Excellent Switzer interview on Sky News Australia

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I have just been interviewed by Peter Switzer on the Switzer show on Sky News Australia. Peter interviewed me for over 15 minutes, which allowed plenty of time to discuss such things as:

  • The “Revere Award” and the economists who predicted the crisis–including Michael Hudson, Wynne Godley, Ann Pettifor as well as myself, Roubini and Baker;
  • Why we saw a crisis coming (runaway private debt bubble that had to burst);
  • Why some of my post-crisis calls were wrong–at least in the immediate term in Australia (huge government stimulus and the First Home Vendors Boost [see also this link]);
  • What the prospects were for Australian real estate (down about 40% over 10-15 years, maybe 15-20% over next 2-3 years);
  • What the next two years might hold for asset markets and unemployment (stagnant asset prices and rising unemployment); and
  • Whether it might be possible to have a “Goldilocks Downturn” where asset prices rise but slowly, unemployment rises but not too much, and it’s all over in a few years rather than a decade (my answer was that “you can’t have all three”).

Click here to watch the interview on Sky News at a full frame rate, or click below to watch a recording at a lower frame rate. And hats off to Peter for an excellent interview.

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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13 Responses to Excellent Switzer interview on Sky News Australia

  1. alex78 says:

    Great interview Steve. Are those declines you predicted in real or nominal terms? ( might not matter so much given the dis-inflation we’ll have for the next few years)

  2. peterjbolton says:

    For the first time in my Life, I find myself floored by Dr Paul Krugman: this is heart attack country! Is there a human being, a Homo sapien sapien in that integumental volume known as Paul Krugman? A: It appears so!

    “Fake heroes like Bernie Kerik, Rudy Giuliani, and, yes, George W. Bush raced to cash in on the horror. ”

    I wish to formally acknowledge here, Dr Krugman’s comments and extend a hand of gratitude for a vitally important public statement of absolute honesty.

    Well done Sir!

    http://krugman.blogs.nytimes.com/2011/09/11/the-years-of-shame/

  3. peterjbolton says:

    US Military Occupation of Australia: it begins while the road between Parliament House and the US Embassy gets too much heavy traffic. And, perhaps a direct cable with multiple links courtesy of the Australian Taxpayer?

    “Possibilities included increasing U.S. access to Australian training exercises and test ranges, potential pre-positioning of U.S. equipment in Australia, greater use by the United States of Australian facilities and ports, and options for joint military activities in the region.

    “We are looking to enhance our presence in Asia, not decrease it. And Australia would be part of that,” the defense official said.”

    http://www.reuters.com/article/2011/09/15/us-usa-cyber-australia-idUSTRE78E05I20110915

  4. peterjbolton says:

    If you think that Economists have any role in running the World, think on this: The Economists’ role in the Global socio-economies is to fraudulently provide cover for the Recursive scamming and war-warmongering of the highest level Banking System: Economists are merely deluded but useful fools that are complicit in criminal acts against humanity…

    “The world is being led by politicians and central bankers who have no interest in the one viable solution to the world’s monetary problem: the closing of all central banks and the opening of all markets to free market coinage. This would mean getting government out of the money business.

    They have no interest in re-establishing an international gold standard, with open coinage and free markets in money.

    Politicians want to control money for their purposes. Senior officers of large banks want to control money for their purposes. Usually, their goals fit together well. They fit together because of the short-term effects (politically positive) of monetary inflation.

    The present system of reserve currencies favors the United States government and American consumers. It is a subsidy to exports to the USA by way of holding down interest rates for U.S. government debt. Central banks inflate. They can buy any asset, but export mercantilism favors the U.S. dollar and the euro. The crisis in Europe favors the dollar.

    There are lots of things to worry about, The loss of the dollar’s world reserve status is not high enough on the list to be of much concern.

    end/quote

    http://lewrockwell.com/north/north1033.html

  5. brett123 says:

    Nice interview Steve. It’s the first time I’ve actually heard you claim credit for the governments stimulus package and I actually believe you do deserve some credit…but once again this also support the hypothesis that Austrlalia is different (ie we have Steve Keen! :) )

    It interesting regarding the stimulus package..some people still complain it was money wasted (like governments don’t normally waste money!?!?).. My way of thinking is that Austrlalia staying out of recession for so long has given people a chance to heed your warnings on debt and get themselves into a better position. If you haven’t heeded the warning by now..you deserve what you get when the crunch comes.

    On another point, I find it a little hypocritical that you allow credit card payments when signing up for membership…but this supports the idea not all debt is bad! :)

    Also, I hope it works out with you making money from the site. To me (as a bit of an IT nerd) your greatest asset is not your economic theories but your website. The last few years of TV interview etc is a great example in how to publicise a website. The blog posts, the comments and forums has proven a great way to keep people coming back. (I’m not sure if you planned it this way though?). I know how hard it can be to make money on website when everything is free on the net, so good luck with it.

