All Topics / General Property / Steve Keens latest prediction…. Is he right this time?

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  • Profile photo of MikeMike
    Participant
    @mikesonthemic
    Join Date: 2008
    Post Count: 43

    Recently read this article:

    http://mobile.abc.net.au/news/2016-07-29/australia-headed-for-recession-next-year,-professor-keen-says/7674154

    Regarding Steve Keen’s latest prediction about the economy and house prices.

    Full text here

    Australia’s credit binge will lead to a bust as soon as next year, with house prices to fall between 40 and 70 per cent and unemployment to rise sharply, Professor Steve Keen says.

    The professor famously lost a bet when he predicted a catastrophic crash in Australian house prices following the GFC and had to walk from Canberra to Mount Kosciusko as a result.

    But he says, this time, he is right and does not have his hiking boots at the ready.

    “We have borrowed ourselves so much to the hilt that we are now dependent on that continuing to rise over time and it simply won’t,” he told the ABC’s The Business.

    Many believe the Reserve Bank has been a steady guiding hand to the Australian economy in the years since the GFC, but Professor Keen believes it has guided the economy “straight toward the shoals” by encouraging households to borrow with low rates which has led to asset bubbles.

    “They don’t know what they’re doing,” he said.

    “Our debt level according to the Bank of International Settlements, private debt level, has gone from 150 per cent of GDP to 210 per cent of GDP.”

    He argued that means a large part of the growth that Australia has enjoyed since the GFC, while many other countries plunged into recession, has been fuelled by a 60 per cent rise in household debt.

    “Ireland did the same thing when they called themselves the Celtic Tiger and they don’t call themselves that anymore,” he said.

    “Spain was doing the same thing during its housing bubble and we’ve replicated the same mistakes.

    “It is even worse for us, we are the last idiot on the block.”
    He believes the Reserve Bank will be forced to take rates down to zero from their current level of 1.75 per cent as the economy continues to slow, but that will not stop the collapse of the credit binge that has kept the country afloat until now.

    “[Lower rates] will suck more people in, it will suck more people in for a while and the [Reserve Bank] can delay this for a while by cutting the rates,” he said.

    Government deficit worries overblown, Keen says
    He said the catalysts for the recession were the declining terms of trade, the continued fall in investment into the economy and the Federal Government’s “stupid” pursuit of a budget surplus.

    “The Government is frankly stupid about the economy and is obsessed about running surpluses when it is bad economics.”

    A major round of government stimulus that takes the deficit to 10 or 15 per cent of GDP and a massive uptick in foreign investment, especially into housing, would allow the country to avoid a big recession, according to Professor Keen.

    But he said neither options were politically palatable.

    He said worries about huge government deficits were overblown.

    “The Government is not like a household. A government is like a bank. And a government running a balanced budget is like a bank that simply lends back as much as it gets in repayments, therefore the money supply never grows and without that, you don’t have a growing economy,” he said.
    Professor Keen, who was formerly an associate professor of economics at the University of Western Sydney and is now at Kingston University in London, says economists and governments around the world have their thinking completely wrong on the issue of budget deficits.

    He said the best way to prepare for the coming recession was to sell assets and reduce debts, but he admitted that was the type of behaviour which could set off a credit crunch.

    Anyone care to chime in with a perspective?

    Profile photo of Colin RiceColin Rice
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    @fms
    Join Date: 2011
    Post Count: 338

    Maybe he is, maybe he is wrong, again!

    A mitigant / strategy is to find quality stock that you can add value to and there fore create equity and as long as a tenant is in place and the rents are cash flow neutral to positive and I have cash buffers in place for the unpredictable then I am at peace to keep building, no pun intended :)

    • This reply was modified 4 years, 2 months ago by Profile photo of Colin Rice Colin Rice.
    • This reply was modified 4 years, 2 months ago by Profile photo of Colin Rice Colin Rice.

    Colin Rice | CDR Finance
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    Profile photo of Tony BurnettTony Burnett
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    @tonyburnett
    Join Date: 2016
    Post Count: 17

    All depends if you seriously think the federal government is not going to help the banks.

    Think about why Keens last prediction did not happen.

    Also depends if your talking about Sydney/Melbourne which seems highly over priced, where as the rest of oz seems a fair price.

    Profile photo of FintrackFintrack
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    @fintrack
    Join Date: 2013
    Post Count: 15

    Steve Keen is right on the money but underestimates the idiots who run central banks and governments today. Property prices may crash at some point in time but more likely not in the next 10 – 20 years. Australian interest rates will go to less than 1% and overseas buyers will continue to look at Australia as a safe haven for their money. The problem is that if you don’t play the property game everyone else will and that is the animal spirits that is missing from the normal economy but well alive in the property game. Don’t buy investment property and look forward to your kids renting for life…..

    Profile photo of Tony BurnettTony Burnett
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    @tonyburnett
    Join Date: 2016
    Post Count: 17

    Keen is a Professor right……….yet how did he ever think that the federal government was not going to back the banks when Keens first prediction failed……………..i ask again how did Keen ever think the federal government was not going to back the banks????

    If need be the federal government will back the banks again more than likely.

    Sydney? Melbourne certainly over priced, but rest of oz seems to be pretty fairly priced.

    Nothing wrong with how our government has got us through the gfc……..nor the central bankers.

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