“It’s just a flesh wound…”

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It seems we’ve moved from Stanley Kubrick to John Cleese. Rory Robertson’s reply to my “Rory Robertson Designs a Car” post reminds me of one of my many favourite scenes from Monty Python, the fight between King Arthur and the Black Knight:

King Arthur: [after Arthur’s cut off both of the Black Knight’s arms] Look, you stupid Bastard. You’ve got no arms left. 

Black Knight: Yes I have. 

King Arthur: *Look*! 

Black Knight: It’s just a flesh wound…

Most of Rory’s commentary in his newsletter has been reproduced by Christopher Joye in an amusing “ringside report” (Keen vs. Robertson: Round V) on the Business Spectator (incidentally, Chris’s post includes an excellent dig at the RBA’s performance in recent years; this is well worth a read in its own right).

Taking Chris’s extract as a guide, it seems that Rory’s entire consideration of my post boils down to this:

“**Needless to say, Dr Keen does not accept the assessment that a “schoolboy error” lies at the heart of his pessimistic forecast of a 40 per cent drop in Australian home prices. But instead of addressing the key point that debt servicing just got much easier for most home-buyers, Dr Keen responded by inventing a silly story about cars and fuel consumption – to make a point that completely missed the point…

“Does not accept the assessment”? Do we have a Dead Parrot talking here, as well as an armless Knight? The point of my post was that Rory’s argument that comparing Debt to GDP is a “schoolboy error” (“like comparing apples with oranges”) was itself a schoolboy error that betrayed the depressing lack of understanding that most neoclassical economists have of dynamics. In engineering and many other properly dynamic disciplines, stock to flow comparisons–like comparing Debt to GDP–abound. Far from being a “schoolboy error” to make them, it’s a “haven’t been properly educated at university” error to deride them.

They can be done in error, sure–when the resulting measure has nonsense dimensions, or is irrelevant to the issue at hand. Comparing Debt to GDP isn’t an instance of either error, since as I showed in that post, the resulting dimension is “Years”. The ratio matters because it tells you how long it would take to reduce debt to a given target, if a given percentage of income was devoted to repaying it.

The current answer is 1.59 Years, if all GDP was devoted to debt repayment (which can’t happen of course–5% of GDP p.a. is a more likely deleveraging rate) and if the target was a zero % debt ratio (which it wouldn’t be–the 1950-70 range of 25-50% is more likely), and if reducing debt didn’t affect GDP (which unfortunately ain’t the case–there will be many damaging positive feedbacks from reductions in debt to reductions in GDP).

And for Pete’s sake, a “stock to flow” comparison was the linchpin of Friedman’s Monetarism, as a blog member here pointed out:

cheapbastud said, on March 16th, 2009 at 1:22 am:

uhhhh, isn’t VELOCITY from the equation of exchange a stock/flow ratio (in this case it’s a flow/stock ratio)?


Maybe I’m making a horrible schoolboy error or maybe Mr. Robertson doesn’t know wtf he’s talking about.

Spot on. The “velocity of money” is the number you get from dividing nominal GDP ($/year) by the money stock ($). Its dimension is 1/years, so that the inverse of the ratio tells you how many times the money stock turns over in a year. The forlorn attempt to prove this was a constant was Friedman’s key research objective, since if V wasn’t a constant then much of the Quantity Theory of Money was invalidated.

Now I doubt that Rory is going to accuse Friedman of committing a “schoolboy error” here (though in truth Friedman is guilty of so many that there should be a Friedman Prize in Schoolboy Errors–and  virtually every year it could be awarded jointly with the Nobel Prize in Economics). So why accuse me?

In my long experience with attempting to debate economics with neoclassical economists, I have become accustomed to an often irrelevant and frequently false point being raised, after which discussion is terminated. The point of raising the point is not to engage in debate, but to shut it off. So too with this patently false argument that, because I use a “stock to flow” ratio, the remainder of my arguments can be ignored.

