Zero Percent Interest Rate - Steve Keen

[ermen]

Will somebody get this guy to shut up? He's a second rate academic from a second rate University - yet the media keep on lapping up his every words!


Zero per cent

University of Western Sydney associate professor of economics and finance Steve Keen is radically bullish on interest rates, predicting a 2% cash rate by the end of 2009, dropping to 0% in 2010.

Dr Keen said the RBA would become more concerned about high household debt levels than inflation, as deep rate cuts in 2009 failed to stimulate the economy.

''The debt bubble is bursting and when it bursts, people stop spending and borrowing,'' he said.

''They (the RBA) can cut the pain but they can't boost the economy.''

Earlier this month, the RBA cut interest rates by 100 basis points for the first time since May 1992.

 

[Pushka]

Reminds me of some of the boffins who have become experts in Global Warming. Crawling out of the woodwork they are! Nothing like a financial crisis to put environmental issues on the backburner though.

 

[Shadow]

Will somebody get this guy to shut up? He's a second rate academic from a second rate University - yet the media keep on lapping up his every words!

I agree - what is this fascination with Steve Keen? I really don't understand why he gets so much attention. What exactly is he famous for, apart from constantly making uber-bearish predictions which never eventuate...

 

[Aaron Sice]

0%....?

i thought 2% was a long shot - $AUD would be around $USD35-40c....

 

[mam544]

The Dr Keen Files - He's at it again!

Zero per cent

University of Western Sydney associate professor of economics and finance Steve Keen is radically bullish on interest rates, predicting a 2% cash rate by the end of 2009, dropping to 0% in 2010.

Dr Keen said the RBA would become more concerned about high household debt levels than inflation, as deep rate cuts in 2009 failed to stimulate the economy.

''The debt bubble is bursting and when it bursts, people stop spending and borrowing,'' he said.

''They (the RBA) can cut the pain but they can't boost the economy.''

Earlier this month, the RBA cut interest rates by 100 basis points for the first time since May 1992.

The RBA cut rates by one percentage point on five occasions during 1991 and 1992.

Dr Keen said another series of deep rate cuts were needed now because household debt levels made up a much bigger portion of gross domestic product (GDP) than in the early 1990s.

He said central bank policymakers before the 1930s Depression focused on consumer price inflation and ignored asset prices, and have repeated that mistake more recently.

''Reserve banks everywhere go it wrong, not just ours,'' he said. ''They focused on the wrong problem which was inflation.''

Macquarie's Mr Robertson said the RBA was more concerned about reversing the 12 rate rises from 2002 to March this year and would deliver bigger than usual rate cuts before Christmas to reduce home mortgage and business borrowing rates.

Sydney Morning Herald 16/10/2008

 

[MichaelW]

0%, what a joke. My props are yield 4.5% - 5.0% today, so anything less than that and they're CF+ at 100% LVR. If it drops to less than 5% at the big banks then I'm off on a shopping spree!

Cheers,
Michael

 

[ermen]

Here's the link btw...

http://business.smh.com.au/business/zero-interest-rate-a-possibility-20081016-524u.html

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%...

 

[essence]

0%....?

i thought 2% was a long shot - $AUD would be around $USD35-40c....

Zero percent or not remains to be seen, what is blatantly clear - we are heading for the lowest interest rates in history of this country.

I explain - RBA certainly is caught on the wrong side when Feb/March they hiked interest rates instead of lowering them. They were afraid of "inflation" that was largely a myth.

Any CPI increase has had three underlying factors - high petrol prices, resource bubble and drought.

Goldman forecasts oil to drop to $50 a barrel. Resource bubble is obviously as good as dead. Drought is about to break. Sharemarket down. Consumption down.
Anyone ever studied economy would have known that all of these are hallmarks of DEFLATION.

Deflation means catastrophy. If prices go down, consumers do not buy, because everybody knows tomorrow they will be able to buy cheaper. Japan sits in this s....hole for decades, and God knows how much longer they will be there.

As to Aussie dollar - I would not be much worried, as US rates will be at 0% much earlier than ours. After all, by 2010 all chances are there will be no such thing as US dollar. I explain - this is weird currency which is supported by nothing but blind faith in it. There are so many these papers in circulating around the world - there is not enough wealth in US to underpin it. Once OPEC refuses to sell oil for USD and switches to euro (which they thinking of doing) - up in smoke it goes.

 

[boomtown]

Hes sold his apartment at auction last weekend because he is expecting property prices to drop by 40%.

In the same breath he is talking about 2% or 0% interest rates at the same time.

Lol what part of "cheap credit fuels booms" does he not understand?

 

[boomtown]

. After all, by 2010 all chances are there will be no such thing as US dollar.

You arent supposed to sniff hairspray - it makes you think funny thoughts.

 

[BoatBoy]

Will somebody get this guy to shut up? .

The Patented Steve Keen Gimp Gag

Dave

 

[essence]

You arent supposed to sniff hairspray - it makes you think funny thoughts.

Thanks mate. First version of yours about smoke was really smart - "hairspray" is so-so. But you seem to be a real expert on this stuff, so I really keen that you shed the light on my ignorance. You know, Uni, Phd in economics - I never had time for this kind of entertainment - sorry.

