The sheer volume of coverage I’m getting now, and the level of discussion on this blog, are making it difficult for me to maintain this page. So it will grow less rapidly than the Gems and Brickbats pages, which I regard as more important for keeping a record of this crisis.
At the end of March 2009, the blog had 1137 enrolled members, and a daily average of 5,556 unique readers. Blog participants post up to 100 comments a day in a discussion that is remarkable for its civility as well as its intelligence.
April 17 2009: Latest figures show investors returning to property market. Desley Coleman, LateLine business (video)
STEVE KEEN, UNIVERSITY OF WESTERN SYDNEY: The basic reason I’m a sceptic is that I’m expecting a depression to come out of this global financial crisis. And for property to continue to be a good investment, it would need to be able to survive a depression, and I simply I don’t believe that’s feasible.
April 1, 2009: Hold on to your home. Elinore Martel, SMH.
“A lot of people think mortgage insurance protects them but it only protects the bank,” he says. That means control is passed to a “faceless man in an office tower who doesn’t know the borrower and doesn’t want to”.
In Mendelson’s experience, they look at the valuation. “If they think they will lose money or are a risk, they will insist that the lender calls in the loan and puts it up for sale,” he says.
Associate Professor Steve Keen of the University of Western Sydney believes the grants for first homebuyers will make the crisis worse. “It’s just deferring and making worse the inevitable,” he says.
March 22, 2009: First home buyers face ‘sub-prime’ crisis. Glenn Milne and Nick Gardner, Daily Telegraph
AUSTRALIA is facing its own version of the US sub-prime housing crisis, with thousands of young home owners risking bankruptcy as a result of Kevin Rudd’s economic stimulus package.
That’s the grim warning from the economic expert who first called the debt crisis that is driving the global financial meltdown. Dubbing the looming crisis “Sub-Prime Lite,” Professor Steve Keen told The Sunday Telegraph Australia was making the same mistakes as the US.
Professor Keen said that in trying to avoid an economic crisis caused by too much borrowing, Australia was in effect encouraging the poorest in the community to take on even more debt.
“Yet these low-paid first-home buyers are the people who are most vulnerable to the economic downturn,” he said.
March 11: Here’s hoping Steve Keen takes his hike, Bloomberg via the SMH.
“Speaking with Keen is a bit like interviewing doomsayer economist Nouriel Roubini. Your brain tells you his scenario has a certain basis in reality; your heart hopes he will be proven wrong a year from now. A depression of the kind Keen expects is almost too disturbing to contemplate.
The opposite emotions crop up when chatting with Robertson. Your heart wants him to be right; your brain worries that an open $1.1 trillion economy like Australia’s isn’t as resilient as optimists say.”
October 13th 2008: Will Debt Drive Us to Depression? | BTalk Australia By Phil Dobbie. (PodCast 11 min 39 sec).
Prof Steve Keen believes that neo-classical economic theory has caused the world to repeat the debt problem that led to the Great Depression, except now we have twice the level of debt.
On today’s BTalk Australia he tells Phil Dobbie that bail outs, nationalisations and interest rate drops are not enough to end the crisis. So, is there anything we can do to rescue the economy?
March 3: Back after these messages: Interview on Business Spectator. Commenting on the Reserve Bank’s decision to leave the overnight cash rate on hold at 3.25 per cent after cutting rates by 400 basis points since September 2008, Dr Steve Keen, associate professor in economics and finance at the University of Western Sydney tells Business Spectator’s James Frost the following:
James Frost: The RBA has announced that it plans to leave rates on hold. What’s been your view of the RBA’s actions up until this point?
Dr Steve Keen: The RBA didn’t even see this crisis coming because they were too busy obsessing about the rate of inflation. I mean, Blind Freddy could tell by looking at the data on debt that there was a financial crisis coming our way. So they were raising interest rates trying to fight off inflation when the more serious danger was a debt catastrophe, which we are now clearly in around the globe. They didn’t start cutting rates until after they had already added to the debt burden, compounding the level of debt with higher interest rates and now they’re stopping because they believe there’s no problem.
And then you’ve got this statement from RBA board member Warrick McKibbin a few weeks ago where he says: “If it is a crisis – and I am not sure we are in a crisis – that suggests making the cash handouts even bigger will be problematic.” Only an economist … only a neoclassical economist, could believe that we are not in a crisis right now. It’s a sign of just how out of touch neoclassical thought is and, of course, the RBA board in general.
