The self fulfilling prophecy of Steve Keen

[Humphrey]

I think Steve’s prediction does not necessarily need to be the precise one, but it does give another possibility, which could play out. You all attack him for his ideas but is he not entitled to his point of view? Being a student of Steve's, I congratulate Steve on looking beyond simply orthodox supply and demand and instead model things in a dynamic model, which does take into account debt. We still to this day have macroeconomic books, assuming exogenous money supply in a Mundell Fleming world, look at the empirical evidence we couldn’t be further from the truth.

If feel Steve is well aware that egg may come on his face if his predictions are way of the mark. But look at economist Mr Fisher who made a statement along the lines, "Stock prices have reached what looks like a permanently high plateau" just a few days before the great crash of the 1930's, he lost all of his fortune in just a few days. A few years later he radically refined his thinking and wrote a paper on debt deflation, which is widely sighted these days. You may draw similar parallels to the current situation.

Any Doom and Gloom critics hitting out at Goldman sachs prediction of $200 a barrel for oil in the not to distant future? Im all for a good informed debate! Go check out his website, you may disagree or agree, but it may just add another dimension to your thinking.

Kudos.

Why is it "crazy predictions"?

It can certainly happen, just because you dont think it can (or dont want it to) doesnt mean it is a crazy prediction.

Beside that, every single prediction made on this forum, in the media and at every conversation daily in this country pretty much ignores government intervention.

But government intervention hasn't stopped recessions previously and probably wont again.

Kudos.

the guy is an economic terrorist. seriously, I wonder if he could be locked up under anti-terrorist legoslation? his extremist views are threatening national security

Libel?


It seems to me that people react emotionally to what SK says because for someone to even suggest that property may drop by that amount, and therefore reduce signifigantly the wealth of those predominantly invested in property, is just too painful to even consider.

As for predictions, there are some hilarious examples in this forum. The willingness of people to make predictions and the convictions expressed behind those predictions (ego), indicates to me that underlying market psychology hasn't changed much in the last 350 odd years. My prediction is that there will be more booms and busts in the future.

Anyone who has studied markets would have to agree that there are times when prices rise and other time when prices fall. But it seems to me that if anyone comes out and suggests a downturn in the economy, or a reduction in housing prices or share prices, then they are instantly labeled as a "doom and gloomer" by this forum. Even a basic review of business and econimic cycles shows that "bad times" do occur. Taking a pollyanna view is not going to stop this.

SK has some radical ideas. Most radical amount to nothing but a few of them transform the world into a better place. We should consider what he says. We don't have to agree but we shouldn't reject new ideas out of hand. We have a large degree of freedom of speech and I think that should remain so.

EC

 

[Trogdor]

Warmed_cockles - agree 100% - now is the time for financial caution, and increasing cash buffers a lot, etc....

Thats a no brainer. Things are not going to be fun in the coming 1 - 2 years, thats for sure!

Its just that this guy is really fear mongering with very much over the top predictions and proposals for reform which are based on nonsense - read his website - he's a crackpot.

 

[BV]

I'm a big supporter of freedom of speech and I actually blame the media for not researching this guy properly.

I agree and I think it's about time the media stopped reporting such nonsense.
It's not all media at fault but it seems to me that the standards of journalism are falling...

Cheers

 

[manderson]

I agree and I think it's about time the media stopped reporting such nonsense.
It's not all media at fault but it seems to me that the standards of journalism are falling...

Cheers

I wouldn't say there standards of journalism are falling, they have always been crappy.

They reported for years that property always goes up indeed dam near any investment always goes up and it was a sure fire thing, they failed to acknowledge that like all things there is a down side before the next up side.

So I would suggest their reporting is consistent, consistently crappy

 

[warmed_cockles]

Warmed_cockles - agree 100% - now is the time for financial caution, and increasing cash buffers a lot, etc....

Thats a no brainer. Things are not going to be fun in the coming 1 - 2 years, thats for sure!

