Debt­watch 27 Octo­ber 08: The Fail­ure of Cen­tral Banks

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Just two years ago, Cen­tral Banks appeared tri­umphant. Infla­tion, the scourge of the 1970s and 80s, appeared dead, the finan­cial cri­sis of the Tech Wreck had been con­tained, economies world­wide were boom­ing, and stock mar­kets and house prices were spi­ralling ever upwards.

Then along came the Sub­prime Cri­sis, and we received a rude reminder of why Cen­tral Banks were cre­ated in the first place: to ensure that the world would never again expe­ri­ence a Great Depres­sion.

Debate on Prop­erty Bub­ble on Octo­ber 15

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The Our Finance Blogs site ( is host­ing an online debate on “Prop­erty 2009: Crash, Boom or Stag­nate?!”. I will be one of the pro­tag­o­nists in the debate. If you’d like to take part, go to:

and sign in. Check:

for fur­ther details.


Click here to log access the debate

Click here to log access the debate

SBS Date­line tonight with George Negus

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George negus is inter­view­ing me and Peter Schiff on Date­line tonight. The topic is the attempted res­cue of Fan­nie Mae and Fred­die Mac, and what that may mean for the global econ­omy and Aus­tralia in par­tic­u­lar.

Date­line goes to air tonight (Wednes­day) at 8.30pm. It is also acces­si­ble on the web, the day after the pro­gram goes to air.

In other news, the pod­casts are cur­rently not func­tional, but I hope to fix them up tomor­row.

3 new pod­cast entries–and SBS Insight tomor­row

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Well Stu Cameron has been on the ball, but clearly I’ve stuffed up link­ing the files on my site! Sev­eral read­ers have told me that the pod­casts 3–6 can’t be accessed.

At some stage they will be avail­able, but I have a rush of work on right now so please wait until I put up a new post with prop­erly tested links. My apolo­gies for the con­fu­sion in the mean­time.

And you can also access the audio files from:

The top­ics of these three pod­casts (Num­bers 4, 5 and 6) are:

Debt­Watch No 26 Sep­tem­ber 2008: Los­ing con­trol of the mar­gin?

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Late last year on SBS News, when Stan Grant asked me which way the RBA would move rates in 2008, I replied “Up, and then down”, Stan quipped “Spo­ken like a true economist–an even handed answer!”–to which I replied “More down than up”.

I expected the intial rate rises because of the RBA’s focus on the rate of infla­tion, and a sub­se­quent fall, not because infla­tion would be head­ing down, but because the econ­omy would be–and the RBA rate would be forced to fol­low it

Debt­watch No. 25: How much worse can “It” get?

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Last month closed with some far from com­fort­ing news about the state of the US hous­ing mar­ket (sales and prices still falling), US finan­cial insti­tu­tions (Fan­nie Mae and Fred­die Mac in need of res­cue), Aus­tralian banks (NAB’s 90% write-down of its US CDO port­fo­lio). Then ABS fig­ures showed that retail sales had fallen “unex­pect­edly” by one per­cent in June. The recent rally in stock mar­kets came to a sud­den end, and after a brief period of renewed con­fi­dence, the ques­tion “how much worse can “It” get?” is once again doing the rounds.

My answer is: a lot worse. The empir­i­cal grounds for this assess­ment are:

My sub­mis­sion to… the Wal­lis Com­mit­tee

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I recently made a sub­mis­sion to the Sen­ate Eco­nom­ics Com­mit­tee on the RBA (Enhanced Inde­pen­dence) Bill, where I argued against the Bill–as did all four pub­lic sub­mis­sions.

After mak­ing that sub­mis­sion (which I’ll post here shortly) I thought I’d check out my sub­mis­sion to the Wal­lis Committee–since I argued that the RBA and the reg­u­la­tory author­i­ties in gen­eral, while they may appear to have suc­ceeded in con­trol­ling infla­tion, have presided over the biggest spec­u­la­tive bub­ble in world his­tory.

The secu­ri­ti­sa­tion of loans was a major part of this bub­ble, which of course, no-one could have fore­seen… or at least that’s the line from con­ven­tional econ­o­mists.

Defer the RBA “Enhanced Inde­pen­dence” Act

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Steve Keen’s DebtWatch No 22 May 2008

The Reserve Bank Amend­ment (Enhanced Inde­pen­dence) Bill 2008, which was tabled in Par­lia­ment in March, aims to give the RBA Gov­er­nor and Deputy Gov­er­nor “the same level of statu­tory inde­pen­dence as the Com­mis­sioner of Tax­a­tion and the Aus­tralian Sta­tis­ti­cian” (Wayne Swann, Hansard, Thurs­day, 20 March 2008, p. 2381).

Under the cur­rent Reserve Bank Act, the Gov­er­nor and Deputy are appointed by the Trea­surer, and the Trea­surer must remove them from their posi­tions if either of them:

Deflated changes in Wages and Debt: 7.30 Report Data

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Tables like the ones below take my breath away when I see them for the first time–because the story they tell is worse than any I would have dared make up. As I noted in the inter­view with Kerry O’Brien on the 7.30 Report, real wages have increased since 1990, and since Australia’s last elec­tion in late 2004. How­ever, mort­gage debt has increased by far more.

The Polit­i­cal Debt Cycle

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Both par­ties will make much of their eco­nomic man­age­ment cre­den­tials in this elec­tion cam­paign.

Many Aus­tralians, on the other hand, seem con­vinced that the econ­omy would do as well regard­less of which party were in power.

The aver­age punter has it right: luck, rather than skill, has deter­mined which gov­ern­ments in ret­ro­spect came up smelling like roses in the eco­nomic man­age­ment stakes, and which instead smelt like manure.

By far the biggest deter­mi­nant of polit­i­cal luck is what was hap­pen­ing to pri­vate debt while any given gov­ern­ment was in power. If debt was ris­ing, then the gov­ern­ment looked good; if it was falling, then the gov­ern­ment looked bad.