February 7: James Bone, SMH. Finally, a buy signal gives us hope.
Professor Steve Keen keeps us alert with his weekly Debtwatch Alert. In fact, I’ve rarely felt so alert after seeing this week’s.
Steve writes: “With the depth of the US downturn now becoming apparent and deflation turning up in the Australian consumer price index data as well as in the USA, there is no doubt that the Reserve Bank will cut rates by at least 0.75 per cent at its February meeting — and possibly 1 per cent or more.”
Indeed, the Reserve Bank did just this.
“While I welcome this cut,” Steve adds, “neither rate cuts nor fiscal stimuli will be enough to avoid a serious recession — and probably a Depression.”
That cheered everyone up.
Steve seems to be hankering for a Depression, so loudly has he pinned his professional cred on one.
In fact, Steve can be so depressing he makes Doomsday — never one for happy-go-lucky projections — look like Julie Andrews in The Sound Of Music.
Prof Keen hates the banks. He even draws on old Karl Marx, his economic hero, in ripping into the bloodsuckers:
“The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner, and this gang knows nothing about production and has nothing to do with it.”
Karl didn’t stop there: he urged us all to rush out and slaughter the bankers. A little extreme, perhaps, but I can already hear Prof Keen sharpening the machetes.
February 6: Andrew Boughton with Michael West, SMH and The Age. Wanted: A new economic theory.
Now that Prime Minister Kevin Rudd has hailed in his “Monthly’ essay a new political era of ”social capitalism” and embarked on another stimulus package it merely remains to find an economic theory to accompany it.
Economics has failed manifestly to see the global financial crisis coming. Only those once derided as doomsayers and crackpots were anywhere near the mark. An entire generation of richly-remunerated experts got it wrong, once again
A few years ago, University of Western Sydney’s Professor Steve Keen took up the cudgels for real estate and finance, supported by the theories of Minsky and colleagues back at the Merewether Building at Sydney University, having long held an interest in the mathematics of political economy.
Keen, whose predictions of reckless leverage and speculation in recent years have been vindicated overall through the present credit crisis, declared this week that Australia was bound for a Japanese-style experience of drawn out recession. Stimulus measures were not resolving the problem, he said, simply adding to the Government debt.
The same theme was current in Boughton’s earlier work, along with other correspondents in the United States such as Charles R Morris and Lowell Bryan, though he differs from Keen on the role of government.
While citing Marx on the proclivity of the ”parasites”, the banks, to ”periodically despoil industrial capitalists” and ”interfere in actual production”, Keen noted that he did not expect capitalism to collapse.
February 5: David Hirst, The Age. US gambles freedom on risky printing press policy. I wouldn’t have chosen the title, tone or slant of this article myself, but the data is unmistakeable: Bernanke is putting into practice his “logic of the printing press” analogy (se e Debtwatch No. 31).
Keen, who last week was interviewed by The Wall Street Journal and is fast becoming a world-recognised economic authority, outlined in his recent Debt Watch Report that Bernanke’s famous “helicopter drop doubling of base money will be impotent against the US’s credit crunch”.
Most economists believe the US and China are bound irrevocably by US debt and China’s continued purchase of that debt. They assume the US, with 46 states insolvent or approaching insolvency, will suffer immediate MAD if China ends the long financial arrangement.
But with the US entering a period of deflation, its economic leadership appears to be doing the unthinkable — going it alone and letting the electronic printing presses take care of the huge sums required to keep the nation afloat. The consequences for the world economy are incomprehensible as China’s purchases of US treasuries underwrite the US’s unquenchable demand for money to service its multitrillion-dollar public debt, which President Obama said recently would reach $US11 trillion ($A17 trillion) this year.
Faced with the huge sinkhole created by the financial meltdown and the prospect of deflation, US Fed boss Ben Bernanke has been printing money so rapidly that the US is being flooded with liquidity. This is beyond unprecedented.
Many Americans believe printing money can free the country from the suffocating embrace of mutual dependence with China. In his blog earlier this week, Brad Setser from the US Council on Foreign Relations, and one of the world’s most respected China commentators, outlined the US position: “Exchange rate policies can also influence the allocation of resources across sectors. China’s de facto dollar peg is an obvious example … it is hard for me to believe that as much would have been invested in China’s export sector if China had had a different exchange rate regime …
“Those who attribute the growth of the past several years solely to the market miss the large role the state played in many of the world’s fast growing economies.”
