Retracing the Great Recession

Mr Keen's focus on the significance of the level of private debt and the rate of change in its accumulation is warranted (See Retracing the Great Recession, September 30).
I have noticed that when asset prices are believed to be rising people only talk about the level of the repayments on a loan. The size of loan does not concern them.
But once a belief takes root that asset prices may no longer be rising people suddenly start focusing on the level of outstanding debt they have even if the level of repayments has not changed.
This tendency to switch focus from the relationship between the level of repayments and income to the relationship between outstanding loan size and income may explain why when asset prices have stagnated for a period, reducing interest rates has a much more limited impact than might be expected.
The question is then whether Australians have lost faith in the great housing souffle. Probably not completely, but clearly the ranks of the doubters are growing rapidly.

Some interesting US numbers (See Retracing the Great Recession, September 30). Argument kind of falls short with the "although Australia did in fact technically avoid a recession" line. Steve - we did avoid recession in 2008/09. You may believe that you are a maverick sage, there may be supporting evidence for many of your arguments, but it doesn't make your conclusions right. Your dogged negativity is admirable for its relentless persistence though - surely a sign of these times!

Ray Wilder (September 30, 10:45 AM) writes, "there may be supporting evidence for many of your arguments but it doesnt make your conclusions right", then goes on to talk about Keens "dogged negativity". In my opinion Steve Keen may have been negative in his projections but the thing that matters was his projections about the GFC etc were completely right! QED.(See Retracing the Great Recession , September 30.)

Why is it that when someone talks about the potential for growth to decline or retreat they are labelled negative/pessimist and those who talk-up the markets positive/optimists (See Retracing the Great Recession , September 30)? Are there no realists left in these arguments?
Thanks Mr Keen for 'keepin it real'. As for Chris Joye, his own hedonic or headachic thing is showing house retractions is it not? Good thing the super industry doesn't invest much in residential RE, otherwise we may end up even poorer than we are going to be when we retire, at least they got that right. I am talking in real, inflation adjusted, terms by the way.

The power of vested interests and intellectual inertia never ceases to amaze me. That financial 'sages' who completely missed the events of the last four years still hold any credibility over those that have a proven track record in their prognostications is a surreal testament to this (See Retracing the Great Recession, September 30). I commend Mr Keen on his work; as well as his courage to persist in the face of overwhelming ignorance and folly.

Yes, spot on Steve (See Retracing the Great Recession, September 30). Economics, art or science? Because either way, it is imprecise.

Great article Professor Keen - fascinating stuff (See Retracing the Great Recession, September 30).
I always thought that people like Ben Bernanke, our RBA and Chris Joye (and numerous others) were 'twisting' the truth in the name of vested interests – but as you point out, it's not that they are lying, it's that they really don't understand the situation themselves.
Keep it up - great reading.

As a baby born of the Great Depression, a child of careful parents, and a young woman of necessity living on overdrafts secured by carefully purchased real estate, restored and resold I instinctively endorse Steve Keen's writings as truthful (so rare in these times) and wise (See Retracing the Great Recession, September 30). However having lived from Recession to GFC I would observe that there has been a long cycle when judicious borrowing worked.
Predictably the financial whizz kids who have lived with the profits of this cycle believe their complex financial instruments are the way to go. Truth is, times change - and theories based on everlasting growth are just plain silly. Balloons burst, inevitable overpopulation invokes the laws of nature and lead to extermination by various means.

Just because Steve Keen and Chris Joye don't see eye to eye does not make either of their contributions wrong or bad. In fact their debate has assisted greatly in my evaluation and understanding of the economic factors we are dealing with post 2008. I suspect that Steve and Chris have both benefitted from this debate because the personal barbs that they have exchanged have added more interest to the dry economic argument - therefore making the subject more entertaining (See Retracing the Great Recession, September 30).
Keep debating gentlemen – you both have important contributions to make! (though I suspect Chris Joye has the best of the argument so far..)

Great article (See Retracing the Great Recession, September 30), I agree with notion of a debt fueled increase in aggregate demand that is not sustainable when debt growing faster than GDP. I also think that the easy money or debt will cause speculation in asset markets and that its reduction could cause a downward demand shock on prices. I would be interested to know if there are any statistics or theories into the proportion of the increase in debt that contributes to an increase in aggregate demand. I think it would be limited to the proportion that is borrowed for investment or consumption purposes and the amount borrowed for the purchase of existing assets, such as residential mortgages and margin loans should be deducted.
This theory would substantially reduce the $100bn reduction quoted in the article.

Thank you Prof. Keen (See Retracing the Great Recession, September 30). Yes, of course, how can property prices continually grow faster than the economy. Likewise credit also cannot exorably grow faster than the economy grows. Professor, prepare, to be very famous when within few years, worldwide...

Hey - we have $400 billion in pipeline development for resources. I have been saying we are insane. Good to know I'm not the only one who thinks it's insane (See Retracing the Great Recession, September 30).