In itself, there’s nothing wrong with arguing this way–in a religious debate. If you have two perspectives, one of which sees a God as crucial to understanding the universe, and another which doesn’t, then they’re always going to argue past each other. But economics isn’t supposed to be a religion–it had, at least until this crisis hit, the pretension of being a science.

I hasten to add that I don’t see this as deliberate evasion by Rory, nor even necessarily conscious evasion–and ditto for the many neoclassical correspondents and referees I’ve dealt with over the years. They can, and do, cope with debates within the confines of their own belief systems; so if I was arguing that the NAIRU (don’t bother asking what it is if you don’t already know–it’s not worth the effort of discussion!) was 4% rather than 6%, or maybe even that prices were sticky downwards rather than perfectly flexible, I might get an argument.

But when you effectively challenge core beliefs–by arguing, for example, that equating marginal cost to marginal revenue doesn’t maximise profits (again, don’t bother, but if you must, check here)–you get a nonsense reply to shut the debate down.

In a true science, a substantive point is either contested or conceded. Rory did neither–though to cut him some slack here, he might not have realised why I wrote my piece either. I didn’t give him any forewarning, so he was free to make a mistaken interpretation of why I wrote something about him. Instead, whether he meant to or not, he ignored my main point, and changed the topic back to the house price issue .

From his point of view, I changed the topic, which in his post was house prices–his “stocks and flows” statement was just an aside. But in fact, if house prices had been all Rory had talked about in the newsletter to which I responded, I wouldn’t have bothered writing anything.

It was the “comparing stocks to flows is a schoolboy error” nonsense that inspired me to write something (and I was also responding to a reader’s request that I assist him in contesting that specific proposition). But Rory’s take is that I made my comment to distract attention from his argument about house prices:

“**Regardless, there remains a large hole in Dr Keen’s analysis (big enough to fit a bus?). Barely six months ago, he was highlighting the uptrend in the household sector’s interest-to-income ratio as the key force that would bring house prices crashing down.”

“Quoting Keen: In 1990, servicing mortgages cost three cents of the household dollar — now its 15 cents, even with lower interest rates. …This is because of the sheer size of the debt — that’s the pressure that’s going to be pushing house prices down and it’s actually the same kind of pressure that is in the US (see here; (The Age back in October also reported: “…Mr Keen said the lower end of the [housing] market was already collapsing”. Really?)”

“**Now that his debt-servicing ratio has crashed towards 10 per cent from 15 per cent, Dr Keen has nothing to say on the matter. Furthermore, with the ratio now trending lower, Dr Keen has stopped publishing the debt-service chart that once was at the centre of his analysis. (Between November 2006 and May 2008 the debt-service chart was regularly published in DebtWatch; for example, see Figure 21 in the February, April and May 2008 reports, and Figure 12 in the November 2006 report, see here).

“**Someone unkind might wonder if Dr Keen is steering clear of key facts that directly contradict the scary story he likes to tell. Pauline Hanson might be inclined to issue a “Please Explain”? In any case, contrary to Dr Keen’s ill-informed claim in the quote above, the situations in Australian and US housing and mortgage markets are very different, like chalk and cheese (see charts 4-15 in the attached PDF file).”

Well, actually, no Rory. Firstly, I mentioned two forces: the interest rate burden, and de-leveraging. True, the former has fallen somewhat; the latter is as potent as ever, and only just beginning to click in here, while it’s driving the collapse in the USA and Europe. I published two charts on that in the Dr StrangeLove post (they’re reproduced at the bottom of this post too), but I wasn’t ignoring the interest rate issue either.

The interest payment burden, while it has dropped substantially courtesy of the RBA’s belated and panicked cuts to rates, is still at higher levels than at any time outside the period 1989-1991–when rates were three times what they are now.

