Today Tonight on possibility of Depression

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Channel Seven’s Today Tonight is doing a piece on whether we might face a Depression, and if so what it might be like. It should go to air tomorrow–Tuesday February 3rd.

They have interviewed me for analysis, and Eric Aarons–who lived through the Great Depression and at 90 is still a dynamic sculptor and author.

They also want to speak to anyone who has lost their job recently–specifically if possible as a result of the global financial crisis.

So if anyone out there is willing to speak on camera about it, please contact the journalist James Thomas:

His email is and his mobile is 0411 329 920.

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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22 Responses to Today Tonight on possibility of Depression

  1. Stats Watcher says:

    Hi Steve,

    If the stock market is any indicator of future economic activity then we are headed for a depression – the real question should be How severe will it be?

    The 5 worst crashes for the Dow Jones (I hope someone could post the 5 worst for Australia)
    1. -86% in 1930-32 (813 days)
    2. -49.1% in 1937-38 (386 days)
    3. -48.5% in 1907-08 (665 days)
    4. -47.9% in 1929 (71 days)
    5. -46.6% in 1919-21 (660 days)

    Australia’s All Ordinaries has fallen by 51.8% from 1 November 2007 to 23 January 2009 (449 days) – using close of trade figures. This is second only to the Great Depression and ongoing volatility could see further falls in coming months.

    If any readers are confused as to why exponential functions, such as our current neo-classical economics based capitalist system, are not sustainable then it is advisable to watch this video by Dr Albert Bartlett – Professor Emeritus of Physics at the University of Colorado. (there are 8 videos in total)

  2. Paul says:

    Hi Steve

    Unfortunately I was not able to watch you on Today Tonight. However, I now have to question if house prices will crash. It has become increasingly obvious that the government will do all it can to prevent this from happening. We just need to looking at the following

    Home owners grant for existing and established homes.(Apparently in some states you can even get a further grant from the state government)

    The assistance to the commercial property, which some argue was really designed to prop up the residential market.

    Negative gearing, their is no sign that this is going to be abolished or at the very least amended.

    Reduction of interest rates, which has reduced peoples mortgage repayments. Many economist now predict that it won’t go below 2%. I heard some comments that they want to avoid what happened in the U.S when interest rates went low.

    Paul Keating on late line indicated that nothing needed to be done with residential properties. I found this of great concern.

    What are your thoughts?



  3. Steve Keen says:

    It’s actually (probably) going to air tonight Paul (Tuesday).

    Yes the government is doing all it can to prevent it–but this is rather like the mythical attempt by King Canute to stop the tide from coming in.

    I also find Keating’s statement of great concern, but it doesn’t amaze me. His administration rode a private debt bubble too, which made its economic management look great in the 1980s and disastrous in the recession of the early 1990s. The same is happening again now, though in some ways his successor Peter Costello had the good fortune to lose the election prior to the crash beginning.

    I don’t blame the pollies for this though–of either party. If there is any culpability, it is in the economics profession, whose alleged “expertise” on the economy they necessarily had to trust–after all, politicians are the ultimate generalists; we criticise them if they don’t follow the experts elsewhere, why should economics be any different?

    Unfortunately, as I argued in Debunking Economics, economics is far from being a science as yet, and what those trained in neoclassical economics believe is scientific behaviour is fundamentally bad ideology dressed up with bad mathematics.

    Incidentally, I will also be on Channel Nine’s Today Show this morning, just after 7am.

  4. SuitablyIronicMoniker says:

    Negative gearing only makes sense in an asset inflationary bubble. If I owned an asset, I would want to make money after expenses (including interest paid on any loans).

    In housing, it is generally assumed that I will lose money each financial year (interest payments on the loan are larger than rents received). Some of this loss is taken over by the government through taxation, but it is still a loss.

    The only way I make money is to sell the asset at a large capital gain. This is where the real policy incentive comes in, as I only pay 50% of the tax if I have held the asset for more than 12 months.

