Private Debt Drives Financial Crises: The Case Against Neoclassical Economics

The source, an excerpt from a YouTube video by "ProfSteveKeen," provides an economic argument asserting that private debt, not government debt, is the primary driver of financial crises, including the predicted crash of 2026. The economist critiques neoclassical economic models for incorrectly viewing banks as mere intermediaries that do not impact aggregate demand, arguing instead that bank lending creates money, thereby increasing both aggregate demand and income. This argument is supported by empirical data showing a strong negative correlation between the change in private debt as a percentage of GDP and unemployment. Furthermore, the text uses a mathematical model to illustrate how excessive private debt can lead to a debt deflation and economic collapse, a mechanism the author claims mainstream economists fail to recognize due to a fundamental misunderstanding of credit and banking.