  6. Steve Keen says:

    Thanks Brett. It’s actually going quite well–I am pleased with how people have responded to the membership options. There are a few teething problems of course, but it’s possible that this could be self-funding one day, which would make it possible for me to hire someone to take the admin load off my shoulders, leaving more time to get my research done.

  7. myne says:

    Steve, on the topic of the RBA and interest rates, I contend that a much better inflation tool would be to give the RBA the ability to change the superannuation contributions.

    Examples:
    RBA ups rates by .25% from 4.5%.

    A person who bought their property in 2001 for 200k has their annual interest portion of their repayments change from 9000 to 9500.

    A person who bought the house next door in 2007 for 400k has their annual interest portion of their repayments change from 18000 to 19000.

    The person who bought earlier, is likely to be older. They’re likely to have progressed in their career more, and are therefore more likely to be earning more to start with. So not only do their repayments rise less, but they rise by a lot lower percentage of income.

    The argument that interest rates affect renters also comes undone in stagnant or falling market. Landlords can’t get blood from a stone, so they face higher negative gearing rather than rising rents. In the current market, if the RBA upped rates, only recent owners would suffer. Renters and older owners wouldn’t even notice the change.

    Now, lets take two people. One’s a miner on 100k, and one’s Joe average on 50k. Let’s up superannuation by .25%.

    The miner is now paying 9250 a year in Super, and Mr Average is now paying 4625. Regardless of their property values, they are both affected. Importantly, only the workers are affected. Unemployed renters, retirees and other net beneficiaries are not affected at all. Their relatively low share of aggregate demand does not get hit.

    Now, I realise the RBA is charged with monetary policy and not fiscal policy, but with only one lever to pull, their control is haphazard. Fiscal policy would raise taxes. A very unpopular move. Corageous as Sir Humphrey would put it. Super offers the system a third option. One that greatly improves the RBA’s granularity of control over inflation, and is not political suicide.

    It also offers workers the chance to see their money again one day. Unlike bank interest. I’m sure that the politicians will one day introduce marginal tax rates to Super too (at approximately half the rates of PAYG), so this lever, under the control of the RBA will also aid the goverment in balancing superannuation.

    I’m sure there are exploits, but as a general concept, what are your thoughts?

  8. myne says:

    I should add that it appears to me to be about the only way a ‘soft landing’ in real estate could be engineered without excessive inflation.

    The RBA will have to drop rates soon as unemployment rises, but they’ll also have to raise them to fight inflation. An impossible choice as we all know, and I doubt there’s a middle ground.

    Dropping rates and raising super will simultaneously cut incomes across the board thus fighting inflation, and take pressure off those super vulnerable recent home buyers and businesses. Thus hopefully achieving the impossible dual mandate.

  9. Steve Keen says:

    I’d rather see the Central Bank focus on systemic stability than inflation Myne. This also begs questions about the causal links in inflation–or rather assumes the demand pull causal mechanism.

  10. myne says:

    I’m working on what I know so far, and the Austrian definition of inflation makes sense to me. Therefore I see the goal of preventing inflation being achieved by sucking money from the system artificially through the RBA.

    I’d love if they focused on systematic stability too. I’m just pretty sure it’s too late to fundamentally change it, and as much as I’d like them too, i doubt they’re ready to accept your models.

    Which leaves us with little option but to modify the current system for the current situation. I expect some time in the near future, when either Europe or the US fall over; or China depeg, the AUD will tumble in a massive liquidity selloff. Some time before or after that, I expect unemployment to rise, forcing the RBA to either accept unemployment or accept inflation. I think they’ll accept inflation. They’ve only got one lever, so they’ll drop rates.

    This in my mind sounds a lot like the 70’s. Stagflation ahoy!

    Now, if our dollar dives, and there is no price deflation elsewhere, we’ll have huge inflation overnight. Petrol’s been hanging around 1.30-1.40 for a while now, so if it drops to 70c again without a corrosponding oil price collapse like last time, we’re screwed. If it’s Europe or the US that fall, then it will be short term. A year or so. If China depegs, we could be looking at rapid structural inflation.

    Stimulus would most likely aggrivate the situation, so that’s off the table. But the system will need a way to take money out of the system AND encourage lending. It’s politically unacceptable to have job losses or raise taxes.

    Super is perfect. Our banks are going to suffer, so anything that can help their tier 1 capital ratios will be welcomed by them. Politically that may solve the issue of backing the deposits. It’s applied to everyone evenly like a tax but is not entirely like a tax because we still own it, we just cant spend it. Interest rates hurt the youngest the most. As I stated earlier, someone who bought in 2001 for 200k is paying half the interest of someone who bought recently.

