Working Papers

Steve Keen’s Latest Media Stunt

In an attempt to snatch victory from the jaws of defeat in his wager with Rory Robertson, Steve Keen seeks to lead a lemming-like march of housing doomers up the slopes of Mt. Kosciuszko:

rather than accept the victory of his more bullish opponent, it appears the professor is trying to muster the biggest gathering of market bears in Australian economic history. He has already coined the event ‘‘Walking Against Australia’s Property Mania.’’

Keen will start his 224-kilometre walk from Parliament House in Canberra on April 15, and aside from a documentary crew, his girlfriend and a masseuse, he hopes to be accompanied by some of the 3000-odd members of his Debtwatch blog.

The other side of the bet is unimpressed:

“Betting the house on an economist’s forecast typically is not a smart move. Unfortunately, Dr Keen recklessly encouraged everyday Australians to sell their homes at what turned out to be the peak of the global financial crisis, and the trough in local house prices,” Rory Robertson responded.

“That’s why he’s getting set to walk from Canberra to Mt Kosciuszko wearing a t-shirt saying, ‘I was hopelessly wrong on house prices. Ask me how!’”

posted on 16 February 2010 by skirchner in Economics, House Prices

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I don’t care how he spins it so long as he wears the T-shirt. That’s what’s going to show in all the photos. Speaking of which, I’m sure the Macquarie Group marketing department can afford to send a photographer down there if the mainstream media decides not to cover it.

Posted by .(JavaScript must be enabled to view this email address)  on  02/17  at  01:33 PM

Talking of Keen (and I’m still not sure why we’re all cheering houses becoming less affordable) I have a question about debt.  I’ve seen it suggested that countries that have run up government debt of 100% of GDP or more, have a near impossible task of servicing that debt at rates of around 5%.  The theory being that 5% on 1 x GDP is a 5% drag on economic growth, and most countries would find it difficult to grow themselves out of the problem (i.e grow faster than 5%).

If this is the case, I’m wondering why Australia’s 1.3 x GDP of private debt would not be a drag on economic growth.  Surely it still has to serviced, and repaid to overseas lenders, which is all money leaving the country.

P.S. Apologies if this is a dumb question.
P.P.S. Would Quiggin give me the same answer, or does the answer differ depending of which economic religion you belong to?

Posted by .(JavaScript must be enabled to view this email address)  on  02/18  at  05:00 PM

David, when talking about public debt, you are talking about one borrower, but with private debt you are talking about multiple borrowers, for which there is not a single measure default risk.  The metrics used for determining public debt sustainability are not as relevant to the private sector.  I doubt Quiggin would disagree.

Posted by skirchner  on  02/19  at  12:25 PM

Thanks but that doesn’t really answer my question.  I didn’t ask about the risk of defaulting, I asked whether a large amount of private debt would be a drag on economic growth.

I imagine it all depends on how the money is put to work.  If its used for something productive that generates an income stream that’s greater than the debt servicing costs then all well and good, but its my understanding that a lot of Australia’s private debt was used to buy existing housing stock.

Posted by .(JavaScript must be enabled to view this email address)  on  03/01  at  06:59 PM

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