The reason I haven’t been publishing these charts in Debtwatch is not that they no longer make the case I want, but because the reports were growing too long and–given the software I was using to produce them–the layout was becoming too messy. I’m working with a few blog members to produce a web-accessible interface to all the data that will get around this problem ultimately, but it takes time to do this.

In the meantime, here are some of those charts. Firstly, interest rates and the interest rate payment burden as a percentage of GDP: rates and the burden have fallen, and sharply, but still only taken us back to levels that applied when average rates were 16% or higher between mid-1988 and early 1991. That’s hardly heaven.

How much further rates have to fall to return the interest rate burden to anything close to the average since 1960 is indicated by this next chart. We’re still way above the average burden for the last half century.

The average interest rate used above is a weighted average of business, mortgage and personal rates (and it probably understates the burden on business slightly, since I had to guess the latest figure–the RBA only updates business rates on a quarterly basis, and I extrapolated from the September figure using the most recent gap between the 3 year fixed rate for small business and the variable rate for large business; this gap was the smallest it’s been in years, so the business rate is probably higher than I guesstimated here). Breaking this down, and comparing the business payment burden as a percentage of Gross Operating Surplus and the household rates as percentages of Household Disposable Income yields the following chart:

Thus while the burden on business is substantially below what it was in 1990 (when the RBA’s rate hike to attempt to tame the asset bubble back then had a crippling impact on business) the burden on households now is still more than 4% higher (as a proportion of disposable income) than it was in 1990.

The reason for this, of course, is the dramatic increase in mortgage debt over the last twenty years. Analysts who believe that house prices will always rise focus just on that datum itself. I’ve argued from a Hyman Minsky, “Financial Instability Hypothesis” point of view, that this trend of rising house prices only occurs because the debt borrowed to buy houses has risen faster still.  The next chart, which indexes both mortgage debt and household prices to 100 in 1996, illustrates that point:

Finally, there are of course two forces that determine the interest repayment burden–the rate of interest and the level of debt (three actually if one looks at the real burden, but I couldn’t find that chart in a hurry so I’ll  leave it for another day). If you plot the level of debt as a proportion of GDP on a horizontal axis, and the interest rate on the vertical, then you can show combinations of Debt to GDP ratios and interest rates that have an equivalent outcome in terms of the interest rate burden: thus a combination of a Debt to GDP ratio of 40% and a nominal interest rate of 20% has the same impact as a burden of 400% and an average rate of 2%.

Checking the actual time path of the interest rate burden on this chart, I surmised that a speculative boom seems to occur whenever the burden falls to about the 8% level, whereas the maximum burden we’d ever experienced was 16.7% in 1990, with a debt ratio of 83% and an average interest rate of 19.7%.

Also, interpolating from the mean gap between the cash rate and average interest rates of 3.3%, it appeared that the debt ratio at which the minimum debt burden would be that “good times” level of 8%, was 240%: if the debt to GDP ratio ever hit that level, then there was no way the “good times” could ever come back. That analysis is shown in the next chart. Though we’ve retreated from the “maximum pain” line of 16.7%, we’re still well above the “good times” level of 8%–it would in fact take a further 3% fall in interest rates to take us back there, if there was no change in the debt ratio.

So there isn’t much room for rate cuts to reflate the economy–a 3% fall in average rates would require the cash rate to fall to 0.25%, and all of the rate cut to be passed on. That headroom would fall even further if that “schoolboy error” Debt to GDP ratio rose any further.

Thus the interest rate cuts have reduced the pain of debt servicing, but they haven’t reduced them to anything near the comfortable levels of the pre-1980s. And the main problem of debt-deleveraging remains, and will be the main factor driving the economy down, as the contribution that change in debt makes to aggregate demand plunges. That effect is already patently obvious in the US data:

And the first signs of the same process are now turning up in the Australian data, with the most recent “unexpected” increase in the unemployment rate:

The impact of de-leveraging is the main force that I see driving us into Depression, and taking house prices down in the process. There may well be a fillip to the bottom end of the housing market out of the Government’s ludicrous boost to the First Home Buyer’s Grant, but the weight of deleveraging will, I expect, soon tell against that.

