I agree with Keen’s claim that repaying debt or “deleveraging” is deflationary. He also claims that because we have excess debt, we have to have some sort of compulsory or taxpayer funded debt reduction program. He calls it a “debt jubilee”. First, the bureaucratic problems there are immense. For example there are rich debtors and poor people who are not in debt. Why should poor people help the rich escape their debts?Second, the deflationary effect of deleveraging can perfectly well be counteracted by having government print and spend extra money into the economy. And if he is saying that the fact of being at the zero bound stops government printing and spending, I don’t get that either.
" Why should poor people help the rich escape their debts?"Ralph, have another look at the proposal. The proposal is that everybody gets a chunk of cash that first has to be applied to debt.Anybody without debt gets a fixed cash bonus. So the poor person without debt is no worse off.At least the debate has moved on. Now we're onto whether the debt bubble should be deflated quickly or slowly.