Boom Bust Season 1 Episode 86 Steve Keen: "Loans Create Deposits!" Aka No One Understands Banking

In season 1, episode 86 of "Boom Bust," titled "Steve Keen: 'Loans Create Deposits!' Aka No One Understands Banking," renowned economist Steve Keen sheds light on a fundamental concept that often eludes many when it comes to understanding the intricacies of banking.

In this episode, host Christy Ai and Steve Keen delve into the widely misunderstood relationship between loans and deposits within the banking system. Keen, an economics professor and the author of "Debunking Economics," challenges the conventional wisdom and explores the reality behind the creation of money through bank loans.

As the discussion unfolds, Keen challenges the conventional notion that deposits are merely the result of people saving money and depositing it into banks. Instead, he reveals how commercial banks have the power to create money through the act of lending. Keen clarifies that when a bank grants a loan, it essentially creates new deposits, which in turn increases the money supply in the economy.

Throughout the episode, Keen passionately argues that the misconception of loans being funded by deposits arises from a flawed understanding of the mechanics of banking. He emphasizes that, in reality, loans come first, and deposits follow. This groundbreaking insight challenges the conventional framework within which banking has been traditionally taught.

The conversation delves deeper into the nuances of banking and the implications of this understanding. Keen discusses the dangers of too much private debt, explaining how it can lead to financial instability and economic downturns. He highlights the link between private debt and economic crises, drawing parallels to historical events such as the 2008 financial crisis.

Moreover, Keen and Ai explore the potential policy implications of this new understanding. They discuss the role of government regulation in controlling banks' lending practices and preventing excessive private debt accumulation. Keen argues for the need to reevaluate traditional economic models and policies, suggesting alternative approaches that prioritize stability and sustainability.

Throughout the episode, Steve Keen's passion and years of expertise shine through, as he breaks down complex concepts into digestible arguments and relatable anecdotes. The engaging conversation between Keen and Ai provides viewers with an enlightening exploration of banking, challenging commonly held beliefs and unveiling a deeper understanding of the relationship between loans and deposits.

As the episode reaches its conclusion, viewers are left with a newfound appreciation for the intricacies of banking and an enhanced understanding of the profound impact that lending and debt have on our economy and society as a whole. "Loans Create Deposits!" serves as a thought-provoking reminder that the world of banking is far more complex and counterintuitive than it may initially seem.

In summary, season 1, episode 86 of "Boom Bust" offers an eye-opening conversation with economist Steve Keen, as he dismantles common misconceptions surrounding banking and reveals the true nature behind the creation of money through loans. This episode challenges viewers to rethink their understanding of banking, question traditional economic models, and consider the implications of debt and lending on economic stability.