Zero Percent Interest Rate - Steve Keen

[tcocaro]

hes being saying the same thing for 30 odd years doesn't make him right now... and which of his predictions have come true? Please tick;

40% falls in Australian house values
20% unemployment
5-10 years depression

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.

 

[Trogdor]

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

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.

__________________________________________

Have you read about the magnitude of the Japanese asset bubble? It was much, much bigger than what we have seen this time in western countries.

Why do people just assume there was "a bubble" in Japan once, and that there is a "bubble" here so our outcome must be identical??!!

Perhaps do even more reading WW about the lead up to the Japanese bubble and the facts in that situation!

 

[sash]

Lizzie,

Mr Keen is gold! We should have more of him.....as you said it will scare the bejesus out of people as most are not financially literate! I am of the view that people will stop buying...okay it is bad for the economy....but eventually it will come back. I relish the prospect of picking up property even cheaper in a couple of months.

I am bearish the property market at the moment. I will be a sideline observer over the next 3-4 months.....geez that is going to be hard!!

I do not agree that the market will drop 40% ...perhaps some of the richer suburbs but can't see it drop 40% in Western Sydney...maybe 5%...10% tops but 40%....nope! Western Sydney is already down 20%...besides the FHOB grant is going to land money there anyway! I own most of my properties in the low end so I am excited by this....but I am not neccessarily going to further increase my portfolio yet.

I personally think some sectors of the share market have been oversold...accordingly i am getting in.

I foresee some of the best oppotunities over the next 18 months.....this is only evident when we have a major down turn.

Time will tell.... In the meantime....bring on Professor Keen!

Cheers
Sash

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.

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?

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.

 

[tcocaro]

that would make the rate about 4%? by april...

look if you think the prediction of 0 at this stage is a sound prediction then thats your choice.

And in this morning's Australian we see:



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.

 

[sash]

Agree.....Japans asset bubble was due to the Japanese were in denial. The purposely were not transparent with what was going on. I can't see this happening Australia wide. However, it is possible it can happen in some sub sectors where asset values - i.e. house prices in mining towns got a dose of irrational exhuburence!

As to people saying we are going to get down to zero interest rates...tell them they are dreaming! I can see a 3% RBA (4.75% IR)....but this would be short lived because with rents (even if they dropped slightly) would make RE positively geared by so much....we would be buying like no tomorrow, at least I would.

Cheers
Sash

Have you read about the magnitude of the Japanese asset bubble? It was much, much bigger than what we have seen this time in western countries.

Why do people just assume there was "a bubble" in Japan once, and that there is a "bubble" here so our outcome must be identical??!!

Perhaps do even more reading WW about the lead up to the Japanese bubble and the facts in that situation!

 

[GreatPig]

Japans asset bubble was due to the Japanese were in denial ... I can't see this happening Australia wide.

I bet most Japanese couldn't see it happening before it did either.

That's what denial is - a belief that something can't or won't happen despite all indicators to the contrary.

GP

 

[urchin]

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.

hi tc,

i know what lizzie meant, i was just making a little (very, very little it seems) joke.

There is a difference, of course, between Kevin Rudd making that statement and SK, of course. Kevin Rudd represents the government and so, if he were to say something like that, it would not simply be as one man--it would be as the representative of the government and everything that goes along with it.

SK, of course, brings a similar kind of cachet with his remarks by virtue of his being an academic, so his remarks are taken more seriously than joe schmoe walking down the street.

but i think you and I are on the same page, in a sense, only we have differing interpretations as to what it means. Everyone is in a kind of "heightened state of awareness" and tensions are running very high as uncertainty mounts. This--rather than SKs specific comments--indicates that the current property market is highly unstable. A stable market would be able to brush off individual comments with little or no impact. The fact that SKs comments may have the power to sway markets (something I am not convinced of, but will grant you the point anyway), says a lot more about the state of the market than it does about SK. It says that people are losing confidence in their investments.

So, instead of focusing on what one particular person says, it might be more meaningful to focus on what is causing this loss of confidence and investigate whether or not it has a real economic basis.

 

[Trogdor]

Agree.....Japans asset bubble was due to the Japanese were in denial. The purposely were not transparent with what was going on. I can't see this happening Australia wide. However, it is possible it can happen in some sub sectors where asset values - i.e. house prices in mining towns got a dose of irrational exhuburence!

Cheers
Sash

I've read that in Ginza (a nice retail suburb of Tokyo) at the height of the boom land was selling for USD$1.5 million per square meter!! And that it became a source of national pride that the land under the imperial palace was "worth" more than California.

