MacroVoices #275 Steve Keen: Inflation Will Not Run Away

Episode Summary

Executive Summary: Macro Voices episode 275 centers on a debate between Eric Townsend and Steve Keen over inflation, debt, and bond markets. Townsend argues a secular inflation regime may be beginning and that policy will keep markets buoyant, while Keen says supply shocks can raise prices but sustained runaway inflation is unlikely without strong credit demand and wage bargaining power. The post-game focuses on falling yields and a calmer bond market.

Main Topics: Secular inflation vs. debt-driven deflation (Priority: 5/5): Eric argues a new inflationary era may be starting, while Steve Keen says higher prices from supply shocks will likely fade because private debt is too high to sustain demand-led inflation. Supply shocks and commodity inflation (Priority: 5/5): Keen points to COVID disruptions, climate-related bottlenecks, chip shortages, and raw material shortages as the main source of near-term price pressure. Bond yields, central bank control, and Treasury markets (Priority: 5/5): The discussion contrasts the idea that inflation automatically drives yields higher with Keen’s view that central banks set short rates and that long yields are constrained by debt levels and policy. Modern Monetary Theory and public debt (Priority: 4/5): Keen defends MMT as an accounting-based description of how government deficits create deposits and reserves, arguing that fears about burdening future generations are misplaced. Private debt, stagnation, and debt jubilee risk (Priority: 5/5): Keen says private debt is at historic extremes, limiting credit growth, lowering velocity, and increasing the risk of stagnation and eventual mass bankruptcies unless debt is reduced. ESG, greenwashing, and climate economics (Priority: 4/5): Both speakers criticize ESG as often being marketing-driven, and Keen attacks mainstream climate economics for understating damage and misunderstanding systemic climate risks. Market structure and post-game bond chart review (Priority: 3/5): Patrick’s chart deck emphasizes compressed equity ranges, the breakdown in yields, and a possible bond rally, suggesting the bond scare may have passed.

Key Arguments: Townsend believes the market is complacent and that what may look like an end could instead be an Austrian-style crackup boom, not necessarily a price decline. Keen argues that supply shocks can raise prices, but without strong wage bargaining power and new borrowing, inflation should not become a runaway wage-price spiral. Keen says the 1970s inflation was amplified by strong credit demand and trade unions—conditions that no longer exist in the same form today. Keen argues inflation does not mechanically cause bond yields to rise; central-bank policy and debt sustainability matter more, especially at the short end of the curve. Keen contends MMT correctly describes how deficits create deposits and reserves, while conventional textbook ideas about loanable funds and money multipliers are false. Keen says the U.S. private debt burden is so high that additional credit demand is limited, which supports stagnation rather than sustained inflation. Townsend and Keen agree ESG is often greenwashed and may not meaningfully solve climate change, despite the honorable intent behind responsible investing. Keen argues mainstream climate economics, especially Nordhaus-style assumptions, drastically underestimates the scale of climate damage and should not guide policy.

Data Points: Macro Voices episode: 275 - Episode number stated in the intro. Recording date: June 10, 2021 - Introductory metadata for the episode. U.S. 10-year Treasury yield: ~1.465% - Discussed in the intro/post-game as yields fell below 1.5%. Crude oil inventory draw: 5.2 million barrels - Weekly crude draw excluding SPR impact. Crude oil draw including SPR: 6.6 million barrels - Inventory change including Strategic Petroleum Reserve. Gasoline inventory build: 7.0 million barrels - Finished products inventory change. Distillates inventory build: 4.4 million barrels - Finished products inventory change. Net petroleum products change: ~5 million barrel build - Eric characterized crude plus finished products as a net build overall. Cushing, Oklahoma inventory build: 165,000 barrels - Weekly Cushing stock change. U.S. crude production: 11,000 (as stated in transcript) - Weekly U.S. production figure cited by Eric. Gold price: ~$1,900/oz - Gold was trading near this level at recording time. Gold recent high: ~$1,918-$1,920/oz - Resistance/test referenced by Eric. Gold support: 200-day moving average - Eric said price tested and held the 200-day moving average. S&P 500 range: 4,200-4,250 - Patrick described likely near-term pinning zone into options expiration. Corporate sector private debt-to-GDP: 75% to 84% in 2020 - Keen cited a nine-month jump during COVID. Current U.S. private debt: ~160% of GDP - Keen said private debt was at about this level after COVID. Private debt peak in 2009: 170% of GDP - Keen cited the prior historical high during the financial crisis. Prior peak before Great Depression: 130% of GDP - Keen used this as historical comparison for U.S. private debt. Unemployment in 1972: 6% - Keen referenced historical unemployment before the 1970s inflation surge. Recorded unemployment in the 1970s: 3%-4% - Keen compared then-current official unemployment with today’s labor market. Credit demand in 1970s: ~11.5%-12% of GDP - Keen said private credit demand was unusually high before the inflationary spiral. Credit demand after shock: ~5.5% of GDP - Keen said credit demand plunged after costs rose, contributing to downturn. Fed rate move in Volcker era: 8% to 17% - Keen cited the policy tightening used to crush 1970s inflation. Patreon subscribers: ~1,500 - Keen described the size of his independent teaching support base. Patreon pricing range: $1 to $1,000 per month - Keen described the range of subscriber support levels.

Pivotal Quotes: "The inflation is inevitable, but it doesn't pose a great threat." — Eric Townsend introducing Steve Keen: Framing the interview’s central disagreement about how serious the coming inflation might be. "I can't see runaway inflation just because I can't see runaway aggregate demand." — Steve Keen: Keen explains why supply shocks alone are unlikely to produce a sustained inflation spiral. "Bank lending creates deposits." — Steve Keen: Core summary of Keen’s endogenous-money argument against textbook money-multiplier views.

Implications: Listeners should expect near-term price pressure and policy-driven market support, but not automatically a 1970s-style inflation spiral. The big risks Keen highlights are private-debt saturation, low growth, and climate disruption, while the bond market may remain more stable than recent inflation fears suggested.