Max Keiser & me & the UK’s 950% Debt to GDP Level

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It’s always a pleasure to talk with Max, and in this interview he drops a bombshell that I still have a hard time even contemplating: the claim that the UK’s private debt to GDP ratio is 950%, and the finance sector alone has a debt ratio of 600% of GDP. Our discussion starts at the 14 minute mark.

I still have to see the data for myself, and until then I’ll remain skeptical, but here’s a chart allegedly sourced from Morgan Stanley that makes that claim.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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94 Responses to Max Keiser & me & the UK’s 950% Debt to GDP Level

  1. Lyonwiss says:

    Economics is in a mess. No one has all the answers, not Steve, not Ron Paul and
    certainly not anyone in charge. Hence getting on a bandwagon, taking sides, belonging to schools or parties etc. is a sure way of closing your mind.

    It is silly to judge Ron Paul by what he appears to say on TV on in debates, as many things are said inaccurately, wrongly or clumsily. This allowance must be made to all people in public appearances. I interpret Ron Paul by his little book, “The Revolution: A Manifesto”, where he made a strong case for the idea that American governments have acted against the US Constitution of their founding fathers.

    Regardless of any details of his politics or economics, he is the only politician he
    clearly opposes the corruption between the US government and Wall Street, the bailouts and the manipulations of the Fed. This is his main appeal to a new generation of US voters.

    Few people understand government and for most of my life, I didn’t either. This
    changed after working for 10 years in government, where I had hoped to make a difference. Now I accept the public choice theory (of Buchanan, Olsen etc.) where government is merely individuals pursuing self-interest in the context of public function. This conclusion comes from the only coherent explanation of my personal experiences. I cannot now accept any simple-minded Keynesian style economics, which is based on a misconception of government.

    This does not mean either that I believe in free markets, which have proven to be dysfunctional in many cases, particularly in finance. Neoclassical economics is based on a misconception of markets.

    The worst of all evils is to combine corrupt government with free-wheeling markets. This is what we have at the moment. If Ron Paul can break up the fascist nexus between the government and the market, then that would be a good start.

  2. koonyeow says:

    Title: koonyeow Is Impressed by Lyonwiss

    Your most comprehensive piece I have read thus far, covering human nature and epistemology.

  3. Pingback: News: Max Keiser On The Shocking Real Debt To GDP Ratio Of Britain | News 25/7! Delivering news in real time

  4. Michael Hoexter says:


    Yes, neither Steve nor any other economist or thinker has all the answers. But your analysis in your last comment cuts Ron Paul a huge amount of slack while, in my opinion, degrading Steve’s and other serious critical economists’ efforts to create a better economic science/knowledge base. In my opinion, they simply cannot be lumped together in these matters, even though , superficially they both are critical of the status quo. I’m surprised that you are grouping them together given that you are a frequent commenter here and I have assumed have developed some understanding of Steve’s approach and methodology.

    Ron Paul, on a regular basis makes claims for free markets and claims against government that are empirically false or are so improbable as to be laughable. For instance, Paul believes that without the effect of government subsidies and regulation, the price of gas would be be substantially reduced. This piece from 2005 is simply a statement of faith in markets:
    This is an example of purely inductive reasoning that also starts from false premises. Paul would say the same about any market…it’s all rote reasoning from (simplistic and often false) principles.

    Steve, though he has, I’m sure, personal biases, tries to arrive at a truer representation of the economic system that we live in and he is pretty conscientious about that. I think he is open to the data and to learning from others. He makes some statements that are based on inductive reasoning but here he generally sticks to pretty “low level” and therefore uncontroversial concepts in math, logic, and accounting. Paul is pretty much sealed up in his own ideology and is almost always making inductive leaps at “high” levels that are fraught with questionable assumptions.