    This fun game disappears if there is no asset inflationary bubble. There is no reason that Australian real estate has magical properties compared with the US, Japan, UK, Ireland… It is all just magical thinking.

  5. dojufitz says:

    SuitablyIronicMoniker – thanks as this is what i tell people at work who have homes and ‘investment’ homes.

    I try to tell them there isn’t a giant golden koala protecting australian homes…they just look blank and keep moving….oh well.

  6. homes4aussies says:

    Paul, note activity in the housing market has fallen considerably – yesterday’s ABS release showed transfers were down 29% in the June 2008 qtr over June qtr 2007! Perth and Brisbane are seeing the sharpest falls in “market depth” – the latter recorded a fall of 44% !! (My figures show the fall in activity quickened in the Sept 08 qtr in Brisbane with the above comparison showing a fall of 70%).

    Like all bubbles, the housing market was propelled by emotion (sentiment). In an earlier thread I laid out that emotional backdrop.

    The point is, and this ties in with Steve’s latest debt watch, that sentiment has changed – market participants had a gnoring feeling that this was all too good to be true, and price falls in other countries confirmed that, and they knew that their debt build up was unsustainable.

    (And note, that gnoring feeling was substantiated by comments of the “fiscally conservative” Rudd Government in their first few months in office about improving the savings rate, etc – remember the First Home Saver’s Accounts (which are off limits for 4 years) – don’t hear much about them now do we? It’s “buy now [at bubble prices] to save the country”)

    So, all of sudden, everybody has recognised the elephant in the room – buying a house costs 2-3 times what it costs to rent it. TEMPORARY interest rate cuts, and a bit of cash don’t change the equation much ($7K isn’t much compared with price falls of $50K, $100K, even $150K).

    When the herd decides to stop ignoring it and look into the elephant’s eyes, there’s not much that anybody can do!

  7. ueberbaer says:

    A great definition of derivatives from the automatic earth site:

    Ilargi writes: “It may well be wise, just so everyone gets a clearer picture of what we are talking about, to stop referring to all this paper as “assets” or “investments”. In this case, these are misleading terms. An asset is something that exists in the real world. A derivative, on the other hand, can best be compared to the paper slip you receive at the racetrack when you place a bet on a horse. That paper slip doesn’t buy you a part of the horse, it buys you the chance of winning an X amount of money if the horse wins the race you’re betting on. When that race is run, you have either won that X amount or you have lost the money the wager has cost you.”

  8. prudentsaver says:

    Stats Watcher

    That video is interesting, I recall having seen it before. I think the question is, does it go parabolic and just blow up, or does it really deflate?

  9. al49er says:

    Well I have just watched Kev’s press conference about his latest “economic stimulus package” this time said to be, (depending on whose figure you take worth $35 to 43 billion).

    Again he pointed out how his government had resolved to “act” – repeating it a number of times, including pointing up the alternative which was “to do nothing”. Cutting definitions!

    In this, (‘the package’), every school in Australia will become “a centre of economic activity” with expenditure on libraries, science and language blocks or Auditoriums. (That’s primary) and at the secondary level upgrades and maintenance programs to $one billion,

    Then we have “free” insulation for every home in Australia currently without it. And third (but not necessarily finally), adding 20,000 welfare homes to the government stock of this accommodation, which fits in with their policy of “getting the homeless of the street”.
    You know, a la Bob Hawke, “no homeless living in Australia by 2000 and something”

    He was strident in his rhetoric of saying that the government will do everything within its power to ‘insulate’ (no pun intended, but it should come up in a headline somewhere) Australia against the GFC which (and this is the most important part) he stressed

    Boy, am I relieved to hear that. It’s not OUR fault, we are the innocent victims,
    we can blame someone else – those ‘sub prime Americans’, ‘aspirant Chinese, ‘ typical Pom stuff-ups’, and those Icelanders – don’t get me started. They and others are the guilty ones and as usual us poor Aussies have to “carry the can,” !