Just in case you think I am protecting Mr Keen - not at all. He thinks property will go down by 40%, I think in 3 years time it will triple or quadruple.

 

[Rolf Latham]

The more "reasonably" outrageous a claim an academic can make, the more likley they will be sought out by the media................

ta
rolf

 

[Dazz]

Goldman forecasts oil to drop to $50 a barrel.

It costs us to produce a barrel between say 50c up to about $ 3.50. Depends on production rates, onshore / offshore, 1st / 3rd world wages etc.

If the price drops from $ 140 / bbl down to $ 50 / bbl, then we'll just go from making horrendously obscene megaprofits back down to just obscene megaprofits. Don't hold your breathe waiting for an oil company to fold anytime soon. We easily survived 10 years ago when the price was $ 9.80 / bbl.

Resource bubble is obviously as good as dead.

You'll have to let BHP / Rio / Woodies plus a bunch of others who have entered into 30 year supply deals. Those things were signed in blood. I haven't read anything from any of the Directors to say those contracts have been reneged on.

Drought is about to break.

Holy smokes - that economics degree allows you to tell the weather as well !!!! I'm impressed. You didn't quite specify exactly where the drought was....Sahara / Andes / Pakistan or how it is to be broken.....irrigation / rain / other.

 

[The Fence]

Hey Topcropper...drought broken here (read TC's and my location)...?

I think so and a long time ago now.....

......but it is a bit silly saying that is the case all over Australia....there are still large tracts in drought....but hey...that's Australia to begin with.....

Australias farmers are the most efficient when it comes to producing, and done in a largely drought affected nation....because we have no protection for them...it's a "must do" scenario...and to their credit THEY DO...!

Steve Keen ..... hhmmmmmm

 

[essence]

Thanks Dazz,

I see your point. Drought is never going to break, shares in Rio, BHP, Woodside and others are never going to fall, and shirt you wear costs Myer about 30-50c so you rather not pay $50 for it and walk around topless - so everyone can see how much hair you got on your chest.

Allright - you are more hairy chested than I am. What does it add to the subject of discussion?

 

[Bill.L]

Hi all,

Anyone who really new about economics/investments and was absolutely certain interest rates were going to go to zero, would probably buy bonds with their money, not in interest earning cash.

But then again he is a professor of economics and I am just a country bumkin.

bye

 

[essence]

Mr Bill L, you have hit the nail on the head. Cash is no longer king. This is for sure. Bonds, I am not sure. Personally, I would better get 18yo girlfriend and spend money on her rather to lend them to Government under the circumstances.

Gold is also poor option. Do you know how much gold US have? Even blind Freddy can see now that they will be forced to sell their gold reserves (actually I think they already started doing it now).

You all seem to be mesmerised by Mr Keen. Mr Latham says that media gets attracted to academics with most absurd views.

Unfortunately this is the other way around. Academics who want media attention publish absurd views that media wants. Media wants what media owners want. And because this is media magnates who put Governments in place, they want the same thing as Government wants.

Have you noticed that until today media was howling about poor affordability, published nonsenses that there is plenty of underutilised properties and other anti-property bovine excrement (including Mr Keen's prophecies about property market crash). And what today? News Ltd writes "First home buyers storm the market", Fairfax draws out of hat Mr Keen who conveniently forgot about his predictions, turned 180 degrees and now talks about zero rates (which means - who is going to rent ? Who is going to have troubles with mortgage?)

Have you also noticed that RBA in Feb/March moved to kill emerging property boom with interest rate hikes (this is when they in fact should have cut), they were sitting on their hands in August, and in Sptember reluctantly delivered 0.25%? Why was that surprising 1% cut in October?

Have you noticed that Government of the day since the first day was hypnotised Australia with "Save, Save, Save" mantra but in the last couple of days the suddenly switched to "Spend! Spend!!! Spend!!!!!!!!!!!"

Why all of this all the sudden? Cut the long story short - it is not a secret anymore. They have seen forecast model from Treasury - that is why their pants are wet.

They all now want people to buy property. They want property boom.

 

[urchin]

Everyone seems so quick to dismiss SK's predictions... but what are you basing this rejection on? Because it seems silly? Perhaps so, but if you told someone 10 years ago that houses would bring 10% CG YoY for the next 10 years you would have sounded silly too.

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".

This is not unprecedented. Consider Japanese interest rates in recent times. Consider how much US interest rates have dropped in the past year.

If a major crash on the scale that SK predicts does occur, it seems highly likely that the RBA will feel compelled to do everything in its power to jump start the economy--and that means jump starting lending. and that, for the RBA, means dropping interest rates.

With the last 1% cut we have seen that they are not afraid to make aggressive cuts when they feel it is necessary. People have been talking about another 1% cut soon and given recent events that would not seem like a terribly unlikely prediction.

 

[boz]

the nearly 0% interest is one of the possible scenario, in my opinion not the most likely for Australia, even for US is quite unluckily and I believe the central banks and government will manage to inflate everything very soon.
By the way, base money in Us went up 20% or 150 bil in the last month. That doesn't look like 0% interest rates in the future...