Transcription
Kevin Walsh is going to be the next Federal Reserve chairman, and right now he has a plan to cancel America's $39 trillion debt.
As we said, labor markets are steady. We said the demand side of the economy was solid. The supply side of the economy that was strong.
We are going to continue in chaos. There is no end to this madness because as well as having a madman as president, we have a mad discipline running economic policy. Meet Steve Keen, world's leading economist who predicted the 2008 global financial crisis. Steve highlights his concerns about the events happening in 2026 and how they will reshape our future.
The idiocy of the Trump presidency starting the war in the first place, and then global warming with the impact of the biggest El Nino in history, all coming through at the same time. So hang on to your hats. The end of 2026 is going to be far too much fun.
The fact that I ended up commenting on the Strait of Hormuz and the Iran war and so on is a side effect of my main interest, which is the total irrelevance of conventional economic theory for the world in which we actually live. Conventional economists have a model which technically looks quite challenging, but is based on a whole range of fantasies, and those fantasies ignore, for example, the monetary system. You might think that economists are experts on money because, of course, that's what economics is about. Ironically, the models that economists use were designed to leave out money and banks and debt, and they don't look at the monetary system at all. So they have an artificial model of the real world, which is what's driving their policy.
Now, if the new chair of the Federal Reserve has the same economic foundations as the previous ones, and that's being a neoclassical economist, then he won't bring any real change to this particular dilemma. We are still going to have economists making decisions based on fantasy models which accentuate the problems we're currently suffering from rather than solving them. This is a problem of the production system. It's a problem of physical creation of goods and services which then enables you to pay your financial claims. But that's destroying 10% of that capability is going to make it that much harder to support your financial claims.
But that's something that from my own perspective as an economist, where I am a critic of the mainstream, and I think I see private debt and banks and money as absolutely critical to understanding how a capitalist economy functions. Uh, that's a completely different vision to the one that neoclassicals have, where they completely leave the banking sector out. So there's no way they can see the problems they're causing because their fantasy world model that they manage their economic policy on doesn't include the elements in the real world that are being affected by this war.
So even though Walsh is somebody who's on Trump's team, and therefore was going to be very different to many other economists who would never, never align themselves with Trump, he still comes from the same educational background. So he did his undergrad degree in economics. He's built models which are the same, uh, types of models that the economists at the Federal Reserve build. He's cut from the same cloth. You're not going to see a radically different change, a radically different policy coming out of him because he's got the same mental model in his mind that the conventional economists at the Fed have. So there's no way he's really a change.
And this is one of the weird things about seeing how new heads of institutions like the Federal Reserve are spoken about as if the individual makes a huge difference. Yes, individuals differ from each other. But if you belong to the same religion fundamentally, and you replace one Catholic with another, then you really aren't going to change the orientation of policy. In this case, the religion is neoclassical economics. They learn models which leave out the banks, leave out the private sector, leave out money. They build models which ignore the financial sector.
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And so, they've still got the same blind spots. They share the same blind spots. So the possibility that somebody's going to come in and make a huge difference when they come from the same economic religion is just not going to be manifest in the real world. So I feel sorry for the guy. Uh, there's absolutely no way you can satisfy the demands that Trump is going to make on you in a position like that. He'll end up being treated the same way as the previous Fed chair was by Trump at some point.
Uh, but also, the whole focus that conventional economists have coming out of their models is of the argument is that if you put up the interest rate, you discourage immediate consumption, you encourage people to save for the future. So their theory is that by putting up interest rates, you reduce demand now, and they see the inflation as being caused by excess demand. That is not the case. This is a supply shock disturbance. It is not excessive demand, as it was back in the 2007 period from part of the economy that these economists themselves ignore anyway, which is why they didn't see that crisis coming.
But to be using a demand-oriented way of thinking about the economy to try to understand what to do now and believe that putting up interest rates will reduce the rate of inflation. It'll increase the rate of bankruptcy. That's for the real impact this is going to have. So they're going to end up destabilizing the economy, making it function worse when they think they're, by putting up interest rates, they think they're reducing the rate of inflation.