    This is because of the government grants, obviously, but from the RBA’s perspective, it’s because the CPI was modified in 1997 to remove mortgage interest. Therefore, the RBA was adjusting rates for 14 years based on flawed CPI reporting. Therefore their one tool is completely inappropriate for this mess.

    I don’t want Glen Stevens replaced with a Bernanke figure. I think he’s a decent man who really respects the power he holds. Only thing is, he’s been working off the wrong figures. If that one change didn’t happen in 1997, then the FHOG should have been eaten up by rapid rate rises in the early 00’s.

    If we accept that mistakes were made, that Australia is largely at the mercy of international forces, and there’s no way it can be dealt with using the tools that match the previous metrics, then we have to think of a solution that causes the least pain.

    Bernanke’s answer is to fire up the printing press, to buy every asset, to manipulate the stock market, all in his misguided belief that confidence is all that needs to change. We can see how well that’s working.

    I think Australia has a chance to spread the damage. Rather than a small minority of bankruptcy’s causing huge flow on effects, I think the pressure can be taken off them directly, and redistributed. But not redistributed through inflation. No. Redistributed through (albeit forced) saving.

    Personally, I’m probably going to do great if it all falls over. I have net savings, don’t own a house, and I’m waiting for our house bubble to collapse so I can afford one.
    But I have to accept that my interests are not on the political agenda, won’t be on the agenda, and if this happens, many people are going to be very miserable while a small minority of us will be happy. That’s not good for the country.

    I can’t see any other politically acceptable ways out of this that could possibly hope to cope with the stagflation I expect. There is no interest rate middle ground with stagflation. It’s medicine time through high rates and high unemployment, or it’s flirt with hyper inflation. Neither are fun for anyone.

    So if you want to encourage lending, limit inflation, keep people working, and engineer a soft landing, so that one day when the fundamentals are back into reasonable ranges so that we CAN implement your methodology without a prior crash, what else could possibly do this?

    – Super up (judged by the RBA at their meetings) = spread the short term pain
    – Rates down (Judged by the RBA as normal) = keep emplyoment stable
    – Taxes stable/bracket creep = politically acceptable

    I love your research, I know in my gut that it makes sense, that if it was listened to 10 years ago we’d be in a lot better position now. But it wasn’t. The only play book anyone reads from is the Neoclassical twisted Keynsian playbook, so that means we’re going to copy the US and/or Europe. That scares the crap out of me.

    I think we’re just a few years behind them. We had their 2003 recession in 2008. They breezed through their 03 recession with comparable interest rates to our current rates. We breezed through the 08. We can already see what happens when we get their 08 recession. Frankly, I’d rather try and engineer the soft, gentle nominally-static decline many hope for.

    Then, in 2018 or whenever, when after years of careful manipulation of rates, and super, when most of the ratios have fallen in real terms to near their mean, then mate, I hope they do everything you tell them to. Because you’re right, but your way can only be implemented after the deleveraging – one way or another.

    Haha sorry, I got pretty carried away. Hopefully you get my perspective at least.

  11. mahaish says:

    the government debt or so called waste is yours or my saving brett123.

    it ends up in private sector bank accounts,

    atleast in this country even if it didnt in america

    and if a building contractor got paid a 100 grand extra for a school hall than he probably should have, well it ended up in his bank account, and the wife could by a new pair of shoes, and the kids get the latest 3d tv.

    the main thing is the subbies and sales ladies still have a job, becaus if they didnt that would be a real waste and we would be in a hole as big as the americans have to fill.

    the part of australians reducing their gearing on their balance sheet is very dependent on the government running large enough deficits well into the future, and not running hair brained scemes like fhog.

    fiscal surplus is only remotely possible care of a terms of trade and trade surplus filling up the deposit and capital base of our banking system.

    it aint going to last,

  12. Lyonwiss says:

    Mahaish September 17, 2011 at 1:43 pm

    You are still talking the same misguided nonsense: “the government debt or so called waste is yours or my saving brett123.” Consider the following example.

    Government taxes me $10, pays soemone to dig a hole in the ground, then fills it up again. My money has been transferred to someone else via the government. My loss is someone else’s gain. There has been a waste of human resources which could have more productively used for economic benefit and there has been no net savings. Hence, government waste does not lead to private sector savings.

  13. Robert K says:

    How I wish we has interviewers in the USA mainstream media like a
    Peter Switzer, on economics topics. Alas, it is not to be. For that, we must
    go to blogs, but even the blogosphere here is intentionally cluttered with vast
    swathes of disinformation. Oh well, caveat emptor.

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