Dr. Steve Keen

[BradK]

Dr Steve Keen has had a nice little run in the media of late as the lone voice of the ultra doom and gloom brigade, and SMH have given him some webspace this afternoon with his assertion that interest rates will hit 0% sometime in 2010!

It wont encourage me to spend - I will take it as an opportunity to smash my loan within a few short years!

What do you all think of Mr Keen?

Brad


Zero per cent

University of Western Sydney associate professor of economics and finance Steve Keen is radically bullish on interest rates, predicting a 2% cash rate by the end of 2009, dropping to 0% in 2010.

Dr Keen said the RBA would become more concerned about high household debt levels than inflation, as deep rate cuts in 2009 failed to stimulate the economy.

''The debt bubble is bursting and when it bursts, people stop spending and borrowing,'' he said.

''They (the RBA) can cut the pain but they can't boost the economy.''

Earlier this month, the RBA cut interest rates by 100 basis points for the first time since May 1992.

The RBA cut rates by one percentage point on five occasions during 1991 and 1992.

Dr Keen said another series of deep rate cuts were needed now because household debt levels made up a much bigger portion of gross domestic product (GDP) than in the early 1990s.

He said central bank policymakers before the 1930s Depression focused on consumer price inflation and ignored asset prices, and have repeated that mistake more recently.

''Reserve banks everywhere go it wrong, not just ours,'' he said. ''They focused on the wrong problem which was inflation.''

Macquarie's Mr Robertson said the RBA was more concerned about reversing the 12 rate rises from 2002 to March this year and would deliver bigger than usual rate cuts before Christmas to reduce home mortgage and business borrowing rates.

 

[YELNATS]

He said central bank policymakers before the 1930s Depression focused on consumer price inflation and ignored asset prices, and have repeated that mistake more recently.

''Reserve banks everywhere go it wrong, not just ours,'' he said. ''They focused on the wrong problem which was inflation.''

I saw him on tv and admire his spunk.

I studied Keynesian economics at uni in the 1960's and it still holds up. The latest batch of neoclassicists have got it wrong. We need to regulate the financial system, the "invisible hand' is just that, "invisible". We need some fiscal bravery and more public works/infrastructure spending to get us out of this morass.

 

[bluelabel]

predicting a 2% cash rate by the end of 2009, dropping to 0% in 2010.

What the???

How does 0% work? (I get it, it’s rhetorical)

I realise the economy needs a kick in the pants, but a rocket up it’s a….? Is that taking things a bit too far?

Has 0% ever occurred anywhere, and if so what where the results?


:bier:

blue

 

[BradK]

Japan? Cash rate we are talking - it wont get that far to consumers.

Might get as low as 4% at a stretch. But certainly not 0%.

What is America at now? 2.5%? And their mortgage rates are a bit over 6%.

Brad

 

[barrett]

I saw him on tv and admire his spunk.

I studied Keynesian economics at uni in the 1960's and it still holds up. The latest batch of neoclassicists have got it wrong. We need to regulate the financial system, the "invisible hand' is just that, "invisible". We need some fiscal bravery and more public works/infrastructure spending to get us out of this morass.

Well, we do now that the ridiculous Keynesian monetary policies got us into it in the first place! Intervention begets intervention. To be fair to Keynes, he did advocate restricting money supply - something Greenspan completely ignored, and I believe that's the real source of the current problem. Those who think the problem was a lack of regulation should consider the absurdity of a system that allows banks to create almost unlimited credit out of thin air, and then creates a regulatory agency to stop them from doing it! It's nanny-state on crack! The problem was more monetary than regulatory

 

[chops_a_must]

Well, we do now that the ridiculous Keynesian monetary policies got us into it in the first place! Intervention begets intervention. To be fair to Keynes, he did advocate restricting money supply - something Greenspan completely ignored, and I believe that's the real source of the current problem.

