WARFLATION: Oil Shock + Debt Crisis Could Break the Economy | Steve Keen
Summary
Oil Shock: Extensive discussion of Middle East conflict-driven supply disruptions pushing oil potentially toward $150, with severe knock-on effects for production costs and consumers.
Stagflation Risk: The guest expects rising prices alongside weak growth as supply shortages collide with large-scale government war spending.
Regional Impact: Europe is viewed as highly exposed to oil shortages, while China’s reserves provide a buffer; Australia’s limited reserves also pose vulnerability.
Financials & Private Debt: Banks create money via lending and high private debt levels constrain credit-driven demand, risking renewed slowdowns.
Consumer Finance: Debate on capping credit card rates at 10% suggests relief for households with still-profitable lending economics for banks.
Housing & Mortgages: Mortgage debt dynamics have pushed real house prices above 2007 levels, but higher energy costs could pressure servicing and soften housing.
Fed Policy: Despite inflation, the guest expects the Federal Reserve to prioritize growth risks and initially hold or cut rates to ease debt-service burdens.
AI Market Cycle: Anticipation of a classic boom-bust in AI as overcapacity follows disruptive innovation, distinct from a 2008-style debt deflation.
Transcript
It is not easy being an investor these days. Terms like war inflation, private debt crisis are floating around and we need to discuss what does that mean? What does that mean for a portfolio and what does it mean for the global economy in general? Of course, we all been following the news. Uh prices in the Middle East are dictating the headlines. We're seeing oil prices rise above $100 again this morning as we record this on March 9th. And we we have to discuss what what is the economic fallout? Of course, is the private debt or is the private debt market in crisis here? Should we be paying attention to it? Black Rockck just keeps writing off loans that were great about three months ago. Now there's zeros. From here to zero is the big headline there in in on Bloomberg as well. So, a couple of things we need to be paying attention to. I've invited a phenomenal guest to help me understand what is happening or help us understand what is happening in the global financial markets. His name is Professor Steve Keen. Really looking forward to catching up with him. Before I switch over though, hit that like and subscribe button. Helps us out tremendously. We really appreciate it. Now, Professor Keane, thank you so much for joining us again. It's always great to have you on. Thanks so much. And uh how are you? Thanks. >> H I'm probably as stressed as everybody else, if not more so. So, um uh the you you when you get a wild card like a you know, the invasion of Iran, uh coming out of the peace president, uh which frankly I expected because I I I never saw him as being anything interested in peace. He's interested in power. Um but yeah, it's just you you simply can't get a chance to to rest. And I think that's one of the things that's getting everybody uh this under under Trump. You don't get a moment's peace from what's happening externally. So uh he hasn't achieved peace, but he's taken a piece out of us. >> No, abs. Absolutely. And I think the markets are are playing ball as well. We we need to put that all into perspective. What does it mean for the portfolios? How do we make sense how the markets are reacting? Of course, Professor Keane, um maybe we'll we'll start at the top. I I mentioned war inflation. Maybe that's the the starting point for our conversation here. Um maybe let's define that term a little bit and how will it impact us? What what's what's your assessment there first and maybe explain uh as a professor what it is? >> It well it's not warflation so much as wearflation because if this was invading any country that didn't have oil then it wouldn't be uh as universal a shock as it's turning out to be. But we're invading one of the world's major oil. No, not we. America has invaded one of the world's major oil not invading it's it's bombing and it's provoking one of the world's major oil producers. Uh it's used getting support and doing that by the uh Gulf states that it's managed to convince it'll it'll defend them uh if there is any any attack. Uh they haven't the Americans have pulled their resources out or their bases have been flattened by Iran. So the protective shield that the Gulf states were told they had is gone. uh the of course the oil from Iran doesn't go into the western market so much goes to China predominantly um and that may still continue flowing to some extent but of course the oil from the other states is being blocked off and if if we do see as as we're hearing attacks initi initiated by the Americans and the Israelis on uh water desalination plants and then some oil facilities in Iran. And if that if that goes ahead uh then we're going to see something you know of the order of one/ird of the world's oil supplies cut off and that's going to not impact America so greatly because America uh has a large degree of self-sufficiency in oil and of course they've also commandeered and invaded Venezuela before this particular piece of adventurism. But it's certainly going to impact uh Europe extremely badly. China apparently has major oil reserves. They they expect the West to be crazy. So, not only they have a buffer of and I don't know how much, but a substantial oil reserve. So, they can ride out, I'd imagine, at least three months, if not, you know, up to a year worth of chaos on the on the oil markets without being affected themselves. Uh, but countries like Australia, for example, which my own home country, probably the best example of somebody who's extremely unprepared for this, Australia has 90 days of oil reserves and they base them in America. I've got a feeling Australia is not going to get any oil. Uh and and Europe has made itself dependent upon American oil and turned down the Russian. I think that's going to be reversed. They're going to have to because if America finds itself not getting the oil it needs from the the east from the Middle Eastern states, then they're going to e bump up the price or cut out the supplies to Europe. So it's particularly serious chaos for Europe uh in in all this and the European economies like that suffer very badly. Oil prices of course feed into everything else and this is one thing which conventional economists delude themselves over because they basically imagine that if you got gross substitutability if you don't have oil you could put water in instead. I wish I was joking but that's the type of theories they have. So they're not seeing the danger that if you cut out or you make more expensive and absolutely critical input like oil, there is no substitute and industries dependent upon those will cease to be able to produce. So we're going to see not just inflation out of this. We're going to see supply shortages. And this is you know it is so crazy. This is the this is what we are paying if we're electing a narcissistic idiot uh to the president of America. >> No, it's inflation is that big topic, right? You got the supply constraints that you just mentioned on the oil side in particular, but also you have massive government spending potentially on the horizon as well. Ammunition needs to be replaced just using the US as an example. Um, how do you see the inflation scenario play out here? Like try to wrap our head around maybe some numbers or so. Um, is it is it too early to make some calculations? >> It is it is too early to make any calculation. We have no idea what scale of of cut off is going to occur. um you're seeing oil prices be pretty coming up towards doubling and they're they're bound to double or triple I would say by the time uh the if there's any stability ever comes out of it we're going to see oil prices cracking something the order of $150 a barrel that is going to particularly screw workingclass Americans the ones who voted for Trump because they're going to see the increase in the price they pay pay at the at the bowser with no change in their wages so it isn't just that it's increasing the cost of of production for many commodities. It's also going to hit the poor uh because workingclass Americans in particular are relying upon their vehicles to get around to get to work and so on. They've got to pay the price or they don't get to their to their jobs. Uh so it's income redistribution uh away from workingclass Americans and they've already been screwed by the last 40 years of neoliberalism anyway. So this is going to accentuate uh the tensions inside America. And I think the only way this war is going to end is via regime change. And by regime change, I mean re Donald Trump's regime being thrown out. That's about the only way I can see this thing being settled. >> You you might be hinting there at the midterm elections of course here in November is maybe uh you know plucking feathers >> that far. >> If we get that far, I mean you know I mean three days into the this year we had the invasion of Venezuela and kidnapping of its leader. uh we're 3 months into the year now we've had this catastrophe there's every possibility of nuclear weapons being used if America or Israel realize they're losing um November I mean that might as well be the the year 2100 uh in terms of how predictable things are by that stage. Yeah, ve very true because things move so fast these days it's really difficult to keep up. Um it is a challenge like the question is like talking