Nuances

MARK COLVIN: Steve Keen is this the beginning of another global financial crisis?

STEVE KEEN: It's the continuation of the last one. I mean Chris is quite right to say that there are catalysts and there are causes, and he's identified a couple of important catalysts as to why it happened now.

But the real cause is what's happening with private debt. This is being ignored in all the ballyhoo over the level of government debt in America right now but this is always been a crisis caused by private debt, which fuelled the biggest stock-market bubble in history, beginning back around 1994, and going right to 2000.

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STEVE KEEN: (laughs) Well in terms of the level of debt we're in, if you go back to the beginning of the post-war period in America, America's private debt to GDP ratio was 45 per cent. It peaked out in 2009 at 300 per cent, so more than six times as much debt compared to income as when the Second World War ended.

And that's now turned around, you've fallen from 300 per cent of GDP as the private debt level to 260 per cent, which is a pretty huge fall, but it still leaves America with more debt than it had at the absolute peak of the Great Depression.

MARK COLVIN: Doesn't Professor Rogoff give a tipping point of 90 per cent?

STEVE KEEN: He's talking about government debt.

MARK COLVIN: Right ok.

STEVE KEEN: I'm talking about private debt.

MARK COLVIN: So where are we on that?

STEVE KEEN: Government debt we're hitting about the 100 per cent level again.

MARK COLVIN: So they're 10 per cent over his tipping point?

STEVE KEEN: But it wouldn't matter if it wasn't for the level of private debt. The American government began with a higher debt to GDP ratio than 100 per cent after the Second World War, but the private sector was at, you know, a trivial level of debt, frankly, for America's debt-carrying capacity. So it was quite possible for the private sector to boom, and with the booming private sector the government to gradually reduce its debt level by running surpluses.

(ABC)