    Asked about the process for deciding on these packages, Kev said that they had been “chugging away over the summer” and when it ” began to become absolutely clear” we just decided to “hop to and do it”. “Our challenge is to meet that challenge” – breathtaking.

    Questioned about the ( oops , I shouldn’t say it myself ) you know, the ‘R’ word, he said his government would “never haul up the white flag on the inevitability of recession” – bugger ! I said it.

    And in respect to the government running those ‘D’ things – sssh – deficits over the next two or three years, he made clear that they had an “exit strategy” via their “doctrinal statement” which would see them return to surpluses when there was “above trend growth”. (he sort of gave a definition of above 3%)

    In terms of his expectations of the banks, he said among other things he expected them – indeed seemed to be warning them, in the light of all his government had done for them (you know basically guaranteed their deposits and pretty much ensured business as usual – no doubt, including high executive salary packages) – that he expected them to be compassionate in terms of dealing with their delinquent mortgages “for which those people are not to blame.”

    Gee , I feel a heel for suggesting that those people who bought $400,000, 6, 8 , million $ homes on 80% 90% or more valuations and then used the “equity” to buy the essential plasma and four-wheel drive for the Mrs, not to mention the Europe holiday, should possibly have thought about something a BIT more modest and maybe just an LCD, a Corolla and Tassie.

    But there you are, THEY are ‘not to blame’ ! Great that entitles them to a ‘handout’

    Just a word of advice Kev, this all sounds fantastic and makes me much more comfortable that there will not be a world economic and financial system meltdown.

    But I would get straight on to all those rotten so and so’s who caused all this, get them to say ‘ Sorry’ to us poor bloody Aussies – and we can hit them for reparations !

    It’s just a backup plan – in case things get worse. nah that could happen!

  10. dojufitz says:

    Personally i hope Melbourne real estate corrects to $150,000.

    Instead of $420,000.

  11. Stats Watcher says:


    Saw your interview on the Today show this morning – top marks in getting your points across – pity they spent more time on graffiti sentences.

    This interview on ABC was also a great summary of where we are going –

    Can you please explain one thing that I find troubling about Rudd’s new $42 billion stimulus package.
    If government has to borrow $42 billion extra (and none of it is going into making us more productive long term) won’t that make Australia’s outstanding Debt greater and the problems of Debt Deflation even more severe?
    Is there an alternative to a significant one-off Debt default/abolition by spreading the reduction over a number of years? For example if the world abolished 50% of debt at say 5% a year for 10 years could this spread the pain out?.

  12. iconoclast says:

    SuitablyIronicMoniker, homes4aussies & al49er,

    in total agreement with your correct line of thinking. There is no way that the house prices will remain where they are, the only way they are set to go is down. As Steve also points out, what the government is attempting to do is a drop in the ocean to what we are about to experience as a collapse in credit based growth takes hold, and with that a collapse in gdp, a spike in unemployment, which will follow up with mortgage defaults. This is what is about to beset the Australian mortgage holders. Export growth from the resource sector, disguised the fundemental weakness and with this now gone it is now exposed for all to see. As al49er points out all those who believed that wealth could be achieved out of something like housing, having been misled by the neoliberal ideology, will soon enough have the shock of their life.

  13. amash says:

    I was never one to accept Paul Keating’s rants and raves. But having listened to him in this interview last night has made me actually agree with him for a change. I am well and truly over the politics of the economy. KRudd blaming the neo-liberals (never mind Carter’s and Clinton’s ventures into sub prime) and Turnball’s confused rhetoric. Neither the right nor the left has the moral ground on this and one needs to be a pragmatic realist to be able to move forward with a solution, ie when we find a cure for greed, we can solve this problem.

    I think PK has it spot on with the micro change required to re-balance the world economy. But I say again, will the western european (white) economies surcumb to a redistribution of power?
    I think he is saying something similar to what Steve’s debt moratoria suggests that creditor nations and debtors nations reconcile each other’s accounts.

