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.

Debt­watch April 2007: Who’s hav­ing a hous­ing cri­sis then?

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Who’s having a housing crisis then?

Global eco­nomic atten­tion has been focused on the sub-prime lend­ing cri­sis in the United States recently, and many local ana­lysts have made sooth­ing noises to reas­sure Aus­tralians that “it couldn’t hap­pen here”.

The USA’s sub-prime mar­ket is indeed a pecu­liarly Amer­i­can phe­nom­e­non; but the level of Aus­tralian house­hold debt (the sum of mort­gage debt and per­sonal debt) is every bit as extreme as the USA’s. And con­trary to pop­u­lar opin­ion, our debt binge dwarfs America’s. As the chart below shows, Australia’s house­hold debt to GDP ratio has been grow­ing more than three times as rapidly as the USA’s since 1990. The ratio has grown at an aver­age of just over 2% per annum in the USA; it has grown at over 6.8% per annum here.

Dynam­ics of endoge­nous money

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Most con­ven­tional and uncon­ven­tional com­men­ta­tors on money believe that money is destroyed when debt is repaid. I disagree–but explain­ing why takes some time. I received an email this morn­ing from a Eco­log­i­cal Eco­nom­ics dis­cus­sion list in the USA on this issue, and wrote the fol­low­ing expla­na­tion of my posi­tion. I thought that read­ers of this blog might find it instruc­tive.


On the money issue, this is one where I beg to dif­fer both with the response Josh put for­ward, and most of my fel­low econ­o­mists as well–non-orthodox and non-ortho­dox. I think it’s wrong to say that money is destroyed when debt is repaid–but to explain why, I need to both put for­ward a dynamic model, and find an appro­pri­ate anal­ogy.

House­hold Debt: US vs Aus­tralia

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As part of the back­ground to the Late­Line inter­view yes­ter­day, I graphed the US house­hold debt to GDP ratio against the Aus­tralian. All the news recently has been about the sub-prime cri­sis in the States, of course: but guess where house­hold debt has been grow­ing fastest? That’s right, good old Aus­tralia has out-done itself once more. The accom­pa­ny­ing graphic tells the story, which I’ll embell­ish in the next Debt­watch report in early April.

House­hold Debt to GDP, USA & Aus­tralia

Debt­watch goes blog

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A sub­scriber to my Debt­watch newslet­ter sug­gested that I estab­lish a blog. I plan to pub­lish my monthly Debt­watch report here, as well as send­ing it out to sub­scribers.

Next month I will also start a USA ver­sion of Debt­watch. The recent panic on Wall Street can be seen as yet another “cor­rec­tion”, but it might also be the begin­ning of the unwind­ing of America’s long-run­ning hous­ing bub­ble, which has dri­ven pri­vate debt lev­els there to over 160 per cent of GDP–higher even than Australia’s. While we def­i­nitely have enough debt “home brew” of our own to trig­ger a cri­sis, we are as always just min­nows next to the USA; the old say­ing that “if the USA sneezes, Aus­tralia catches a cold” may come home very pow­er­fully soon if the world’s largest econ­omy actu­ally comes down with the pneu­mo­nia of a debt defla­tion.