    Re: public choice theory and your experience in government

    Remember that your experience is, as social scientists say an “n” of 1. Moving from that experience to reducing government to the actions of self-interested individuals is an “inductive” act that may involve “not seeing the forest for the trees”. Unfortunately public choice theory is another way that neoclassical economic assumptions have imperialized other social sciences. It is methodologically individualistic therefore blind to emergent properties in complex systems (like government and the economy). Even if every individual in government can be construed as acting in a self-interested manner it doesn’t mean that the net effects of government as an institution will be identical to those of, for instance, a market composed of self-interested individuals. Therefore the exercise of reducing those institutions to the actions of self-interested individuals starts to appear to serve ideological functions of undermining the notion and utility of group action via government or group action via another institution.

    I don’t know what you mean by “simple minded Keynesianism”…there are so many Keynesianisms, some of which aren’t really Keynesian. Keynes, however, did recognize some emergent properties in the macroeconomy that couldn’t be reduced to the actions of self-interested individuals, thereby founding modern macroeconomics. Keynes didn’t finish his work and left a lot of loose ends, some of which have led to some of the research and modeling that Steve does as well as others in the post-Keynesian area of economics.

  5. Lyonwiss says:

    @ Michael Hoexter December 26, 2011 at 4:10 am

    I do not need to defend Ron Paul or any school of economics, which all have flaws (as well as useful insights). Steve’s approach is best for some aspects of economics. But neither his nor anyone else’s ideas are entitled to uncritical acceptance, which accounts for much of malaise in economics.

    There is no need to trivialize anyone’s experience. By definition, there is no escaping that everyone’s experience is a sample of “n” of 1. The idea that statistics is only way to arrive at the truth is another common fallacy.

    Of course, my own experience has to be checked against those of others by talking to friends and colleagues working in government. Individual experiences can also be found in many books (eg Confessions of a government man by Greenberg among others) and collective experiences can be found in social science research papers. I understand the fallacy of composition.

    Examples of failure of government (as an entity) are evident everyday. The global financial crisis is substantially a failure of government regulation. Neoclassical economics displaced Keynesian economics in the early 1980s due to the failure of government of manage economic shocks. Government (“we are all Keynesians now”) is exercising greater power now than ever to address the GFC with enormous government spending, monetary stimulus, bailouts, re-regulation etc. The de-facto Keynesian economics we have now is looking worse, not better.

    By “simple minded Keynesianism” I mean the belief that the “right” government policy or initiative will lead to salvation. It is the fallacy of division (assuming everything else will be right). For example, earlier in the GFC, the Australian government had the brilliant idea (without irony) of providing Keynesian stimulus by subsiding home insulation to reduce energy consumption. The program led to house fires, deaths from electricution, rorts, scams etc. and had to be terminated, with the government having to pay out compensation to injured parties. Simple minded Keynesians would ignore this episode and claim overall benefit to the economy.

    A theory may be nice, neat and convincing, but it has to ignore and neglect some
    aspects of reality (otherwise it is not theory), which may turned out to be essential to the usefulness of the theory. This is the case for all economic theories I have examined so far. I would not offer solutions until I understand fully what the problem really is; to do this, an open mind is necessary.

  6. NeilW says:

    ” I would not offer solutions until I understand fully what the problem really is”

    Then you will fall into the trap of what we call in the systems world ‘analysis paralysis’.

    The better method is to roughly understand something as quickly as you can viewing the available evidence and then design something to try and try it, but make sure that it is designed in such a way that it can be backed out. Incremental open changes rather than big bang.

    You are right, I believe, that government suffers from the agency problem and that there is a little too much blind faith in the wonders of democracy as a decision making approach. Therefore anything that requires a ‘Wisdom of Solomon’ decision by politicians is probably best avoided.

    Our best hope is probably the automatic stabiliser system, which has at least showed that it can catch a falling elevator and stop it slamming hard into the ground. But we’ve seen that it is insufficiently developed and that led to the discretionary decisions to rescue the banks.

