Zero Percent Interest Rate - Steve Keen

[HiEquity]

If you have some sound economic rationale to explain why interest rates won't drop to zero by all means post it. but simply trashing SK seems to indicate that you don't really have a counter-argument other than "I dont like it so he must be an idiot".

Mate, we're property investors, how could we not like it? Bring it on I say, the sooner the better... then this little black duck can get out there and do some serious buying and fix rates for 15 years or so! It would set us up for life, no doubt about it. Chuck the job in and go sailing...

I think people are just pointing out the inconsistency of someone saying there will be a 40% drop in property prices as well as zero per cent interest rates at the same time. His decision to not sell his property is another possible inconsistency but this has been done to death in another thread.

The only way both predictions could come true is if there was massive unemployment / depression to drive everyone to live in one room per family and drive rents and values down, in which case he should be talking about that instead - the direction of property prices pales into insignificance in comparison to that outcome. There is no safe place then. But i haven't seen him focus on that if that's what he believes.

If it is then he should be stocking up on tinned food and shotgun shells. As Mr Latham said previously a rural block with room for a 500sqm veggie patch would probably be a "defensive" investment if you thought that was going to happen!

 

[boomtown]

Can you buy a rural block with a bore somewhere obscure for like 10k?

 

[HiEquity]

How cheap can you get a rural block big enough to grow vegies with a well?

Dunno but my inlaws own a nice sized farm with plenty of water - that's our ultimate hedge! Our last stand in this world of investing, if you will...

 

[boomtown]

http://www.realestate.com.au/cgi-bi...r=&cc=&c=93897874&s=qld&snf=rbs&tm=1224151581

When was there last water in the Fitzroy river?

 

[asdf]

If global credit markets worsen, 0% won't help the actual interest rates banks charge. 0% would be the last stick the RBA can use to stimulate the economy and if it does go to those levels, we are going to be in real shi*. Forget hoarding cash, I'd be buying cans of food...

 

[Peter Parker]

Personally I will be very happy with 2% or 0% interest rates... imagine buying property with a mortgage of say 3.5% and a rental yield of 6%...

Let's hope you don't get what you wish for; very low interest rates also means very low inflation, or even deflation.

Deflation is scary; imagine your tenants paying less next year than now, and your properties being worth less next year than now?

Essentially the strategy for property investors will have to change; it will become all about yields (McKnight, Lomas etc), rather than all about capital growth (Wakelin, Fitzgerald, etc).

 

[essence]

If global credit markets worsen, 0% won't help the actual interest rates banks charge. 0% would be the last stick the RBA can use to stimulate the economy and if it does go to those levels, we are going to be in real shi*. Forget hoarding cash, I'd be buying cans of food...

Please do not forget that at least in US it has become fashionable to nationalise the banks. So if some naughty bank are going for money grab against society, Government owned ones will come up with low rates and drive the hooligan out of business. Any reduction in rates will be for the economy, for the whole society. Those who go against society are enemies of society and will be dealt with accordingly.

In deflation environment food and rents do not go down, unlike plasmas, cars and other non-essential stuff. Rents go down if you have oversupply of property. For that you have got to have property boom first.

 

[grossreal]

hi all
for what its worth there are a couple of places already with 0% interest rates so its not that silly
the uae and the arab states all have 0 rates and in alot of islamic states is part of there religen that there is o interest but only to them.
so its not that unusual
and there are others that are at .5% to cover running costs.
we are one of the only high rate countries
and the rest follow our lead.
the libor is at 4.2 I think at the moment
but thats only for bank trading.
internal rates can and usually are lower then that
so for me he is not that stupid and dare I say it to have my head bitten off he is right.
if you did have 0% rates and you had free flowing money
then you would want as is the case of japan and the uae guys
to get that money out of your bank as quick as possible
as the more you got out the more other costs you can charge and the market is then a wash with money and you build( have a look at dubai or uae).
now this might sound a bit stupid but macq get money not from interest(well not all from interest some) but from fees and most of the banks live off the fees
so thats where the money is
also the banks become sudo jv partners and take a part of the profit from the venture
so you find in these countries banks as part owners in business or projects
and in that way the interest rate is not a major issue
there is a credit card in uae and saudi now that has no interest and has a running cost of I think .5%
could you imagin that here
not harveys card 36 months interest fee but always interest free.
so before people say this guy is a fruit cake
he is not
the only issue here is what he is saying he understands
and maybe he doesn't say it right but I think he is putting a view that he has not made up.
its already there.
oh and yes the saudi and the uae guys buy lots of food but its lamb and not tins and they don't have haords of food for the next disaster they have traded alot longer then us.
and they are out striping us by a long shot so maybe they are wrong and we are right and next time I send some paperwork over maybe I should explain how there system of 0% interest is fool hardy and the should have a group of people not voted in by anyone not accountable to anyone charging a rate that noone can work out how they work it out.
and when they do guess what to do usually get it wrong.
and then say it the rest of us that to blame and this system is alot better.
I think it could work because at least I would have them laughing.

