I haven’t yet had time to post Michael Hudson’s talk at Customs House–hopefully I’ll manage that this weekend–but in the meantime here is the talk I gave a couple of days earlier at Per Capita’s Policy Exchange 2009 Conference in Canberra on October 21st 2009. The good folk at SlowTV put this together, and this is the link to the video on their site.
I open this talk by referring to the first presentation at the conference (after Julia Gillard’s opening speech) by Professor Joshua Gans, in which he began by describing both Milton Friedman and Hyman Minsky as “Keynesians”. Had one of the students in my History of Economic Thought subject at UWS made such an observation, he/she would have been well on the way to a fail grade. I was hoping that SlowTV might have also posted Joshua’s talk so that you could make your own minds up on this, but that doesn’t seem to have occurred. Those curious about his approach to economics should check this link to his home page and a blog he established called Core Economics.
November 6th, 2009 at 8:28 pm
Dear Prof. Keen,
In a completely off topic comment, if you have not yet seen it, you should give a look at the article The Bloom in the Gloom, by Rana Foroohar in Newsweek (09/11/09). It’s about echo bubbles.
Cheers,
Marco
November 6th, 2009 at 8:56 pm
Great talk Steve
It strikes me that your equations are similar to the equations in Maxwell’s Control Theory.
That is, the way we increase our money supply is essentially unstable because of the positive feedback associated with the way we create money through debt.
As you have demonstrated money creation occurs by the loan first then the money. To get a loan you have to have an asset against which you can borrow money. So you borrow the money and now – if you consider the money created as an asset – which is what deriratives do we can get more loans because we have more assets which in turn leads to more loans etc.
It acts in reverse with deleveraging which is what you have described.
Systems like this can be described with Maxwell’s control equations.
Given that this is the problem a solution can be found by first stopping money creation through loans. That is, stop banks loaning money unless they first have it on deposit.
But if we do that how do we increase the money supply?
Well let the government decide approximately how much we need to increase the money supply and give it to the population – with the proviso that it must be spent on increasing productive assets.
We only have to do this for the increase in the money supply we need each year.
However, the trouble with this is that we need to increase the money supply a lot more than that to accommodate deleveraging. That is why giving zero interest loans for productive purposes and requiring the money to be repaid will enable us to keep the money supply up without creating toxic debt (debt without a true asset backing)
We will not be able to stop the fractional reserve banking system overnight and require banks to only lend money they have on deposit. We can however, leave it in place because zero interest loans for new assets means that it becomes much more attractive to build new assets in the areas of need than it is to buy old assets and so the system will gradually deleverage and it will become less attractive for banks to create credit money because credit money is intrinsically riskier and the risky money is the zero interest money where the government takes the risk on the money not being repaid.
By using zero interest to create productive assets and new money we have the basis of a stable yet growing system. We control the rate of growth through the issuing of new money. Old money can still be lent but it will no longer increase the money supply because it has to exist to be lent.
November 6th, 2009 at 9:49 pm
I apologize for being completely off topic but in the midst of all the euphoria about how China is saving us and will drag us out of the economic poo of the rest of the world, everyone has forgotten about Japan. Japan is heading into meltdown.
Japan was Oz’s great saviour not so long ago when all our kids were supposed to learn Japanese. Now that the Japanese economy appears to be about to go belly up, with God knows what consequences on all other major economies, it’s all gone very quiet. God forbid we are all supposed to learn Putonghua (at leaat it is easer). No comment from Krudd on this.
In 2008-09 Japan was still our largest export market taking some $52.6 billion in 2008-09. That was not all crude minerals. One could be forgiven in all the back slapping about selling iron to China that China is still not our no 1 market (I would add as someone who knows a little about China it is likely that Stern Hu is not the last piece of retribution for RTZ/BHP etc’s grinding down China in 2008. There is more to come. It may take some time. We are unlikely tog et support form China, indeed they may see it as their opportunity. Why but into Aus when the A$ is high when in time we can buy cheaply.