    People need to have faith that they will be caught by the safety net, so that entities and organisational structures that have outlived their usefulness can be allowed to die.

  7. RickW says:

    I understand the analytical basis of Steve’s work but he is a long way from having wide acceptance and even further away from guiding policy in developed economies. I have not even seen any analytical proof that his debt jubilee will be an expedient solution. In this context simple minded solutions, as proposed by Ron Paul, could provide the shock to open the door for new ideas to flourish.

    It is clear the entrenched view in economics that debt does not matter remains firm. According to Roger Farmer, the current economic issues in the US can be easily resolved by the US Federal Reserve having a second lever in addition to interest rate control. They simply need to be active in the share market so they maintain a floor price. That will ensure confidence and will keep things humming. This new theory stems from the strong correlation he has found between unemployment and the share market:
    See debt doesn’t matter! Note the paper was presented during a plenary session at the US Federal Reserve Bank (san Francisco). I recall it was around this time that “crisis of confidence” was first uttered by Bernanke:
    Is that coincidence or is it the new common wisdom?

    So clearly Steve is wrong about the significance of debt. Debt does not figure in economic policy. Just jack up the share prices to restore confidence and all will be good.

    Point of this is to pose the question who has the best approach to restoring US employment – Ron Paul or Bernanke using advice from economic experts like Roger Farmer. Any other GOP candidate or Obama will not challenge the economic status quo.

  8. LCTesla says:

    I notice that the UK is not the only country that according to Morgan Stanley’s figures has a much higher debt level than is more commonly claimed. Australia is surprisingly listed as having a debt level on par with the USA, contrary to the data that Steve tends to use which says it’s nearly half as high. Is there so much ambiguity in the reporting on debt levels that such extreme discrepancies can occur?

    Anyway, this data should offer additional fuel for the thesis that Australia has a debt problem if it is correct.

  9. Lyonwiss says:

    @ NeilW December 26, 2011 at 9:27 pm

    In theory there is the possibility of “analysis paralysis”. But in reality, it is just
    the opposite, as there is a vast number of false prophets, who have “answers” to our current problems. All they do is to add noise and confusion, so that no one knows what’s the right answer or what to do – leading to true paralysis. In this confusion, the only convenient option for governments is the status quo, continuation of market fundamentalism, as we are witnessing. (Ex Goldman Sachs technocrats are now running Europe.)

    Once we understand what the problem really is, we do not waste time eg in persuading the government the “correct” economic theory, which is where 90 percent of the effort of economists, activists etc have been directed. For example, the “discretionary decisions to rescue the banks” is not based on any economic theory, rather it is based on political expediency of corrupt governments, which did not even bother to take economics seriously.

    Both government and market need reform, which has to be worked out. But the corrupt nexus between the government and the market needs to be broken. This view is consistent with those of many market commentators. This decision for action is hardly “analysis paralysis” or a waste of time, whereas telling governments that they have no budget constraints is.

  10. RickW says:

    I dare you to read Farmer’s paper and not laugh out loud!!!

    It shows how silly otherwise sensible people can be so deluded when their belief system is screwed by their poor education. Can you believe these ideas have currency in the corridors of economic policy makers.

  11. NeilW says:


    I’ve updated the sheet and split out the base data, and the aggregates you require. Sheet ‘Accelerator Data’ should have what you require.

    I couldn’t locate any non-seasonally adjusted labour force data. I hope the seasonally adjusted data doesn’t affect the calculations too much.

    Link here

  12. Steve Keen says:

    I’ll check it out over breakfast Rick, thanks.

    Loving the discussion here at the moment, BTW.

  13. Steve Keen says:

    The empirical section of that paper represents a valiant attempt to understand something that has thus far been inexplicable to neoclassicals–the Great Recession itself. Of course from my analytic point of view he’s correlating two variables (unemployment and asset prices) that are both driven by the same causal variable (change in debt) which he’s not analysing at all. So it’s a classic “correlation not causation” argument.

