Short answer: yes — there’s substantial empirical support that private (especially household) credit booms matter a lot for crises and deep recessions, while the idea that there’s a single, universal government-debt % of GDP that “breaks” an economy is weak. Steve Keen’s emphasis on private debt is empirically plausible, not snake-oil — but it’s not the whole story. Below I’ll (1) summarize the main empirical evidence with sources, (2) give a concrete reproducible test you can run (Python + data sources), and (3) list robustness checks and interpretation tips so you don’t accidentally blame the spreadsheet.

What the evidence actually says (short & sour)

• Credit booms (large expansions in private credit/GDP) strongly predict financial crises and much deeper post-crisis output losses. Classic long-run studies show this across countries and over 140+ years. AEA+1

• Household leverage in particular amplified the 2007–2009 recession in the US and internationally: higher household debt growth → larger drops in consumption and larger downturns. NBER+1

• The widely quoted “90% of GDP” public-debt threshold (Reinhart & Rogoff) is fragile: subsequent checks found methodological errors and that the relation varies by country/period. Many papers find no universal threshold — effect of public debt depends on financing structure, currency regime, r−g dynamics and market confidence. NBER+1

• IMF and other agencies show high public debt can raise risks (e.g., worse r−g prospects, higher spreads) — but those risks are conditional (external financing needs, foreign-currency debt, short-term debt share). In short: public debt can matter, but context matters more than a single % number. IMF+1

Does that vindicate Steve Keen?

Yes for the central claim that private debt dynamics are crucial and often under-played by mainstream models. No for the extreme claim that government debt never matters: lots of empirical work shows public debt can become a problem in certain institutional/settings (fixed-exchange regimes, large foreign-currency debt, or when r > g persistently). Evidence supports the prioritized role of private leverage, but not a blanket absolution of public debt.

If you want to test Keen’s idea yourself — reproducible plan + code

Goal: test whether changes in private/household debt predict future GDP growth/crises more strongly than government debt level.

Data sources (public, downloadable)

• BIS consolidated credit series (private credit, household credit as % GDP).

• World Bank / IMF: real GDP growth, public debt/GDP (general government gross debt), controls (openness, inflation).

• Laeven & Valencia or Reinhart/Taylor datasets for banking crises (binary crisis indicator).
  Links: BIS (credit statistics), World Bank WDI, IMF WEO, Laeven & Valencia crisis dataset.

Econometric specification (panel)

1. Outcome: real GDP growth (year t → t+1 or t+3 average) or binary crisis occurrence.

2. Key regressors: Δ(private_credit/GDP){t-1}, Δ(household_credit/GDP){t-1}, public_debt/GDP_{t-1}.

3. Controls: lagged GDP per capita, inflation, short-term interest rate (or global VIX proxy), exchange-rate regime dummy, country and year fixed effects.

4. Estimators: panel FE OLS for growth; logistic fixed-effects or conditional logit for crises; dynamic panel (Arellano-Bond/GMM) if endogeneity a big worry.

Minimal Python (pandas + statsmodels) — replace ... with downloaded csv paths:

# requirements: pandas, numpy, statsmodels, linearmodels
import pandas as pd
import numpy as np
import statsmodels.formula.api as smf

# load prepared panel with columns: country, year, gdp_grow, privcred_gdp, hhcred_gdp, pubdebt_gdp, controls...
df = pd.read_csv("panel_data.csv", parse_dates=['year'])

# create lags and changes
df = df.sort_values(['country','year'])
df['dprivcred'] = df.groupby('country')['privcred_gdp'].diff()   # change in private credit/GDP
df['dhhcred'] = df.groupby('country')['hhcred_gdp'].diff()
df['pubdebt_lag'] = df.groupby('country')['pubdebt_gdp'].shift(1)
df['gdp_grow_fut'] = df.groupby('country')['gdp_grow'].shift(-1)  # next-year growth

# drop missing and run FE regression
est = smf.ols('gdp_grow_fut ~ dprivcred + dhhcred + pubdebt_lag + inflation + trade_open + C(country) + C(year)', data=df.dropna()).fit()
print(est.summary())

For crisis probit/logit (binary crisis1yr), use statsmodels.discrete.discrete_model.Logit with country dummies or conditional logit packages.

Identification & robustness (because statistics like to lie unless watched)

• Endogeneity: credit growth may respond to expected growth. Use lags, instrument (global credit shocks, house price growth lag), or GMM dynamic panel.

• Heterogeneity: run separate samples: advanced vs emerging, pre-WWII vs post-WWII, fixed vs floating exchange rate. Keen’s claims are often strongest in market-based financial systems (Anglo-Saxon).

• Functional form: test credit levels vs credit growth; test absolute household leverage ratio vs year-over-year change.