If Japan, as anticipated, really does go belly up we could well join the rest of the world, only a little later. In the distant days when I was a party goer I recall that being too late was not the best strategy. All the beer and all the best looking girls were gone.
If Japan really is about to meltdown what effect will than have on us, exports, tourism?
November 7th, 2009 at 12:33 am
us non farm payrolls
-190 000
unemployment rate
10.2%
highest since 1983
November 7th, 2009 at 1:12 am
First post:
Hi Prof Keen and company.
I have been following this fine site for close to a year.
It’s certainly challenging to follow as I have no financial training. I just glean what I can.
I viewed your lecture Steve and seek your permission to post it on my youtube channel halfasheep or I could create another channel. I would perhaps break the lecture into smaller parts.
I noticed Glenn Stevens on the ABC this morning acting mystified in regards to current house prices. I recall him saying something like “here in Australia we have so much land, yet our population is small compared with other countries. Why do our house prices remain so high?”.
It’s statements like this that earn Stevens the big dollars.
Thanks again all, keep up the good work and observations.
November 7th, 2009 at 2:32 am
Prof. Keen,
I really liked the OECD forecasts slide:
“a soft landing in the US.
a strong and sustained recovery in Europe
a solid trajectory in Japan
and buoyant activity in China and India
In line with recent trends, sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment”.
OECD. June 2007
They managed to be wrong in each and everyone of them! This has got to be a record. By June 07 Bear Stearns and Merrill Lynch were already history, we were hearing about the sub-prime everywere, but, hey, this was no emergency!
A few days ago, I had serious doubts about the RBA-Federal Government’s policies.
Well, I had doubts then. Now I have no more doubts… I am full of confidence in the RBA and Treasury.
I hope Gillard heard your presentation. Not that it would have made much difference, but if she was there, I don’t think she would have failed to understand the “governments losing elections as a consequence of an economic debacle” bit. These people are heading the same way.
The Newsweek article mentions that we appear to have entered a stage where, like earthquakes that are followed by secondary earthquakes, a bubble collapse may be followed by other bubbles forming and collapsing quickly. And they believe one such bubble could be forming in China, our saviour.
Well, I’m signing off.
Marco
November 7th, 2009 at 5:50 am
Thanks life after debt,
I actually felt sorry for Glen when I heard that comment. He sounded genuinely mystified, and his comment included a statement similar to that “he couldn’t understand why the price of “the marginal house was so high”–which means that he was trying to fit it into the neoclassical mold of “marginal cost equals marginal revenue”.
No wonder he’s confused.
November 7th, 2009 at 7:00 am
PS “Lad”, feel free to post the video!
November 7th, 2009 at 7:08 am
I always thought the saying was “the marginal return isn’t worth the marginal effort”. This applied (in my younger days) to working longer hours, working out at the gym, etc, etc. Five recent home sales in the estate I live in (north west Sydney) have not only been so swift (48 hours on the market in one case) and the prices so much higher than even the vendors expected I am in no doubt the Kevin Rudd and his economic advisers are financial geniuses of the highest order, Bernie Madhoff move over, these guys have succeeded in Ponzi-ing a whole nation!
November 7th, 2009 at 7:15 am
Elliot Wave International currently has a free week until 11 Nov for all their financial reports.
I highly recommend their detailed, comprehensive and insightful work. It is also still strongly deflationist.
Goto http://www.elliottwave.com/freeweek/ffs-nov-2009/default.aspx?code=36891 and sign up as a Club EWI member then access the reports – BY 11 NOV.
November 7th, 2009 at 8:27 am
It hasn’t been posted here but another excellent program on the GFC, This one is called the The Warning:
http://www.pbs.org/wgbh/pages/frontline/warning/?utm_campaign=homepage&utm_medium=bigimage&utm_source=bigimage
At the end, Greenspan’s mea culpa and dismay at how 40 years of his intellectual view of the economic world turned to dust is riveting. He will surely have some more confused peers before this is all played out.
November 7th, 2009 at 8:44 am
I really know that I should not write this… but I can’t resist.