My understanding is that it is some kind of abused Keynesian philosophy, where you only act on one side of the cycle.

Seems to me that Keynes' main aim was stability, and aimed at knocking off the peaks, and limiting the troughs. Yet modern theory and practice is just to stimulate regardless, which is lunacy... and leads to crap like we have.

 

[Pronto]

All Lord Keynes ever did was to write an apology for the prevailing policies of governments.

As Ludwig Von Mises wrote in Planning for Freedom in 1952, 'the essence of Keynesianism is its complete failure to conceive the role that saving and capital accumulation play in the improvement of economic conditions.'

Seems strikingly relevant to the root cause of the current US difficulties...

 

[Temjin]

All Lord Keynes ever did was to write an apology for the prevailing policies of governments.

As Ludwig Von Mises wrote in Planning for Freedom in 1952, 'the essence of Keynesianism is its complete failure to conceive the role that saving and capital accumulation play in the improvement of economic conditions.'

Seems strikingly relevant to the root cause of the current US difficulties...

Exactly right. Kenyesians don't believe in saving at all. It's all about expanding credits and liquidity.

 

[motorway]

Steve Keen is heavily influenced by Hyman Minsky

I was explaining this to someone who sent a PM about the B% and Minsky back in Feb,,,,

https://www.aussiestockforums.com/forums/showthread.php?p=254443&highlight=minsky+pattern#post254443

Here is some of that email also I related it to P&F ,B% and the seasons of The S curve ( Winter , Spring, Summer , Autumn , Winter )

( Principles need application )


Winter is both beginning and end.

stability always causes instability

unless something has died....

---------------

S curve following a Minsky pattern ?

some context... Hymen Minsky had some good ideas

If the real fundamentals are sound ...
Then it is a matter of flushing out the ponzi borrowers ( will happen fast )
and some of the speculative borrowers...

That is what winter does........................... ( update now --A twist since is that markets went down with a lot of liquidation still to be done so L pattern to the bottom ?)
( that was Feb....Maybe even some (most?) hedged borrowers will have to be purged )

Minsky is most famous for the idea that 'stability is unstable'. In
short, unusually long periods of economic stability lull investors
into taking on more risk. This leads them to borrow excessively and
to overpay for assets.

Minsky suggested three main types of
borrower, increasingly risky in nature. Hedged borrowers can meet
all debt payments from their cash flows. Speculative borrowers can
meet their interest payments, but have to keep 'rolling' the debt
over to pay back the original loan.

Ponzi borrowers (named after the notorious American pyramid-scheme conman) can repay neither the
interest or the original debt, and rely entirely on rising asset
prices to allow them continually to refinance their debt.

The longer a period of economic stability lasts, his argument goes, the
more society moves towards being full of Ponzi borrowers, until the
entire economy is a house of cards, built on excessively easy
credit and speculation.

"The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable.

The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.

In particular, over a protracted period of good times, capitalist economies tend to move to a financial structure in which there is a large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make positions by selling out positions. This is likely to lead to a collapse of asset values."

Hence a Cycle
Hence Seasons

Stage One - Displacement

Every financial crisis starts with a disturbance. It might be the invention of a new technology, such as the internet ( China ? ). It could be a shift in economic policy. For example, interest rates might be reduced unexpectedly. Whatever it is, the world changes for one sector of the economy. People see the sector differently.

Stage Two - Prices start to increase

Following the displacement, prices in the displaced sector start to rise. Initially, the price increase is barely noticed. Usually, these higher prices reflect some underlying improvement in fundamentals. As the price increases gain momentum, people start to notice.

Stage three - Easy Credit

Increasing prices are not enough for a bubble. Every financial crisis needs rocket fuel and there is only one thing that this rocket burns - cheap credit. Without it, there can be no speculation. Without it, the consequences of the displacement peter out and the sector returns to normal.When a bubble starts, the market is invaded by outsiders. Without cheap credit, the outsiders can't join in.