 

[Chatto]

Oh I cant help myself, there have been some hilarious posts.

What got the US out of depression last time.. war, well if the Iranians get there way and start selling oil in euros then grab your boots.

Anyone know of some good arms companies I should be getting into, maybe that brissie bloke from Metal Storm would do the trick.

 

[yorke]

I agree - what is this fascination with Steve Keen?

Don't be like this Shadow, let the media tart have his 15 minutes of fame. Soon enough they'll see him for what he is and ignore him.

 

[urchin]

And in this morning's Australian we see:

RBA plans drastic rates cut as world markets tumble
David Uren, Economics correspondent | October 17, 2008

FINANCIAL markets are tipping a 2.25 percentage point cut in official interest rates by Easter as fears for the global economy cause further havoc on share markets.

It looks like things are heading down that road, whether or not they reach zero, who knows, but it seems a bit silly now to see it all as a crackpot idea.

 

[freddie]

........let the media tart have his 15 minutes of fame. Soon enough they'll see him for what he is and ignore him.

You refer to the man who wrote “Debunking Economics” back in 2001 and all those Debtwatch reports whilst at the same time taking on considerable debt (3.5 times GROSS income) at an advanced age.

STEVE KEEN: I bought this house two years ago and I have a debt which is equivalent to 3.5 times my gross income and I have to spend quite a bit of time paying it down, thanks very much. And I can't see myself retiring before 65.

http://www.abc.net.au/7.30/content/2007/s2238256.htm

Australian Broadcasting Corporation
Broadcast: 07/05/2008

 

[tcocaro]

The biggest issue I have with Keen is not the technical merits or otherwise of what he says or even if what he says is or isn't possible. Rather I am annoyed by the fact it represents the extreme end of what is possible and is packaged as a sound and realistic assumption or prediction.

For 0% rates to occur in this country a chain of events must occur in this country starting from recession, deep recession, depression and prolonged depression. We are yet to post negative growth, lets start with that.

To argue 0% today is simply sensationalist.

Yes 0% also sounds silly but thats not my gripe. It is the fact that it represents a prediction based on a prediction based on a prediction based on yet another prediction. If he wasn't an economist he wouldn't be looked at twice but since he is media loves to parade him around.

Unfortunately his ego has blinded him from the fact that if hes wrong and given he is so extreme even those that support him must agree is very likely, he will do irreparable damage to his reputation. This is because he will be held to account in the near future.. in short hes made way too many enemies for his predictions to disappear without being shoved in his face should they not come true - in short he will be made a periah. People will always say.. "wasn't that the guy who said 40% drops..."

My own opinion is he is a bitter old little man. The way in which he has conducted himself, expressed his opinions and clear excitement of being on TV has belittled him.

I had just got off the phone with HIA and spoke to persons (lets keep names out of it) who where involved in packaging the FHOG. (** by the way units/townhouses which are new attract the 21k **). The conversation went to Steve Keen and i was told the following;

His model (by Keens own admission) is based on a sample size of 900 people. This is obviously a reflection he is a one man band and doesn't have the resources but surely as an economist or as any statistician will tell you thats woefully inadequate to base such wild predictions on.

