Play the ball and not the man

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The import of Ger­ard Henderson’s dia­tribe in today’s SMH is that the media has done a “soft” job on  my views, which have only gained noto­ri­ety because of the extreme pre­dic­tion I have made—about the forth­com­ing eco­nomic down­turn qual­i­fy­ing as not merely a reces­sion, but a Depres­sion. It seems I’ve only got atten­tion because of my extreme views, while the media has let the side down by doing a “tabloid” job only and not sub­ject­ing my views to scrutiny.

In fact, as many in the media know, I have gained atten­tion because of my Debt­watch Report, which will be two years old as of the next issue (No. 28, to be pub­lished in Novem­ber the day before the RBA meet­ing). The jour­nal­ists who have reported my views—including of course Kerry O’Brien, who gets spe­cial atten­tion from Ger­ard in his mockumentary—have read my analy­sis for two years now. I saw no sign of any atten­tion to the analy­sis behind my pre­dic­tions in Henderson’s piece—apart from pos­si­bly a “just in case” con­ces­sion towards the end where he noted that “His pre­dic­tions of a debt-induced decade-long depres­sion … may be correct.”

In that case, the com­men­ta­tor who deserves the appro­brium for “tabloid” jour­nal­ism is Hen­der­son him­self, and not the ABC nor the Daily Tele­graph, nor Sixty Min­utes. They, after all, read my research, have quizzed me exten­sively about it, and made the deci­sion based on inves­tiga­tive jour­nal­ism that my views deserved coverage.

For this, I applaud them—for stand­ing up for the prin­ci­ples of the Fourth Estate. Stan­dard eco­nomic com­men­tary has been dom­i­nated by the cheer­lead­ers for the poli­cies which have led to this cri­sis, while the author­i­ties them­selves and the aca­d­e­mic pro­fes­sion of eco­nom­ics itself have turned a blind eye to any argu­ments that ques­tioned the mantra in favour of dereg­u­lated finance.

I know this from exten­sive expe­ri­ence. I have made five appli­ca­tions for ARC fund­ing to inves­ti­gate the dynam­ics of debt-deflations and Depres­sions in the last ten years; all have been unsuc­cess­ful (includ­ing one time when I topped UWS researchers on the ARC’s then pub­lished ref­er­ees’ point scores, after which seven UWS researchers received funding—but I was not one of them).

I made a sub­mis­sion to the Wal­lis Com­mit­tee in July 1996, in which I warned that secu­ri­ti­sa­tion of loans could lead to a cri­sis exactly like the Sub­prime cri­sis that has now unfolded—and of course my com­ments were ignored.

I wrote to the RBA in June 1998 offer­ing to hold a sem­i­nar on the “Finan­cial Insta­bil­ity Hypoth­e­sis”, which is the foun­da­tion of my argu­ment that we are likely to expe­ri­ence a Great Depres­sion. The offer was declined.

As has often been said, offi­cial chan­nels are often clogged to make sure infor­ma­tion and crit­i­cism doesn’t get lis­tened to. When I saw the debt that Australia’s spec­u­la­tive bub­ble in real estate (and belat­edly shares) had got us into, I decided to turn to the jour­nal­is­tic pro­fes­sion to raise the alarm. To their credit, since I made a good case and the empir­i­cal evi­dence was com­pelling, jour­nal­ists lis­tened to me.

So Ger­ard, maybe you should do some inves­tiga­tive jour­nal­ism now too. Go to my blog, where you will find Debt­watch Reports going back to Novem­ber 2006, and aca­d­e­mic papers on debt defla­tion pub­lished as long ago as 1995 (maybe even read Debunk­ing Eco­nom­ics). And if you’d like to take a real risk and play the ball rather than the man, I’m more than will­ing to give a sem­i­nar on debt defla­tion at your Syd­ney Insti­tute.

Over to you.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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94 Responses to Play the ball and not the man

  1. Foundation says:

    Oh yes, good point James..

    Steve, are these T-Shirts avail­able for pur­chase some­where? Sounds awe­some. Nerdy, but awesome! 😛

    When will you begin offer­ing Debt­De­fla­tion T-Shirts and other para­pher­na­lia? I want one with a Keynes quote on the front and a pic­ture of Hen­der­son sur­rounded by fluffy bun­nies and rain­bows on the back…

    Can do?

  2. GSM says:

    @brett of homesforaussies;

    From the pre­vi­ous thread;
    “Which leads to GSM’s com­ment. I don’t believe it’s all about unem­ploy­ment. The US mar­ket peaked over two years ago, and has expe­ri­enced sig­nif­i­cant falls as we all know — but unem­ploy­ment has really only begun to increase sign­f­i­cantly there over the last 6 months.”

