Ok i wasn't going to respond to this because i believe I have answered it already. The problem you have with my answers are that they do not delve into proving and disproving every point but rather dismissing the premise of the argument as a whole. To argue each point in isolation flies in the face of my argument.
Regardless i will try and respond with an argument that you hopefully deem as you eloquently put it "cogent".
First. You say you agree with keens logic but not his prognosis. Then we are in total agreement, is there a point discussing further?
Not trying to be coy but to claim that ever increasing debt levels is unsustainable surely didn't need a university degree and to become an associate professor to figure out. Nothing goes down forever and nothing goes up forever.
I don't understand the economic credibility gained in stating the dead set obvious.. for instance when everyone was saying the resource boom couldn't ever end i was thinking.. hmm this is probably when it will because the "never end" mantra usually comes ironically at the end of a boom.
But as illogical as those claims are so is the claims on the other end of the spectrum such as Keens'. That its the end of asset price rises. He tempers that mantra with linking it to productivity i.e. if productivity rises then so will prices. No offence but "no sh*t sherlock" productivity rises are one of the reasons for increase wealth... so whats the point? we need to do more?? umm ok.. i agree with that too.
So I agree.. whats his point? That we need to do something about it? Yes i agree but his solutions are non existent beyond bringing prices back to pre 1950 levels - OH CAMMON!!.. and by your own statement you agree his prognosis is idiotic.
If someone came to you and provided a perfectly sound argument about the state of the economy and then off topic started saying he believes in UFOs and was abducted would you choose to dismiss this and still applaud him for his views on the economy? NO! you would think he is a nutter! Then why listen to Keen when the "prognosis" is so CLEARLY flawed and idiotic?
If Keen is right then we are looking at 20% unemployment, 30-40% asset price falls and a depression.
That would mean, ALL BANKS will fail in Australia because a drop in value of that magnitude coupled with the inability of a factor greater than 20% can no longer contribute a single dollar to their loans which will lead to their failure. Further more this will lead to the complete eradication of the finance industry, probably destruction of over 50% of industry and war. Because lets face it when half the country is declared bankrupt we are in "mad max" territory.
I put more credibility that Keen was abducted by aliens than his prognosis.
But i know your so desperate in getting an actual economic type response to yieldmatters statement so I will for your benefit although like the crazy man screaming out end of days i dont think theres value in proving he is incorrect through rational discussion - but here goes.
"Do you believe personal debt levels can grow indefinetly?"
NO - nothing grows indefinitely to propose otherwise is idiotic.
"Do you believe property values can continue to grow while personal debt growth has stalled?"
YES - to claim that the ONLY reason why prices have gone up is idiotic. There is a myriad of reasons.. let me answer with a question. Do you think a harbor side property worth 10 million today will be worth the same in 5 or 10? Do you think the person buying the 10 million dollar property wouldn't have afforded the purchase now that 95% lo-doc is gone? - oh let me guess this case is an exception to the rule? THERES ALWAYS EXCEPTIONS TO THE RULE.
Please..... there are more factors contributing to asset prices than credit. Credit is one of them but to turn the fact credit isnt easy to get anymore as the start and end all of capitalism as we know it as suggested by Keen is idiotic.
Further more, governments react and no prognosis\theory survives 12 months let alone a 5-10 year projection like Keen and especially when its as extreme. What happens if Rudd as being suggested brings forward 20billion in infrastructure works which gives jobs, stimulus and "productivity" gains? Has such a move been factored into Keens theories? calcs?
Ill go on, if debt is going to be the driving force behind economic destruction as Keen is suggesting then given it HASN'T HAPPENED IN AUSTRALIA yet then why will it happen now that interest rates are dropping????
It will take something else like MASSIVE unemployment (something he is only recently started to chant because hes struggled with the questions but rates are falling now) but even if we contemplate this scenario. It still proves Keen wrong because debt wont be the driver it would have been unemployment as the instigator and debt the exacerbator.
To argue as Keen has that asset prices both stock and property or anything for that matter has been driven so purely based on easy credit is idiotic. To argue that nothing can be done about the crisis is more idiotic and to argue that the prognosis is so clear and so dire is even more idiotic.
I firmly believe that what causes a great depression or any crisis is not the problem we see coming but the one we dont. We see the credit crisis, we see the economic problems and hence unless we are as mentally retarded as Keen we have the capacity as humans to see a solution.
PS my statements are always AUSTRALIAN centric. I have not analyzed the US and UK markets enough to claim the same but... but i can say that for instance UK lending as a percentage of retail deposits was about 140% the US 96% (much higher than AUS), there was a clear oversupply in property in both countries. Just these few "SMALL" discrepancies between us and them should warrent Keen and others should stop the simplistic, sensationalist argument that its happened there then it can happen here.
Ill say one more thing about the US situation, productivity there is an issue. Any administration not smart enough to see FORD and GE is probably already bankrupt, that an idiotic war costing 10bn a month, failed states\cities such as DETROIT etc etc.. cannot simply put blame of this crisis at the feat of EASY CREDIT.
Keen should put his books down and look out the window.. its a bigger world out there and reality tends to slap the pure theorists around a bit more times than not....
Tim,
I would be prepared to put aside your obvious and understandable self-interest on this one if you could provide a cogent response to YM's question which, in my view, is at the crux of where Keen is coming from.
Personally, I disagree with Keen's prognosis (I'm seeing a run of the mill recession plus a long-term credit squeeze), but I can't seriously dispute the facts of Australia's unsustainable debt burden.
You sound a little like some associates of mine in the US I addressed in late 2002. Essentially told them they're entire economy was built on a foundation of debt that, in turn, was leveraging asset rather than productive growth and that long term they were stuffed unless they pulled back.
Wasn't a well received presentation!
Got an e-mail from one of them y'day who is looking like putting off retirement by at least 5 years.
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