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.”