Setser and others close to policymakers are realising the boom in China may not be a rerun of the Japanese and German postwar economic miracles but more akin to the creation of a giant sweatshop for the benefit of Western companies and the Chinese Communist Party. But this required US consumers to play their role as the linchpins. Now the linchpin has broken. There is no way the old arrangement can continue and the US is realising the system will end. By reverting to the printing press it can free itself from dependency on China.
February 4: Big slump because Marx ignored: academic. “University of Western Sydney associate professor of economics and finance Steve Keen said Marx’s words, published in 1894, predicted the damage big banks would cause to the economy.”
February 3: Interview on Channel Nine’s Today Show with Karl Stefanovic.
“Economics professor Steve Keen presents convincing evidence (and he does so in layman’s language and with great clarity) that the standard economic models and beliefs about money supply and its creation are completely wrong.”
February 3: Australia facing debt-driven depression, ABC. “The world is facing a “full-blown depression” and Australia needs to drastically rethink its attitude to debt if it is to climb out of its current economic trap, says leading economist Steve Keen.”
February 3: BETTINA WASSENER and MERAIAH FOLEY, New York Times. Australia and Japan Offer New Stimulus Plans. “Just like much of the industrialized western world, “the Asian region is also going into serious recession,” said Steve Keen, a professor for economics at the University of Western Sydney.”
December 30: Paul Wiseman, USA TODAY: Boom in Australia goes bust as global slowdown hits. “Keen predicts the downturn will unfold a bit differently than it did in the USA, where problems began in the housing market and spread to the broader economy. “We’re likely to go into the macro crisis first as debt growth plummets; then a housing crisis as the newly unemployed are unable to maintain their mortgages; and finally a credit crunch where the banks’ solvency doesn’t look so hot anymore.””
December 26: Liliana Molina, Investors got themselves in trouble with shares, Courier Mail.
December 12: Al Jazeera’s current affairs program 101 East, discussion of the implications of the financial crisis (YouTube video).
December 11th: SMH, How low can they go?
December 2nd: 7.30 Report on the December RBA 1% interest rate cut
November 27th: Give us real confidence, ABC Unleashed
November 13 2008: Dire forecasts get louder, John Collett SMH
Discussion with Margaret Lomas of Ric Battellino’s optimistic portrayal of household finances in Australia(November 10th broadcast I think)
November 5th 2008, Nick Gardiner in the Daily Telegraph: Reserve Bank urged to continue aggressive interest rate cuts
November 5th 2008: SMH notes my accurate guess for the RBA Rate cut
November 4 2008: How safe are government bonds?, Paul Amery, Money Week
November 3rd, The Baltimore Chronicle: More from the Front Lines of the Financial Crisis
October 29th: Peter Switzer on my analysis, The Australian
October 29th: Feature on Greenspan before Congress, The Age
Octobe 24th: Expectations for unemployment, SMH
October 23rd: John Quiggin’s blog
October 21st: My rejoinder to Gerard Henderson’s article in the SMH
October 18th 2008: Sixty Minutes: The Big Bust
October 16, Austria (translation appreciated!) Handelsblatt: Australien schwächelt
October 15th 2008: Interview with Margaret Throsby on ABC Classic FM
October 14th 2008: BNET Australia podcast interview
October 11 2008: Holding tight: can Australia ride the storm?, The Age
October 10 2008: Feature on News.com.au The financial crisis explained: Government resources ‘puny’ compared to market bubble
October 8th 2008: 7.30 Report: Clarke and Dawe’s brilliant expose of the whole crisis
October 8th 2008: 7.30 Report: Kerry O’Brien interviews Prime Minister Rudd
October 8th 2008: Kerry O’Brien interview on 7.30 Report
October 5th 2008: Generation Debt–Sixty Minutes on Gen Y and Debt
October 3rd 2008: Brace for economic misery; Michael West, SMH
October 1st 2008: Mortgage insurance claim concerns; ABC LateLine
September 28th 2008: Financial chickens are flocking home to roost; The Age
September 21 2008: Sale of my flat; Sunday Telegraph (large [11MB] scan)
September 10th 2008: Dateline discussion of Fannie and Freddie bailout with George Negus & Peter Schiff
September 8th 2008: Insight on the housing bubble
August 27 2008: SMH Money Profile
August 4 2008: LateLine Business with Phillip Lasker