Author Archives: Steve Keen

This blog entry first appeared as a fea­ture in the Dai­ly Tele­graph on Wednes­day April 9th 2008. If you’re a new­com­er to it cour­tesy of that fea­ture, and you want to look at this issue in more depth, there are links below to more detailed analy­sis.

The Dai­ly Tele­graph lived up to its nick­name of “The Dai­ly Ter­ror” last week, with a front­page attack on Reserve Bank of Aus­tralia Gov­er­nor Glenn Stevens enti­tled “Is he Aus­trali­a’s most use­less?”, and an edi­to­r­i­al that was no less provoca­tive: “RBA boss is los­ing inter­est”.

I’m giv­ing a talk on sub­primes to the “Mon­ty Pel­i­can Soci­ety”:

• Date: Wednes­day April 2nd
• Venue: Syd­ney Mechan­ics School of Arts, 280 Pitt St, Syd­ney NSW 2000 (near Town Hall)
• Time: 6.30pm-8pm
• For more infor­ma­tion, con­tact Troy Hen­der­son (troyh@search.org.au), or just rock up on the night.

At Last, the 1975 Show?

My main top­ic this month is a com­par­i­son of the eco­nom­ic events of today to those of 1973–75, but the most recent Case-Shiller data on US house prices sim­ply has to be “the Chart of the Month”. Last *month* the index dropped by 2.3 percent–implying an annu­al rate of decline in the realm of 25%! US house prices are down 13% from the peak in mid-2006, and in free-fall now.

Helen Dal­ley of Sky Busi­ness News inter­viewed me and Tim Mul­hol­land, of Melamed and Asso­ciates, a Chica­go-based con­sult­ing firm, about the Sub­prime cri­sis. If you’d like to see the video, click on this link:

http://www.skynews.com.au/video/video.aspx?id=43

Then use the selec­tion pan­el to choose the third story–with the head­ing “Sun­day Biz”, and the descrip­tion “Sky News Reporter Helen Dal­ley talked finance with Uni­ver­si­ty of West­ern Syd­ney Pro­fes­sor, Steve Keen”.

Why Now?

       There has been no short­age of com­men­ta­tors and play­ers will­ing to vouch that this is the worst finan­cial cri­sis they have ever seen. Equal­ly, there has been no short­age of bailout moves by the Fed­er­al Reserve–remedies that put “the Greenspan Put” to shame in their mag­ni­tude.
       And yet the mar­ket melt­down con­tin­ues, and the casu­al­ties con­tin­ue to mount, with Bear Stearns the latest–and sure­ly not the last.
       In all this, no one yet seems to have posed the ques­tion of “why now?”. Why is the cri­sis clear­ly more severe this time than ever before, and why are reme­dies that worked rel­a­tive­ly quick­ly in the past (remem­ber the fast turn­around of the mar­ket after Octo­ber 1987, and the rapid recov­ery from the res­cue of Long Term Cap­i­tal Man­age­ment?) failling today?
       The answer is, sim­ply, that the world has nev­er in its his­to­ry car­ried the lev­el of debt that it is car­ry­ing today. The reme­dies that worked when Amer­i­ca’s pri­vate debt to GDP ratio was a mere 150 per­cent (see Fig­ure 1) are inad­e­quate when that ratio is 275 per­cent.

The Can­ber­ra talk will now start at 7.30pm. The venue remains the same: ANU Emer­i­tus Fac­ul­ty Fel­lows Lane Cot­tage; build­ing 3T.

For more infor­ma­tion, con­tact the Nature and Soci­ety Forum at office@natsoc.org.au.

There has been a change of venue for the Per Capi­ta lunch talk. The details now are:

• 12pm-2pm, Fri­day March 14 Deep­er in Debt Talk, over Lunch host­ed by Per Capi­ta
• Reser­va­tions: info@percapita.org.au — $50 per per­son ($35 con­ces­sion).
  • Loca­tion: Board­room of Boston Con­sult­ing Group
  • Lev­el 52, 101 Collins Street.

A speak­ing tour of Mel­bourne, Ade­laide and Can­ber­ra has been arranged for me by a num­ber of groups. I’ll be speak­ing on Aus­tralia (and the OECD’s) debt bubble–the phe­nom­e­na, analy­sis of how they came about, and what we might expect when they burst.

The details are:

Melbourne

7pm, Thurs­day March 13th

• Deep­er in Debt Talk, and then a con­ver­sa­tion with Bri­an Cavanagh
• Lev­el 1, 27 Hard­ware Lane, Mel­bourne, free entry
• Drinks after­wards

12pm-2pm, Fri­day March 14

• Deep­er in Debt Talk, over Lunch host­ed by Per Capi­ta
• Reser­va­tions: info@percapita.org.au — $50 per per­son ($35 con­ces­sion).

The rev­e­la­tion in the min­utes of the RBA’s Feb­ru­ary meet­ing that debate focused, not on whether there should be a rise, but on whether it should be 0.25 or 0.5 per cent, shows that the RBA wagers that the threats to the Aus­tralian econ­o­my are upside ones–tighter labor mar­kets and high­er inflation–rather than down­side ones–a glob­al slow­down as asset mar­kets col­lapse dur­ing a cred­it crunch. The Feb­ru­ary min­utes implied that the RBA might real­ly throw its cards on the table at the March meet­ing, with a 0.5% rise being a dis­tinct pos­si­bil­i­ty.