Steve Keen on Australian Housing Bubble 2016

Steve Keen discusses the Australian Housing Bubble with Sky News Business. Accelerating mortgage debt is a major factor in the recent years of housing growth.

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OK let's find out what are the implications
of cutting and then re-igniting something
that we all know can and has occurred, and
that's excessive bets on one sector - namely
housing in the U.S. Sub-prime. Steve Keen,
you are up at night tonight Steve welcome,
uh up early this morning well actually not
that early now in London, nice civilised time,
the sun comes through the window, the coffee's
on (that's right) and you're tonight on
Four Corners I'll give you that plug (laughs) just
on housing uh what do you saying this time around,
what have they wheeled you in uh to say? (laughs)
Well, they've wheeled me in to say I've got
it wrong on the timing but right on the mechanism,
cause I've always argued that what causes
rising house prices fundamentally, is not
just rising but accelerating mortgage debt,
and that's what's been ... behind the wonderfully
successful numbers ... rising house prices
for the last 3 years, and meant Australia's
mortgage debt has risen to something in the
order of over 100% of GDP. And to give you an idea - Americans thought they were getting downfall of about 50% and it reached 70%
So we managed to evade falling house prices back
in 2008 to 2010, first of all by the first
home enders scheme as I call it - the first
home buyers - drag them in to the market.
And then the RBA - quite deliberately - seen
dropping interest rates as a way of stimulating
activity in the housing market, completely
ignoring what that was doing to the debt levels
in the Australian economy. And that's that
debt -- those rising debts is what gave us
rising prices - and that of course is the
rub that can't go on forever. So what's your
- what are the implications tomorrow of a
cut to everything you've just said now? Do
you see the ... a fresh wave of absolutely
aberrant demand, or will there be more restrain
this time given the other settings? It could
continue the bubble, because the RBA is the
only bank in the world that has room to inflate
a bubble even further by dropping rates another
2% before it hits 0%. And I firmly believe
we're going to end up at 0% rates in the country
because the RBA has completely failed to learn
from the lessons of the rest of the world, and
it's going down exactly the same track of
promoting a housing bubble as a way of driving
the economy. It will come back to bite them.
I think it'll come back to bite them in the
next year or so, but of course their response
will be drop rates, and if they drop rates
it could drag suckers - pardon the expression
- back in to the investment market once more,
and the end result ... we'll end up with the
highest level of household debt in the western
world by a significant margin, which a great
economic management issue by the reserve bank.
Alright, panel's thoughts? Steve - Greg McKenna
from Business Insider and AxiTrader. Just
um hello mate, uh just working on that assumption
that rates go to 0%. So, the efficacy of monetary
policy in Australia has still got some traction
you're saying, but how bad does it get if that
bubble bursts, you know what's your take
on that? It's quite severe, I mean ...
when the house prices fall/start falling, that will encourage people getting out of the market
they're already starting to get out because
they simply can't afford the deposits anymore.
And with that affects - without Chinese buying
to keep us inflated
that's what I think is the wild card in this whole story - absent that, you have a slow down
in the rate of growth of debt and that slow down in credit- which is what the growth of debt is
that slow down in credit has a dramatic effect reducing demand in the economy. At the moment,
increase in credit - increasing level of private
debt - is equivalent to 15% of GDP every year.
That's how much we're growing right now. That's
not the most we've grown - back in the...
just before the global financial crisis hit
we were growing at 25% of GDP. But we've literally...
if we keep demand and keep the level where
we've got unemployment where it is right now
and house prices and so on, literally requires
us to have debt growing of the order of 12%
per year faster than GDP. You simply can't
sustain that forever, when it bursts the economy
will fall over, and that is going to happen
regardless of who gets to be elected in whenever
the next crazy election is held in Australia.
So it won't be far away, and uh there's also
a new RBA governor who will be taking the
chair. Let's see who we'll put in that chair
by one of the other parties come July 3. What
do you think needs to be done, what should
Glenn Stevens then, should he be doing to
address the concerns you have? Well it's too
late. I think the captains of the good ship
"Titanic - Australia" have head us all to
debt crisis, just like the rest of the world
had in 2008 - they've simply delayed it - it'll
be bigger because we've accumulated more private
debt in the process. But we're heading for
the iceberg, it's a question of what happens
when the person in charge hits the iceberg.
We should be blaming Glenn Stevens - I'm quite
happy to say that - blaming Glenn Stevens
and the crew at the RBA for getting us here
in the first place. Whoever takes over will
will have to pick up the pieces, and they'll be caught in the same level of incompetence that
the reserve banks in the rest of the world
have been in dealing with deflation ...
saying earlier, that's the one thing the central banks don't know how to reverse is deflation.