about inflation and maybe you talked about the consumer feeling pressure at the gas pump. Um summer holidays are are a big topic of course in the US people use their cars to go on holidays um and when they feel it on in the pump. I had that conversation like 10 years ago with somebody um when the oil price or the gas price came down, they were so happy and relieved that they could finally drive 200 miles to go for to a hotring for for a weekend. Um how is that impacting maybe the war planning per perhaps as well? Does that play a role at all? Um keeping the consumer there in mind? >> Well, I petrol has been not what aircraft carriers use obviously. Um but yes the the the we we're going to have a supply shortage that is similar to what happened during CO because during CO we couldn't manufacture because people weren't able to go to go to work in the first instance we had a spike in prices then through supply chain disturbances the oil is the most fundamental commodity in production in the global economy uh every virtually every production process uses oil uh or it's priced relative to oil. So the overall is is absolutely guaranteed that the costs of of production are going to be passed uh they're going to increase for producers. The question is whether they absorb that in their own margins or whether they pass it on to consumers. Now with an oil price, you can normally to some extent get away with putting uh pumping that uh through the the consumers and it may even be the government spending which is going to be necessary to to be able to restock the armaments that have been destroyed thus far in the war. And the scale of government spending that Trump is talking about is you know trillion you start measuring in trillions. That's going to be a cash injection into the American economy. So we might for a while get a like what you might call military stagflation uh because though the economy itself should turn down because of the impact of higher oil prices on the private sector with the government running this stupid war uh and having to pay for the stupid war by creating money. That's what the government does. It doesn't borrow it creates the money. uh this is likely to mean that manufacturers who are facing higher oil prices who might have uh in other circumstances taken that on the chin and had a reduced margin because of the increased cost of oil uh may just pass that straight on uh and and therefore you but also the supply shortages are going to make it difficult to produce anything at the same time. So you may well see a combination of rising prices and stag and stagnant economics which was called stagflation in the 1970s. We might call it uh well warflation as you were saying this time round but the same impact rising prices and a a stagnant economy kept afloat only by government spending. >> What what is your take on maybe putting price caps on on fuel and gasoline prices as well? just jumping down that rabbit hole a little deeper or going down that rabbit hole a little deeper. Um is is that an effective >> it's something you can use. I mean this the person the expert here is not me but Isabella Weber who's based at the University of Amhurst. You may you probably know of Isabella. She was derided and insulted by economists like Paul Krugman for some time uh just because she said price controls work uh on empirical research looking what actually has happened when price controls in rather than looking at the fairy stories that are printed in economics textbooks. So Isabella's looked at at this and and said that uh that the main impact of what causes inflation isn't an increase in the money supply that people have have it back the front. uh what causes an increase in prices is an increase in the cost of inputs. It should be obvious but economics textbooks don't talk about that. If wages go up or if the if if the markup goes up that firms put on wages and then the the thing which can attenuate that is an increase in output per worker what they call labor productivity though it's really uh increases in the uh capacity of machines to put to put energy through. But those are the two factors markups increases by firms wage increases by workers and then reducing it if it if it's positive an increase in the output per worker. uh they are the factors which cause inflation and then what happens is the uh firms have already got uh lines of credit with with banks. Workers have credit cards. If you find that the prices mean you haven't got enough money in your bank account to pay for it, then you access your loan account and that loan account means that the money creation comes after the inflation not beforehand. There is a wealth of economic uh research on this, not by mainstream economists. Uh but by people like Isabella Weber and Blair Fix, they're probably the two go-to people I would recommend to take a look at the impact of inflation here. So, what you're going to see is an increase in the money supply caused by inflation, not the other way around. >> Yeah. No, it's an interesting topic. We'll talk about private debt and the private debt markets here in a second, how that may be a big risk factor and maybe taking the global economy down here in 2026. Um but be before we do that just one last thing like the the Fed of course relies on inflation data um being quite micro here but like the decision-m process of course is based on certain data um how do you put that into I wouldn't say context is the wrong term but how do you put an understanding around that what the Fed should do perhaps next should it even raise interest rates looking at just what we discussed here >> well my attitude to the Fed trying to control inflation by using interest rates is a bit like having having a noisy couple of kids in the back of the car and you give them plastic wheels so they turn the wheels uh rather than saying, "Are we there yet, daddy?" Uh because it's economic theory, mainstream economic theory that tells economists that raising interest rates attenuates inflation by reducing consumption demand because consumers realize they've got to pay uh uh high they're paying higher higher prices or appearancing higher higher prices now. So they consume less so they can leave money for their for their uh their heirs. That's literally the logic in conventional economics. What actually happens uh in terms of how interest rates control economic activity is you squeeze the amount of money that uh people in debt have to pay their debt and if they don't have that money to pay the debt then they are forced to cut back on consumption or they go bankrupt. Uh and that that is the it's a blunt tool if it works at all. Now, in these circumstances, I've got a feeling that the Fed will throw its economic models out the window, which is where they deserve to go. Frankly, they're useless. They should be using postcanesian models, not the nonsense that neocclassicals have created. Uh, but they'll throw them out the window and worry about the impact of the of this increase on uh the the war on the uh capacity of the economy to invest. They and they'll cut rates. So I I'm I'm not I'm not I'm I'm gambling on what a a couple of crazy critters are going to do. Okay, I'm not saying that this is given, but I think that their reaction will be to throw their models away, worry about the the supply shocks that are coming through and reduce rates rather than increase them [snorts] >> initially. >> No, it's a it's an interesting debate. Of course, we got about uh what is it 10 days left to see what the Fed will do here um moving forward. A lot of people are still calling for lower interest rates. Steven Mirren, for example, keeps pushing for lower rates. Question is, does that make sense? Um because we need to weigh inflation versus perhaps debt deleveraging as as well, reducing balance sheets. Um Kevin Worsh was always for reducing the the Fed balance sheet. Um trying to make a segue here between our warflation and maybe debt leveraging conversation here, Steve. Um which force do you think will win actually like the inflationary side or the the deflationary side? meaning on the debt side like what are you looking at and who are you betting on? [clears throat] >> Well, I'm I'm betting on on the reserve looking at the war situation and thinking they have to reduce rates to give people more headroom in that situation regardless of the inflation. So, as I said, the models of inflation are fantasies. Uh they have this they use what they call a representative agent who has infinite foresight uh or it's it's a fantasy theory of inflation. Um but gi g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g given and but normally they follow that that's what drives their decisions to put interest rates up in the last four or five years. But if if this sort of military conflict is is hitting and they're worried about the American economy be able to cope with it, I think they may just decide that we want to make it possible for firms to uh if they're paying a higher prices in oil and reduce the prices they're paying to service debt by reducing interest rates. So my my expectation as their initial response is going to be to keep rates constant or drop them rather than increase them. And only if you see a substantial increase in inflation are they likely to put rates up and then we'll be stuck in a crazy version of Voca's world all over again. >> No absolutely the question is like will it help the consumer? Will it help private debt markets? And I think that's sort of the segue to to the next part of the conversation