What if the initial housing bubble developing in the late 1990-ties has been artificially propped up as a part of the migration policy of the government – to force fresh migrants into debt servitude / renting houses forever and avoid (or delay) the country being taken over by the skilled migrants?
This is the profile of my area – Post Code 2763 (I’m not sure whether the link will survive posting):
http://www.censusdata.abs.gov.au/ABSNavigation/prenav/LocationSearch?locationLastSearchTerm=2763&locationSearchTerm=2763&newarea=POA2763&submitbutton=View+QuickStats+%3E&mapdisplay=on&collection=Census&period=2006&areacode=POA2763&geography=&method=Place+of+Usual+Residence&productlabel=&producttype=QuickStats&topic=&navmapdisplayed=true&javascript=true&breadcrumb=PL&topholder=0&leftholder=0¤taction=104&action=401&textversion=false&subaction=1
Probably more than a half of the people living there can be described as of Anglo-Saxon or other Western European ancestry.
However 90% of the children in the opportunity class of the Quakers Hill Public School are from migrant families.
This should hardly surprise anyone if we consider that the whole Skilled Migrant Scheme is an IQ test in disguise – and apparently IQ is strongly inherited (I am well aware of the limitations of this approach but this post is not a scientific article so please do not accuse me of oversimplifications)
http://www.newscientist.com/article/dn1520-iq-is-inherited-suggests-twin-study.html
(True – there are good private / Christian primary schools in the area as well – some smart Anglo-Saxon kids often go there).
I can say the same about the IT industry – the managers are (mostly) Aussies or Poms but a lot of senior technical staff are ethnic Chinese, Indians or came from Russia. If you look at who goes to the university – not only foreign students are Chinese / Indian. A lot of Aussie students are of Asian ancestry.
The brutal truth about our migration policy (apart from the reluctance to accept illegal migrants even if they are true refugees) is that the population of Australia has to grow even if this means damaging the environment – or else we will be settled without our consent when the environmental or political crisis in the region kicks in. You cannot get enough high quality migrants from Europe or Latin America.
The alternative to skilled migration is opening doors to anyone – what would result in similar problems the UK, France and Germany have to cope with.
But there is a clear conflict of interests between the descendants of Anglo-Saxon / Western European population and the migrants. Just look at our politicians who they are – either Anglo-Saxon or descendants of Italians in NSW. How many of the federal or state level politicians are of Asian ancestry? One minister in the Government? True, the language is the barrier – much higher for the Eastern Asians than for the Europeans. But the most of Indians speak reasonably good English when they arrive because they studied in English rather than ethnic languages back in India.
Some of highly successful entrepreneurs are in fact either first or second generation migrants. However profits in Australia are often made not by actual production of anything – but by rent-seeking.
The only effective way of preserving the status quo for the next 20-30 years is to run a massive income redistribution scheme. You just can’t tax me more because I was born in Gdansk not in Penrith. However forcing families either to spend $2000 per month on renting or $1500 (soon may be more) on paying the interests to an average loan will do for a while. Capital gains have also been mostly realised by the initial group of investors who turned out to be mainly Anglo-Saxon. True, there are also rich migrants coming from Hong Kong or Western European countries but the most of people came without $500k required to buy a house in Sydney.
The welfare and income redistribution scheme is very popular in the electorate especially among baby boomers. Young Anglo-Saxon people born in Australia are just a “collateral damage” as they have even smaller chance to break through the glass wall than highly skilled and more intelligent children of migrants. We have to keep in mind the different attitude among the second generation migrants – they usually work harder than more laid-back Anglo-Saxon students.
Anyway – the process of Singapore-isation of Australia is inevitable. When the housing bubble finally bursts and the baby boomers fade away – forget about the beloved White Australia. I will not cry for it at all.
November 7th, 2009 at 10:24 am
Robert,
Thanks for the EWI Freeweek link. Just a minor correction though – the financial reports available are restricted to the US reports in this instance.
November 7th, 2009 at 11:11 am
Steve – Excellent talk. I really enjoyed it. I’d like to know when it gets posted to YouTube.