Its just that this guy is really fear mongering with very much over the top predictions and proposals for reform which are based on nonsense - read his website - he's a crackpot.

I don't know if he's a crackpot. They said the same about Roubini and Mark Faber!

I don't think what he says is more dangerous than this, though:

http://blogs.abc.net.au/queensland/2008/09/median-brisbane.html

 

[grossreal]

hi Trogdor
this may or not be true.
but for me there is very little he has said that will or should concern anyone.
you can stand in the middle of martin place sydney
and shout as loud as you like things he has said
and most people will still just walk past
maybe they will say that wait a minute as I have a person yelling next to me but thats about it.
media want bad news not good
thats their business and they need ratings
and to get that they have to get people interested
so the more different the view in there book the better.
for him he wants his 5 min in the sun
and again thats up to him and good on him if thats what he wants.
what everyone needs to think of
will anything he says is of any use.
and thats where this whole thing falls down because I simply don't have the time.
now thats not just me.
its the same as the guy on the phone if hes yelling in martin place.
people want snipits of information they want it to be pod cast.
they want to see on tv in a 3 min slot.
and unlike you I don't think he is in a crowded theatre
I think he is in a park and I don't even think he is shouting bomb
I think he is reading a que card given to him by today tonight.
as for the injury it will be the camerman falling over a jogger and filming there fall saying he /she was knocked over by his views.
there are alot of reforms we do need
and for one of them is don't believe everything you read or hear as most has very one sided slant.
and sorry to say that
to say a view is bit sarcastic
that may or may not be true
the trouble is that things have a uncommon manner of becoming the norm swearing for me is one of those.
it has gone from say 1945 where it was a thing you never did in public to 2008 where a judge says that now its the norm.
so in under 65 year which is one life time.
you have taken a fundimental human behavior
from being some thing that was
not only not allowed
was frowned upon
and in some case as was the case with single mothers you got throw in jail
to now keeping you out of jail and to some a hero of free speech.
so you have to wonder when will free speech go the opposite way.
I won't be here in 65 years but I hope that free speech does not go the way that swearing has.
this is a very small example but it shows that if you don't stand up for it you will lose it

 

[evand]

Absolutely. For property prices to to drop 40% will mean severe hardship for a lot of people and financial Armageddon for some.

The thing is, its very hard psychologically for people to agree with what he's saying and at the same time consider their own financial oblivion. There are quite a few punters who are quite stretched as it is.

That's why the anti Keen posts are so emotional and vehement. I think it takes a lot of experience in investing to acknowledge that someone is saying property could fall by 40% and also at the same time entertain the thought that it could also wipe you out.

I think its a form of denial. The definition in psychological terms is "cognitive dissonance".

"Cognitive dissonance is an uncomfortable feeling caused by holding two contradictory ideas simultaneously."

The greatest problem is that the denial can cause more damage than at least acknowledging that it is possible.

Many forumites have ignored the bears on here for a long time (and as Sunfish has said accused us degradingly as "doom & gloomers" and a lot worse than that).

(Funny, i just had a thought. During the Henry Kaye era, bears were known as "dream stealers".......that's so funny. People make & steal their own dreams.)

Quite a few would be in a better position right now if they at least taken notice and implemented actions for a severe downturn in the economy and inevitably property prices. Well here's their chance again.

It seems to me that people react emotionally to what SK says because for someone to even suggest that property may drop by that amount, and therefore reduce signifigantly the wealth of those predominantly invested in property, is just too painful to even consider.

 

[steveadl]

Sure, what S Keen is saying could affect the market. Big deal...if he believes what hes saying why shouldn't he say it. Unlike RE agents and their ridiculous REI's who constantly talk the market up there isn't an obvious ulterior motive for S Keen.

Evan, you’re not serious right?! Maaaaate…..

Well for a start, I’d say he just loves the sudden popularity and attention. So many people in society would love to be on tv every week being asked about their opinions. The boost to his ego would be his biggest motive.

