Empirical and theoretical reasons why the GFC is not behind us

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Preliminary Remarks

As noted in Debtwatch No. 44, I have stopped writing the monthly Debtwatch Report to focus on my more long term research. I’m still posting occasional blog posts when I feel the need—like the two recently on Australia’s new resources tax—but generally I’ll be working on more technical matters, and posting entries based on those here in lieu of the more topical Debtwatch. This post is a halfway post between the two: it’s a paper that I have just submitted to the 2010 Australian Conference of Economists, which will be held in Sydney in September. I have written it largely as a briefing paper for mainstream economists who would not have come across the analysis that I present here before, let alone the vast volume of literature in Post Keynesian and Austrian economics.

Boston & New York, June 20-July 9

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I will be in Boston and New York soon, either side of the Hyman Minsky Conference that I’m speaking at at the Levy Institute.

I am committed to meetings on Tuesday-Wednesday June 22-23 (and possibly Friday June 25), to the Levy conference June 27-29, and there may be a seminar jointly organised with Eric Janszen of iTulip on July 2. I will be free at other times, and open to suggestions for meetings or seminars. If you’d like to arrange something, please contact me via my gmail email address (debunking at gmail.com) or via a comment to this blog entry.

Does the RSPT deserve ReSPecT Part II

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As I explained in my last post, the cost curve in the Treasury’s model of the RSPT is based on a fantasy. The situation is even worse when we turn to the other side of the model, the demand curve: it is based not merely on a fantasy, but an outright fallacy.

Legions of economists believe that the demand curve for a competitive firm is horizontal, but their belief is based on the most fundamental of mathematical errors: confusing a very small amount (an infinitesimal) with zero. The Treasury repeats this fallacy—without knowing it is one—in its explanation of why a royalty reduces output levels but the RSPT won’t.

Does the RSPT deserve ReSPecT?

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I support the idea that mining companies should pay a tax that distributes some of the profits from mining to the wider Australian community, and that this tax should be based on prices, rather than merely on volumes sold. The miners have clearly made windfall profits in the last few years as prices for minerals have skyrocketed, and those profits should be shared with the wider community since it, and not the miners, is the ultimate owner of Australia’s mineral resources.

However I can’t go along with the Resource Super Profits Tax (RSPT) as it has been designed, and precisely for the reason given by Ross Gittins in the SMH:

News item on Interest Only Mortgages

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Channel 7’s Today Tonight is doing an item on “Interest Only Mortgages”–like the product that ING has recently promoted–and the whole housing bubble issue.

They are looking for anyone who has been “burnt” by either an interest-only loan, or a loan that was predicated on the expectation that house prices would always rise–as is ING’s new product–who is willing to be interviewed about the experience on camera.

The item is being put together by James Thomas, who did the excellent–and yes, I do mean excellent!–“Changing Times” on debt deflation in February of last year (unfortunately the clip is no longer available online). I can vouch for James’s professionalism and tact: the item will be well constructed, and interviewees will be treated well.

Deleveraging returns

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Market economists have spent the past few months searching each major data release for confirmation of their hope that the economy is returning to growth and that a ‘sustainable recovery’ is underway.

Most currently argue that the fundamentals in Australia are good – low unemployment, a strong recovery in equity markets (notwithstanding the 14 per cent sell-off in the past month), a significant number of companies’ results beating expectations and so on.

Excellent presentation on Scribd on Australian housing

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This presentation was noted by a blog member today. Take particular note of slides 21-20 which compare the balance sheets of US and UK banks to that of one Australian bank, the Commonwealth.

How to Profit From the Coming Aussie Property Crash (and Banking Crisis)

Also a quick note that the site’s server crashed this morning and had to be restored from backups. Several blog comments were lost, including some from new members. These records of these new members might also have been lost, so if that applies to you, please rejoin and resend your comment.

Mortgage finance falters

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A month ago some extraordinary headlines appeared in the Fairfax newpapers. The Sydney Morning Herald ran with: “House prices to plateau as buyers flee in droves“.

Alan Kohler wrote at the time in Business Spectator that ‘flee’ was too strong a word for what was happening – housing lending was continuing to fall in both number and value terms, but investors were continuing to borrow strongly and prop up the market. However, he did suggest that a price plateau in housing looked likely.

Stanford and Keen double bill

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Jim Stanford, the author of the popular  Economics for Everyone (from which the cartoon to the left is taken), and I spoke at a double bill on the global debt crisis for the venerable Sydney institution “Politics in the Pub” last night.

We had a full house for an provocative evening on why the Dismal Science is neither necessarily Dismal, nor anything close to a Science, and why the debt crisis is still with us.

Jim, as well as being an outstanding non-orthodox economist, is also a very engaging speaker–as I whispered to the Chair (Professor Frank Stilwell, from Sydney University’s Department of Political Economy) while Jim spoke, he was a very hard act to follow!

Revere Award for Economics

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This has just been posted on the Real World Economics Review

Revere Award for Economics for the 3 economists who warned the world

Results

For Immediate Release

13 May 2010

Keen, Roubini and Baker win Revere Award for Economics

Steve Keen (University of Western Sydney), receiving more than twice as many votes as his nearest rival, has been judged the economist who first and most cogently warned the world of the coming Global Financial Crisis. He and 2nd and 3rd place finishers Nouriel Roubini (New York University) and Dean Baker (Center for Economic and Policy Research) have won the Revere Award for Economics.  The award, sponsored by the Real World Economics Review Blog is named in honour of Paul Revere and his famous ride through the night to warn Americans of the approaching British army.