One question: Isn’t the Minkskyan depression especially likely in a world with fiat money? Debt levels are much easier kept in check with the state is restricted from increasing base money, which explains why they never got this far out of whack before 1971.
November 7th, 2009 at 11:28 am
Steve, back on the topic of Kosciosco trek, it certainly would be interesting if it was done later in 2010 when there is time to prepare and the weather is better starting at Canberra during an election campaign.
November 7th, 2009 at 11:56 am
Steve
We walked from Canberra to Kosciosco a few year ago along the Alpine Trail. It took about 2 weeks and was most enjoyable. Leave your mobile at home get a few food drops where the trail crosses a road and you will have a very enjoyable time. It was a good bet to lose.
November 7th, 2009 at 1:15 pm
GLENN STEVENS: How is it that in a country this big in area and this small in numbers of people we can’t manage to make the marginal price of a dwelling lower than it is? It seems to me quite high.
November 7th, 2009 at 1:22 pm
November 5, 2009 (AP)
Fannie Mae to allow troubled borrowers to hand over deeds to homes, let former owners rent
Thousands of borrowers on the verge of foreclosure will soon have the option of renting their homes from Fannie Mae, under a policy announced Thursday.
The government-controlled company, through its new “Deed for Lease” program, will allow borrowers to transfer ownership to Fannie Mae and sign a one-year lease, with month-to-month extensions after that.
Can you see the advertisements. Australian Government Guaranteed Houses. If you cannot afford the mortgage payments the government will take them over and you pay only the LOW, subsidized, public housing rent. No foreclosure, No troubled asset sale to upset the inflated housing prices and away we go again.
November 7th, 2009 at 2:00 pm
Hi Steve, you’re looking well!
Just wondering if you have a link to the updated report on the “economists who saw it coming” where the list grew from 12 to a couple of dozen I think you said.
November 7th, 2009 at 2:55 pm
I can give a free 30 minutes presentation to Mr Glenn Stevens how to use Google to find information which is in the public domain if he still wants to ask silly questions.
Here is a document explaining why the marginal price of land has to be high in Sydney:
http://www.nsroc.org/documents/LGA%20-%20Medial%20Release%2025%20June%202006.pdf
The answer is: the land price has to be high because we have such policy. This has nothing to do with any land shortage or extremely high costs of providing infrastructure. Why does the cost of the infrastructure have to be higher here than in for example Montreal? What urban infrastructure are we talking about? The non-existing North-West rail line?
I fully agree with the endogenous nature of the global bubble. But nothing explains why our house prices must be 30% higher in Sydney than in Toronto. Nothing – except for the fact that this is our official policy. No, not a conspiracy. This is the official policy of the government of NSW. This policy will never be changed because there are vested interests – and there is a Green-Labor-Liberal consensus.
In our country our property bubble is sacred and any government will do anything they can to save it at any cost.
November 7th, 2009 at 3:31 pm
On Toronto house prices and Canadian housing — http://www.americacanada.blogspot.com/
Canada’s home prices have skyrocketed in this recession. When the dollar was at 97 cents US a couple weeks ago, average Canadian home prices hit roughly $320,000 US – an all-time high. Residential mortgage debt has over doubled since 2002. We will surpass the US in per capita residential debt within the next year. In 2009 alone, we will add 100 billion in fresh residential mortgage credit (equivalent of about 1 trillion in the US on a per capita basis)
The average price of a detached Toronto home has approached $600,000. I have attached a home listed at $559,000. The home is about a 15 minute drive from downtown in an average location. It is clearly overvalued.
The listing-to-sales ratio in Toronto, the fifth largest city in North America, has surpassed the late 1980’s bubble. Moments after that point Toronto’s housing market crashed losing 25% of its value and the country went into a deep recession. Toronto’s housing market took 12 years to recover, and needless to say its recovery was brought on by a massively inflationary credit environment.
In the greater Vancouver area, our third largest metropolis after Montreal, the average price of a detached home in March 2008 was $921,000. In fall of 2008 the market tanked, but only to find itself growing again in 2009. By September 2009 the average price was back up to $904,000. Average household incomes in Vancouver are lower than average incomes in Toronto. They hover somewhere around the $70,000 mark.
