Steve Keen: Australian mortgage debt levels are “outrageous”

Steve Keen has a number of detractors who knock him for his incorrect forecast of collapse of the Australian housing bubble. But he was wrong for the right reasons…. the Australian financial system, based on highly-levered mortgages, is a house of cards. It was only rescued post-GFC by massive stimulus in China, resulting in a mini-boom in the Australian Resources industry.

Steve is at the cutting edge of economic theory. He and Richard Koo (The Holy Grail of Macroecomomics) were at the forefront of identifying the role that debt plays in the Aggregate Demand equation. We should take heed of his warnings.

“Our models predicted it [the GFC] couldn’t happen. It did happen. We therefore shouldn’t trust our models.”

“…What drives house prices is acceleration in mortgage debt…..Australians avoided collapse of the bubble by continuing to lend but mortgage debt is now 1.1 times GDP which is outrageous.”

5 Replies to “Steve Keen: Australian mortgage debt levels are “outrageous””

  1. Please, Steve KEEN is definitely not ‘at the cutting edge of economic theory’. Many current and former Nobel laureates may be regarded as being ‘at the cutting edge of economic theory’.

    Steve may generally be regarded as being comfortable in ‘non-conforming’ economic ideologies and ideas that fail to receive traction in the Oxford/Cambridge/MIT/Stanford respectfully-recognised schools-of-thought.

    No Colin !!

    1. I think you underestimate him. How many Nobel laureates identified the role that debt plays with aggregate demand. The fact that this isn’t mainstream highlights how out of touch the economics profession is.

      1. OK … I’ll take that, Colin, that I underestimate him. But, generally, [ can’t help myself but want to have the last word : )], I have to mention that I find that he is often only ‘used’ when attempts are made to re-inforce a particular view, for self-interest

      2. Moses, I agree he is loved by — and plays to — the lefties which detracts from his core achievement: recognizing the relationship between debt and the aggregate demand.

        I find the mainstream has a number of issues: over-emphasis of models, too theoretical rather than practical, or, like Stiglitz and Krugman, use their economic credentials for political ends. On the latter point, to me an economist can’t afford to take sides in politics, otherwise their research and conclusions will be prone to bias and lack credibility.

  2. Good on Moses.
    We need to hear more people speaking out against (spiraling) debt.

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