I really do hope that nothing untoward happens to Keen. I would hate that someone in my industry may one day if they bump into him into the street may take things to far. I have spoken to many people and I haven't seen this level of anger towards a single person.

My own opinion is that Keen needs to temper his statements and stop catering his punch lines to the media for the self indulgent reasons of vanity.

 

[WinstonWolfe]

Settle down girls.....then do a bit more reading.


Why has Japan had zero interest rates?

Japan's monetary policy of zero interest rates (cash rate) was introduced in March 2001 in an attempt to revive the economy, which had been in long-term recession since the early 1990s.


One of the main problems was deflation - falling prices - which meant that consumers and businesses were reluctant to spend or invest because any purchase was likely to be cheaper in the future.

The zero interest rate was designed to make it cheaper for consumers and companies to borrow money for spending, and less attractive for them to save.

__________________________________________

Keen is talking about a 0% cash rate which is the overnight rate, which isn't what the banks lend to you and I at.

Those who think this won't happen in Australia should look at what has happened in the property market in the last 4 weeks. Wait until the September and October housing finance figures come out (catalogue no.5609.0 on the abs website).

Because people have been uncertain what the global economic crisis means for Australia, people have been delaying property purchases, which I bet has pushed housing finance through the floor. If people expected property prices might continue to have downwards pressure, they'd just wait and wait to buy.....and not borrow at even 2% interest. An environment like that would also have high unemployment, so there'd be an increased risk of renters defaulting, virtually no ability to raise rents, and people would form bigger households .

 

[urchin]

I find it interesting that people feel so threatened by one economist and attribute so many evil motives to his actions. He is only one person and whatever he says will not move the market one way or the other.

It is, basically, him standing alone against a whole army of RE spruikers--people trying to convince FHBs that if they don't buy now--RIGHT NOW--that they will lose their opportunity to buy a home forever (this in the face of a global economic slowdown, rising unemployment, sliding house prices and now--a first for me--sliding rent (Canberra dropped 2% in Sept.)).

Which of these groups has stronger vested interests?

Yes, they represent the extreme ends of the spectrum but one extreme professes a view you like and the other a view you don't like. so you attack one and indulgently tolerate the other. That's human nature.

It is easy to put a face on a problem and target the face instead of looking seriously and objectively at the problem.

I fully expect REAs to do everything they legally can to talk up the market--it's their livelihood, of course they are going to put a bright sunny face on everything. I don't hate them for that, I don't make veiled threats of violence toward them. I just discount everything they say accordingly.

If you think SK is a fraud... just ignore him. With all the various, extremely powerful and highly volatile forces at work in the market at present I think the impact of SKs words are negligible at best.

What it comes down to, I suppose, is whether or not you think the RE market is so fragile that an associate professor from a university can make a significant impact upon it. If you believe that it truly is that fragile, then you have bigger concerns than SK to worry about. If you don't believe it is that fragile then why get so worked up over it? Seems a bit silly.

 

[evand]

Poeple need to take responsibility for their own situations and not blame one single person for the future possible lower performance of their business or a reduction of the money the earn from an economics professor's predictions, no matter how radical they are.

If he believes this stuff, why shouldn't he say it. Last time i checked we live in a democracy with the right of free speech.

I really cant understand your absolute hatred toward the guy. Care to elaborate?

I really do hope that nothing untoward happens to Keen. I would hate that someone in my industry may one day if they bump into him into the street may take things to far. I have spoken to many people and I haven't seen this level of anger towards a single person.

My own opinion is that Keen needs to temper his statements and stop catering his punch lines to the media for the self indulgent reasons of vanity.