And Rory, let’s lighten up here please. My Dr StrangeLove post was meant to make in a comic fashion a point that obviously hadn’t gotten through via serious discussion: that stock to flow comparisons are, if done correctly, legitimate aspects of analysing a dynamic system. Concede that point, and I’ll tickle you with my next sword thrust, rather than slicing your legs off.

Over to you, Mr Joye, for the ringside commentary.

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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127 Responses to “It’s just a flesh wound…”

  1. Frank says:

    It is misleading anyway to say that you are making a ‘comparison’. There is a difference between a comparison between apples and oranges, and using a ratio of apples to oranges. It may not be useful to compare apples to oranges, but if my apples to oranges diet ratio is to high, my teeth will fall out and I will get scurvy and probably die.

  2. evan says:

    Not quite as entertaining as Jon Stewart vs Jim Cramer but not bad…

  3. otway-jack says:

    Professor of sociology at the University of Oregon, John Bellamy Foster, is falling for a “school boy error” also. He has been warning of the dangers of high debt to GDP ratios for many years.

    Here is an article from May 2000

    And an update in May 2006

    Steve Keen and John Bellamy Foster come from two different views or ideology’s but they both articulate the problems of the debt to GDP or dept to disposable income ratios being to high.

  4. Frank says:

    Also I don’t think drawing analogy between ‘debt’ and a ‘stock’ (as in some quantity) is valid. ‘Debt’ to my mind, is pressure, though interest and the effectiveness of the legal/police institutions are aspects of that pressure too.

  5. SuitablyIronicMoniker says:

    “…(Steve) is adored—nay loved—by his legion of impassioned, apocalyptic fans”

    Let it be known that I have never, and will never, be part of any “legion”, impassioned or not. And as for love, shucks, what with the the noble brow and scholarly glasses in the picture *blushes*.

  6. Frank says:

    Another thing that strikes me. How can ‘debt’ have any meaning *without* being compared to GDP, or something like it.

    I mean if total debt was a hundred trillion AUD you might think that was lot until someone told you that GDP was a trillion trillion AUD.

    Really I don’t know what that other guy is talking about. People throw terms around lightly but when you get into the philosophy of these things its a real quagmire.

  7. Furball says:


    A good part of me would like Rory to ignore your offer to let him off lightly – if he acknowledges the validity of the Interest Payment Burden calculation.

    Amazing, he would even mention stock / flow issues – I presume he has come across plenty of accounting valuation ratios in his time – plenty of those are stock / flow calcs. Valid for all the same reasons.

    I wonder however, about this paragraph:

    “Also, interpolating from the mean gap between the cash rate and average interest rates of 3.3%, it appeared that the debt ratio at which the minimum debt burden would be that “good times” level of 8%, was 240%: if the debt to GDP ratio ever hit that level, then there was no way the “good times” could ever come back. That analysis is shown in the next chart. Though we’ve retreated from the “maximum pain” line of 16.7%, we’re still well above the “good times” level of 8%–it would in fact take a further 3% fall in interest rates to take us back there, if there was no change in the debt ratio.”

    8% Interest Payment Burden / 160% Private Debt requires a 5% average interest rate, weighted across households & business.

    Are you saying that interest rates would need to drop by 3%, to a weighted average of 5%, before the weighted rate would indicate an Interest Payment Burden across Households and Business of 8% of GDP?

    Could you make a little clearer the average spread for home & business rates ?

    I also think a spreadsheet to illustrate the various possibilities going forward would be handy.

    e.g. Cash Rate; Spread to Home Loan; Spread to Business Loans; with resulting Interest Payment Burden calculation.

    If you would assist with the data, much appreciated. I’ll probably end up doing it anyway.