The rise in easy credit is also often associated with financial innovation. Often, a new type of financial instrument is developed that miss-prices risk. Indeed, easy credit and financial innovation is a dangerous cocktail. The South-Sea Bubble started life as new-fangled legal innovation called the limited liability joint stock company. In 1929, stock prices were propelled into the stratosphere with the help of margin calls. Housing prices today accelerated as interest-only mortgages emerged as a viable means for financing overpriced real estate purchases.

Stage Four - Over-trading

As the effects of easy credit kicks in, the market starts to overtrade. Overtrading stimulates volumes and shortages emerge. Prices start to accelerate, and easy profits are made. More outsiders are attracted, and prices run out of control. Accelerating prices attract the foolish, greedy and the desperate to enter the market. As a fire needs more fuel, a bubble needs more outsiders.

Stage five - Euphoria

The bubble now enters its most tragic stage. Some wise voices will stand up and say that the bubble can no longer continue. They put together convincing arguments based upon long run fundamentals and sound economic logic. However, these arguments evaporate in the heat of the one over-riding fact - the price is still rising. The wise are shouted down by charlatans, who justify insane prices by the euphoric claim that the world is different and this new world means higher prices.

Of course, the "new world" claim is true; the world is different every day, but that doesn't mean that prices run out of control. The charlatan wins the day and unjustified optimism takes over. At this point, the charlatans bolster their optimism with the cruelest of all lies; when prices finally reach their new long run level, there will be a "soft landing". The idea of a gentle deceleration of prices calms the nerves.The outsiders are trapped in knowing denial. They know that prices can't keep rising forever, but they rarely act on that knowledge.

Everything is safe so long as they quit one day before the bubble bursts.Those that did not enter the market are stuck in a terrible dilemma. They can not enter but neither can they stay out. They know that they have missed the beginning of the bubble. They are bombarded daily with stories of easy riches and friends making massive profits. The strong stay out and reconcile themselves to the missed opportunity. The weak enter the fire and are damned.

Stage Six - Insider profit taking

Everyone wants to believe in a new brighter future but a bubble takes that desire and turns it upside down. A bubble demands that everyone believes in a brighter future, and so long as this euphoria continues, the bubble is sustained. However, as madness takes hold of the outsiders, the insiders remember the old world. They lose their faith and start to panic. They understand their market, and they know that it has all gone too far. Insiders start to cash out. Typically, the insiders try to sneak away unnoticed, and sometimes they get away with it. Other times, the outsiders see them as they leave. Whether the outsiders see them leave or not, insider profit taking signals the beginning of the end.

Stage seven - Revulsion

Sometimes, panic of the insiders infects the outsiders. Other times, it is the end of cheap credit or some unanticipated piece of news. But whatever may be, euphoria is replaced with revulsion. The building is on fire and everyone starts to run for the door. Outsiders start to sell, but there are no buyers. Panic sets in; prices start to tumble downwards, credit dries up, and losses start to accumulate.

B% has been displaying a weak structure since early 2007

Ponzi Borrowers have been having a very hard time

These are borrowers who can not fund Principle or Interest Payments

whose survival depends on "Phantom Capital Gains"
------------They disappear when everyone has to cash them in...

shares property or businesses



many "investors" aren't
They are phantom investors...

a P&F chart moves from congestion to markup/markdown

congestion can be accumulation , distribution , consolidation ( re-acc/dis ) or nothing
the fluctuations= differences of opinion..
The P&F chart is the auctioning up and down in dynamic Time (MP )

interpretation is aided by knowing the Time as in "what is the season"
Where on the S curve

Minsky is another from the economic world that
sought principles

long term opportunities
arise from the deep discounts of winter
when ponzi, speculative and even many of the hedged borrowers are wiped out

Wyckoff refers to this as the ultimate strong technical position ( specialist in panics )
There is only upside
because there is no one left to sell
and competition is non existent
( think about what Winter does to the weak and unfit ? )

But it is not how long but
how MUCH ( P&F )


stability is UNSTABLE

Think about the alternating zones of congestion on the P&F
their relation to one another
thrust etc

congestion is Unstable
at the end of time ( mkt stock sector ) the P&F just stops

until then all
Waves of opportunity

motorway

Look at the 1% x 3 XAO P&F chart in the P&F thread (S curve )

P&F is an intrinsic time clock of the market seasons
on any scale of magnitude.



