In my quest to be more financially savvy I’m always on the look-out for economic advice that’s out of the box. So I’m jumping for joy to have found an uncommon and kindred spirit in Australian Economics Professor Steve Keen who advocates a bizarre yet, to my mind, enlightened way to tackle personal and corporate debt.
Professor Keen ‘s words ring true when we look at the crisis that the explosion of debt has created all over the world. We know the endless hardship of people (good people) who are trying to pay off their personal debts – mortgage, credit cards, hire purchase – as well as those struggling to get on the property ladder. A home of your own is a remote possibility in this modern era when space travel is being touted as the next mode of luxury travel!
|Towering inferno of debt|
Good financial management is not rocket science and it’s important to remember that the system of creating financial stability has failed not the individual. Politicians must shoulder some of the blame as poor leadership has given rise to the systemic (and spectacular) collapse of the banking system. To clarify, politicians are reactive leaders – they adjust their policies and manifestos to anything that are vote winners – the neglect strategic thinking in favour of their egos.
Political selfishness has allowed banks to generate income for themselves by creating debts and the economic “heavyweights” in that sector - the Chief Executives, Directors and others with fancy titles – have had a skewed vision of how capitalism functions. The global “ Occupy Wall Street” movement are the face of the new-age economist and they’ve resorted to street protests as they feel betrayed and want society to be returned to a harmonious state. I’m with them in spirit and though they may be clinging on to a vague hope – at least there is still a little bit of hope in these dark times!
|Prof Keen - uncommon economist|
Professor Keen goes even one step further – he suggests that the Economics departments of universities should be occupied by protesters in order to engender a shift in political power to bring about fresh thinking. Most economists (those who have graduated with an armful of prestigious qualifications and who now sit on the Boards of industry and finance ) and equally those who sit on armchairs pontificating, have had a mythical view of money creation. In Latin, the word “mortgage” is death contract and it’s ironic that paying off such a debt to keep a roof over your head has become soul sucking misery. Your mental health will be seriously challenged as you borrow to live, live to work to pay it off and the interest you’ll pay will keep the banks in clover for a good many years.
|Let's lighten the load|
Banks make money by creating debt – that’s a hard fact of life. Some debts are a necessary and those that support innovation and new enterprise are to be encouraged. If we are to bring forth the next generation of innovators and entrepreneurs their ideas can only be made tangible if money can be sought for business costs. Professor Keen believes this to be creative instability which is mostly beneficial to society.
You don’t need to be an economist to understand the negative social outcomes of financial hardship. Rioting on the streets and the lawlessness attributed to young people are clear signs that there is a need for new thinking. People have been betrayed and plunged into debt slavery. This is the lost generation as they learn to live with permanent recession and the destructive force of financial instability.
Professor Keen states that banks must start up again from scratch. They have become corrupt and distant institutions that play with money but do not use it wisely. I had personal experience of this when I worked in the retail sector of a well known bank in the UK in the late 90’s. The Manager would ask the staff to offer loans to any customer that requested one; the only pre-requisite being that they were employed; the size of their income did not matter. I thought it ludicrous at the time as some customers were just on a minimum wage. The bank did not seem to care as staff were told that there were lending targets and if these were met each month the manager would receive a bonus. If that’s not a strategy for failure then I don’t know what is! Little did I know that this was one of the many contributing factors for the financial crisis in the UK. “Golden Rules for Bankers: you never help people into debt when they walk in one gloomy winter morning and say they need to get away for some sunshine AND you don’t reward your staff for lending other people’s money!
Professor Keen is right when he says that private debt must be written off. Therefore the Treasury must take the drastic step of creating money for debt relief. The Royal Mint’s presses in the UK must churn out millions of notes for the purposes of paying off private mortgages and credit card debts .
Think about it – if you were debt free today – how much lighter would you feel and how much would you strive to never get into that situation again – especially if you’d had better advice from a kind bank manager.
Banks and money managers need to be more friendly. People need educating in good financial instruments and banks should offer workshops to maximize these skills instead of capitalizing on the ignorance. A society that budgets together will pull together in hard times. Capitalism is corrosive if not curbed and monitored. Wisdom is not generally found in the corridors of power but amidst the despair a ray of hope glimmers.
|Winning the war against debt|
Professor Keen is throwing a lifeline to the economists who made titanic loans and have come unstuck by the ice berg of poor decision making that has plunged us all into an ocean of debt. He’s known as the non-orthodox economist with the “biggest mouth” and, in the war against weapons of financial destruction, my money’s on the Professor!