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Professor Keen presents a dramatic analogy in his recent article on his speech at the American Monetary Institute’s 2010 conference: “banks are effectively debt pushers, and trying to control bank lending at the source is like trying to control the spread of illegal drugs by directly controlling the drug pushers. While ever there are drug users who want the drugs, then there will be a profit to be made by selling drugs, and drug pushers will always find ways around direct controls.”

The comments were a response to the American Monetary Institute’s campaign to establish a 100% reserve banking system. While Professor Keen is ambivalent about the proposal, he feels that the issue “is not how money is created, but how it is used. If it’s used to finance productive investment, then generally speaking all will be well; but if it’s used to finance speculation on asset prices, then it will lead to financial crises”.

He therefore feels reforms need to be focused on modifying borrower behavior rather than trying to regulate lenders. His article is worth a read for his proposed reforms and the civil and mostly intelligent debate of them that follows in the comments section.