here. Professor Keane is really like you've been warning about the the a crash in the private debt markets in general. Um it's way bigger than the government debt markets. You've argued with us before. Um where do you think we stand right now when it comes to that? A lot of pressure on private debt. Uh so I'm curious. >> Yeah. Well, this again is where mainstream economics is, as you know, car is completely delusional. They don't even consider private debt because according to their theories of banking uh they argue that banks don't actually lend money. They argue that banks what they call intermediaries who enable a saver to lend to a borrower. So if debt falls it doesn't matter because it means the borrower is returning money to the saver and overall the economy remains in balance in their stupid models. But in the real world banks do create money. Banks lend and when they lend they put money in your deposit account and they put an equivalent amount that you owe them in your in their asset. the debt that you owe to them which is your liability. So banks create money when they lend and that adds to aggregate demand and income. But of course if you get to the massive accumulation of debt as we got uh in in 2007 then at that point people stop borrowing uh and the borrowing goes from positive to negative and that swing around causes a massive slump in economic activity. That's what caused the global financial crisis. You will not find the mainstream economist even thinking about that because they wear a set of blinkers that tell them they don't need to look at the level of private debt. Now having said all that what of course we had a crisis in 2007 caused by private debt uh reaching 170% of GDP in the America's case and the change in debt in 2006 being equivalent to 15% of GDP and then by 2009 that was minus 5% of GDP. So you had a 20% in GDP swing around in the demand that's created by credit. Pardon me. Now and I can show how severe that was. If I share my screen, I can show how severe that was back in 2007. Now so that's just just to zoom in and just to give people some details here. You wouldn't you wouldn't know it by reading the papers and by looking at conventional economists, but private debt is far greater than government debt. and private debt was rising all the way through the uh from the end of World War II all the way through the bubble and pop back in the 80s and then that's the peak that gave us the crisis. Government debt was trending down all the way until the crisis began and then government spending to cataract the impact of this decline is what led to the levels of government debt that people are worrying about today. But even so, you have private debt still being substantially above government debt. And the point that I'm making about the uh what causes the change in economic activity is credit. So credit is the annual change in private debt. You can see here that's the zero line. Uh so between 1945 and 2007 credit was never negative. It fell a lot in the in the 1990s recession, but it didn't hit negative. It's still equivalent to plus 2% of GDP. What caused the severity of the downturn in 2008 and 9 was that credit hit minus 4.6% of GDP and that caused the plunge. Then we've had a slow recovery of credit back to similar levels and then we hit the uh uh well we we hit the end of the co stimulus programs and then from that point again credit demand has been falling but still positive. We're now back on the same territory that gave us the 1990s recession. So in terms of a fall in economic demand, credit is now starting to be become a negative. And this is the the real one that you take a look at to see uh whether you're going to have a crisis or not is the change in the change in debt because credit adds to aggregate demand. Change in credit changes the addition. So you subtract this from what's going to be giving you a positive rate of change in GDP from other factors. And again, we had that extremely severe downturn in 2007. We had the beginnings of it when CO first struck and the government had to create money and and that encouraged people back into private debt for a while in the aftermath. It then had negative contributing to a slowdown. We're now back on negative territory again. It's not severe uh compared to what happened back in 2007 yet. But the problem is we're still carrying this ridiculous level of private debt because if you go back to the Great Depression, the level of private debt in the Great Depression hit 150% of GDP orienting those figures with today's figures and then when you began the second world at the end of the Second World War, it was down to 50%. There was massive deleveraging through the Great Depression and World War II and that meant the private sector began the post-war period with the best balance sheets it ever had. Uh looking at historical data. Now we still got lousy balance sheets and in fact that's partly because the Fed and the government tried to tried to encourage the banks to lend again because they didn't realize that too much private debt caused the crisis in the first instance. So, I've always seen this as a reason not for another crisis, but for stagnation, because the credit system, because there's so much private debt already, the rate of growth of credit is never going to reach the levels that it reached back in 2007. And so, we're going to have stalified demand coming from the the credit side of the economy. And this is probably partly why we've seen the rise in in private lending by non-banks like Black Rockck uh getting into the into this game. But we've we've got got a constipated system, frankly, and people are trying to push more food through it. Well, that doesn't tend to work very well. >> How how vulnerable is the system though now to higher or maybe lower interest rates as well? And uh where do you see the biggest pressure come from or the the biggest risk come from perhaps like households like real estate is a big part of it of course. Um or is it corporate debt which I corporate debt I would throw into the private debt side as well. Correct. Um so curious like where do you see the biggest risk? Well, I think the corporate corporate sector's debt levels are an issue. Households uh aren't as indebted as they were in the um global financial crisis. They've delivered more more than the corporate sector has. Uh but you've got house prices back to the higher than the level they were back in 2007. So the the the weird dynamics that go on there is that it's not the change in debt that causes rising house prices. It's the change in the change in mortgage debt and that acceleration has been positive that's boosted house prices that are now higher in real terms than they were in 2007. Uh but now with with the shocks coming through from the war and the impact of oil prices as well, I think a lot of households are going to find they can't service those mortgages anymore. So we'll see um not a downturn in the housing market, not on the scale of 2007, but still a downturn because this pressure is squeezing people in mortgages. >> I was going to couple micro follow-up questions there for you, Professor Keen, as well. President Trump suggested maybe capping credit card rates at least for 12 months at 10%. Um what do you think the impact is going to be there? Is that something you look at cautiously or is that just a fad? Now, look, I think that's actually one of the times I'd agree with Trump. Occasionally, he says something sensible. Um, so you look at the the rate that's charged by banks on in on on debt is comparable to what I would charge you if you if I wanted to lend you money because if I lend you money, I don't have that money myself to spend. So, I want compensation for the fact that I've given it to you instead. And that's where we get the rate of interest we accept. But banks don't lend your money, they create money. and therefore their cost of business uh is is what is what is affected that's what they should set the rate they charge on bank debt. So on that basis bank debt should be a lot cheaper than persontoerson debt. Again if I and I have done this and I regret it uh making a loan to somebody uh and then and and then what it means is I've got less money to spend so I'm actually compromised. So you that's why you want to be paid interest if you make a persontoperson loan and you base it on the amount of money you've lent and if you're going to be do without able to spend that money then you want a compensation for not being able to spend that money but banks create the money. They do not lend out your deposits they create the money when they create when they create debt. Uh so you should actually look at what's what are their production costs for creating debt and it's a damn site lower than the rate of interest we take we we expect in interpersonal loans. You'd therefore look at what's a decent rate of return on the capital equipment the bank has the same way you'd look at a decent rate of return for a manufacturing business and that would give you a far lower rate of interest compared to the uh amount of money created by the bank. would it still be proportionate to the amount of capital they had to invest to give that capacity to create the money in the first instance. So we pay too we pay too much to banks. We should not pay on the basis of the amount lent. We should pay on the basis of the effectively the production costs of money creation for the banks bank licenses bank staff uh electronic transfer systems etc etc. Even if you gave them like double or five times the