    And please ignore the interviewer’s attempts to politicise the debate. He is only the next Maxine McKew…)

  14. The Outback Oracle says:

    Firstly let me state my position re Economics and politics. I thought Howard and Costello were just a pair of Economic vandals as far as Australia and the future of its people were concerned. They were obviously aided and abetted by Ken Henry. So my concerns here are nothing to do with politics.

    Noone should tro out the old line that “noone could see this comingz”. It was as obvious as the nose on Pinocchio’s face to anyone who cared to look. What is never obvious is just which side of a corrupted, distorted, financial system and economy would fall first. However once it started to fall, total collapse was inevitable. What is also never obvious is how much lying, cheating, and profligacy the Government system will go to in order to try to hide its mistakes and postpone the consequences past its watch.

    I was interested in your article in the SMH Now we hsve a Government championing the massive budget deficits on which it is about to embark. Now, if Australia was a Current Account Surplus country with massive International Reserves, such as China, Japan, Norway or Singapore the policy would probably have merit. However we are a nation with,at last I heard, $648 BILLION i.e.$648,000,000,000 in Foreign debts (I suppose the attitude is …”well, what the hell difference is a few zeroes???). However that is the minor issue. The last numbers published on Foreign ownership of our Mining Industry was 68% but that was many years ago. (Funny how Governments stop publishing stats that are a bit inconvenient and they prefer the public not to know) My back of the envelope figures indicate that level is now 80% foreign ownership. The Mayne report, I note, came up with a similar number from a company by company analysis. Repatriation of interest and dividends is now a significant part of our Currrent Account Deficit which, these past few years, has been running at $50-$60 Billion.. Again I note Access Economics estimating the CAD will rise to $100 Billion ANNUALLY

    Now, we know that all the vandals that went before before are responsible for this parlous situation in respect to our Foreign Debt. However what it surely means is that we cannot afford to run deficits (start massive stimulus spending) at this stage. The leakage into imports will be very high as we have little industry left. Someone on these pages may have some objecticve indication of this and i’d be grateful to see the numbers. In addition, what money is spent here is likely to be spent with foreign owned companies, since they own such a large proportion of our industry generally.

    Now, clearly, anyone with half a brain can see all this. One can only assume that the dangers of it, and the increasingly parabolic destruction of the nation’s economic heritage, are being ignored in the name of political expediency or, alternately, a psychopathic desire to hold on to power no matter who gets hurt or how much. So, clearly the government has worked out some maths. Exactly what level of Foreign Debt does it regard as acceptable….$1 Trillion? 2? Exactly what level of foreign Ownership of our resources and Food chain does it regard as acceptable? This morning’s SMH article by Mr Chris Bowen, Deputy Treasurer promoting massive deficits ought, on balance, address these very important issues?

    What does the governmen see as being left for our children after all this or is the great master stroke to be that we are happy to be serfs in our own land?

    Again I am not interested in the politics. I am, however, deeply concerned that perhaps our land is governed by a bunch of psychopaths on both sides of the House. I would really love to know that this is not the case. I would like to see someone from either side of the House explain to the Australian people the really perilous nature of our position. Mr. Turnbull’s role in this mess, to date, has just been a disgrace. in this mess. There should be no political disadvantage in this as the mess has been created by successive myopic Governments of all colours since about 1957. At least then the Australian people would understand that we all need to make sacrifices to try to redeem our position and to leave something of this land and its inheritance for our children. Perhaps, just perhaps, we might make some progress.

    If noone gives a rats…just ignore me

  15. Effit says:

    Two different ways of looking at the unfolding Greek tragedy as someone calls the GFC on this blog.

    1. ‘BUY AN APARTMENT, GET A BMW’,22606,25000849-2682,00.html?from=public_rss

    ‘An “extraordinary” stunt involving free BMWs and luxury sports boats helped a developer defy the financial crisis and sell $3 million of houses and apartments at the weekend.