    Then his attempt to develop a causal mechanism… the same old “representative household” nonsense! Yep Rick, now I am laughing out loud!

  14. RJ says:

    Excellent discussion


    “Your accounting is correct. But like much of the discussion on monetary economics (eg MMT) it is beside the point. Any saving or equity can be leveraged only up to capital limits (about 12 times) under regulation in traditional banking. But in de-regulated investment banking with securitization, hypothication and re-hypothication etc, there is virtually no limit to leverage, ie there is no limit to risk taken in the financial sector.”

    The Steve Keens response

    “But Lyonwiss’s point earlier in this discussion is the crucial one: banks are subject to various rules that limit their gearing; non-banks are not.

    My point is that the combination of limited banks and unlimited non-banks gives the system to create as much debt/money as it wants to.”

    is it besides the point though?

    Yes debt can increase but money can not. Please correct me if I am wrong as it is a comment that I have read before and can not see how. Stop banks lending money (or Govt running deficits) and then non banks can only do so much

    Money can only be increased by

    -Commercial bank loans
    -Government spending
    -Govt bonds decrease

    Other points I have an issue with are

    “Loans are created out of equity”. Not correct. In fact this is completely wrong. Loans are in fact created out of thin air by a simple journal entry. Capital restriction do no more than try and restrict the amount of bank loans. But loans are NOT created from equity. Or from reserves or deposits. And never were. It is simple fact that many refuse to accept.

    There is potentially infinite money. This is an important point. As money is simple created by a journal entry there is no limit. But the harm too much additional money would do means that controls are introduced to stop this occurring.

  15. Steve Keen says:

    Having read the whole paper now, I expect that Farmer will be one of the front-runners among neoclassicals in the attempt to redefine their theory so that it appears to know what’s happening to the economy. He’s certainly more palatable to most of them than Krugman and Eggerston’s work, which does include debt, though in a very awkward neoclassical way.

    The irony is that Farmer’s policy prescription of trying to sustain the stock market’s value has to work against the debt-deleveraging that is driving asset markets down, but of course debt doesn’t appear in his analysis at all. Bernanke has also argued for QE as a means to inflate asset prices and boost consumer confidence, so though his analysis is different, he’s in the same policy camp.

  16. Steve Keen says:

    Wow. Impressive work Neil, thanks. I’ll import it and put out a blog entry on this in the next few days.

    I’ll make your data publicly available too, if that’s OK–of course you’ve made it available to blog members here already. Would you be OK if I gave your name & email, or would you rather anonymity when I post?

    Cheers, Steve

  17. Steve Keen says:

    Whoops. Just checked out your blog for the first time! Of course I’ll link to it when I publish.

  18. Steve Keen says:

    Hi Neil,

    I needed the unemployment rate as well, and I thought I’d locate it myself rather than bother you (and wait till UK daytime as well). Bloody hell–what a complicated mess ONS is! I finally located what I wanted, after maybe an hour of false leads, only to find a table (a01dec2011.xls) that, when loaded, showed the last 6 quarters of data with previous quarters hidden! Of course it was no great problem to unhide them, but then the data has hidden rows throughout, incompatible data series stacked on top of each other… A total disaster compared to the US and Australian statistical agencies.

    Just a gripe at the UK! It appears that Sir Humphrey Appelby is alive and well: “they want data? Sure, let’s give them everything! They’ll spend so long trying to find what they want that they won’t ever bother us again…”

  19. Michael Hoexter says:

    To say that Steve’s model and writings are much, much better economics and social science than Ron Paul’s monotonic market fundamentalist policy proposals and speechifying is not “uncritical acceptance”. You are arguing against a strawman. There is a difference between something that is much better and a much surer guide to action and something or person that is worshiped as the paragon or summit of all human development. You seem to be confusing the two. I am saying the former is true, i.e. Steve’s work is a far, far better guide to policy and action than Ron Paul’s ideological cant. It isn’t perfect or complete but it is much better.