return that uh ordinary corporations make out of their fixed capital, uh banks would still be charging less than they're charging on interest now because we've all fallen for the textbook myth uh that banks lend out deposits. >> Just just one last followup on that real quick is just the amount of risk that the banks take on especially in the US it's a lot of unsecured credit card risk. Um do you think the amount of private credit like the the amount of credit issued um would would be drastically reduced as well? Is that a sort of like is is that self-regulatory then as well? And how prohibitive is that? >> Well, it's not self-regulatory and this is one reason Trump is quite you know he's got to do some things that make sense and uh and saying you want to cap interest rates on on credit cards. credit card returns. I don't know what they are in America, but they're often over 20% peranom uh in in the the in the in Australia and Europe and so on. Um that's a ridiculous rate of return. They should never have been allowed to get that high. So if you say you're going to cap them at 10%, that is still an incredibly profitable thing for the banks even given the fact that a large number of people are going to going to go bankrupt. You're making 10% return on something that cost you 1/5 or onetenth as much to actually create. are you doing very well? And then that's you're falling from 20% to 10%. Uh that' be one of the few things that workingclass Americans could thank Trump for. >> But uh ju just maybe just last just to clarify, but if the banks were to go down from 25 to 10%, it would be way more restrictive in issuing credit or giving out credit cards. U maybe prohibiting access to capital or new capital for some of the consumers. >> I think I they're still making a ludicrous return on credit cards. I mean 25% rate of interest is userious frankly and that's what credit cards will let them get away with and people do monitor their credit card debt in a way they don't moni monitor their mortgage debt. When you look at household debt and break it into credit card versus or you know unsecured debt versus uh secured debt for mortgages it's actually the secured debt that's exploded because that is driven by rising levels of of of bank debt. So people when when you lend when bank lends you money to buy a house that uh you then have more money to buy the house than uh the person who is selling it to you actually took on. Uh that then encourages more people back into debt again. You get a runaway amplifying process that leads to rising asset prices and that's what makes people think it's worth taking on that secured debt. So people are far more willing unfortunately to take on large amounts of secured debt than they are unsecured debt. Now if you reduce the rates from 23% to 10% then people might well you know want to get credit cards because it ends up being uh you know it becomes more within reach of what a mortgage debt is and you don't have to uh lean on your assets to get it. Uh banks may be slightly less willing but it's still a no-brainer uh to provide that money unless people are going bankrupt on mass. So I don't think banks will cut back on credit cards. Uh in in in fact if they if they find mortgage debt not going ahead. They always look for another profitable avenue to go into. So I don't think they'll cut back on lending because of the fall in the rate if Trump does impose that ceiling. And I'm not going to hold my breath to whether Trump will do it by the way. >> No. No. I appreciate you clarifying that and your your point of view there as well. So really appreciate that. Um Professor King, you've been calling for a financial crash in 2026. Let's let's kick it up a notch. Do you still um stand? >> No, that's that. No, that's that's my that's I wish there were five of me, but the other four clones would do what I want to do. I've got staff instead and sometimes they publish stuff which is uh exaggerated and you get YouTube clickbait turning up as well. So, I'm not calling for a a crash in 2026, but I do expect before the war jumped in the way, I did expect an a crash in the AI market. And this would be a classic uh shiterian cycle because you have just like we had for the internet and we had for telecommunications before the internet and the railways back in the 19th century. You have a new technology which is disruptive. It is going to change the nature of capitalism significantly. Numerous companies jump into that. You get far more capacity created than the market can actually absorb. You get a boom when they're spending the money to establish all this technology. But then you get a slump when the technology comes online and starts undercutting existing processes. So that's a classic boom and bust cycle coming out of a genuine technological advance. And I do expect that to happen. But what we had back in 2008 was a debt deflation. Too much private debt. Uh far too much and not productive. Most of it going into house prices, not going into increasing productive capacity. So we had to have a crash back then. This time around, I expect a boom and a bust out of AI. uh but not a a bust like 2007 which was a a genuine debt deflation. >> No, I appreciate it. Okay, thanks for clarifying that. Uh I had that question. I was like we got to talk about the the looming financial crash. So >> yeah, I know. I mean I I sometimes the most it goes up and oh [laughter] like it it helps to I mean they're doing some great work and they are channeling me very very well and so I appreciate the support the staff for my online course are giving and putting that material out but occasionally there's one that I go oops and so what I do is I put a little hang on a second reply to that. So basically it's watch out for the fine print. Yeah, like somebody mentioned on our channel, the caveat, you know, there there's certain aspects to it that might offset your card here, right? Um, but maybe last question then, Professor Keane, if we speak again about in about six months time, what what are going to be what do you think the main topics of discussion will be? >> Well, I just I hope we're not speaking after the start of a nuclear war. That's the thing. I mean, this is just such a total wild card. There was no justification for the attack on Iran. uh and Iran is completely justified in defending itself against uh the not just America but the uh this Arab and Israeli states that have you know America is allied too and I think is Israel's leading America by the nose or maybe another part of the bodily anatomy uh and the this if if Israel find that it's losing and then faces annihilation or subjugation uh which I think regarded equally the same we could see tactical nuclear weapons being used and that is just such a wild card. Nothing else matters but preventing that and uh given the idiots in charge of the of the uh American government and the madman in charge of Israel and the nature of that Zionist entity. I think it's quite a possibility. So I think all bets are off until we know where the nuclear war starts or not. >> All right. Let's hope it doesn't come to that cuz that's uh Yeah. No, I don't even I don't even want to think about that to be quite honest cuz it's quite scary. >> Not exactly. Yeah. >> No, no. We had we had a meteorite fly flying over Frankfurt um last night and people just panicked already cuz it it looked awfully like uh a missile was shot over Germany, right? >> Um you might find it in the news. Um there was some newspaper article or some articles and photos about it and it just looks like what we're seeing over Dubai right now. So >> quite scary. >> Um professor, can you mention your YouTube channel? >> Extremely scary. where where else or where can we send our audience because I really appreciate your channel as well. Where can we send our audience to follow more of your work? >> Yeah. >> Okay. Well, the YouTube channel obviously it's at ProfSaveken. YouTube Prostavekane. I have a Substack page which is also called Prostave Keane and a Patreon page also called ProfsteaveKe. And I'm now uh courtesy of a a marketing company I'm working with now. I'm putting on a set of online courses. The marketing will seem over the top. I apologize for that. I can't control how it's marketed. But that leads to a set of online courses with me right now that have well over a thousand people who've signed up and it's a lot of fun that I'm giving two sets of lectures. One an overview lecture I call the Rebel Challenge and then another which is enormous. It's basically all my knowledge of economics over something like two years worth of lectures. So those are the if you you're really an addict that's where to head to the the steveken.com uh otherwise YouTube and and Patreon and Substack. Fantastic, Professor Keane. Thank you so much for joining us. Really insightful. Uh really appreciate your time this morning. Thanks so much for joining us. And everybody else, thank you so much for tuning in. Hope you enjoyed this conversation with Professor Steve Keen. If you did, hit that like and subscribe button. It's always good to hear different angles, different aspects, and look at things from just just different angles. It just makes sense, and that's what we do here. We try not just to educate, but we also try to look at things from different perspectives. So, really hope you you enjoyed this as much as I have. If you did, hit that like and subscribe button. It helps us out tremendously. And please stay safe out there. Good luck investing and don't be led by emotions. Take care out there.