All of these prices are one hundred percent attributable to ultra low interest rates and a government insured credit market. CMHC, the equivalent of Fannie and Freddie, has expanded securitization of mortgage debt to nearly 100% of the credit market in Canada. The government of Canada insures the securities. The healthy banks in Canada, something that gets bragged about internationally, have fewer loans on their books then they did in 2007. This is despite the credit market growing by 30% since then.
The Bank of Canada has already admitted to a real estate bubble in Canada. Mark Carney, head of the BOC, has threatened to manipulate the mortgage market if borrowers don’t come to their senses.
Shadow — have a more thorough read of the analysis and commentary here; the spin of the establishment may not appear quite so forcefully convincing afterwards.
November 7th, 2009 at 3:56 pm
ak,
“Anyway – the process of Singapore-isation of Australia is inevitable. When the housing bubble finally bursts and the baby boomers fade away – forget about the beloved White Australia. I will not cry for it at all.”
Spoken like a true late comer. For someone who continues to write so much vitriole about our way of life and the “terrible” inequities of our Aussie society, I am at a loss to understand why you emmigrated here in the first place.
November 7th, 2009 at 4:08 pm
fyi:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/11/a-monetarist-theory-of-neochartalism.html
November 7th, 2009 at 4:19 pm
PETER_W@17
Let
MC=marginal Cost
TC= Total Cost
FC=Fixed Cost
VC=Variable Cost
Q=Quantity
MC=dTC/dQ=d(FC+VC)/dQ=dVC/dQ
Most of the references I read relate to the case of VC=f(Q)being a quadratic equation.
If VC=f(Q) is a quadratic equation where VC decreases with increasing Q at the beginning until it reaches a minimum value at a certain Q value beyond which VC starts to increase.
I can’t see why VC=f(Q) cannot be a polynomial equation of higher orders.
The way Glenn Stevens put it, he was assuming VC=f(Q) is always a linear equation.
Does it mean he’s quite naïve? Is that what you people are getting at?
November 7th, 2009 at 4:41 pm
If VC=f(Q) is most likely a quadratic equation where VC decreases with increasing Q at the beginning until it reaches a minimum value at a certain Q value beyond which VC starts to increase, then the VC for the cities of Melbourne, Syndey and possibly others could have reached the minimum values at certain total number of dwellings and VC is now increasing with higher Q.
Now MC being the rate of change of the VC wrt Q, means MC was negative then zero and now is positive.
Was Glenn Stevens talking about low marginal price in terms of dollars or a rate of change of $/unit?
November 7th, 2009 at 4:47 pm
FYI,
Video of Michael Hudson’s talk is now up at vodpod.com :
( hat tip: dandelionsalad.wordpress.com )
Michael Hudson: Forever Blowing Bubbles
http://vodpod.com/watch/2469495-forever-blowing-bubbles-asset-bubbles-economic-policy-and-sustainability?pod=dandelionsalad
November 7th, 2009 at 4:57 pm
noah cross,
The picture is more complex. I was not aware of the latest bubble there. I have to admit that I never lived in Canada, visited the country once. My close relative lives in Montreal which is the cheapest city there. For sure in his suburb (LaSalle) prices are not going up much.
The data related to Toronto can be downloaded from there:
http://www.cmhc-schl.gc.ca/en/hoficlincl/homain/stda/index.cfm
“Housing Now — Greater Toronto Area (previously Toronto) 64163″
So it is true that the average price for Toronto CMA went up from CAD 513,700 in Sept 2008 to CAD 592,960 in Sept 2009. However year-to-date average for the greater Toronto is CAD 555,586.
These prices are clearly comparable with Sydney.
http://www.myrp.com.au/sydney_house_prices.do
I have never said that the bubble has no endogenous dynamics but it is up to the policy of the government to decided whether the bubble can grow or not. The policy at the local, state and federal level in Australia (maybe except for Tasmania where residential land is still cheap) is simple – the more expensive are the houses, the better. Only recently the RBA has started showing some signs of anxiety.
