“Britain’s financial crisis no one is admitting” Top Economist Warns

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Steve Keen sits down with Sky’s Ed Conway to stress-test the OBR’s terrifying long-run debt charts (274%… 600%+ of GDP) and shows why they rest on a false banking model. Using Ravel, Steve compares the textbook “loanable funds” view with the Bank of England’s 2014 statement on how money is actually created (banks create deposits when they lend). The result: debt-panic projections collapse, and a saner policy mix comes into view.

What you’ll learn

• Why “banks as mere intermediaries” breaks macro logic — and the forecasts built on it

• The BoE’s money creation mechanism vs. the textbook story — and why it matters for deficits

• How government deficits create fiat money, and why that’s a feature, not a bug

• Why secondary bond sales by banks to non-banks destroy deposits (and how to rein that in)

• How QE/QT and rate hikes ripple through bond prices, bank balance sheets, and yields

• Why private debt and credit growth are the true cyclical drivers — and why policymakers ignore them

• Practical fixes: deficit-fund essential services, cap secondary bond offloads, guide credit away from asset bubbles

Key takeaways

• OBR-style “debt to the sky” charts depend on a loanable-funds world that doesn’t exist.

• In the real world, bank lending creates deposits; credit affects demand and GDP.

• Deficits add fiat money to private balances and need not imply a debt doom loop.

• Private debt and credit swings drive unemployment and crises; government debt usually reacts after the fact.

• QT plus rapid rate hikes compress bond prices and can destabilize banks; policy must account for this transmission.

Policy prescriptions discussed

Run deficits to fund real needs (healthcare, winter heating, critical services).

Limit banks’ secondary bond sales to non-banks (or sell new gilts directly to the central bank and pay interest on reserves).

Use credit guidance: allow lending for productive business working capital and major consumer durables; restrict mortgage/asset-price speculation.

Target private-debt/credit metrics in macro policy (e.g., keep private debt ≤ ~100% of GDP).

About Steve Keen

Steve Keen is an economist known for accounting-consistent, data-driven models of money, debt, and instability. Creator of the Minsky and Ravel tools, he replaces classroom myths with operational mechanics you can simulate and test.

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