Not sure as the the accuracy of these statements (I've read them a few times though), but they do serve to illustrate how crazy that boom was.

You cannot in any way, shape or form compare this to the Japanese situation.

 

[evand]

My contribution is this:

I believe Keen's prediction is entirely possible. But as i have posted elsewhere on the forum it could happen over a longish period of time. Say 4-6 years as in the 90s. It happens without people noticing.

I also believe he has the right to say in public what he thinks and believes regarding property prices, interest rates etc. Why shouldn't he?

RE agents and REI's have been doing exactly the same forever to talk the market up.

You have a vested interest in hoping the public are not influenced enmasse by his comments and thats fair enough, as long as you are up front about it.

Beside that, what you are contributing is outright hatred toward the guy.

As an aside, i had a pretty successful business in the building industry that was regulated quite strictly as businesses go. It was also in a very competitive industry where a lot of people go under.

I had all sorts of regulations, licencing, rule changes, competitive challenges etc to deal with in the 90s that could have derailed my business. Instead i just put my head down, thought smart, worked hard and made a success of it.

I sold the business a few years ago to a subbie for a pretty good sum.

I dont want to get in another debate but you cant blame other people. You just have to get on with it regardless of what happens externally. As i'm sure you know, the good businesses will survive (and even thrive) in this environment and the weak ones will go under. It happens all the time in the building industry.

If your business goes under (i'm sure it wont) i hope you don't blame an economics professor from Western Sydney. Good luck mate.

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.

 

[WinstonWolfe]

Have you read about the magnitude of the Japanese asset bubble? It was much, much bigger than what we have seen this time in western countries.

Why do people just assume there was "a bubble" in Japan once, and that there is a "bubble" here so our outcome must be identical??!!

Perhaps do even more reading WW about the lead up to the Japanese bubble and the facts in that situation!

Go away and read up on it yourself Trog....then come back and tell how much bigger it was, and the price fall since.

 

[WinstonWolfe]

I've read that in Ginza (a nice retail suburb of Tokyo) at the height of the boom land was selling for USD$1.5 million per square meter!! And that it became a source of national pride that the land under the imperial palace was "worth" more than California.

Not sure as the the accuracy of these statements (I've read them a few times though), but they do serve to illustrate how crazy that boom was.

You cannot in any way, shape or form compare this to the Japanese situation.

Come on Trog. you got to read more than a few anecdotes.

 

[tcocaro]

I appreciate that you took the time to reply in detail even though I disagree with most of what your saying.

I agree the RIE do talk up the market and I have been noted as such, for instance there claim of only 700 properties on the market for rent is a joke.

I have always said theres no value in extreme claims from either end of the spectrum.

I wont reiterate my comments as I have exhausted myself on this topic. However I would like you to quote where I have indicated that I "blame" Keen for what may or may not happen to me?

I never blame anyone other than myself for any of my decisions.. so not sure what your really on about here.

What I have eluded to however is others.. the "joe six packs" will like sheep follow Keens comments to their detriment.

I dont want to get in another debate but you cant blame other people. You just have to get on with it regardless of what happens externally. As i'm sure you know, the good businesses will survive (and even thrive) in this environment and the weak ones will go under. It happens all the time in the building industry.

 

[sash]

Mate, I am reading my tea leaves also...LOL!

I don't think I am in denial.....I agree that property will take a hit but I can't see it drop 40% Australia wide. Why....because unlike Japan....we are importing 200,000 people....yes I know it will be less next year.

Secondly, unlike Japan our banking system seems sound and asset values in places like Sydney have corrected (i.e. Western Sydney) but some places like Eastern Sydney may drop further.

Thirdly, we have a double whammy in the sense baby boomers will start to clock off...yes I know that people are saying that people will work to 70...I work with a few...and they don't want to deal with the s%$t in a recession. So what does this mean...there will be a floor to unemployment...so it will not dip as much as people think...I could be wrong....but this is what I believe.

The areas to watch is Commercial Properties...as credit in this areas has well and truly dried up. If you look at the papers there a heaps of CP supply but not as much residential supply. Might be a trend?

I for one ...am reading my tea leaves on a daily basis....buggered if I know...because the environment is changing on a daily basis. All I know (based on previous recessions) we will come out at sometime. The world goes on......I just want to have one last hurrah via one last BOOM...before my premature retire before I turn 50....I am 41 now!!!!

Cheers
Sash

I bet most Japanese couldn't see it happening before it did either.

That's what denial is - a belief that something can't or won't happen despite all indicators to the contrary.

GP

 

[Trogdor]

Come on Trog. you got to read more than a few anecdotes.

