year

2013 or beyond.

4. What were the primary causes of the Global Financial Crisis?

A private debt bubble that began in the mid-1960s, should have terminated in the 1980s, but was allowed to move from one asset class to another by Federal Reserve rescues through a number of crises, until the debt level reached an unprecedented 300% of GDP. A slowdown in the rate of growth of this debt bubble in 2007 caused the turn from boom to bust, and deleveraging by the private sector is now the primary cause of the decline. Given that private debt is still about 170% of GDP too high--compared to the level of debt needed to fund productive rather than speculative activity--this crisis will continue for many years if bankruptcy and debt repayment are the only means used to reduce private debt.

5. What still should change as a result of the crisis?

Wall Street's power over the political system needs to be broken, financial fraud needs to be pursued as vigorously now as Bill Black pursued it in the aftermath to the Savings and Loans crisis, and much of the debt issued to households in the last 2 decades needs to be written off in a public jubilee.

Keen also refers those interested in further explanation of his research and opinions to view The Roving Cavaliers of Credit (1/31/2009) and Are We “It” Yet? (7/3/2010).

Compiled by Gary Karz, CFA
Host of InvestorHome

Global Financial Crisis Survey

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