Australia’s Econ­omy is a House of Cards

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By Matt Bar­rie & Craig Tin­dale.

I recently watched the fed­eral trea­surer, Scott Mor­ri­son, proudly pro­claim that Aus­tralia was in “sur­pris­ingly good shape”. Indeed, Aus­tralia has just snatched the world record from the Nether­lands, achiev­ing its 104th quar­ter of growth with­out a reces­sion, mak­ing this achieve­ment the longest streak for any OECD coun­try since 1970.

Aus­tralian GDP growth has been trend­ing down for over forty years
Source: 
Trad­ing Eco­nom­ics, ABS

I was pretty shocked at the com­pla­cency, because after twenty six years of eco­nomic expan­sion, the coun­try has very lit­tle to show for it.

Advance Notice

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I’m speak­ing at a United Nations Envi­ron­ment Pro­gram con­fer­ence in Bangkok next week, and giv­ing some pub­lic talks there as well, so I’ve writ­ten my posts for the next two weeks for Busi­ness Spec­ta­tor already–on the topic of Aus­tralian house prices.

The ABS will also release its House Price Index data next week (on Mon­day Novem­ber 4th) and I’ll try to update a key graph in next week’s post–the cor­re­la­tion of the accel­er­a­tion of mort­gage debt to change in house prices–with that data before Busi­ness Spec­ta­tor posts my arti­cle. Prior to the ABS data being pub­lished, this indi­ca­tor is con­sis­tent with house prices ris­ing sub­stan­tially in real terms (see Fig­ure 1).

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:

Aus­tralian Debt Update

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Click here for this post as a PDF

I’ve been work­ing on the sec­ond edi­tion of Debunk­ing Eco­nom­ics for the last three months, and I’m now flat out try­ing to fin­ish the first draft by the end of March—hence the paucity of posts recently. How­ever the lat­est Aus­tralian GDP fig­ures came out this week, and this has enabled me to update the Credit Impulse data for Aus­tralia, which has impli­ca­tions for both employ­ment and asset prices—and espe­cially house prices.

Rudd’s essay is on the money

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Aus­tralian Prime Min­is­ter Kevin Rudd has fol­lowed up his cri­tique of neolib­er­al­ism with a new essay in the Syd­ney Morn­ing Her­ald on the causes of the cri­sis, and the poli­cies needed after recov­ery.

With one excep­tion, his key expla­na­tions for the cri­sis are the same as those iden­ti­fied by myself and the hand­ful of other econ­o­mists who pre­dicted this cri­sis before it hap­pened:

Steve Keen’s Debt­watch No. 33 April 2009: Lies, Damned Lies, and Hous­ing Sta­tis­tics

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Lies, damned lies, and sta­tis­tics” is part of a phrase attrib­uted to Ben­jamin Dis­raeli and pop­u­larised in the United States by Mark Twain: “There are three kinds of lies: lies, damned lies, and sta­tis­tics.” The state­ment refers to the per­sua­sive power of num­bers, the use of sta­tis­tics to bol­ster weak argu­ments, and the ten­dency of peo­ple to dis­par­age sta­tis­tics that do not sup­port their posi­tions. (Wikipedia)

Two recent speeches by the RBA sup­ported the con­tention that Aus­tralian house prices are no longer over­val­ued, that mort­gage repay­ment costs have returned to his­toric aver­ages, that Aus­tralia is suf­fer­ing a hous­ing short­age, and there­fore that the Aus­tralian hous­ing mar­ket should not expe­ri­ence the cat­a­strophic falls that are now com­mon­place across the OECD–and espe­cially in the USA.

I do not know any­one who pre­dicted this course of events…

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Sev­eral peo­ple have com­mented on the speech by Glenn Stevens (for inter­na­tional read­ers, Stevens is the Gov­er­nor of Australia’s cen­tral bank, the Reserve Bank of Aus­tralia) yes­ter­day in which he com­mented, inter alia, that:

I do not know any­one who pre­dicted this course of events. This should give us cause to reflect on how hard a job it is to make gen­uinely use­ful fore­casts. What we have seen is truly a ‘tail’ out­come – the kind of out­come that the rou­tine fore­cast­ing process never pre­dicts. But it has occurred, it has impli­ca­tions, and so we must reflect on it.”

Debt­Watch No 29 Decem­ber 2008

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What’s Really Going On? or…

Why Did I See it Com­ing and “They” Didn’t?

Part 2: The Mod­els

But this long run is a mis­lead­ing guide to cur­rent affairs. In the long run we are all dead. Econ­o­mists set them­selves too easy, too use­less a task if in tem­pes­tu­ous sea­sons they can only tell us that when the storm is long past the ocean is flat again.” (Keynes, A Tract on Mon­e­tary Reform, 1924)

In last month’s Debt­watch, I explained why the data side of why the “Finan­cial Insta­bil­ity Hypoth­e­sis” enabled me to pre­dict this cri­sis, long before con­ven­tional “neo­clas­si­cal” econ­o­mists had any idea it was approach­ing.

Always look on the bright side of … eco­nomic data?

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If things are really grim, it helps to have an inde­fati­ga­ble nature, and there’s no doubt that RBA Deputy Gov­er­nor Ric Bat­tellino has that in spades—at least in the speeches he makes at pub­lic con­fer­ences. Were I being cru­ci­fied, I’d like to have Ric up there with me, singing “Cheer up Brian!…”, to take my mind off the nails.

But were I still in the Gar­den of Geth­se­mane, and actu­ally try­ing to avoid the Romans (and an extended Pilates ses­sion the next day), I think I’d want some­one else on look­out duty.

Debt­Watch No 28 Novem­ber 2008: What is Really Going On?

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2nd Anniver­sary Issue…

Why Did I See it Coming and “They” Didn’t?

The finan­cial cri­sis is widely accepted as hav­ing started in August 9 2007, with the BNP’s announce­ment that it was sus­pend­ing redemp­tions from three of its funds that were heav­ily exposed to the US secu­ri­ti­sa­tion mar­ket (click here for the BNP August 9 2007 press release).

Just three months before­hand, the OECD released its 2007 World Eco­nomic Out­look, in which it com­mented that: