Steve Keen: Credit Created Out of Thin Air 3/7

The transcript discusses the lack of awareness among economists about the exponential growth of derivatives and credit default swaps, which contributed to the financial crisis. It highlights the oversight in financial theory regarding private debt and critiques the neoclassical view of lending and saving. Krugman's model of the crisis is examined, emphasizing the misunderstanding of debt's role. The real-world banking process, as explained by Alan Holmes, is contrasted with traditional economic teachings, showing how banks create money and the implications of private debt growth.

What was a major oversight by economists that contributed to the financial crisis?

• The rapid growth of derivatives and credit default swaps

• The increase in global poverty

• The decline in stock market values

• The rise of inflation rates

According to Krugman's paper, what aspect of debt is considered impactful on the economy?

• The interest rates on debt

• The distribution of debt

• The currency in which debt is denominated

• The total amount of debt

What is the neoclassical view of lending?

• Lending is a redistribution of wealth among citizens

• Lending is a transfer of reserves from banks to borrowers

• Lending is a creation of new money by the government

• Lending is a transfer of spending power from savers to borrowers

How do banks create money according to the discussed theory?

• By transferring existing reserves

• By increasing interest rates

• By printing new currency

• By lending and creating deposits

What does the endogenous expansion of spending power refer to?

• The increase in government spending

• The growth of private debt

• The expansion of international trade

• The rise in consumer savings