    Currently, overnight rate is widely anticipated to go to around 2.5%. Suggesting a further 0.75% drop in the loan rate, to around 4.5% (if all passed through), so let’s work with 4.8% loan rate. Household Debt then contributes 4.8% (100 / 100 * 4.8%) to the Interest Payment Burden.

    “Leaving” contribution of 3.2% available for business. 3.2% / .60 = 5.33% business loan rate.

    NAB’s business plus rate is currently 7.38%, I don’t know if that’s an appropriate rate ?

    But, it would seem that sans de-leveraging, the current rate outlook would put us about Interest Payment Burden at 9% of GDP.

    I think the next round of explanation needed is around this dynamic.

    Actually, you’ve explained, so perhaps a spreadsheet tool ?

    But a burden of around 9% wouldn’t seem too bad, in the context of your earlier analysis.

    Why do you use an average rate of 7.5% => 12% Interest Payment Burden is one of your central graphs on this post ?

    Steve, thanks for making the effort.


  8. speckie says:

    Actually the proposition that any comparison of the level of debt to GDP is erroneous, because it compares a stock (the outstanding level of debt) to a flow (GDP) is not an idea incompatible with Neo Classical economics.

    The economist, Cecil Pigou acknowledged an interplay between a stock and a flow as he argued that falling prices could stimulate output and employment because they increased consumption by raising the level of real wealth,(a stock or assets comprising money and government bonds) particularly during deflation.

    But a practical example of the interplay between stocks (assets) and flows (income and expenditure) is the evaporation of people’s home equity and the consequent collapse of spending on new auto’s. A primary factor accounting for a disasterous fall in expendtiture on new cars in the US has been the collapse of expenditure was financed from home equity( a stock).

  9. juk says:

    How hard is it to realise that the debt to GDP ratio is a measure of debt serviceability. Or am i tainted by my engineering education?

  10. Tressob says:

    It appears to me that a lot of ego is involved here!

  11. stephen says:


    Rory Robertson and his friends at Macquarie have steered the shareprice from $97 to $20. Is there any need to say any thing more? They have provided zero capital growth over a 10 year period. If he and his friends at macquarie are so good why is their company share price not reflecting their brilliance.


  12. Aac says:

    Dr. Keen

    This idea that you can throw a few differential equations together and come up with the ‘meaning of life’ is intriguing – excuse the stretch. Even thoough your effort’s to debunk the established view of economists has merit and your simulations do show some semblance of the real world.

    However, aren’t you worried that your models are incomplete. For example, even the Schrodinger wave equation was questioned for completeness by Einstein for years and even to this day there are many paradoxes yet to be explained – ie. Young’s double slit experiment.

    In other words proving someone wrong does not mean that you are right and just maybe you are taking debunking economics too far. For example, take your paper “Profit maximization, industry structure, and competition: A critique of neoclassical theory”.

    I first asked myself, what was the purpose of this paper:

    – Was it to disprove a neo-classical equation
    – Was it to disprove the capitalist view that the free market is the most efficient

    Now let’s look at your conclusion:

    “Contrary to the beliefs of the vast majority of economists, equating marginal revenue and marginal cost is not profit-maximizing behavior, the number of firms in an industry has no discernible impact on the quantity produced, price exceeds marginal cost in ‘‘competitive’’ industries, the ‘‘deadweight loss of welfare’’ exists regardless of how many firms there are in the industry, and instrumentally rational profit-maximizers do not play Cournot–Nash games. Moving from Hollywood to The Bard, it appears that the dominant neoclassical theory of the firm is ‘‘Much Ado About Nothing’’.

    You conclude that the number of firms have no discernible impact on the quantity of goods produced. And you go on to say that in a competitive environment firms are actually inefficient – ie. dead weight is carried.

    What I don’t understand is why didn’t you preface your conclusions with something like “to the extent that our models are complete…”. Or, contrary to ‘our’ model’s predictions many industries (wine growing – whatever) have existed for generations and are profitable for those that are still in the business.