• Outcome window: short (1 year) vs medium (3 years) horizons — credit booms often presage multi-year pain.

• Crisis vs growth: test both continuous (GDP growth) and binary (banking crisis) outcomes.

What to expect (empirically)

• You’ll likely find that lagged increases in private credit (and household credit specifically) are significant predictors of later GDP weakness or crises. Schularick & Taylor, Jordà et al., Mian & Sufi are consistent on this. AEA+2NBER+2

• Public debt/GDP often has weaker or more conditional effects; it may only show negative associations in sub-samples (countries with large external debt, or where high debt preceded sudden stops). The Reinhart & Rogoff 90% rule is not robust globally. NBER+1

Key papers to read (quick list)

• Schularick & Taylor, “Credit Booms Gone Bust” (AER) — credit booms predict crises. AEA

• Jordà, Schularick & Taylor — leverage, crises, and long-run scars. NBER+1

• Mian & Sufi — household leverage and the Great Recession. NBER

• IMF working/policy pieces on public debt and r−g risks. IMF+1

• Steve Keen’s submitted evidence and writings (for hypotheses and how he frames private vs public debt). Parliament News+1

Final verdict (brutal, but fair)

Steve Keen’s claim that private (household + corporate) debt dynamics are central — empirically backed. His rhetorical claim that government debt is basically harmless is too strong: public debt matters in certain institutional contexts. The right policy takeaway from empirical work: monitor private credit booms closely and be cautious with austerity if private deleveraging is happening — that’s where the real damage shows up.

If you want, I can:

• fetch the BIS + World Bank series and produce the regressions & figures (I’ll download, clean, run regressions, and show results), or

• produce a ready-to-run R notebook with full data pipeline and robustness checks you can execute locally.

Which policy proposals has Keen offered to reduce private debt?

Steve Keen's most prominent policy proposal to reduce private debt burdens is the "Modern Debt Jubilee." This policy draws inspiration from ancient debt cancellations but adapts it for contemporary economies:

Modern Debt Jubilee

• Every adult would receive an equal sum of newly created government money, regardless of whether they have debt or not. Debtors must use this money to pay down their debts; non-debtors would be required to use the funds to purchase newly issued corporate shares or government bonds.​

• The aim is to directly and sharply reduce private sector debt-to-GDP ratios, stimulating economic activity in the process because reducing debt-service costs puts more disposable income back in the hands of those likely to spend it.​

• The policy would be accompanied by tighter limitations on bank lending for asset speculation (especially real estate), discouraging the cycle of leveraged asset bubbles that increase systemic risk.​

Additional Proposals

• Keen has also advocated for regulations such as the Property-Income-Limited Leverage Rule (PILL), which would cap the amount banks can lend for property purchases to a multiple of actual or imputed rental income. This aims to rein in speculative lending and sustainably slow housing price inflation.​

• He proposes that governments should not just target inflation and unemployment, but also explicitly manage the private debt-to-GDP ratio to keep it at healthy, sustainable levels—similar to post-WWII periods when private debt was much lower.​

Overall, Keen’s proposals are designed to reduce systemic macroeconomic risk, promote financial stability, and rebalance economic growth away from debt-driven consumption and asset bubbles toward more productive activity.​

How would banks and financial markets respond to a jubilee

Banks and financial markets would likely have a complex and highly disruptive response to a large-scale debt jubilee:

• A jubilee that cancels or pays off private debts en masse would sharply reduce the value of loan assets on bank balance sheets, directly hitting their primary source of income—interest payments on private debt.​

• Keen has proposed "Jubilee Bonds," where the government would compensate banks for some of the lost income by issuing new bonds, which banks would receive and could trade or earn interest from, cushioning the transition.​

• Even with compensation, banks would face a major shift: with household debts suddenly gone, the entire lending and asset-creation model would need to change. Traditional lending would become more limited, and banks would likely push for tighter regulations to prevent similar losses in the future.​

• Credit availability could contract sharply if markets lost confidence in the enforceability of debt contracts or feared future jubilees, which might make private lending riskier and more expensive.​

• Financial markets might react with volatility, especially in assets directly tied to private debt (such as mortgage-backed securities). Bank shareholders and bondholders could face losses, and bank stocks could suffer heavy declines.​

• Governments and central banks might need to inject substantial liquidity or tighten oversight to stabilize markets during and after the jubilee. If the jubilee is funded with new money, there could be inflationary concerns, though Keen argues the demand effect would likely outweigh this in a depressed economy.​

Overall, even with offsetting measures like Jubilee Bonds, banks would lose a significant revenue stream, and financial markets would experience major adjustment pressures. These risks are a central reason why debt jubilees are viewed as radical and usually paired with comprehensive regulatory overhaul.

Perplexity