Steve Keen's Debtwatch

The Finance News Net­work’s Lelde Smits inter­viewed me just before I left Aus­tralia last week: Link to the Inter­view.

I’ll also be giv­ing a num­ber of talks in Europe in the next few weeks. Fol­low the links below for more details:

Thurs­day Decem­ber 5th, 5pm the Oxford PPE Soci­ety

Fri­day Decem­ber 6th, 5pm, the Post Crash Eco­nom­ics soci­ety in Man­ches­ter Uni­ver­si­ty (Roscoe Build­ing — Lec­ture The­atre A). See this Face­book page for more details.

Tues­day Decem­ber 10th, 8pm: “Why the Cri­sis is not over”, the Uni­ver­si­ty of Gronin­gen

Fri­day Decem­ber 13th, 3.15pm: “Why the Cri­sis is not over”, Duisen­berg school of finance in Ams­ter­dam

Lar­ry Sum­mers’ speech at the IMF has pro­voked a flur­ry of respons­es from New Key­ne­sian econ­o­mists that imply that Sum­mers has locat­ed the “Holy Grail of Macro­eco­nom­ics” – and that it was a poi­soned chal­ice.

“Sec­u­lar stag­na­tion”, Sum­mers sug­gest­ed, was the real expla­na­tion for the con­tin­u­ing slump, and it had been with us for long before this cri­sis began. Its vis­i­bil­i­ty was obscured by the sub­prime bub­ble, but once that burst, it was evi­dent.

So the cri­sis itself was a sideshow. The real sto­ry is about inad­e­quate pri­vate sec­tor demand, which may have exist­ed for decades. Gen­er­at­ing ade­quate demand in the future may require a per­ma­nent stim­u­lus from the gov­ern­ment – mean­ing both the Con­gress and the Fed.

Com­pare the fol­low­ing two state­ments, and see if you can guess who the speak­ers are, when they made these speech­es, and what they announced in them:

“[We are] con­cerned about the rate at which house prices are increas­ing and the poten­tial risks this pos­es to the finan­cial sys­tem and the broad­er econ­o­my. Rapid­ly increas­ing house prices increase the like­li­hood and the poten­tial impact of a sig­nif­i­cant fall in house prices at some point in the future. This is par­tic­u­lar­ly the case in a mar­ket that is already wide­ly con­sid­ered to be over-val­ued.” (Speak­er One).

When the hot air final­ly leaves this new hous­ing bub­ble, its defla­tion will be too slow to result in a 40 per cent fall from June 2010 to June 2025…

Right up until the ear­ly 20th cen­tu­ry, tak­ing an inno­cent stroll on the fore­shores of the US West Coast was haz­ardous for your health: you might sud­den­ly fall uncon­scious, and wake up to find your­self an unfree sea­man aboard a US clip­per bound for Chi­na. That’s where the term “Shang­hai­ing” orig­i­nat­ed: not because the crime hap­pened in Shang­hai, but because Shang­hai was nor­mal­ly the victim’s first port of call as a ship­ping slave.

Paul Krug­man post­ed on a famil­iar top­ic yesterday—the fail­ure of most infla­tion hawks to admit that they were wrong—and includ­ed praise for one such hawk who has indeed changed his mind and said so:

There’s an inter­est­ing con­trast with one of the real intel­lec­tu­al heroes here, Narayana Kocher­lako­ta of the Min­neapo­lis Fed, who has actu­al­ly recon­sid­ered his views in the light of over­whelm­ing evi­dence. In our polit­i­cal cul­ture, this kind of switch is all too often made into an occa­sion for gotchas: you used to say that, now you say this. But learn­ing from expe­ri­ence is a good thing, not a sign of weak­ness. (“A Tale of Two Fed Pres­i­dents”)

This arti­cle is the third in a series on Australia’s hous­ing mar­ket. Read the first arti­cle here and sec­ond arti­cle here.

In the last two arti­cles in this series, I argued that Australia’s house prices “walk like a duck” – using BIS data, Aus­tralia is one of only four coun­tries where prices are twice as high in real terms as they were in 1985. And they “quack like a duck” – accel­er­at­ing house­hold debt is a major dri­ver of ris­ing house prices, as in the oth­er present and past house price bub­ble economies (the US, Spain, Japan, Nor­way, the UK and Den­mark). So hav­ing con­clud­ed they’re a duck, what species of duck are they?

My pre­vi­ous post on house price data from the BIS (How to spot a hous­ing bub­ble before it bursts, Octo­ber 15) scotched one part of the ‘No Bub­ble Dow­nun­der’ case: Aus­tralia is one of four coun­tries where house prices are more than twice as high as they were in real terms in 1985 (see Fig­ure 1).

Fig­ure 1: The Bub­ble Con­tenders

Any­one who has been moti­vat­ed to read eco­nom­ics for the very first time by the eco­nom­ic cri­sis that began in 2007 should have real­ized at least one thing: that com­mu­ni­ca­tion between econ­o­mists resem­bles the Tow­er of Babel after the con­found­ing of tongues. Econ­o­mists who speak in one tongue hear what those in anoth­er say, but com­plete­ly fail to under­stand it—and then shout back some­thing that is just as incom­pre­hen­si­ble to the oth­ers’ ears.

I would love to be in the audi­ence watch­ing the body lan­guage at this year’s “Nobel” cer­e­mo­ny for eco­nom­ics. Robert Shiller, who is far too polite a per­son to make it obvi­ous, will nonethe­less at least fid­get as he lis­tens to Eugene Fama’s speech, since Fama con­tin­ues to dis­pute that bub­bles in asset prices can even be defined. Shiller, in con­trast, first came to pub­lic promi­nence with his warn­ings in the ear­ly 2000s that the stock and hous­ing mar­kets in the States were dis­play­ing signs of “irra­tional exu­ber­ance”.