    It is you that are glorifying Ron Paul’s pronouncements as “economics” co-equal with Steve’s (or other serious thoughtful economists/social scientists) relatively careful lifelong work in studying the dynamics of economies. Paul is not using statistical tests as Steve has done to show that for instance, the credit accelerator is very highly correlated with unemployment. If I have criticisms of Steve, one of them is that he, at least lately, seems to focus more energy on modeling rather than on this type of empirical analysis. Of course he is extremely overworked anyway.

    One of the problems in economics is exactly exemplified by the lack of explicit criteria for judging economic statements and opinions using empirical analysis. It becomes a matter of subjectively choosing “flavors” according to obscure, often personal criteria. Each of us has our “bespoke” economic flavor which we favor or not depending on our own self-image plus education and experience. It sounds to me that your elevation of Ron Paul as a co-equal to Steve or maybe Minsky or Godley is one of those subjective decisions that may be based, I believe, on overexposure to neoclassical economics at a young age. There is a shared market fundamentalism between the Ron Paul-Austrian view and neoclassical economics which is a reason why people seem to take Ron Paul seriously…Econ 101 has softened up people’s minds to be receptive to his sophomoric ideas about how the economy and society works.

    Re: Government’s role and Keynesianism

    Again as above, we are looking at the issue of making the Perfect the enemy of the Good. Government isn’t perfect and in many countries governments have been degraded as an instrument of popular will in part because of the cant put out by people like Ron Paul, Milton Friedman and public choice theorists, which suggest that group human action is not optimal.

    However, trying to restructure the financial system and the role of government in the financial system (which is inevitable), will involve, drumroll please, government plus popular movements that demand that government and banking serve the public good. Without movements like the Occupy movements, it is for the most part inconceivable that government officials will be able to do the difficult tasks required in restructuring debt, regulating banking fairly.

    Most government policy as regards the economy has a Keynesian element to it. Some Keynesian stimulus is misdirected and ill-conceived, especially when it is designed to avoid hard choices. Keynes’s work is not a Bible. Still, we ignore Keynes and the use of Keynesian tools at our peril especially in the depths, at least here in the US of a debt deflation.

    So living in sort of an anarcho-capitalist fantasy world with Ron Paul, will not get us any closer to asking which kind of government (and which kind of “Keynesianism”) we need to design and/or referee a better financial system.

  20. Lyonwiss says:

    @ RJ December 27, 2011 at 8:48 am

    As most discussions by economists were about the traditional banking system, not about the shadow banking system, I wanted set the facts straight about the cause of high leverage. The traditional banking system is regulated and hence it cannot “lend out of thin air”, without being limited by leverage.

    It is the shadow banking system which allows the system to escape credit growth restaint from regulation. It would be untrue to say that regulators did not know about the shadow banking system. Their view is that disintermidiated lending is subject to market discipline and therefore can be deregulated.

    This clarification is important for several reasons. As you said now: “There is potentially infinite money”. But this potential does not originate from how the traditional banking system works (as many economists claim). The consequences of this understanding are

    1. Improving regulation of the traditional banking system as in Basel III reforms does not address this problem.
    2. Traditional banking expanding into shadow banking is largely the cause of excessive leverage and credit growth. This is due to repeal of Glass-Steagall Act, which needs to be restored.
    3. Shadow banking, being unregulated, is the eco-system for widespread fraud and government corruption.
    4. The shadow banking system originated from the belief in the efficient market hypothesis, which should be repudiated and the shadow system should be curbed.
    5. Government spending and printing money do not solve such problems and in fact have made matters worse, the shadow banking system was not only saved, but enhanced.

    This analysis is consistent with Max Keiser’s GIABO (Global Insurrection Against Banker Occupation) movement. The bankers have taken over government, which cannot now be the solution to our problems.