WARFLATION: Oil Shock + Debt Crisis Could Break the Economy | Steve Keen
Summary
Transcript
It is not easy being an investor these days. Terms like war inflation, private debt crisis are floating around and we need to discuss what does that mean? What does that mean for a portfolio and what does it mean for the global economy in general? Of course, we all been following the news. Uh prices in the Middle East are dictating the headlines. We're seeing oil prices rise above $100 again this morning as we record this on March 9th. And we we have to discuss what what is the economic fallout? Of course, is the private debt or is the private debt market in crisis here? Should we be paying attention to it? Black Rockck just keeps writing off loans that were great about three months ago. Now there's zeros. From here to zero is the big headline there in in on Bloomberg as well. So, a couple of things we need to be paying attention to. I've invited a phenomenal guest to help me understand what is happening or help us understand what is happening in the global financial markets. His name is Professor Steve Keen. Really looking forward to catching up with him. Before I switch over though, hit that like and subscribe button. Helps us out tremendously. We really appreciate it. Now, Professor Keane, thank you so much for joining us again. It's always great to have you on. Thanks so much. And uh how are you? Thanks. >> H I'm probably as stressed as everybody else, if not more so. So, um uh the you you when you get a wild card like a you know, the invasion of Iran, uh coming out of the peace president, uh which frankly I expected because I I I never saw him as being anything interested in peace. He's interested in power. Um but yeah, it's just you you simply can't get a chance to to rest. And I think that's one of the things that's getting everybody uh this under under Trump. You don't get a moment's peace from what's happening externally. So uh he hasn't achieved peace, but he's taken a piece out of us. >> No, abs. Absolutely. And I think the markets are are playing ball as well. We we need to put that all into perspective. What does it mean for the portfolios? How do we make sense how the markets are reacting? Of course, Professor Keane, um maybe we'll we'll start at the top. I I mentioned war inflation. Maybe that's the the starting point for our conversation here. Um maybe let's define that term a little bit and how will it impact us? What what's what's your assessment there first and maybe explain uh as a professor what it is? >> It well it's not warflation so much as wearflation because if this was invading any country that didn't have oil then it wouldn't be uh as universal a shock as it's turning out to be. But we're invading one of the world's major oil. No, not we. America has invaded one of the world's major oil not invading it's it's bombing and it's provoking one of the world's major oil producers. Uh it's used getting support and doing that by the uh Gulf states that it's managed to convince it'll it'll defend them uh if there is any any attack. Uh they haven't the Americans have pulled their resources out or their bases have been flattened by Iran. So the protective shield that the Gulf states were told they had is gone. uh the of course the oil from Iran doesn't go into the western market so much goes to China predominantly um and that may still continue flowing to some extent but of course the oil from the other states is being blocked off and if if we do see as as we're hearing attacks initi initiated by the Americans and the Israelis on uh water desalination plants and then some oil facilities in Iran. And if that if that goes ahead uh then we're going to see something you know of the order of one/ird of the world's oil supplies cut off and that's going to not impact America so greatly because America uh has a large degree of self-sufficiency in oil and of course they've also commandeered and invaded Venezuela before this particular piece of adventurism. But it's certainly going to impact uh Europe extremely badly. China apparently has major oil reserves. They they expect the West to be crazy. So, not only they have a buffer of and I don't know how much, but a substantial oil reserve. So, they can ride out, I'd imagine, at least three months, if not, you know, up to a year worth of chaos on the on the oil markets without being affected themselves. Uh, but countries like Australia, for example, which my own home country, probably the best example of somebody who's extremely unprepared for this, Australia has 90 days of oil reserves and they base them in America. I've got a feeling Australia is not going to get any oil. Uh and and Europe has made itself dependent upon American oil and turned down the Russian. I think that's going to be reversed. They're going to have to because if America finds itself not getting the oil it needs from the the east from the Middle Eastern states, then they're going to e bump up the price or cut out the supplies to Europe. So it's particularly serious chaos for Europe uh in in all this and the European economies like that suffer very badly. Oil prices of course feed into everything else and this is one thing which conventional economists delude themselves over because they basically imagine that if you got gross substitutability if you don't have oil you could put water in instead. I wish I was joking but that's the type of theories they have. So they're not seeing the danger that if you cut out or you make more expensive and absolutely critical input like oil, there is no substitute and industries dependent upon those will cease to be able to produce. So we're going to see not just inflation out of this. We're going to see supply shortages. And this is you know it is so crazy. This is the this is what we are paying if we're electing a narcissistic idiot uh to the president of America. >> No, it's inflation is that big topic, right? You got the supply constraints that you just mentioned on the oil side in particular, but also you have massive government spending potentially on the horizon as well. Ammunition needs to be replaced just using the US as an example. Um, how do you see the inflation scenario play out here? Like try to wrap our head around maybe some numbers or so. Um, is it is it too early to make some calculations? >> It is it is too early to make any calculation. We have no idea what scale of of cut off is going to occur. um you're seeing oil prices be pretty coming up towards doubling and they're they're bound to double or triple I would say by the time uh the if there's any stability ever comes out of it we're going to see oil prices cracking something the order of $150 a barrel that is going to particularly screw workingclass Americans the ones who voted for Trump because they're going to see the increase in the price they pay pay at the at the bowser with no change in their wages so it isn't just that it's increasing the cost of of production for many commodities. It's also going to hit the poor uh because workingclass Americans in particular are relying upon their vehicles to get around to get to work and so on. They've got to pay the price or they don't get to their to their jobs. Uh so it's income redistribution uh away from workingclass Americans and they've already been screwed by the last 40 years of neoliberalism anyway. So this is going to accentuate uh the tensions inside America. And I think the only way this war is going to end is via regime change. And by regime change, I mean re Donald Trump's regime being thrown out. That's about the only way I can see this thing being settled. >> You you might be hinting there at the midterm elections of course here in November is maybe uh you know plucking feathers >> that far. >> If we get that far, I mean you know I mean three days into the this year we had the invasion of Venezuela and kidnapping of its leader. uh we're 3 months into the year now we've had this catastrophe there's every possibility of nuclear weapons being used if America or Israel realize they're losing um November I mean that might as well be the the year 2100 uh in terms of how predictable things are by that stage. Yeah, ve very true because things move so fast these days it's really difficult to keep up. Um it is a challenge like the question is like talking about inflation and maybe you talked about the consumer feeling pressure at the gas pump. Um summer holidays are are a big topic of course in the US people use their cars to go on holidays um and when they feel it on in the pump. I had that conversation like 10 years ago with somebody um when the oil price or the gas price came down, they were so happy and relieved that they could finally drive 200 miles to go for to a hotring for for a weekend. Um how is that impacting maybe the war planning per perhaps as well? Does that play a role at all? Um keeping the consumer there in mind? >> Well, I petrol has been not what aircraft carriers use obviously. Um but yes the the the we we're going to have a supply shortage that is similar to what happened during CO because during CO we couldn't manufacture because people weren't able to go to go to work in the first instance we had a spike in prices then through supply chain disturbances