Steve sounds to me to be a real economist - one who knows how a market economy truly works (See Retracing the Great Recession, September 30).
In 2006 & 2007 you only had to observe the buying behaviour of everyday Australians - to determine that they were unsustainably living beyond their means - and why, because they had easy access to relatively cheap finance. And what are they doing now - paying down debt as quickly as they can. Neoclassical economists remind me of investment bankers. I think they seem like salesmen promoting 'product'.

You left out the bigget one of all: Alan Greenspan (See Retracing the Great Recession, September 30).
He said he never saw the GFC coming.

Two things beggar belief (See Retracing the Great Recession, September 30).
Without taking anything away from Professor Keen, it is unbelievable that professional economists can miss the obvious connections between debt and money supply on the one hand and asset prices and demand on the other. I doubt an engineer or scientist would have failed to have comprehended the mechanics of this system.
Secondly, how is it that the economists who are not Steve Keen, the ones who failed completely to make anything even approaching correct assessments and predictions, have the gall to have not torn down their shingles and melted away out of shame in their incompetence.
That Bernanke, Summers and Greenspan aren't on the dole is a sorry comment on accountability in modern human society.

I am still waiting for any of the economists to take into account ecological collapse (See Retracing the Great Recession, September 30).
Use of debt means that ecosystems collapse faster as they do not increase productivity when people borrow money to invest, they just get used up faster. My theory is that people invest debt in bubbles because of the lack of productive places to invest due to the destruction of forests, fisheries, soil, and weather.

I'd like to thank Prof Keen for being one of the economists who convinced me to move our super into cash...late last year! We have really saved ourselves a lot of money and angst (See Retracing the Great Recession, September 30).

Debt must be paid back in time. Not financial instruments out of thin air. Simple really (See Retracing the Great Recession, September 30).
And if not time, then blood.
Some, in fact, are predicting war.
As Eureka Report once said, "Look Left For Danger".

Some interesting comments above on all the theories being expounded by the experts (See Retracing the Great Recession, September 30). I have a question for you experts and commentators: What economic theories do you think the guys at Goldman Sachs are using?

The other side of the story is, however, that flushing new cash into the system to the highest bidders reveals new winners in the production game, whose techniques are modelled, advancing productivity, the only real economic advancement (See Retracing the Great Recession, September 30).
The problem is that only works if we stop propping up those who rolled the dice and lost by those who didn't. The backstop is the basics needed to live.
For example, government assistance to the banking system [where necessary] should be limited to loans associated with owner occupiers.
With the Soros solution, for example, the "temporary guarantee and permanent recapitalisation" in return for "maintain[ing] credit lines and outstanding loans" would be restricted to that part of the book that relates to owner occupied loans.

"If your upkeep [including debt repayments] exceeds your income your upkeep will become your downfall." E. James Rohn.
This applies at both the personal and national levels. Ignore it at your peril (See Retracing the Great Recession, September 30). Labor strategists please note well. You were elected to pursue the interests of the nation not simply to further your own political ambitions.

Mulling over Steve Keen's excellent overview of his own development and the comments it has provoked, it seems to me that the kindest adjective for neoclassical economists would be self-deceiving (See Retracing the Great Recession, September 30).
In response to conventional upbringing based on behaviour and reward, these perfectly intelligent people have learned to endorse the status quo and push its limits for the short-term benefit of themselves and those they advise. Fundamentally, they seem to avoid the obvious containment of the economy within human society in all its diversity, itself restricted by the biosphere and its limitations.
Until university curricula demonstrate the wisdom of, for example, training students regarding the capital value of ecosystems and their correct location on balance sheets, I think there is not much hope, ultimately, for the human race.

Great article Steve (See Retracing the Great Recession, September 30).
I'd be interested in your future articles upon the level and change in debt that you included not just domestic debt, but offshore lending by the banks. Your thoughts about the affect this has on the way up and the way down would be appreciated.

I have to say that I read both Chris and Steve's contributions keenly (See Waging a property price war , August 31; See Retracing the Great Recession, September 30).
I'm interested in economics personally and professionally and feel like so far the 'arguments' reflect what I was brought up to believe in my family can be applied here in a financial sense: "There are 3 sides to every story. Yours, mine and the truth"
I think that at either side of the housing argument we have valid points but in my case I'm a bit of a property bear. I'm a believer in the "fundamentals" eventually setting the pace when all the greed/fear is averaged out over time and the property market is still full of people that only have experience of investing in this latest property boom cycle and doggedly hang on to the "bricks and mortar" mantra. Steve has my vote when it comes to this "Great recession" piece as well although my rudimentary economic knowledge is very basic, it seems to make quite a lot of sense to me.
By the way my view – for what it's worth – the technical avoidance of recession is never going to be a point of the argument to pin a victory on for either "side" as realistically, the policy response of the federal government and of course the RBAs decisions can't be predicted.
I mean who would have thought the government of the time would have thrown so much money at covering school grounds and insulating homes? (Personally I thought both were a joke and handled extremely poorly - but that's not my point with this response.)

Seems there are a few macro economic assumptions/formulas that need to be reviewed, including; the one that says we must have perpetual "growth", tied to population and consumption growth, which contradicts the realisation we have finite resources, one planet (so far) and sustainability staring us in the face. (See Retracing the Great Recession, September 30)