November 7th, 2009 at 5:04 pm
Sorry, a bit off topic
UCBH Holdings’ Bank Is Seized, 120th U.S. Lender Shut This Year
UCBH Holdings Inc.’s United Commercial Bank, a San Francisco-based lender with $11.2 billion in assets, was seized by regulators, becoming the 120th U.S. bank to fail this year.
United Commercial was bought by East West Bancorp of Pasadena, California, the Federal Deposit Insurance Corp. said. United Commercial was the fifth U.S. lender to be seized by regulators yesterday as banks fail at the fastest rate since 1992.
East West paid a premium of 1.1 percent to acquire United Commercial’s $7.5 billion in deposits, and picks up 63 U.S. branches as well as banking operations in China. East West said it is now the second-largest independent bank based in California, and the largest in the U.S. specializing in serving Asian-Americans
http://www.bloomberg.com/apps/news?pid=20601087&sid=ayPwsBV1DI3c&pos=3
November 7th, 2009 at 5:05 pm
If you add the 25 from last year that’s 145.
November 7th, 2009 at 5:31 pm
Thanks Steve and company, I have just uploaded the lecture to youtube.The lenght is almost 32min total. Thus I have broken in it down into 3 x 10min parts. For ease of navigation, simply click the ‘video response’ below each viewed video.I have added a small intro which I hope is recieved well.
Here is the first title and link, kind regards, Lad.
Title: (1 of 3) Steve Keen on debt and the economy: How do we pay for all this? Oct 09.
Link: http://www.youtube.com/watch?v=E0YC2PLnWRA
November 7th, 2009 at 5:31 pm
noah cross,
I was misled by these graphs:
http://www.chpc.biz/Major_Cities_Chart.htm
they clearly show much lower prices than in Australia. This was reinforced by the anecdotal evidence from Montreal.
Anyway I have to dig deeper to get good stats…
November 7th, 2009 at 11:36 pm
So, one day the share market jumps nearly 2% because of a “fall in claims for unemployment insurance” in the US. The next day the US unemployment figure reaches a 26 year high. Very entertaining. I wonder what’s next? (reaches for popcorn)
BTW, does anyone here know anything about the employment insurance numbers? Was the green chutes number a count of all claims or just successful ones? What sort of percentage of US workers are covered? How good are the schemes? The fine print in some schemes here in Oz make them pretty useless.
November 8th, 2009 at 8:27 am
Hi Laurence,
By naive I meant believing that you can analyse housing in terms of neoclassical marginal cost/marginal revenue thinking in the first place. The theory is mathematically wrong and empirically false to begin with, and it is certainly inapplicable to asset markets (where rising price is an attraction to buyers) even if it were mathematically sound.
November 8th, 2009 at 8:39 am
Dear Professor Keen,
Assuming deleveraging of 4% or more, what is your expectation for the future unemployment rates in USA and Australia until 1980 debt levels are reached? It seems it would follow that any decrease in GDP would correllate with a decrease in employment. If this is true, is 11% unemployment in 2010, 2011 in the USA realistic?
November 8th, 2009 at 9:03 am
Sure ak – the additional information may be of use.
In a way related to stimulus and future growth, the purpose of NBN – the broadband project. A NZ study last week found no productivity benefit from high-speed broadband: http://www.commsday.com/node/636
Some dissenters have said this for a while including Josh Gans.
November 8th, 2009 at 9:18 am
I think the USA will crack 25% on the U-6 measure and 15% on U-3 mbehar. I think Australia will ultimately exceed 10% on its equivalent for U-3, but this may be a drawn out affair given our government’s capacity to debt fund deficit spending (I see the use of debt financing and the constraints on it as more political than effective of course).
However pretty huge political change will come out of levels anything like those–which means that if the policy response is likewise very big then my expectations will not be fulfilled. But the debt-deleveraging momentum is very big given that the USA’s debt level is already far above that of 1930, so I still do expect to see conventionally measured (U-3) unemployment north of 15% in the USA, and north of 10% in Australia–and sooner in the USA than here, given their greater debt burden and more entrenched debt deleveraging process.