the oil is the most fundamental commodity in production in the global economy uh every virtually every production process uses oil uh or it's priced relative to oil. So the overall is is absolutely guaranteed that the costs of of production are going to be passed uh they're going to increase for producers. The question is whether they absorb that in their own margins or whether they pass it on to consumers. Now with an oil price, you can normally to some extent get away with putting uh pumping that uh through the the consumers and it may even be the government spending which is going to be necessary to to be able to restock the armaments that have been destroyed thus far in the war. And the scale of government spending that Trump is talking about is you know trillion you start measuring in trillions. That's going to be a cash injection into the American economy. So we might for a while get a like what you might call military stagflation uh because though the economy itself should turn down because of the impact of higher oil prices on the private sector with the government running this stupid war uh and having to pay for the stupid war by creating money. That's what the government does. It doesn't borrow it creates the money. uh this is likely to mean that manufacturers who are facing higher oil prices who might have uh in other circumstances taken that on the chin and had a reduced margin because of the increased cost of oil uh may just pass that straight on uh and and therefore you but also the supply shortages are going to make it difficult to produce anything at the same time. So you may well see a combination of rising prices and stag and stagnant economics which was called stagflation in the 1970s. We might call it uh well warflation as you were saying this time round but the same impact rising prices and a a stagnant economy kept afloat only by government spending. >> What what is your take on maybe putting price caps on on fuel and gasoline prices as well? just jumping down that rabbit hole a little deeper or going down that rabbit hole a little deeper. Um is is that an effective >> it's something you can use. I mean this the person the expert here is not me but Isabella Weber who's based at the University of Amhurst. You may you probably know of Isabella. She was derided and insulted by economists like Paul Krugman for some time uh just because she said price controls work uh on empirical research looking what actually has happened when price controls in rather than looking at the fairy stories that are printed in economics textbooks. So Isabella's looked at at this and and said that uh that the main impact of what causes inflation isn't an increase in the money supply that people have have it back the front. uh what causes an increase in prices is an increase in the cost of inputs. It should be obvious but economics textbooks don't talk about that. If wages go up or if the if if the markup goes up that firms put on wages and then the the thing which can attenuate that is an increase in output per worker what they call labor productivity though it's really uh increases in the uh capacity of machines to put to put energy through. But those are the two factors markups increases by firms wage increases by workers and then reducing it if it if it's positive an increase in the output per worker. uh they are the factors which cause inflation and then what happens is the uh firms have already got uh lines of credit with with banks. Workers have credit cards. If you find that the prices mean you haven't got enough money in your bank account to pay for it, then you access your loan account and that loan account means that the money creation comes after the inflation not beforehand. There is a wealth of economic uh research on this, not by mainstream economists. Uh but by people like Isabella Weber and Blair Fix, they're probably the two go-to people I would recommend to take a look at the impact of inflation here. So, what you're going to see is an increase in the money supply caused by inflation, not the other way around. >> Yeah. No, it's an interesting topic. We'll talk about private debt and the private debt markets here in a second, how that may be a big risk factor and maybe taking the global economy down here in 2026. Um but be before we do that just one last thing like the the Fed of course relies on inflation data um being quite micro here but like the decision-m process of course is based on certain data um how do you put that into I wouldn't say context is the wrong term but how do you put an understanding around that what the Fed should do perhaps next should it even raise interest rates looking at just what we discussed here >> well my attitude to the Fed trying to control inflation by using interest rates is a bit like having having a noisy couple of kids in the back of the car and you give them plastic wheels so they turn the wheels uh rather than saying, "Are we there yet, daddy?" Uh because it's economic theory, mainstream economic theory that tells economists that raising interest rates attenuates inflation by reducing consumption demand because consumers realize they've got to pay uh uh high they're paying higher higher prices or appearancing higher higher prices now. So they consume less so they can leave money for their for their uh their heirs. That's literally the logic in conventional economics. What actually happens uh in terms of how interest rates control economic activity is you squeeze the amount of money that uh people in debt have to pay their debt and if they don't have that money to pay the debt then they are forced to cut back on consumption or they go bankrupt. Uh and that that is the it's a blunt tool if it works at all. Now, in these circumstances, I've got a feeling that the Fed will throw its economic models out the window, which is where they deserve to go. Frankly, they're useless. They should be using postcanesian models, not the nonsense that neocclassicals have created. Uh, but they'll throw them out the window and worry about the impact of the of this increase on uh the the war on the uh capacity of the economy to invest. They and they'll cut rates. So I I'm I'm not I'm not I'm I'm gambling on what a a couple of crazy critters are going to do. Okay, I'm not saying that this is given, but I think that their reaction will be to throw their models away, worry about the the supply shocks that are coming through and reduce rates rather than increase them [snorts] >> initially. >> No, it's a it's an interesting debate. Of course, we got about uh what is it 10 days left to see what the Fed will do here um moving forward. A lot of people are still calling for lower interest rates. Steven Mirren, for example, keeps pushing for lower rates. Question is, does that make sense? Um because we need to weigh inflation versus perhaps debt deleveraging as as well, reducing balance sheets. Um Kevin Worsh was always for reducing the the Fed balance sheet. Um trying to make a segue here between our warflation and maybe debt leveraging conversation here, Steve. Um which force do you think will win actually like the inflationary side or the the deflationary side? meaning on the debt side like what are you looking at and who are you betting on? [clears throat] >> Well, I'm I'm betting on on the reserve looking at the war situation and thinking they have to reduce rates to give people more headroom in that situation regardless of the inflation. So, as I said, the models of inflation are fantasies. Uh they have this they use what they call a representative agent who has infinite foresight uh or it's it's a fantasy theory of inflation. Um but gi g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g g given and but normally they follow that that's what drives their decisions to put interest rates up in the last four or five years. But if if this sort of military conflict is is hitting and they're worried about the American economy be able to cope with it, I think they may just decide that we want to make it possible for firms to uh if they're paying a higher prices in oil and reduce the prices they're paying to service debt by reducing interest rates. So my my expectation as their initial response is going to be to keep rates constant or drop them rather than increase them. And only if you see a substantial increase in inflation are they likely to put rates up and then we'll be stuck in a crazy version of Voca's world all over again. >> No absolutely the question is like will it help the consumer? Will it help private debt markets? And I think that's sort of the segue to to the next part of the conversation here. Professor Keane is really like you've been warning about the the a crash in the private debt markets in general. Um it's way bigger than the government debt markets. You've argued with us before. Um where do you think we stand right now when it comes to that? A lot of pressure on private debt. Uh so I'm curious. >> Yeah. Well, this again is where mainstream economics is, as you know, car is completely delusional. They don't even consider private debt because according to their theories of banking uh they argue that banks don't actually lend money. They argue that banks what they call intermediaries who enable a