  21. RickW says:

    @Steve Keen
    December 27, 2011 at 9:15 am | #
    Having read the whole paper now, I expect that Farmer will be one of the front-runners among neoclassicals in the attempt to redefine their theory so that it appears to know what’s happening to the economy.
    End Quote

    For policy makers this profound blindspot to debt borders on criminal negligence. They will continue to wreak havoc until the whole system blows up. For them there is no notion of kicking the debt can down the road because debt does not matter. Everything will be fixed by restoring confidence – plausibly naive.

    Steve – I have been silently critical of your constant attack on neoclassical economists as I think it detracts from the wisdom of your own economic analysis. I have seen a similar view expressed in a review of Debunking. Your attacks on lesser lights reduce your own currency. However when I see such ill conceived “analysis” as Farmer’s work, from the insight of your modeling, I do get an inkling of the frustration you must endure.

    I emailed Farmer a link to your Youtube lecture series in the hope that he might enlighten himself on the role of debt – don’t laugh there might be a tiny spark of curiosity.

    Farmer explains his magic solution here:
    Someone needs to stand in front of this fellow and scream “IT IS ALL ABOUT DEBT”.

    If I google debt I get about half a billion hits. For it not to get a single mention in a theory that purports to explain “How Economies Work” is beyond laughable. At least wealth gets consideration. Wealth could be viewed as the other side of the same coin to debt so maybe a glimmer of enlightenment.

  22. cliffy says:


    “Money can only be increased by

    -Commercial bank loans
    -Government spending
    -Govt bonds decrease”

    This is always a confusing debate because statements don’t always specify whether or not the statement is being made in the context of the rules of a regulatory system in a particular jurisdiction or on the basis that those rules are regarded as not in force.

    Secondly the accounting rules and classifications, and the definitions of technical definitions of debt and money, can vary.

    Thirdly money is like any other market and so commercial realities influence decisions to expand or contract sales [speed of change of quantities have their own costs, market share etc etc etc].

    Taking an example with no commercial market influence and no regulation:

    Say an economy has 4 banks [B1, B2 etc] that have 80% of the market.

    Say Money today is $5billion.

    Say tomorrow I go into Bank 1 in the morning and borrow $1billion and buy a new widget from a Bank 2 deposit account holder with the money.

    And in the afternoon I borrow $1billion from Bank 2 and buy a widget from a Bank 1 deposit account holder.

    And in the evening the transactions clearing center flags Bank 1 owes Bank 2 $1billion, but then flags Bank 2 owes Bank 1 $1billionr.

    Then the banks don’t have to hand over any money.

    And money started off $5billion and wound up $7billion.

    But adding US regulations and practical commercial constraints non-commercial banks cannot engage in the activity described in the above example but commercial banks can.

    Is that the way you see it?

  23. Steve Keen says:

    A quick query re the data Neil. Your total debt figure (column R) compounds and subtracts many of the intermediate data series (D to Q). When I use that I get an astronomical debt to GDP ratio–rising from 5 times in 1987 to about 18 times in 2009.

    My focus is really on debt creation as a proxy for credit money creation. That appears to relate to simply column E. When I use that, I get figures that are within the ballpark of the recent figures published by the UK Treasury, though not quite the same. They publish a peak private debt to GDP ratio of 450%; I get one of 380% in March 2009 (with a fall since then to 326%).

    Can you clarify which data series in your file would be aggregated to derive the figure shown here for aggregate private debt?:

  24. seanbroseley says:

    I’m glad I’m not the only person to find the ONS website difficult to get around. I come across things I’m looking for more by luck than judgement.

  25. Steve Keen says:

    Quick PS Neil: The column in your data that makes the most sense–in terms of aggregate level roughly within reach of the Budget paper figures, and correlation of a derived credit accelerator to change in unemployment reasonable–is column H.

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