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… 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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