The depth of winter was under estimated at the time of the XAO post
But principles are sound as is the application (imo)
About identifying not predicting..

POSTION


motorway

 

[Solly]

On Steve Keen's

http://www.debtdeflation.com/blogs/

there is an interview with Phil Dobbie from BNet Aust & Steve Keen.

His outlook is very concerning where his view is that we are headed for a... Depression

Any comments..??

 

[Aussiejeff]

Japan? Cash rate we are talking - it wont get that far to consumers.

Might get as low as 4% at a stretch. But certainly not 0%.

What is America at now? 2.5%? And their mortgage rates are a bit over 6%.

Brad

LOL!

Hey Brad, with the benefit of a little hindsight and plumetting interest rates worldwide, would you care to reflect on these musings now? Hehe.

 

[metric]

0% gives a whole new meaning to paying 'interest only' on loans.

might save a few asses though.....not sure if thats the idea behind it ?


.

 

[MR.]

On Steve Keen's

http://www.debtdeflation.com/blogs/

there is an interview with Phil Dobbie from BNet Aust & Steve Keen.

His outlook is very concerning where his view is that we are headed for a... Depression

Any comments..??

I agree. Interesting his train of thought on debts needing to be written off. I have also brought this up before.

No easy investments around. One thing is for sure I will not be pressured into investing into products for the sake of the potential of some cash from being dwindled away. No one wants to be left behind.... Both salesman scare tactic pitches! The problem out there is "Future incomes have already been spent"

What do you think of Dr. Keen's thoughts? Also how are you recieving an income? I've spent the last few years living in Runaway Bay. You'd also know what a change this northern end of the gold coast is/has gone through. How about Tipplers closing, just along with the rest, a sign of the times. Or the times to come!

 

[Glen48]

Just watched the ABC news had a story about all the USA tent cities popping up..maybe we should send some pollie to Mug Garbie country for a lesson on dealing with poverty and Gazzalion $ notes?
Then the Feds can bring out the FTO ( First Tent Owners ) scam.

 

[Solly]

What do you think of Dr. Keen's thoughts?

I've always given credit to the theories of Hyman Minsky. I tend to agree that we are in a more severe financial downturn than is more widely accepted by my peers. So basically I tend be more accepting of his views, I don't have a PhD in Economics or hold the tenure of an Associate Professor so I defer to Steve in many areas for a more qualified opinion. I'd say he would have a better feel for what's happening than many others and pick up on ques better than me. I'm always wary of an A/C with paint worn off the rudder pedals, so I'm sure Steve sees warning signs and concerns in his field of interest.

Also how are you recieving an income?

I have multiple income streams.. Investment distributions, a "wage", etc.
I don't really "own" much at all, but I have the use and access to the quality essentials in life
Although I really love "working", never ever retire it kills people !
Sipping lattes from your Hedges Ave balcony overlooking the sea every day with nothing to do is toxic as well. You've got to keep active, interested and have diverse range of activities and business/income interests.

I've spent the last few years living in Runaway Bay. You'd also know what a change this northern end of the gold coast is/has gone through. How about Tipplers closing, just along with the rest, a sign of the times. Or the times to come!

