Between Debt and the Devil

Why our addiction to debt caused the global financial crisis and is the root of our financial woes Adair Turner became chairman of Britain's Financial Services Authority just as the global financial crisis struck in 2008, and he played a leading role in redesigning global financial regulation. In this eye-opening book, he sets the record straight about what really caused the crisis. It didn't happen because banks are too big to fail-our addiction to private debt is to blame. Between Debt and the Devil challenges the belief that we need credit growth to fuel economic growth, and that rising debt is okay as long as inflation remains low. In fact, most credit is not needed for economic growth-but it drives real estate booms and busts and leads to financial crisis and depression. Turner explains why public policy needs to manage the growth and allocation of credit creation, and why debt needs to be taxed as a form of economic pollution. Banks need far more capital, real estate lending must be restricted, and we need to tackle inequality and mitigate the relentless rise of real estate prices. Turner also debunks the big myth about fiat money-the erroneous notion that printing money will lead to harmful inflation. To escape the mess created by past policy errors, we sometimes need to monetize government debt and finance fiscal deficits with central-bank money. Between Debt and the Devil shows why we need to reject the assumptions that private credit is essential to growth and fiat money is inevitably dangerous. Each has its advantages, and each creates risks that public policy must consciously balance.

Adair Turner With a new afterword by the author

Acknowledgments ix
Preface: The Crisis I Didn't See Coming xi
Introduction: Too Important to Be Left to the Bankers 1
Part I Swollen Finance 17
1 The Utopia of Finance for All 19
2 Inefficient Financial Markets 34
Part II Dangerous Debt 49
3 Debt, Banks, and the Money They Create 51
4 Too Much of the Wrong Sort of Debt 61
5 Caught in the Debt Overhang Trap 74
6 Liberalization, Innovation, and the Credit Cycle on Steroids 88
7 Speculation, Inequality, and Unnecessary Credit 108
Part III Debt, Development, and Capital Flows 131
8 Debt and Development: The Merits and Dangers of Financial Repression 133
9 Too Much of the Wrong Sort of Capital Flow: Global and Eurozone Delusions 149
Part IV Fixing the System 161
10 Irrelevant Bankers in an Unstable System 163
11 Fixing Fundamentals 175
12 Abolishing Banks, Taxing Debt Pollution, and Encouraging Equity 186
13 Managing the Quantity and Mix of Debt 195
Part V Escaping the Debt Overhang 211
14 Monetary Finance-Breaking the Taboo 213
15 Between Debt and the Devil-A
Choice of Dangers 231
Epilogue: The Queen's Question and the Fatal Conceit 241
Notes 253
Bibliography 277
Index 289