    ‘Urban Construct’s Developer Summer 2009 Clearance Sale, which started on Saturday, allows buyers to choose one of five incentives when they buy a property at Place on Brougham, North Adelaide, and Edgewater and Marina Cove, Newport Quays.’

    ‘They can choose from a BMW 320i, valued at $63,826, a Sea Ray 185 Luxury Sports Boat, 0 per cent finance interest for two years, plus stamp duty, or three years rent return, which also includes stamp duty.’

    ‘Social analyst David Chalke, ”You’ve also got to remember there’s a lot of BMW dealers that can’t get rid of stock and the boat market has virtually evaporated in the past year, so it’s also a good initiative for them too.”’

    2. COMMSEC SAYS MANY WORKERS WON’T FEEL FINANCIAL CRISIS,22606,25001096-2682,00.html?from=public_rss

    ‘Interest rates are tipped to fall to the lowest levels in more than 40 years, but that will make little difference to a large number of Australians who will cruise through the financial crisis. For a section of workers who are experiencing falling petrol prices, hefty discounts in shops and living costs not rising as quickly as usual, they’re wondering what all the fuss is about, says economist Craig James of CommSec.

    “For Gen-Y type staff, they are just scratching their heads to work out how the global financial crisis is really impacting them,” he says. “If they’re not paying off a home loan, if they haven’t got substantial share market investments but they’re in secure employment, then they’re probably not seeing a great impact. If anything it’s a positive. A lot of people are probably looking at the situation saying if this is what a recession looks like, then we should have more of them.”

    Young workers who fit into this category are in a position to come out better than before, Marinis Financial Group’s Theo Marinis says. “Pretty much anyone who can maintain their job and their income,” he said. Mr Marinis said a large percentage of the population were “blissfully unaware” of dire economic predictions for the year ahead. “Most punters aren’t really aware of what’s going on, and maybe that’s a good thing.” He says a boost to the first home owners grant and the Government’s attempts to encourage spending mean more young people have an opportunity to enter the property market.
    Mr Marinis says the gloom is never as bad as it’s made out to be. Even if employment hits 12 per cent, it still means more than 80 per cent of the workforce is employed.

    “It’s the minority of the population that will get hurt.”

  16. The Outback Oracle says:

    It always bloody is the minority who get hurt. Small business, the self funded retirees who have been prudent, farmers. We just rip off the same few each time. However i suspect this time we have gone too far. If foreign funding of our profligate ways dries up, everyone is going to get severely shafted!!! Some will be worse of than others of course but it could be a very nasty time.
    That is the very reason why it is important to get the whole truth out there so EVERYONE understans there must be sacrifices and maybe be willing to make them.

  17. iconoclast says:

    Craig James is an idiot

  18. ueberbaer says:

    Hi Stats Watcher,

    thanks for posting the link to the videos of exponential functions another eye-opener for me.

  19. Fred says:

    Aren’t there two there two kinds of Government debt, wasted money and a good investment? If a government “just printed money” to say build a house then the debt that this spending creates is represented by money in the pockets of the builders and suppliers that built it. If the house is unrentable or can’t be sold, then the fact that it can’t be sold makes the spending to build it inflationary, otherwise, it could be sold and the debt is extinguished = no inflation and an asset in the economy. So I couldn’t see why Rudd said that the stimulation measures had to be “paid back” unless he was planning to waste the money.

  20. Tressob says:

    Hi StatsWatcher
    Australian stock market falls:

    Jan 1973 to Sept 1974 – fall of 59.3%
    12 month post low recovery 51%

    Sep 1987 – Nov 1987 – fall of 50.1%
    12 month post low recovery 35%

    While the numbers are bad – there is always light at the end of the tunnel – even though it might only be the express train! 😉

    US falls:
    Jan 1973 – October 1974 – fall of 48.2%
    12 month post low recovery 38%

    Mar 2000 – Oct 2002 – fal of 49.1%
    12 month post low recovery 34%

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