Steve Keen

But their models are mental, okay?

That's completely wrong.

It's not consumption that's volatile.

It's investment.

Investment is about three in terms of the standard deviation of investment over time versus that of consumption.

It's about three times as large for investment as it is for consumption.

Investment's the volatile component.

And when you put up interest rates, what you do is you screw people's capacity to service their mortgages.

Now, the mortgages, the debt doesn't even turn up as part of the models these economists are using.

So they're all fictional models that come back to saying the only control of their mechanism is the rate of interest, when in the real world, the control mechanisms are myriad, but they're not the rate of interest particularly.

It's a fairly weak control.

So what I'd be doing is I'd be controlling who banks can lend money to.

I wouldn't let them lend for speculation on share prices.

I'd ban margin debt completely.

I wouldn't let them lend more than a multiple of the rental income or either actual or hypothetical for a property.

Whereas they claim to be basing it on the income of the buyer, I'd say, no, you've got to make it on the basis of the income earning capacity of the asset you're buying.

And that would drastically reduce the amount of money that was lent for mortgages.

So you've got to control the behavior of the banking sector.

And that's by saying, not worrying about the level of private debt,

and focusing just upon the interest rate, the so-called regulators have let the banks do what they damn well like, and that's what led to this enormous level of private debt.