 

[lizzie]

I find it interesting that people feel so threatened by one economist and attribute so many evil motives to his actions. He is only one person and whatever he says will not move the market one way or the other.

i don't hate steven keen -i don't even listen to him and wouldn't know him from a bar of soap - but i wanted to comment on the above.

one man can make a difference, a significant difference. if the media starts quoting and touting and putting forward this guy's predictions as gospel then it is not just one man. it is the widespread media touting his ideas as the truth.

the problem with that is the majority of the population are not financially intelligent - and no where near the degree those of us on ss are - so they believe what the media tells them. the media "always" tell the truth right?

then what happens is a number of people believe what the media is telling them and it begins a groundswell. next thing you know you have a self fullfilling prediction because of the fear instilled in the uneducated by one man via the mass media. look at the share market - how much of what is happening now can be traced back to fear? two things drive the stockmarket - fear and greed. property is fundementally no different.

if the fear hadn't been instilled via the media putting forward the unsubstantiated claims of steven keen, than a large portion of the uneducated wouldn't feel fear and take the actions that they do - and by taking those actions (trying to dump a property in a buyers market) they are contributing to the downward spiral.

one man can make a difference in the positive as well - by using the media - look at martin luther king or ghandi or mandela.

 

[J Martin]

While I'm not advocating or disagreeing with Steve Keen's views, you need to understand that he has been making these claims for a number of years. He's not simply some "Johnny come lately" who is simply chasing media attention for his own ends. He's getting media attention because some of his predictions are coming true, and the MSM is in doom and gloom mode at present.

 

[urchin]

i don't hate steven keen -i don't even listen to him and wouldn't know him from a bar of soap - but i wanted to comment on the above.

one man can make a difference, a significant difference. if the media starts quoting and touting and putting forward this guy's predictions as gospel then it is not just one man. it is the widespread media touting his ideas as the truth.

hi lizzie,

i don't deny that in particular situations--such as mandela, gandhi, MLK, etc.--one person can make a difference. but i doubt anyone will draw too many similarities between SK and his message and those people.

My central point, however, is that if the market is so shaky as to be significantly altered by SK's utterances, then that is more or less proof positive that we are in fact in the midst of a bubble. I remember the dot com bubble very well as I was living in the heart of Silicon valley throughout it and there was a very similar phenomenon there as well. One comment would send investors into ecstasies or suicidal depression. That indicates to me that investments are being made primarily on the basis of market sentiment and not on the fundamental financial value of the investment.

If you have a house that you know perfectly well is worth X amount of dollars and you are fully confident that it will retain and grow in value over the years (and if you have a real basis for this certainty) and you are looking at it as a long-term investment, what one person says will not matter. Steven Keen will have his day and then he will be forgotten. Whether he is absolutely right or absolutely wrong, he will be forgotten because the situation that brought him to the forefront will have resolved itself.

Media outlets are latching on to him for the same reason they latch on to other talking heads. Nobody knows how all this uncertainty is going to pan out, so they bring in experts to give their views.

SK has made his views pretty clear and has held them for several years. And throughout most of that time he has been regarded as a crackpot by most media outlets. Only now, it seems, some of what he has been predicting has started to come to pass.

But there is a big difference between predicting an event and causing an event. Unless SK has hidden evil superpowers that he hasn't told us about, i think his impact will be marginal. Anyone who is readily swayed by his arguments was probably leaning in that direction anyway and was simply looking for reassurance. Just as people preparing to buy a place pay special attention to RE lobbyists saying that property will only ever go up so you must buy now.

 

[tcocaro]

If we argue against Keen we are "spruikers" not only that.. our motives are questioned and further more if we put forward a valid argument the defense is why do we bother about his comments in the first place?

This is a forum. This is a place to share ideas. This is a place to debate comments made, stats and opinions.

If the day has come where making a comment on this forum makes me a spruiker or MUCH worst attracts comments like;

If he believes this stuff, why shouldn't he say it. Last time i checked we live in a democracy with the right of free speech.

Then why bother posting anything here?

If you have nothing to contribute then take your own advice at the very least? Allow me to (as you put it) exercise my democratic right of free speech to speak against what people like Keen are saying.

Your comment and position to me is absurd. This is a forum, if you have reached the point where you cannot contribute to the debate either stop posting or choose a thread which is of interest to you.

This situation has become ludicrous.

PS: to urchin lizzie wasn't putting Keen on the same level of Mandela or some suggestion Keen has made some long lasting change in our society. Ofcourse one person can make a difference... what would happen if (a single man) Kevin Rudd said interest rates will likely be 0? or (a single man) Glenn Steves say rates will be 0%. One man does make a difference in this climate especially since everyones senses are hightenend and everyone is hanging off what anyone has to say.