Steve Keen predicts interest rate cuts in 2015 as well

Interesting read. Looks like consensus is that interest rates will go down in the short term. Also interesting is his take on China.

Original transcript here http://www.finnewsnetwork.com.au/archives/finance_news_network108975.html

Video is here https://www.youtube.com/watch?v=RByUL0S8c8w

Lelde Smits: Closer to home Australian interest rates remain at a record low of 2.5 per cent. When do you expect we will see the next move and what is it going to be?

Steve Keen: I can see them making a couple of cuts this year, and possibly more than that. The unemployment in Australia now is the worst it?s been in ten/fifteen years, and the only thing keeping it up is the housing bubble because that is pumping borrowed money into the economy, people are spending that money, and of course also foreign buyers pumping money and buying real estate.

Those are really the only two massive inflow sources into the economy. If the housing bubble pops then that inflow also stops and we therefore have a downturn driven by having finally a housing bubble bursting. So those dangers are there, you can see plenty of reasons for the cash flow spigot to be turned off, I can?t see many ways of turning it on anymore.

Lelde Smits: Now we are at 2.5 per cent, where do you see the RBA leaving interest rates by the end of this year?

Steve Keen: Certainly in the order of 2 per cent. I?d be surprised to see it below the 2 per cent, but I wouldn?t be amazed.

Lelde Smits: If interest rates fall this year, as you suggest they will, how do you think this will play out for the so-called ?bubble? in the property sector.

Steve Keen: It could keep it going, but what it means is we are more and more fragile on the bubble continuing indefinitely.

Lelde Smits: What kind of catalyst will we need to see in order for this property bubble to pop?

Steve Keen: Two things - partly, the economy itself slowing down so much that the negative returns in rental become excessive. Those people are having carrying costs and of course passing those carrying costs on to the Australian public through negative gearing, but they none the less have those carrying costs to handle.

And also, if there is anything going wrong in China. Things going wrong in China can go in both directions, we have a serious downturn in China, then it?s quite possible Chinese capital could respond by going offshore and do more buying overseas. So a slowdown in China, because it is a speculative slowdown, doesn?t have to mean a slowdown in demand for Australian real estate.
 
Thanks for sharing. 2015 is gearing up to be a bumpy year.

I wonder what the flow on effects of the euro fragmenting. I guess we will know soon enough with the Greek elections.
 
Keen is right (at last). Rates are coming down. We will now have the cheapest rates for over 50 years - the last time money was so cheap was in the 1950s.

Thanks for sharing. 2015 is gearing up to be a bumpy year. .

No bumpier than the GFC, which we sailed through relatively unscathed. Remember, the GFC was the worst economic tsunami since the Great Depression.
 
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Sounds very complicated and for the newspaper reader,or the overeducated and he has the simple ability to discount what he did not see,and stays in a state of denial,..
 
Keen is right (at last). Rates are coming down. We will now have the cheapest rates for over 50 years - the last time money was so cheap was in the 1950s.

No bumpier than the GFC, which we sailed through relatively unscathed. Remember, the GFC was the worst economic tsunami since the Great Depression.

But then the Chinese were buying our dirt during the GFC.

Now they are still buying, but at basement bargain prices!

If not for China, AUS would have been in big trouble during GCF!
 
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how do you think this will play out for the so-called ?bubble? in the property sector.

Steve Keen: It could keep it going
In 2008, Steve Keen said interest rates would fall to zero by 2010 and 'The Bubble' would pop with a 40% crash.

Now he says rates will fall to 2% and this will keep 'The Bubble' going?

Sydney house prices are up about 60% since Steve Keen sold his Sydney home in 2008 on the expectation of a 40% crash.
 
In 2008, Steve Keen said interest rates would fall to zero by 2010 and 'The Bubble' would pop with a 40% crash.

Now he says rates will fall to 2% and this will keep 'The Bubble' going?

Sydney house prices are up about 60% since Steve Keen sold his Sydney home in 2008 on the expectation of a 40% crash.

Keens predictions were reasonable for the conditions at the time. CB and govt reactions to an impending implosion in economies was unprecedented; something that was all but impossible to predict. Six years later the original causes of the 07/08 GFC haven't been corrected. If anything we're sitting in a much more precarious position because there appears to be no alternative other than to delay the inevitable which effectively magnifies the problem.
 
Keens predictions were reasonable for the conditions at the time. CB and govt reactions to an impending implosion in economies was unprecedented; something that was all but impossible to predict. Six years later the original causes of the 07/08 GFC haven't been corrected. If anything we're sitting in a much more precarious position because there appears to be no alternative other than to delay the inevitable which effectively magnifies the problem.

no they weren't - they were alarmist and smacked of pseudo-research into the US system.

how an economist could not 'predict' some form of govt intervention is just short sighted and ill advised. what govt is going to stand idly by and watch a country's economy implode? none.

and none did.

every effort will be made to 'delay the inevitable' and continue the status quo - hell, there might even be a smooth transition into gold backed SDRs.

but in the meantime - the game is false growth with fiat currency.

so play along or sit on the sidelines. don't participate and complain.
 
AKA "kicking the CAN down the road" as my US friends would call it ?
Until someone comes up with a perfect solution that will last in perpetuity they will always be kicking the can down the road.

Those that are able to adapt to the short/medium term environment & mitigate risk will continue to thrive, whilst the aforementioned can continues to get kicked.
 
how an economist could not 'predict' some form of govt intervention is just short sighted and ill advised. what govt is going to stand idly by and watch a country's economy implode? none.

I'll repeat with emphasis;

CB and govt reactions to an impending implosion in economies was unprecedented; something that was all but impossible to predict.

I doubt any economist would predict or assume a govt would do little or nothing. It was the extent of the moves to shore up the system, the crony protectionism, the willingness to overlook criminality and fraud on a massive scale and the time scale this process has been occurring for.

A reasonable economist would have assumed that some correction would be allowed to take place and for the system to gradually rebalance itself. Everything to the contrary has been the MO of this fiasco, something that is still surprising economists and financial players to this day.
 
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