    I think I was mis­un­der­stood. I did clearly say — from THIS point home prices in Aus­tralia will be gov­erned by the employ­ment situation.

    My premise being that as the eco­nomic and con­sumer spend­ing slow­down so clearly under­way bites in fur­ther, unem­ploy­ment will con­tinue to rise. This will effect many mort­gage hold­ers hard — job loss trans­lat­ing into forced sales or fore­clo­sure. Fur­ther, banks will tighten lend­ing as their bad debt pro­vi­sions rise, it’s hap­pen­ing now. Con­sumer sen­ti­ment has already turned regard­ing tak­ing on more/new risk of an expen­sive fixed asset/debt.

    As IR’s do fall though, more and more poten­tial sell­ers will be encour­aged to sell into an “active/reguvinated” hous­ing mar­ket, fur­ther adding down­ward weight on prices. Vol­umes may improve — Per­haps. But I’m bet­ting the trans­ac­tion prices will disappoint.

    The present over­rid­ing fac­tor (not the only fac­tor to be sure) for the near time direc­tion of Aussie home prices will be the employ­ment sit­u­a­tion– of this I am sure.

  3. Tony says:

    reply to c said: most of the expan­sion in the bal­ance sheet of the fed­eral reserve is not from the print­ing of money, its bor­rowed from the trea­sury. Thus its not as infla­tion­ary as it first appears. In fact the fed­eral reserve will make money on the spread, as the cost of trea­suries is less than the income on some of the secu­ri­ties its tak­ing on its bal­ance sheet (just like a hedge fund). Of course its not as good a carry trade as print­ing money, where no inter­est has to be paid, but the upside is less infla­tion. The down­side is a larger gov­ern­ment debt. How­ever, 4 or 5 years down the track when the econ­omy is run­ning more nor­mally (hope­fully) the fed­eral reserve can then sell down the secu­ri­ties into the pri­vate mar­ket, reduce its bal­ance sheet and repay the gov­ern­ment debt. Thats the Feds think­ing, hope­fully it will work.

  4. Bernie says:

    A bla­tant case of shoot the messenger.

    I sus­pect Ger­ard may have sig­nif­i­cant per­sonal adverse expo­sure to the cur­rent cri­sis that he does not wish to face up to. If so, denial is an imma­ture response in the case of such a dilemma.

    While I might not nec­es­sar­ily accept Steve’s fore­casts in their entirety I regard his gen­eral thrust to be very much on the ball. Who knows, he may even be under­es­ti­mat­ing the seri­ous­ness of the con­se­quences of our cur­rent predicament.

    Did Ger­ard Hen­der­son fore­see any of this two years ago? I sus­pect not. At least Steve did and there­fore has estab­lished a more cred­i­ble track record. The jour­nal­ists are there­fore jus­ti­fied in accord­ing him the air time that he deserves.

  5. Peter says:

    Steve, I would not worry to much about Mr Hen­der­sons opin­ion. A far as I know, he has yet to clas­sify you as one of the inteligen­cia — a term I have heard him use more than once as a way of win­ning argu­ments. I won­der what he thinks of Marc Faber’s opin­ions, or the oth­ers who for years have shown con­cern about the ris­ing debt level.

    With regards to econ­o­mists and math­e­mat­ics, I do not know how capa­ble they are, but I am sure that banks employ well skilled math­e­mati­cians and sta­tis­ti­cians. How­ever, how their sta­tis­ti­cal analy­sis of data (and con­clu­sions draw from it) is put the pub­lic can eas­ily be mis­lead­ing. I once read a bank piece com­par­ing means (of incomes) to medi­ans (of houses) as a way of talk­ing up hous­ing affordability.

  6. john says:

    Yes, just read the SMH article.

    Emo­tion­ally crit­i­cal, but not a sin­gle word about the empir­i­cal evi­dence you have used to base your projection.

    To be expected though, it is almost a sci­ence now — pub­lic decep­tion by com­mer­cial media with lit­tle recourse to any rel­e­vant facts. Vested inter­ests, what can you do with or for them I wonder?

    Keep up the good work, the reward is the effort.

  7. Quarrel says:


    When you pub­lish week after week of real analy­sis, and all he does is attack you per­son­ally, is I think, the one time you can attack him personally.

    Just dis­miss him as the right wing nut job he is, and if not worry unless he actu­ally wants to men­tion some of your analysis.