Publicity and a ‘name’ would also be very handy when going in for his next wage negotiation, or when looking to find a new job.

I would also be down right shocked if he doesn't rush out a book while everyone still remembers his name.

You're a smart guy mate, you know the above.

 

[sash]

Evand,

I am sorry to say that Professor Keen is out of kilter with what most experts are saying, this is probably why there is why there is a lot of emotive rhetoric directed at him!

I tend to be more likely to agree with people like Saul Estlake (ANZ Chief Economist) who are more moderate. I personally do not see another 20% drop across the board, particulary in markets like Western Sydney where there is already a drop of 15-20%...perhaps another 5-10% but another 40% is not reasonable. However, the top end can drop 40%....as this is where most of the risk is at the moment.

So if you were to look at the market overall the larger drops are going to be in WA and Qld as resources come off their boom, but even there you will not get the 40% across thr board you are looking for. Other states are likely to flatten out or drop 5-10% over the next 2 years or so.

This is not being denial but basing my knowledge on the what I see happening around me (I am in an industry where i see this) and based on the trending of world events.

As a final note...for a 40% drop property prices you will need to see unemployment hit double digits (I know one economist is saying 9%) but this it unlikely given current circumstances. Why because the Central banks around the world are taking decisive action this time around and are in cahoots with their governments bar a few exceptions.

Cheers
Sash

takes a lot of experience in investing to acknowledge that someone is saying property could fall by 40% and also at the same time entertain the thought that it could also wipe you out.

I think its a form of denial. The definition in psychological terms is "cognitive dissonance".

Quite a few would be in a better position right now if they at least taken notice and implemented actions for a severe downturn in the economy and inevitably property prices. Well here's their chance again.

 

[Humphrey]

Evan, you’re not serious right?! Maaaaate…..

Well for a start, I’d say he just loves the sudden popularity and attention. So many people in society would love to be on tv every week being asked about their opinions. The boost to his ego would be his biggest motive.

Publicity and a ‘name’ would also be very handy when going in for his next wage negotiation, or when looking to find a new job.

I would also be down right shocked if he doesn't rush out a book while everyone still remembers his name.

You're a smart guy mate, you know the above.

You could say this about almost any "expert" who appears on tv, writes a book, has a web site or produces a newsletter.

He's an academic promoting a hypothesis which relates back to work Minksy did in th 1950's and Keynes did in the 1930's. Yes, he is out there promoting his hypothesis in the same way that most of the "experts" and commentators on Sky business are promoting their own business and in the same way that some books are published for credibility and advertising purposes. Just how the world works.

 

[steveadl]

You could say this about almost any "expert" who appears on tv, writes a book, has a web site or produces a newsletter.

He's an academic promoting a hypothesis which relates back to work Minksy did in th 1950's and Keynes did in the 1930's. Yes, he is out there promoting his hypothesis in the same way that most of the "experts" and commentators on Sky business are promoting their own business and in the same way that some books are published for credibility and advertising purposes. Just how the world works.

Absolutely, but then I'd call that an ulterior motive. Evan said he doesn't have an obvious one like realestate agents do. I think that's incorrect.

 

[lizzie]

Absolutely. For property prices to to drop 40% will mean severe hardship for a lot of people and financial Armageddon for some.

only if you were relying on equity increases to pay compounding debt, or you lose our job (maybe another 2% of the population) ...

otherwise - as long as the cashflow continues (and it is only getting better with rent increases and interest rates dropping) then why would there be any hardship? one would just hold.

 

[evand]

Steve,

OK, i should have been more specific. What i meant is that he has no ulterior motive in the property market being influenced by what he is saying as agents so obviously do.

His exposure and credibility might be increased by him being a media junkie of late and that could be a by product of his "radical views" but nothing new there. Look at most of the financial guru media tarts on TV, radio and newspapers these days. Or he just might have a fragile ego and it makes him feel better about himself....who knows.

He's an academic after all and they're pretty weird.

And I dont think i'm a smart guy, just been around the block a few times.