saver to lend to a borrower. So if debt falls it doesn't matter because it means the borrower is returning money to the saver and overall the economy remains in balance in their stupid models. But in the real world banks do create money. Banks lend and when they lend they put money in your deposit account and they put an equivalent amount that you owe them in your in their asset. the debt that you owe to them which is your liability. So banks create money when they lend and that adds to aggregate demand and income. But of course if you get to the massive accumulation of debt as we got uh in in 2007 then at that point people stop borrowing uh and the borrowing goes from positive to negative and that swing around causes a massive slump in economic activity. That's what caused the global financial crisis. You will not find the mainstream economist even thinking about that because they wear a set of blinkers that tell them they don't need to look at the level of private debt. Now having said all that what of course we had a crisis in 2007 caused by private debt uh reaching 170% of GDP in the America's case and the change in debt in 2006 being equivalent to 15% of GDP and then by 2009 that was minus 5% of GDP. So you had a 20% in GDP swing around in the demand that's created by credit. Pardon me. Now and I can show how severe that was. If I share my screen, I can show how severe that was back in 2007. Now so that's just just to zoom in and just to give people some details here. You wouldn't you wouldn't know it by reading the papers and by looking at conventional economists, but private debt is far greater than government debt. and private debt was rising all the way through the uh from the end of World War II all the way through the bubble and pop back in the 80s and then that's the peak that gave us the crisis. Government debt was trending down all the way until the crisis began and then government spending to cataract the impact of this decline is what led to the levels of government debt that people are worrying about today. But even so, you have private debt still being substantially above government debt. And the point that I'm making about the uh what causes the change in economic activity is credit. So credit is the annual change in private debt. You can see here that's the zero line. Uh so between 1945 and 2007 credit was never negative. It fell a lot in the in the 1990s recession, but it didn't hit negative. It's still equivalent to plus 2% of GDP. What caused the severity of the downturn in 2008 and 9 was that credit hit minus 4.6% of GDP and that caused the plunge. Then we've had a slow recovery of credit back to similar levels and then we hit the uh uh well we we hit the end of the co stimulus programs and then from that point again credit demand has been falling but still positive. We're now back on the same territory that gave us the 1990s recession. So in terms of a fall in economic demand, credit is now starting to be become a negative. And this is the the real one that you take a look at to see uh whether you're going to have a crisis or not is the change in the change in debt because credit adds to aggregate demand. Change in credit changes the addition. So you subtract this from what's going to be giving you a positive rate of change in GDP from other factors. And again, we had that extremely severe downturn in 2007. We had the beginnings of it when CO first struck and the government had to create money and and that encouraged people back into private debt for a while in the aftermath. It then had negative contributing to a slowdown. We're now back on negative territory again. It's not severe uh compared to what happened back in 2007 yet. But the problem is we're still carrying this ridiculous level of private debt because if you go back to the Great Depression, the level of private debt in the Great Depression hit 150% of GDP orienting those figures with today's figures and then when you began the second world at the end of the Second World War, it was down to 50%. There was massive deleveraging through the Great Depression and World War II and that meant the private sector began the post-war period with the best balance sheets it ever had. Uh looking at historical data. Now we still got lousy balance sheets and in fact that's partly because the Fed and the government tried to tried to encourage the banks to lend again because they didn't realize that too much private debt caused the crisis in the first instance. So, I've always seen this as a reason not for another crisis, but for stagnation, because the credit system, because there's so much private debt already, the rate of growth of credit is never going to reach the levels that it reached back in 2007. And so, we're going to have stalified demand coming from the the credit side of the economy. And this is probably partly why we've seen the rise in in private lending by non-banks like Black Rockck uh getting into the into this game. But we've we've got got a constipated system, frankly, and people are trying to push more food through it. Well, that doesn't tend to work very well. >> How how vulnerable is the system though now to higher or maybe lower interest rates as well? And uh where do you see the biggest pressure come from or the the biggest risk come from perhaps like households like real estate is a big part of it of course. Um or is it corporate debt which I corporate debt I would throw into the private debt side as well. Correct. Um so curious like where do you see the biggest risk? Well, I think the corporate corporate sector's debt levels are an issue. Households uh aren't as indebted as they were in the um global financial crisis. They've delivered more more than the corporate sector has. Uh but you've got house prices back to the higher than the level they were back in 2007. So the the the weird dynamics that go on there is that it's not the change in debt that causes rising house prices. It's the change in the change in mortgage debt and that acceleration has been positive that's boosted house prices that are now higher in real terms than they were in 2007. Uh but now with with the shocks coming through from the war and the impact of oil prices as well, I think a lot of households are going to find they can't service those mortgages anymore. So we'll see um not a downturn in the housing market, not on the scale of 2007, but still a downturn because this pressure is squeezing people in mortgages. >> I was going to couple micro follow-up questions there for you, Professor Keen, as well. President Trump suggested maybe capping credit card rates at least for 12 months at 10%. Um what do you think the impact is going to be there? Is that something you look at cautiously or is that just a fad? Now, look, I think that's actually one of the times I'd agree with Trump. Occasionally, he says something sensible. Um, so you look at the the rate that's charged by banks on in on on debt is comparable to what I would charge you if you if I wanted to lend you money because if I lend you money, I don't have that money myself to spend. So, I want compensation for the fact that I've given it to you instead. And that's where we get the rate of interest we accept. But banks don't lend your money, they create money. and therefore their cost of business uh is is what is what is affected that's what they should set the rate they charge on bank debt. So on that basis bank debt should be a lot cheaper than persontoerson debt. Again if I and I have done this and I regret it uh making a loan to somebody uh and then and and then what it means is I've got less money to spend so I'm actually compromised. So you that's why you want to be paid interest if you make a persontoperson loan and you base it on the amount of money you've lent and if you're going to be do without able to spend that money then you want a compensation for not being able to spend that money but banks create the money. They do not lend out your deposits they create the money when they create when they create debt. Uh so you should actually look at what's what are their production costs for creating debt and it's a damn site lower than the rate of interest we take we we expect in interpersonal loans. You'd therefore look at what's a decent rate of return on the capital equipment the bank has the same way you'd look at a decent rate of return for a manufacturing business and that would give you a far lower rate of interest compared to the uh amount of money created by the bank. would it still be proportionate to the amount of capital they had to invest to give that capacity to create the money in the first instance. So we pay too we pay too much to banks. We should not pay on the basis of the amount lent. We should pay on the basis of the effectively the production costs of money creation for the banks bank licenses bank staff uh electronic transfer systems etc etc. Even if you gave them like double or five times the return that uh ordinary corporations make out of their fixed capital, uh banks would still be charging less than they're charging on interest now because we've all fallen for the textbook myth uh that banks lend out deposits. >> Just just one last followup on that real quick is just the amount of risk that the