    Keep up the great work– I’ve been a fan of your analy­sis, even when I dis­agree with the con­clu­sions for a long time. Cer­tainly long before your new found celebrity as the Aus­tralian Roubini!


  8. Ian Lucas says:

    More from Monty Python’s “abuse, not argu­ment” room!

    Pity the right-wing com­men­tariat can’t do any bet­ter than this.

    Maybe Ger­ard and his friends could offer a think piece or two on what they think now about the mer­its of dereg­u­la­tion and globalisation?

  9. Keith says:

    Hen­der­son again reveals him­self as the pathetic loser that he is.
    A slight touch of the green-eyed dragon in there if I’m not mis­taken.
    One of yesterday’s men.
    Can’t argue the issue.
    For­get him.

  10. A quote from Glenn Stevens’ speech given today and released on the RBA website -

    In coun­tries like Aus­tralia, per­haps the long period of house­hold debt build-up is now
    giv­ing way to a period in which bal­ance sheets will see some con­sol­i­da­tion. If so,
    house­hold credit growth will not be as fast as it was for the past decade and a half.
    Per­haps we will need also to get bet­ter at turn­ing bor­row­ing for hous­ing into more
    dwellings rather than just higher house prices.”

  11. GSM, apolo­gies for any mis­un­der­stand­ing. I agree with much that you said except that I am not entirely sure unem­ploy­ment is the great­est fac­tor. I think the bub­ble was pop­ping any­how. Still, we both agree that unem­ploy­ment will rise, so we will never know what was the great­est fac­tor. That will be debated in depth in his­tory books! Regards

  12. frank says:

    Great work Steve.. keep up the good work!

    Takes a lot of for­ti­tude to put your­self on the line like you have done recently!

    Australian’s love to shoot down any­body with a dif­fer­ent opin­ion to the masses. It is sad that such alter­na­tive views can­not be put for­ward any­more with­out being accepted with wel­com­ing arms as finally, a dif­fer­ing opin­ion that should be embraced and at least considered.

    Maybe this is why we have embraced debt so much? it has been ingrained into us in the last 25 years to fol­low every­body else down the same path to chase ever increas­ing mort­gages, and other house­hold items to keep up with the Jones. We keep hear­ing it in the media, on the TV, and from our friends and asso­ciates — con­sume, con­sume, consume!

    Again, even if you’ve just made one per­son out there think a lit­tle more about the way we have been going, and where we may be head­ing, you are doing a good thing.

  13. Ken says:

    I favour War­ren Buf­fets “Only when the tide goes out do you dis­cover who’s been swim­ming naked.” for the t-shirts.

    The thing that Ger­ald Hen­der­son etc don’t seem to under­stand is how much this econ­omy depends on the cre­ation of money through exces­sive debt. Stop the debt and the money flow stops. Any­one along that path­way will lose their job. Not pleasant.

    His lack of under­stand­ing is shown by his state­ment “Put sim­ply, Keen does not approve of debt.” Steve’s writ­ings make it clear that he is against the uncon­strained increase in debt not against debt itself.

  14. Nick says:

    Hen­der­son piles all his ‘analy­sis’ into his last para­graph and humil­i­ates him­self… I have never read a more point­less opin­ion piece. Why the Fair­fax axe never fell on him, I’ll never know.

  15. Gary B says:

    RIVERS of GOLD—–newspaper real estate ads, home ren­o­va­tion indus­try, project home indus­try, life style shows, cars and acces­sories all sup­ported by pro-realestate “invest­ment advi­sors” “inde­pen­dent econ­o­mists” “politi­cians of all per­sua­sions“
    Don’t you realise that a severe down turn in real estate will cause the state gov­ern­ment rev­enue from real estate taxes to plum­met andd bank­rupt the trea­suries, cause Fair­fax to the wall, cause mass unem­ploy­ment in the build­ing indus­try, hotels and cof­fee shops, and deprieve the mid­dle class their rea­son for liv­ing?? In short, its the end of civil­i­sa­tion as we know it. I’m sur­prised that they only sent a down mar­ket Hen­der­son attack dog — you should be denounced in par­lia­ment or sen­tenced to eter­nal inter­vues with Koshie.
    If we have another GD mate you’ll have caused it!

  16. Spark says:

    Steve, I always thought that you would draw the ire of peo­ple who had expec­ta­tions to get rich from an over­in­flated bub­ble finan­cied by absurd lev­els of debt. (property)

    They want to shush you… their wealth is fad­ing away. It’s not their fault… its yours for not keep­ing up the pub­lic illu­sion. They think you’re being destruc­tive sim­ply because you’re not want­ing to fool people.