    Thus my view is yes the neo-classical’s are probably wrong in most of what they formulate and you may be a little less wrong but in essence you are all wrong. The whole idea of using the term “quantity” of goods is absurd – what about quality. And who say’s the absolute goal is to produce as much stuff and as fast as possible – it’s not. Even if it was though, alternatives in history have pointed to the free market as being the most resilient. How do I know this, well in an evolutionary sense the other’s have ceased to exist.

    Thus Steve, do continue your research as its all we have at present but I do think that broad generalizations about free markets etc.. is way too compex a topic to be tackled by simple equations.

  13. Frank says:


    “Even if it was though, alternatives in history have pointed to the free market as being the most resilient. How do I know this, well in an evolutionary sense the other’s have ceased to exist”

    Quite the opposite, young grasshopper. Take a look at China, and don’t tell me Russia is a free market, and yes while the cities operate in a laissez faire manner, on the whole these are command economies. It is Capitalism that has failed today.

    But anyway, to the thrust of your message, as I have said already I think that all economic models are destined to be wrong until, in a reflexive or recursive manner, they incorporate human behaviour and their reactions to the model being adopted or proposed. As someone very wise once said, ‘thinking people are part of the problem we have to think about’

    But every model has to start somewhere, and since we’re on the topic of macroeconomics, why not at the top? Presumably these models can be refined and refined until they do include invidividual humans, and refined and refined until they include neurons, and refined and refined until they include atoms, but at every stage dynamic models and feedback loops can adequately describe.

  14. Steve Keen says:

    Hi Aac,

    The purpose of the paper was your first guess, and definitely not your second.

    The reason we didn’t preface our conclusions with a statement like the one you suggest was because there was a 6 page word limit on all submissions to that particular volume. Getting what we did say into that limit was itself a struggle.

    Quality (amongst several other issues) is vital to include, and if you’d like to see a paper that does, check An Agent-Based Model of the Evolution of Market Structure and Competition by my friend and occasional co-author Paul Ormerod. For my take on what a theory of market behaviour should be, check my lectures on Managerial Economics. You’ll find that I agree with your final conclusion as well.

  15. globalinsights says:

    Steve, I like your web site and your detailed statistics.
    I noticed that quite a few visitors came from your comments page to visit my blog at:

    I have added a link to your web site to my blogroll.

    Today I have added another article on tax havens and offshore banking:

    Who Has the Courage to Prosecute the Unlawfully Megarich?

  16. Bullturnedbear says:

    It has occurred to me that the more we look to America for a cause or cure, the more we risk missing the escalation of the collapse of credit.

    Now it is very possible that the cure or escalation in this crisis could come from America. While ever the US continues to bailout at all cost though, the risk of escalation could come from Europe or elsewhere.

    If we believe that allowing AIG to fail would have been the catalyst for systematic collapse. Then it follows that we must support AIG at all costs. But!!! What if another large institution in another country is liquidated. That could easily be a trigger. Other countries may not share the same conviction to prop the system.

    A chain is only as strong as its weakest link. So if the UK, Germany, France, Japan, etc allows one of its large insurance or banking institutions to fail. The whole ship could sink regardless of America’s insistence in propping up its failures.

  17. vk says:

    — Its (velocity of money) dimension is 1/years —
    The engineer in me has few things to say about that.
    1. The dimension can not be 1/years. Should be 1/time instead.
    2. There is a name for the dimension 1/time: frequency. Measured in hertz.
    3. Velocity is measured in distance/time, therefore the term “velocity of money” is wrong – should be “frequency of money”.
    Notwithstanding the mandatory use of the metric system in Australia, I will understand if economists do not embrace the unit microhertz for representing what is wrongly labeled as “velocity of money” 🙂

  18. Steve Keen says:

    Have to agree vk. I refer to the ration as a frequency of turnover in my own modelling of a pure credit money system. As with much of economic work, economists have borrowed the wrong term from another discipline.