banks take on especially in the US it's a lot of unsecured credit card risk. Um do you think the amount of private credit like the the amount of credit issued um would would be drastically reduced as well? Is that a sort of like is is that self-regulatory then as well? And how prohibitive is that? >> Well, it's not self-regulatory and this is one reason Trump is quite you know he's got to do some things that make sense and uh and saying you want to cap interest rates on on credit cards. credit card returns. I don't know what they are in America, but they're often over 20% peranom uh in in the the in the in Australia and Europe and so on. Um that's a ridiculous rate of return. They should never have been allowed to get that high. So if you say you're going to cap them at 10%, that is still an incredibly profitable thing for the banks even given the fact that a large number of people are going to going to go bankrupt. You're making 10% return on something that cost you 1/5 or onetenth as much to actually create. are you doing very well? And then that's you're falling from 20% to 10%. Uh that' be one of the few things that workingclass Americans could thank Trump for. >> But uh ju just maybe just last just to clarify, but if the banks were to go down from 25 to 10%, it would be way more restrictive in issuing credit or giving out credit cards. U maybe prohibiting access to capital or new capital for some of the consumers. >> I think I they're still making a ludicrous return on credit cards. I mean 25% rate of interest is userious frankly and that's what credit cards will let them get away with and people do monitor their credit card debt in a way they don't moni monitor their mortgage debt. When you look at household debt and break it into credit card versus or you know unsecured debt versus uh secured debt for mortgages it's actually the secured debt that's exploded because that is driven by rising levels of of of bank debt. So people when when you lend when bank lends you money to buy a house that uh you then have more money to buy the house than uh the person who is selling it to you actually took on. Uh that then encourages more people back into debt again. You get a runaway amplifying process that leads to rising asset prices and that's what makes people think it's worth taking on that secured debt. So people are far more willing unfortunately to take on large amounts of secured debt than they are unsecured debt. Now if you reduce the rates from 23% to 10% then people might well you know want to get credit cards because it ends up being uh you know it becomes more within reach of what a mortgage debt is and you don't have to uh lean on your assets to get it. Uh banks may be slightly less willing but it's still a no-brainer uh to provide that money unless people are going bankrupt on mass. So I don't think banks will cut back on credit cards. Uh in in in fact if they if they find mortgage debt not going ahead. They always look for another profitable avenue to go into. So I don't think they'll cut back on lending because of the fall in the rate if Trump does impose that ceiling. And I'm not going to hold my breath to whether Trump will do it by the way. >> No. No. I appreciate you clarifying that and your your point of view there as well. So really appreciate that. Um Professor King, you've been calling for a financial crash in 2026. Let's let's kick it up a notch. Do you still um stand? >> No, that's that. No, that's that's my that's I wish there were five of me, but the other four clones would do what I want to do. I've got staff instead and sometimes they publish stuff which is uh exaggerated and you get YouTube clickbait turning up as well. So, I'm not calling for a a crash in 2026, but I do expect before the war jumped in the way, I did expect an a crash in the AI market. And this would be a classic uh shiterian cycle because you have just like we had for the internet and we had for telecommunications before the internet and the railways back in the 19th century. You have a new technology which is disruptive. It is going to change the nature of capitalism significantly. Numerous companies jump into that. You get far more capacity created than the market can actually absorb. You get a boom when they're spending the money to establish all this technology. But then you get a slump when the technology comes online and starts undercutting existing processes. So that's a classic boom and bust cycle coming out of a genuine technological advance. And I do expect that to happen. But what we had back in 2008 was a debt deflation. Too much private debt. Uh far too much and not productive. Most of it going into house prices, not going into increasing productive capacity. So we had to have a crash back then. This time around, I expect a boom and a bust out of AI. uh but not a a bust like 2007 which was a a genuine debt deflation. >> No, I appreciate it. Okay, thanks for clarifying that. Uh I had that question. I was like we got to talk about the the looming financial crash. So >> yeah, I know. I mean I I sometimes the most it goes up and oh [laughter] like it it helps to I mean they're doing some great work and they are channeling me very very well and so I appreciate the support the staff for my online course are giving and putting that material out but occasionally there's one that I go oops and so what I do is I put a little hang on a second reply to that. So basically it's watch out for the fine print. Yeah, like somebody mentioned on our channel, the caveat, you know, there there's certain aspects to it that might offset your card here, right? Um, but maybe last question then, Professor Keane, if we speak again about in about six months time, what what are going to be what do you think the main topics of discussion will be? >> Well, I just I hope we're not speaking after the start of a nuclear war. That's the thing. I mean, this is just such a total wild card. There was no justification for the attack on Iran. uh and Iran is completely justified in defending itself against uh the not just America but the uh this Arab and Israeli states that have you know America is allied too and I think is Israel's leading America by the nose or maybe another part of the bodily anatomy uh and the this if if Israel find that it's losing and then faces annihilation or subjugation uh which I think regarded equally the same we could see tactical nuclear weapons being used and that is just such a wild card. Nothing else matters but preventing that and uh given the idiots in charge of the of the uh American government and the madman in charge of Israel and the nature of that Zionist entity. I think it's quite a possibility. So I think all bets are off until we know where the nuclear war starts or not. >> All right. Let's hope it doesn't come to that cuz that's uh Yeah. No, I don't even I don't even want to think about that to be quite honest cuz it's quite scary. >> Not exactly. Yeah. >> No, no. We had we had a meteorite fly flying over Frankfurt um last night and people just panicked already cuz it it looked awfully like uh a missile was shot over Germany, right? >> Um you might find it in the news. Um there was some newspaper article or some articles and photos about it and it just looks like what we're seeing over Dubai right now. So >> quite scary. >> Um professor, can you mention your YouTube channel? >> Extremely scary. where where else or where can we send our audience because I really appreciate your channel as well. Where can we send our audience to follow more of your work? >> Yeah. >> Okay. Well, the YouTube channel obviously it's at ProfSaveken. YouTube Prostavekane. I have a Substack page which is also called Prostave Keane and a Patreon page also called ProfsteaveKe. And I'm now uh courtesy of a a marketing company I'm working with now. I'm putting on a set of online courses. The marketing will seem over the top. I apologize for that. I can't control how it's marketed. But that leads to a set of online courses with me right now that have well over a thousand people who've signed up and it's a lot of fun that I'm giving two sets of lectures. One an overview lecture I call the Rebel Challenge and then another which is enormous. It's basically all my knowledge of economics over something like two years worth of lectures. So those are the if you you're really an addict that's where to head to the the steveken.com uh otherwise YouTube and and Patreon and Substack. Fantastic, Professor Keane. Thank you so much for joining us. Really insightful. Uh really appreciate your time this morning. Thanks so much for joining us. And everybody else, thank you so much for tuning in. Hope you enjoyed this conversation with Professor Steve Keen. If you did, hit that like and subscribe button. It's always good to hear different angles, different aspects, and look at things from just just different angles. It just makes sense, and that's what we do here. We try not just to educate, but we also try to look at things from different perspectives. So, really hope you you enjoyed this as much as I have. If you did, hit that like and subscribe button. It helps us out tremendously. And please stay safe out there. Good luck investing and don't be led by emotions. Take care out there.