November 8th, 2009 at 10:15 am
Thanks Steve – I remain a believer in your work and I think the following rings true.
“The greatest obstacle to discovery is not ignorance – it is the illusion of knowledge.” Daniel J. Boorstin
November 8th, 2009 at 10:45 am
Come to think of it, with regard to the release of these US job figures, does anyone else smell a rat? Is it pure coincidence that they were released in the order that they were?
November 8th, 2009 at 11:11 am
Nope, it’s just the release cycle built in to the BLS report system. Just like the RBA meeting here before the unemployment figures are released each month.
November 8th, 2009 at 12:36 pm
Steve Keen@33
Thanks, Steve. It took me a while trying to digest the tremendous amount of economic hard facts you’ve cramped in your talk. That explains a lot more about the real state of economy than most pseudo-economists are posturing.
November 8th, 2009 at 12:58 pm
More depressing news. ‘Adelaide house values soar.’
http://www.news.com.au/adelaidenow/story/0,22606,26317363-2682,00.html
‘ADELAIDE houses have jumped the most in value of any Australian city, except for Perth, in a decade with the average home worth almost $250,000 more than in 1999.
The first review of property prices between 1999 and 2009, based on Valuer General figures, show sale prices for the whole state have soared an average 190 per cent.
This is compared to the sharemarket which rose 143 per cent over the same time.’
So what will the average ‘investor’ do? Buy more property with its negative gearing tax perks!
The State government also benefits from increased property prices with the lucrative taxes of stamp duty and land taxes, and local government rates all based on the ever increasing value of properties.
‘The booming property market has also swelled State Government coffers by hundreds of millions of dollars annual land tax and stamp duty jumping from $738 million to $1.24 billion this decade, according to State Budget papers.’
So, who in any levels of government would want to try to stop this merry-go-round of increased revenue?
November 8th, 2009 at 4:08 pm
That’s what they are going to do with their debt. Is this going to happen here too?
“Zombie Banks, The Game Has Changed” by wepollock
http://www.youtube.com/watch?v=JtnWdgs3i-A&feature=player_embedded
“Something profound just happened to the way the Federal Reserve (Treasury et al) and the Bank of England are going to distribute national debt. What better place to but debt but a bullied domestic bank. Eventually the Federal Reserve/Treasury/Executive bank will force all domestic savings into zero return Treasury instruments. This is the only place where debt can be placed at this time.”
November 8th, 2009 at 8:37 pm
Hi Steve,
You mentioned you think unemployment will get to 10% in Australia. Over what sort of time frame do you think this will happen?
Kat
November 9th, 2009 at 6:11 am
If the government keeps applying stimuli, perhaps 3-4 years Kat. It’s shown willingness to apply a stimulus of about 2-6% of GDP, and neoclassical economists appear to expect the economy to grow more rapidly than average coming out of the recession–say 5% under its own steam.
I expect instead that if the stimulus stops the Australian private sector from deleveraging–which could subtract 4-6% from aggregate demand (and therefore GDP growth) each year–then growth will be feeble in the aftermath to any stimulus, say of the order of 1-3% maximum (because it would no longer be “turbocharged” by the growth in private debt exceeding the growth in GDP). In that environment, unemployment will drift upwards after having fallen slightly due to the preceding stimulus.
Since about 3-3.5% growth is needed to keep unemployment from rising, I expect to see it drift at about 0.5-1.5% higher each year.
November 9th, 2009 at 7:12 am
Mr. Keen,
How often are podcasts made of your speeches/appearences ? I visited the podcast page and there were only some 7 or 8 available. If you’re paying a number of guys to make podcasts then they seem to not deliver on their promises. At least, it seems a number of the podcasts weren’t posted. Or are they available at another page or are they archived somewhere else ? An other option would be to get rid of the podcasts all together. How often are those podcasts downloaded ? I don’t know what arrangements you have made but I think, at least, you should look into this matter.