    There are many com­men­ta­tors and ‘econ­o­mists’ out there who never say what some­one else hasn’t already said, because it’s safe for them and it would save them from the embarass­ment of ever being wrong.

    You’ve been both brave and correct.

    Hen­der­sons prob­a­bly just p*ssed because he’s one of the peo­ple who think it’s fun to col­lect houses like stamps.

  17. furball says:


    Great reply to Ger­ard. We’ll see if he has the stom­ach to invite you to the Syd­ney Insti­tute. I think he will.

    I hope you pre­pare prop­erly, look­ing for the holes in your argu­ment rather than believ­ing the case to be self-evident by analogy.

    c & Tony, Tony is mostly right, except it is even more mon­e­tar­ily neu­tral at present. US Fed Res is sell­ing T-Bills and tak­ing money out of the sys­tem. US Fed Res is also buy­ing pri­vate assets and putting money into the sys­tem. Cur­rently, these sales and pur­chases are roughly even.

    You may not like the ‘cap­i­talise gains / socialise losses’ aspect of the pol­icy, but infla­tion­ary, the pol­icy is not — in of itself…

    Now, it remains true, in my mind, that the rea­son Bernanke is openly not wor­ried about defla­tion is because, as he says, they have the pol­icy tools to deal with defla­tion. In par­tic­u­lar, the Fed could **at any time** alter the pol­icy to become **highly** infla­tion­ary, to any degree required.

    So, I would alter the posi­tion, and say the defla­tion / infla­tion aspect is a mat­ter of pol­icy choice for the US Fed Res.

    It is not to be derived from a model, look­ing at feed­back loops and let­ting a com­plex (and pos­si­bly beau­ti­ful) pat­tern emerge but is a mat­ter which inter­ven­tion may pro­foundly alter.

    If any­one knows of a con­straint that would pre­vent the US Fed Res from act­ing in this way, pls advise about it.

    Now, where c may be right, is that the USA may choose to inflate.

    * decreases the real value of non-inflation adjusted debts (ben­e­fit­ing pub­lic & pri­vate debt in the USA)
    * may (prob­a­bly does) have some behav­iour influ­ence via wealth effect as home­own­ers with mar­gin­ally neg­a­tive equity may not break from their con­tracts
    * would sub­stan­tially increase the value of the US dol­lar, pro­tect­ing its role as the reserve cur­rency, some­thing that has been esti­mated as valu­able to US GDP in the range of 7%-15% (through increased pur­chas­ing power).

    So, infla­tion we may have, and it may be a mat­ter of pol­icy for the US gov­ern­ment, but it is not a mat­ter of course, just as Debt Defla­tion is not a mat­ter of course.

    It depends on the pol­icy ini­tia­tives. Even Nouriel Roubini, over at, who wrote the 12 steps to sys­temic cri­sis back in Feb­ru­ary !! has been talk­ing about what hap­pens in the absence of pol­icy intervention.

    Roubini cur­rently says “long reces­sion” but maybe not L shaped 10 yr reces­sion like Japan *if* pol­icy inter­ven­tion fixes it.

    These are not nat­ural sys­tems on a global scale — so the chal­lenge for Steve is to show **when** the dynamic feed­back loops are so strong as to pre­clude “sal­va­tion” by pol­icy initiative.


  18. Peter says:

    Steve it makes me quite mad to lis­ten to idiots like him, journos that is that cant be both­ered to do their research or are too quick to judge to get the next story out

    one dumb media story after another. all they do is report on report­ing. They react to the any­thing in their sphere and believe any­thing main­tream peo­ple tell them

    Very frus­trat­ing.…..

    Keep up the great work… dont hold back.… let them know you did make accu­rate pre­dic­tions and most other econ­o­mists had absolutely no idea this was coming.….so why do they believe them?

  19. bruce says:

    Fur­ball and c, I had a sim­i­lar thought. Rather than defla­tion, pol­icy mak­ers might go for infla­tion route. The bailouts around the globe so far fit with that direc­tion. Keep­ing the dream bub­ble alive.

  20. jsl says:

    The fol­low­ing arti­cle (ignore the cheesy title) is most inter­est­ing in that it addresses the ques­tion of US GDP growth over the past few years both with and with­out the con­tri­bu­tion of mort­gage equity with­drawals.
    It essen­tially models/roughly quan­ti­fies what Steve Keen and oth­ers have said will hap­pen to aggre­gate demand once debt through house­hold equity withdrawals.

    Per­haps Ger­ard Hen­der­son should look at this as well.