So we are going to continue in chaos. There is no end to this madness because as well as having a madman as president, we have a mad discipline running economic policy, and the mixture is worse than either of them on their own. So Trump has started this ridiculous war, a huge supply shock for the global economy. Supply-driven disturbances to people's capacity to service their debts. The conventional economists ignore private debt. They don't even think about it. It doesn't turn up in their, in their models. And by putting up the interest rates, they increase the private debt burden on households and firms. So we're going to see more bankruptcies coming out of this.
So, rather than being fine-tuning the economy by putting up the interest rate, they should be realizing that the supply shock is reducing people's capacity to service their debts. So you need to reduce the burden that the, the formal government apparatus makes on people in that situation by reducing interest rates. Now, that's the last thing they're going to do. And Trump will start screaming about rising interest rates and blaming the Federal Reserve for it, and turn on the person he's just appointed, and will go through a repeat of the same thing McGregor went through last year when he was trying to shoot down the Federal Reserve chairman that he forgot he was the one who appointed him.
Now, will Trump forget that he appointed this guy? There's no limit to senility. Let's wait and see when that day comes around. But it because economic theory will push this guy and all his PhD advisors inside the Federal Reserve to increasing interest rates, uh, we're going to get the worst of both worlds. More bankruptcies coming out of the increase in interest rates affecting private sector's capacity to service private debt, and the destruction of the capacity of the manufacturing sector to produce those goods and services in the first place, which you then sell and use the revenue from those sales to service your debts.
So we're going to get a financial crisis caused by ignorance. The ignorance of Trump about the, the critical role that the outputs coming out of the Persian Gulf play in the global economy. The fertilizer he didn't know was produced there. The helium that he has no idea about its role in manufacturing sulfuric acid. He wouldn't have a clue about the importance of all these physical inputs to production. So his ignorance led to this ridiculous war. Anybody who had any understanding of the production system and the fragility of the global economy would not have started this war in the first place.
And then on top of that, we have a bunch of mainstream economists who believe that putting up interest rates reduces demand-driven inflation. And they're thinking this is demand-driven inflation. No, it's not. It's destruction of the productive capacity. Again, the economists and the Federal Reserve are as ignorant about the production system to some extent as even Donald Trump is. So all this damage is just going to make it hard for the private sector to service its debts. You won't have the output of goods and services in the first instance. Uh, so, you know, welcome 2026, it's a year of chaos, and the real fun element for us is this is all chaos caused by humanity directly. So the war itself didn't have to happen. This was a stupid decision in the very first instance to have the war. Then we have another stupid decision to put up interest rates in the belief you're controlling a demand-driven form of inflation when it's actually driven by a collapse in the, so in the capacity of the, the global economy. Two forms of madness at once, and then those are both human-caused ones, very immediately.
But there's another long-term human one coming our way, and that's the new El Nino, which is looking like it's going to start in the next couple of months, and that will be potentially the hottest El Nino effect we've had in recorded history. And that will also give a, a natural damage to the productive capabilities of the planet, as well as losing something of the order of 20 or 30% of the world's fertilizer supply and the impact that's going to have upon agricultural output. We're also going to see, as well as having the, the fertilizer-driven decline in food output, we're going to have all the instability that an El Nino causes to food production, particularly the currents of droughts in Australia and in the subcontinent. In fact, with America, we're likely to see more dramatic rainfall events coming out of the El Nino.
But all these things mean we're going to have less production, and at the same time, so we have the impact of the Strait of Hormuz on production. We have the impact of the El Nino on production, and we have the Federal Reserve putting up rates, which is going to make it harder for the private sector to service its debts when it should be reducing those rates to make the shock of the collapse in productive capability of the global economy to reduce the impact that has on people's financial fragility.
So 2026, it's a year of chaos, and we have three fundamental causes of it. Uh, the idiocy of the Trump presidency starting the war in the first place. Mainstream economics mistaking a supply-driven shock for a demand shock and making it more expensive to service private debts, which they completely ignore in the first instance. And then global warming with the impact of the biggest El Nino in history, all coming through at the same time. So hang on to your hats. The end of 2026 is going to be far too much.