Evan, you’re not serious right?! Maaaaate…..

Well for a start, I’d say he just loves the sudden popularity and attention. So many people in society would love to be on tv every week being asked about their opinions. The boost to his ego would be his biggest motive.

Publicity and a ‘name’ would also be very handy when going in for his next wage negotiation, or when looking to find a new job.

I would also be down right shocked if he doesn't rush out a book while everyone still remembers his name.

You're a smart guy mate, you know the above.

 

[steveadl]

OK that makes more sense, Evan, and yes I agree.

Also agree that academics can be pretty weird!

Belive me mate, I value your type of 'around the block' smarts much more than the theoretical smarts.

 

[Humphrey]

Absolutely, but then I'd call that an ulterior motive. Evan said he doesn't have an obvious one like realestate agents do. I think that's incorrect.

His motive is to promote his work, his point of view. But I don't see this as an ulterior motive, I don't see anything covert about promoting his work. Academics write papers and books all the time based on their work. Authors of all sorts appear in the media to promote their work.

Now if you said that his motive it to drive down the housing market by 40% so he can pick up a bargain then that would be an ulterior motive. But I'm not sure that this is his motive and I doubt that he has that much "pull".

 

[evand]

Lets just say i wouldn't like to be highly negative gearing into property when the bottom falls out of prices.

It wont happen quickly but over years and then a property's price will have to come back to where it started (total maybe 6-8 years). At that point you have years of neg gearing costs to recoup, not to mention inflationary loss before you even see a return.

Only then we will see some price recovery in the market.

That could all take a loooong time and what % of investors could handle that
scenario. More to the point, why would you?

Even the relatively short economic/property downturn so far has a lot of people struggling.

By the way, i dont think rents are going to continually increase as everyone seems to think. I have already seen signs of rent slowing in a lot of areas. I 'd say there is an affordability factor here, just as in buying property.

only if you were relying on equity increases to pay compounding debt, or you lose our job (maybe another 2% of the population) ...

otherwise - as long as the cashflow continues (and it is only getting better with rent increases and interest rates dropping) then why would there be any hardship? one would just hold.

 

[joe jo jo]

His motive is to promote his work, his point of view. But I don't see this as an ulterior motive, I don't see anything covert about promoting his work. Academics write papers and books all the time based on their work. Authors of all sorts appear in the media to promote their work.

Now if you said that his motive it to drive down the housing market by 40% so he can pick up a bargain then that would be an ulterior motive. But I'm not sure that this is his motive and I doubt that he has that much "pull".

If it translates into cash $$$, then thats a motive

 

[Pushka]

If it translates into cash $$$, then thats a motive

I remember when involved with a research body affiliated with a University that there is some kind of bonus payments for the number of times your name is printed in association with the profession you are in. And a huge bonus if your paper is printed in a journal. If this forum is ever checked, we have probably just made him a millionaire.

 

[equitymate]

I don't actually care either, but when a guy is on tv constantly, being presented as an expert in economics, and appears to be living in an average lookingapartment no less; in an average looking lower middle class suburb - not a decent McMansion in a "postcode" suburb etc - and is about to sell it at a loss; how can anyone who is watching really believe he knows anything.

Not that he should walk out the front door of his Toorak mansion and lean on the yellow Ferrari as he chats with Liz, but you see where I'm going with this.

He doesn't appear to be walking any talk with his expertise from what I can see. I just find it an interesting observation is all.

CO SIGN
Keen raises some good points, though a little extreme. The media love to give extreme commentators a free run with little scrutiny.
But I cant help but wonder, If the man is such a wiz why is he in a humble 500k unit he bought 2 years ago with a large debt at his ripe age?
I dont see professors from more prestigious universities sprouting their opinion to the media?
He sure looks bitter..

 

[Humphrey]

If it translates into cash $$$, then thats a motive

If what translates into cash? Academics make money from their work. Yes it's a motive but it's an obvious one not an ulterior one.