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
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.