Runaway Bay is quite a pleasant area, although it's changing quite quickly. Good to see some of the old 70's brick boxes being knocked over around Paradise Pt. I've considered a move to Soverign Islands, I know a couple of people there. I don't like what they have done to Ephraim Island reminds me of No.1 Division at Bogga Rd Gaol. As for Tipplers going...well everything has it's day. I spend more time around Couran for short day trips or venture to Nth Straddie. I don't want to become a Bay Warrior who fires up the Riviera for a couple of Sundays a year with a bunch of freeloaders/hangers on and calls that fun and relaxing.

Although I must admit many, many years ago when much siller and younger, a group of us hired a Cuddles Flybridge Cruiser from the Runaway Bay Mariner and had quite an "eventful" time around Tipplers for a few days but dignity stops me from publishing the antics here! Although one of the funniest things was when one of us tried to convince a young lady that we owned the boat, even though was a big "for rental enquiries" sign on the side. I'm glad my life has changed and is more stable and balanced now.....

 

[kincella]

I have to wonder about SK...if he was so smart why didn't he take his own advice ? He bought property at the height of the boom, then in such dire straits he had to sell when prices were going down. Now some of us know you can have a negative attitude to property, and prefer to live at home or rent with your mates, but that all changes when you gain a partner.

Wondering if that is what happened to him. And why did he have to sell ? Insufficient funds to continue with the mortgage?

I believe he made outrageous statements to get some free PR, since writing another book. And its worked everyone is talking about him.

But just a little word of warning, if you need a mentor, find someone who is successful in their line of work. Can back up their claims, can prove their success. (SK can offer no proof, in fact he shows how not to do it.)

For example...Bill Gates, Warren Buffett and all the other successful people in business.
Too easy for ordinary people to get caught up in fraudulent schemes, because they do what everyone else does (or so they think), no other reason.
Just ask Storm, Madoff, Opes etc investors....

 

[moXJO]

I have to wonder about SK...if he was so smart why didn't he take his own advice ? He bought property at the height of the boom, then in such dire straits he had to sell when prices were going down.

I thought that was a bit suss as well.

 

[Temjin]

I have to wonder about SK...if he was so smart why didn't he take his own advice ? He bought property at the height of the boom, then in such dire straits he had to sell when prices were going down.

The easiest way to reject one's opinion is to criticise his/her action. Of course, like I said a billion times before, his theories is certainly against your own financial interests. It's impossible for you to accept him.

Now some of us know you can have a negative attitude to property, and prefer to live at home or rent with your mates, but that all changes when you gain a partner.

A generalisation. I have talked to and meet many couples who totally understand what is going on at the moment (negative attitude to property) and is more than willing to rent for a bit longer before purchasing one.

They only consider property as a liability, something that they would purchase if they desire the utility that it provides, not the profit.

Wondering if that is what happened to him. And why did he have to sell ? Insufficient funds to continue with the mortgage?

I believe he made outrageous statements to get some free PR, since writing another book. And its worked everyone is talking about him.

Perhaps you should really join his blog and attempt to disprove his theories. (and not with us or me) You cannot deny that he had predicted the crisis ahead of many other mainstream economists.

I cannot prove or disprove his theories because I am not in the position to do so. I don't think you can as well. Of course, I don't expect you to do so anyway since you would think it's a waste of time and it is much better to stick to your believes and maintain your own self interest instead.

But that alone does not necessary mean he is "completely wrong". He was right about the deleveraging process happening in the US/UK right now, and in Australia too. He has statistic data from "official source" to prove it. Anything could happen now.

But just a little word of warning, if you need a mentor, find someone who is successful in their line of work. Can back up their claims, can prove their success. (SK can offer no proof, in fact he shows how not to do it.)

For example...Bill Gates, Warren Buffett and all the other successful people in business.

Yep, I follow people like Jim Rogers, Marc Faber, Bill Gross, Nouriel Roubini, etc. They are amoung the gloom and doomer of this world and again, have all predicted the crisis before it all happened. They can certainly back up their claims and prove their success due to their fame and wealth. And of course, their views are all "against" your own interest.