  19. Steve Keen says:

    Thanks globalinsights, I’m a fan of your site as well, as are many of my now about 1,000 strong community of blog members.

    I am not up to date with my own links–too much to do as a sole operator juggling this site plus teaching, research and media work–but as you note, lots of comments on my site do refer through to yours.

    And I couldn’t agree more re your current post: it’s time to prosecute this lot of carpetbaggers and get the loot back from them. Given how catastrophic a financial disaster has been caused by this latest kleptocratic phase in capitalism, we need to scare the bejesus out of those who might be tempted to emulate them some five or six decades hence.

  20. tcgibian says:

    Every so often I am reminded why I like to read your blog. Having a unique viewpoint helps, having a finger on the pulse does as well, but the wry sense of humor is the clincher.

    The current discussion about comparing a flow to a stock is important and quite to the point, but I believe I see in your words the acknowledgment that hard-bitten Neo Classical economists will find the means to avoid being impressed with your logic. Their “science” has degenerated into a religion and you are challenging the true believers on items of faith. I hope you will persist. You may not have much luck with these institution economists until their ship sinks and takes them down, but you should be communicating with a wider audience, anyway.

    If one’s theory is correct, one will be able to explain the past and predict the future. So far your track record is rather good. Perhaps Mr. Robertson will put his money where his mouth is, and losing the former will shut the latter.

  21. Furball says:


    Have you looked at more detailed segmentation of your model ?

    Here I mean the different Interest Payment Burden of different socio-economic classes.

    It seems to me that those out West, who’ve already suffered 30% price declines vs those with more (relative concept, and imbues the replacement model, where another soldier steps into the breach of any fallen soldier) ) secure jobs nearer the city, face a very different Interest Payment Burden compared to those who do not.

    Not to suggest immunity, just different co-efficient in your differential equations.

    I saw mention of your Agent Based Simulation papers. By way of a tip, have you ever checked out http://www.network.com – owned by Sun Microsystems. $1 / CPU hour, scalable as you require. Allows testing of large scale software systems without investing heavily in the hardware required to operate same, if getting access to serious compute power were an issue.


  22. MACCA says:

    Joining the dot’s yet again.
    I note CBA’s recent warning that they are concerned about the extension of the FHBG and how it is being leapt on by young Australian families. CBA cite worries of a bubble occurring at the low end of the property market. Hmmmmm, I don’t think that is CBA’s worry. No doubt they are looking ahead at the coming wave of rising unemployment (D&B forecast 7%+ unemployment this year alone, well beyond Govt estimates) and see some nasty provisioning to be done.Quite possibly also a significant number of highly sensitive, high publicity (media adverse)foreclosures.

    CBA’s recent announcement of a payment holiday (no details as yet)for those becoming unemployed also sounds like a workout might be possible for those having to accept reduced incomes. The growing trend in this downturn seems to be wage reductions where possible rather than layoffs. I expect this will be a phase rather than displacement of layoffs. As Australia’s economy adjusts to a world where our major trading partners exports have cliff dived (China down 40%+ yoy, Japan down 25%+ yoy), eventually outright closing down of many establishments will dominate our economy.

    Which looks to be soon if any credence is to be placed in this article. Canada’s economy shares many similarities with Australia, bar the big one; a major reliance on exports to the US. So, this report from Canada, now sufferring their own housing/ commodity bust- and without vested interest colouring their assessment- is worth noting from the mainstram media;

    “The Australian housing market faces a “perfect storm” of financial pressures which could push prices down as much as 30 per cent, according to a report by BCA Research in Canada.
    “But high mortgage debt, overvalued homes and rising unemployment could begin to push local house prices down as the Australian economy slows, according to the report. ”
    “”The housing market is looking particularly vulnerable, with overinflated prices, deteriorating affordability and slowing household income growth,” the report said.
    “There is an increasing possibility of a major housing bust in Australia.”