  21. boma says:

    Unsur­pris­ing that this should appear a day after Stevens declares that ‘a cat­a­stro­phe had been averted’… And now that we’re in a week of rel­a­tive calm it’s time seek out the ‘alarmists’ and give them good dress­ing down — it’s all their fault of course… if only they hadn’t men­tioned the ‘r’ or ‘d’ words and things like ‘his­tor­i­cal trends’ (because ‘things are dif­fer­ent now’) in the first place , none of this would have happened!

    It all seems vaguely famil­iar doesn’t it?

  22. Tony says:

    Fur­ball: I agree with your point about the fed actions being money neu­tral. Its what I was imply­ing but should have explained myself bet­ter. The fed sells trea­suries into the mar­ket, gets cash then buys riskier paper from the finan­cial insti­tu­tions in a money neu­tral trans­ac­tion, a sim­ple carry trade.

    With regard to defla­tion, I think the issue of inflation/deflation is cur­rently a sec­ondary issue for the fed. Their imme­di­ate con­cern is finan­cial sys­tem resuscitation.

    As the cri­sis moves for­ward I agree with Steve Keen that defla­tion is a seri­ous con­cern and the pos­si­bil­ity of zero inter­est rates both here and in the US is real. If you look at the Fed flow of funds data, total US debt is over 50 tril­lion. To pre­vent a defla­tion­ary sit­u­a­tion you have to keep this num­ber increas­ing. There are large efforts tak­ing place now to do this, such as guar­an­tee­ing agency debt, inject­ing cap­i­tal into banks, buy­ing dis­tressed debt instru­ments etc etc. Now George Soros says in a recent arti­cle says that Paul­son was right to change the TARP pol­icy from being a fund that sim­ply buys dis­tressed RMB to one where it puts more empha­sis on inject­ing cap­i­tal into banks, say­ing the orig­i­nal pol­icy was ill-conceived. His rea­son­ing is that cap­i­tal injected directly into equity is high pow­ered money, so that for each dol­lar injected, you get about 10 to 12 dol­lars in loans. But I think he misses a key point, and here I think Steve Keen is right, and that is who are the banks going to lend to? Who is left after sub-prime. So I don’t think the mul­ti­plier effect will be there, cer­tainly not to the same degree.

    And its for the same rea­son that I think Bernanke’s stated pol­icy idea of using a heli­copter money drop to pre­vent defla­tion will not work because the defla­tion­ary effects of debt con­trac­tion will over­whelm any print­ing of money, unless of course they are will­ing to com­pletely debase the currency.

    I think the only pos­si­bil­ity of con­tin­u­ing to expand the 50 tril­lion in debt will be in the pub­lic sec­tor, which now car­ries around 10 tril­lion in debt. Cer­tainly Aus­tralia is in a bet­ter posi­tion to fund gov­ern­ment expan­sion than the USA. My pref­er­ence is that they expand gov­ern­ment activ­ity with steep pro­gres­sive taxes, rather than more debt from Asia.

  23. BrightSpark says:


    I think you will find that the debt from Asia is incurred to pur­chase cargo (imports) from Asia not to finance local trans­ac­tions. Hav­ing bor­rowed for this pur­pose the banks need to find local reli­able bor­row­ers to help pay the inter­rest bills. The only way to stop bor­row­ing from Asia is to bal­ance the cur­rent account and we have not been able to do this for 33 years.

    You need to get the cart in front of the horse. We need bor­row­ers not sources of credit. If we can’t bal­ance the CAD in this way how do we pay for the cargo? We need to earn suf­fi­cient for­eign cur­rency and if we can’t we are in sys­temic failure.

  24. SAVEME2 says:

    Steve, go you good thing!

    Noth­ing worse than dull and bor­ing peo­ple fol­low­ing the main­stream mantra taught in acad­e­mia. As a stu­dent I have also been shot down for hav­ing orig­i­nal opin­ions and not fol­low­ing the stan­dard fac­tory order. It sounds as though your peers are becom­ing envi­ous of your supe­rior intel­lect. His­tory dic­tates any per­son with orig­i­nal thought has been per­se­cuted, even the big man him­self, Jesus Christ

    Hang in there Steve, you will be proven correct.

  25. Chris M says:

    Well the Syd­ney Moon­bat Her­ald (Fair­fax) is kinda tot­ter­ing in the print media area so it makes sense to them at the moment to play down any eco­nomic decline. The same news­pa­per will uncrit­i­cal pub­lish any amount of wild Anthro­pogenic Global Warm­ing claims with­out question.

    Here is my favourite news­pa­per stock graph —;range=5y havin a good chuckle as this rag declines by the day. :-)

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