Remember that Steve Keen isn't the only one that is mentioning about "too much debt / living beyond the mean" crash mentatility. You should consider reading what they have to say.

Now what happens if I took Peter Spann as my mentor in properties. I would have made millions following his property investment strategies back many years ago. Now that he has changed to become a "doom and gloomer", should one still consider him as a mentor? But he HAD success to back up his claims. I think he is smart enough to realise a major trend is occuring and accept that his past theories may be proven wrong and is willing to take actions to suit the new reality. Now that is a ex-perma-bull real estate investor that I admire.

Too easy for ordinary people to get caught up in fraudulent schemes, because they do what everyone else does (or so they think), no other reason.
Just ask Storm, Madoff, Opes etc investors....

Including investors who believe in real estate promotors that leveraging yourself in residential properties is one SURE WAY to make you rich over the LONG TERM. That is if you follow their STRATEGIES.

This is exactly like Storm investors who think they could do the same by getting into massive debt to play leverage into the stock market without any regards to risk management.

As for Madoff, I could only imagine why so many high profile and sophisticated investors with tens or hundred of million of dollars in net wealth were not immune to his scam. Do you know his profile and history? Do you know why a lot of people TRUSTED him? It's certainly believeable once you read the story in full.

 

[MR.]

Soly, sometimes when people post looking for feedback they post without giving their stand point or suggestions. Perhaps this is on purpose not to persuade the reader to reply in any particular direction but I usually find these question/s of little benefit to any replier. Thanks for touching on the issues at least I can now see where you’re coming from.

I don't have a PhD in Economics or hold the tenure of an Associate Professor so I defer to Steve in many areas for a more qualified opinion.

I know, I don’t sort enough opinions from the experts in their fields. A few months ago, Steve suddenly turns up on the screen in front of me telling me what I’ve been talking about for years. I’d never heard of him, but suddenly, there he is. That’s the media for you, the **** is already hitting the fan. I found Alan Kohler of some support over the last year. Something had to give, so many have been spending like there was no tomorrow. An interesting observation just reading around the threads here, the use of debt appears very much still in favour for the creation of wealth. We will have to see how that pans out....

Although I really love "working", never ever retire it kills people !

Yes..... There is nothing worse than retiring. You start inventing things that aren’t very constructive. Start telling everyone your problems... and so on. Actually was not the intention but has turned out that way. For example some of that Arundel industrial land (just off Brisbane road) had been reserved. By the time they finally got around to pricing the land it had jumped more than 100% to near 1 million for 2000 square metres. Don’t see much incentive in that and makes you want to just continue to sit on your ****.

Sipping lattes from your Hedges Ave balcony overlooking the sea every day

But isn’t that the meaning of life. Then after 6 months you fall off the perch. That Gold Coast mould I do not fit, I’m happy to say.

I've considered a move to Soverign Islands

A few years ago in a tinny with my huge 7.5HP outboard I passed Soverign, a very large boat came out from one of the canals saw me then took off. The wave was huge..... Welcome to the Gold Coast.
If you want to buy there’s plenty of people wanting to sell! Otherwise some good prop’s going at rents that must make the landlords cry. But Runaway Bay is a far nicer spot and I’m not being bias.

Back to the thread. I do wonder how much of Steve’s expectations will be seen this time round. Find it very hard to change my tune. Hope opportunity is seen when presented. I also hope it wasn’t the market earlier this week. If that was it, that's it for me in shares. Can't do a buffet!
Also have no ambition to become a trader.

 

[Solly]

Keen: Government should print money to pay off our debts

Economist Steve Keen is one of the few economists to have predicted the global financial crisis and now he says we are already in a Great Depression. He says the way to escape it is to bankrupt the banks, nationalise the financial system and pay off people's debt.


Here's an interview from BBC Hardtalk.
Quite an interesting position.

http://news.bbc.co.uk/2/hi/programmes/hardtalk/9641873.stm