  23. al49er says:

    Hi ‘Aac’.

    If I am reading it correctly you seem to have a significant degree of respect if not admiration for Steve’s work whilst enjoying the intellectual thrust and parry of testing his propositions, models and theories.

    Some of the technical stuff you raise is beyond my abilities of comprehension in this area, however I think it’s a bit unfair of you for example to suggest that Steve
    “… throw(s) a few differential equations together and come(s) up with the ‘meaning of life’…..”
    It is the sort of comment that suggests you may apply different rules to your assessment of his work than you do to the vast majority of other (especially neoclassical) economists.

    You suggests that Steve should always be qualifying his work (statements etc) with such phrases as “to the extent that our models are complete…” and even deny him making from time to time some broad generalisations (especially when providing responses having discussions on this site).

    And yet in my observation, each time he is challenged he by and large can provide an excellent direct response or indeed a detailed reference to previous work which spells out in chapter and verse the proposition to which reference was being made.

    My take therefore is that a lot of the appeal and admiration for Steve comes from people like myself who have for many years believed, from a sociological perspective, that ‘this crap simply cannot sustain’ -the unending increase in debt, the creation of the most unbelievable suite of products it is possible to imagine, CDO’s etc, corporate behaviours like the appalling remuneration packages and so much more – much of which seems to do nothing more than prop up or create facade for people (because in the end it is all about individuals) who when stripped bare, appear to have little substance, less character and very often zero morals.

    So we see governments, instrumentalities RBA’s etc, economists, educators, the media etc. etc. all acting in unison to support practices and attitudes that at least for a small number of people are beyond comprehension and the ‘real-world’.

    We have known it is wrong, we have known that it has to collapse and that it has been the most classic case of “The Emperor has no clothes”.

    Then we stumble upon the work of people like Steve, Nurial Robini, Peter Schiff and others who have been putting down their projections about what is now happening for some years back and in great detail, and yet virtually everything mainstream continues to deny them.

    To me Steve stands out among them all as a person of absolute conviction who has given ordinary people (and the more technically capable like ‘bullturnedbear’ and others including yourself) a forum that gives vent to their frustration whilst expanding their ability to put flesh on the bones of their (our) inherent feelings and beliefs, a forum for others to expand on supporting and contesting ideas, theories, models and associated issues etc all with very little personal gain (compared to those mentioned above for example who seem to made very profitable businesses from their predictions), save for possibly some well overdue recognition (as yet nowhere near enough) in the academic sense and an avenue for gaining ‘a few pennies’ in order that he can extend his work.

    So to those ‘smart assess’ out there (and I don’t count you among them ‘Aac’ in the vitriolic sense) who are hating the increasing level of exposure and recognition being given to Steve( the real stuff is still to come) I hope you are sick in the guts about how wrong you have been and the imminent exposure of you and your ilk, and I only wish that you have not been cunning enough to cover your tracks, build up your reserves and be able to ‘survive’.

    To ‘ Aac’ I think it has been shown over some time now that Steve responds pretty well and respectibly to your proddings and context of ideas, and I’m happy that that should continue.

    I just hope you apply the same standards in your questionings of “the other side”, assuming of course that you are not actually yourself the other side.

    N.B. people who think the way we (I) do, are unabashed about our support and admiration for Steve, which is hard sometimes for others often totally consumed by falsity in their lives to comprehend. This is largely because they are not used to ‘giving’ anything to anyone.

  24. jc1 says:

    Hi BTB

    I was enjoying our debate about taxpayer backing of deposits in banks accounts. I left a post to your last one in the ‘Bnet interveiw’ thread – just in case you missed it.

    I was interested ot hear your response if you have the time!


  25. Aurac says:

    Eloquently and justly said, al49er!

    My sentiments exactly.

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