Yes, sorry, you are correct!! Here are some interesting articles from the time in question and URLs for all to read (sorry, they are all from Time - it has archives back to the 1920s!!):

http://www.time.com/time/magazine/article/0,9171,984364,00.html

[Monday, Apr. 08, 1996, Time Magazine]

Two points of interest in this artice - (i) the US S&L scandal has seen all this play out before in the US, and (ii) the extent of the Japanese write offs on bad lons for their housing-loan companies were more than 75% of their total portfolios!

http://www.time.com/time/magazine/article/0,9171,968073-2,00.html

[Monday, Aug. 08, 1988]

The interesting point of this article is the massive foreign surplus Japan ran before their crash - they has so much cash looking for investment returns, anywhere - that internally asset prices bubbled in a big way!

http://www.time.com/time/magazine/article/0,9171,154140,00.html?iid=digg_share

[Sunday, Jun. 24, 2001]

The interesting point here is the general overvaluation in the Japanese stock market at its height. As I mentioned earlier - Steve Keen tried to make the analogy that the nikkei fell from 38,000 to approx 8,000, and we should "expect the same'. Reading below - it seems that at its peak the aussie market was < 20 PE, compared to greater than (the article doesnt say how much greater) 45 PE in Japan.

"Prices for Japanese stocks eventually reached levels that seemed ludicrous by comparison with other markets. Even today, Tokyo shares sell for an average of 45 times annual earnings, in contrast to a multiple of 15 in the U.S. Despite the difference, many investors believed Tokyo stocks would never plunge from those levels because the market was perceived to be much more carefully controlled and even manipulated by the Japanese government and industry. A handful of securities firms control most stock trading, the theory went, and they would be able to prop up prices should any serious selling begin. On Black Monday in 1987, such intervention helped keep Tokyo's losses under 15%, in contrast to a 22.6% drop in the Dow, giving credence to the notion that Japan was a special, blessed case. In the final analysis, though, the Tokyo market appears as vulnerable as any other to the laws of supply and demand. "It was a classic bubble," says John Makin, director of fiscal policy studies at the American Enterprise Institute in Washington."

And one more:

http://www.time.com/time/magazine/article/0,9171,968066,00.html

[Monday, Aug. 08, 1988]

Discusses very lofty valuations on Japan stock market circa 1988.

Happy to keep on posting solid info over and above anecdotes, and you are more than welcome to as well

 

[WinstonWolfe]

Happy to keep on posting solid info over and above anecdotes, and you are more than welcome to as well

Why not focus your reading Trog, specifically to the two questions I asked above.

Meanwhile, I'll be out for the afternoon.....playing golf.

 

[crc_error]

As to people saying we are going to get down to zero interest rates...tell them they are dreaming! I can see a 3% RBA (4.75% IR)....but this would be short lived because with rents (even if they dropped slightly) would make RE positively geared by so much....we would be buying like no tomorrow, at least I would.

Cheers
Sash

what makes you think the properties would be CF+?

Don't you think with such low rates, you would need to lower your rent?

 

[sash]

I am slightly under the market...I can't see rents going down substantially due to demand.

However, they are leveling off at the moment. Sydney's West and Bankstown seems to be the exception.

I am already substantially CF+...... I took a decision to be in this position by selling one of my properties in Feb. 2008.

Cheers,
Sash

what makes you think the properties would be CF+?

Don't you think with such low rates, you would need to lower your rent?

 

[essence]

what makes you think the properties would be CF+?

Don't you think with such low rates, you would need to lower your rent?

Interest rates got nothing to do with the rent levels. You will need to lower your rent if by some magic lots of houses will suddenly fall from the sky so tenants will have lots of choice and vacancy rates skyrocket.

In reality before building boom we have to have property boom, so it makes sense to build. At property boom prices and mortgage increase thus putting upward pressure on rents.

Even for building boom to overshoot demand you need lots of vacant land first. Sydney, for example has run out ofland back in 2003.

 

[ArJay]

If anything there will be more upward pressure on rents as investors stay out of the IP market...

R

 

[crc_error]

Interest rates got nothing to do with the rent levels. You will need to lower your rent if by some magic lots of houses will suddenly fall from the sky so tenants will have lots of choice and vacancy rates skyrocket.

This must be the most conflicting comment I have ever seen!

Why is someone going to pay YOU 6% rent PA, when they can buy the same house and get 3.75% interest from the bank? and enjoy capital gains?

Think about it.. when rates were low 2001, rental vacancies went through the roof and we didn't see ANY rent increases for years, actually I had to decrease rent and offer '1 month free rent' just to get tenants in the door.

You might have low interest rates, but without tenants paying rent, it means nothing.