It was mr. Michael “Mish” Shedlock who brought you and your website to my attention when you made that speech at the Whitlam Institute and I think after that the number of visitors to your wbesite must have increased significantly.
Mr. Shedlock has pointed to the fact that in fact the CPI numbers in the US are too low because food and energy are left out. But he also notes that the CPI contains a socalled OER (Owners Equivalent Rent). This is an estimate of how much a house would cost to rent. According to the BLS, who computes the CPI, rents are still going up but in the REAL world, in the real US, rents are falling ! To be able to compute an alternative CPI he substitutes the OER by (the change in) the Case-Shiller housing index. And after that the current CPI (without food and energy) is negative !
November 9th, 2009 at 7:25 am
Steve,
Wouldn’t they just temporarily try to reduce the immigration rate to slow down the growth of unemployment? But this may cause skill shortages elsewhere and whack the house prices when the stream of prospective housing bubble servants dries out (there is a significant time lag there I believe). Crucially the skilled stream of migration probably doesn’t add much to unemployment. The other streams may be difficult to throttle. There is also an argument against the influence of immigration on the housing bubble in countries like Australia. In Central European countries despite massive net emigration house prices went up as well – when investors from the EU proper and temporary migrant workers poured billions of Euros into the market and when cheap mortgages became available to the masses. So the bubble was predominantly endogenous (based on leveraging – borrowing to realise capital gains) rather than created by external factors.
The housing bubble managers in Australia are probably aware that the bubble growth is potentially dangerous and they have started moderating it. The recent interest rates decisions show that despite low inflation they want to apply the brakes to the economy. So they may try to prevent deleveraging but at the same time they don’t want to let another increase in asset investment borrowing (leveraging). Instead of CPI targeting we may experience a kind of house bubble inflation/deflation targeting. They may want to find the sweet spot when income redistribution benefiting their political clientele (practically the majority of our society) still takes place but the sheep is only sheared, not skinned.
Anyway have you thought about modelling our beloved asset bubble itself in the housing market? One possible approach might be to use the distributed agents approach. This would require some programmatic effort. What about using the dynamic approach with multiple market sub-segments and flows of prospective buyers directed either by genuine need or greed when the prices are going up?
I strongly believe there is another George Soros among us who has the knowledge how to make money on this “massive market dislocation”.
November 9th, 2009 at 7:47 am
[...] The great interest rate rip off My Per Capita Talk on Debt | Steve Keen's Debtwitch [...]
November 9th, 2009 at 8:28 am
Finally there is a banker prepared to admit past mistakes.
http://www.bloomberg.com/apps/news?pid=20601109&sid=albMYVE7D578&pos=10
Hopefully this is the first of many and begins the process of real financial reform in the US with the separation of banking from proprietry/investment trading institutions.
November 9th, 2009 at 9:10 am
For anyone who wants to know about unemployment coverage in the States:
If you get fired or can show “good cause” for quitting, you usually get 26 weeks. Now, Congress has extended it for an additional 26 weeks. But, if there’s a break in-between periods, you might not be able to go back on it.
The govt. unemployment rate is now 10.2%. The real rate is almost 19%. No single payer health care is one of the biggest drains on the economy. Govt. employees get universal health care. No “pre-existing” conditions.
Is it the “we-are-superior” thing that keeps people from rioting in the streets? Also, since single payer is such a great system (and if Congress really cares about the voters like they say they do), then why not just pass it?
The answer: they were stockpiling campaign contributions first for 2010.
November 9th, 2009 at 9:16 am
Hi Willy9,
The podcasts are actually recorded voluntarily by a colleague who’s been hit with illness recently, so there are a backlog of recordings not yet posted. I also used to manually edit the XML for podcasts, and to reduce that time-consuming task I’ve installed a Wordpress plugin–but I haven’t yet worked out how to use it! When Stu gets over his illness, we’ll get that worked out and start running podcasts again.
In the meantime I’m hoping to record the talks I give in Europe and post them as videos, like the current talk at Per Capita.
Sorry for the deficiencies here, but as a “one man show” I am somewhat overwhelmed by the tasks I’m currently engaged in.