The sad little nation priced out of its own home

We all know the story. A bubble without end grew up in a little economy and slowly but surely engulfed everything in sight. It’s not a mystery any longer. It’s not controversial. It’s the truth.

The real driver of this bubble was none of the influences often cited. It wasn’t interest rates. It wasn’t a mining boom and economic strength. It wasn’t high immigration and foreign investors. It wasn’t favourable tax regimes and public support.

It was one thing and one thing only. The little nation’s political economy was occupied by a real estate rent-seeking class that took over every position of power in the country from the Prime Minister and Treasurer down to captured regulators, titans of industry and the gate-keepers in the national conversation in the media.

Such a level of support had been enjoyed by no bubble anywhere in a very long time and it enabled all rules of the liberal democracy to be bent or broken to inflate the bubble. Extreme and enduring mis-pricing became possible.

At some point, however, even this perfectly water tight little bubble sprang a leak. Macroeconomic mis-pricing on this scale always comes at a price. For the sad little nation it was a radical narrowing of its income growth possibilities as its non-commodity tradable industries and productivity growth collapsed. Manufacturing was tossed into the sea. And “services exports” narrowed as well to be dominated by tourism and education, both no more than real estate proxies as they sold homes and citizenship to foreigners. Multi-factor productivity stopped growing at the arrival of the bubble.

Without income growth, the sad little nation only had debt left to inflate its bubble. The great realty rent-seeker flogged that horse until it was dead too.

Then with no other options left, it flooded itself with people to support artificial levels of demand and yet more price inflation.

But even this path had an end. Migrant numbers could not outweigh the collapse in priced-out native buyers. After generations of relentless price inflation, decades of rising debt and years of falling income, as well as cities choked with imported people, the fear of missing out turned on its head and property owners stopped selling lest they could not get back in. Moreover, so much of the income siphoned off by great realty rent-seeker – government, regulators, industry, media – was in the end attached to the bubble that it could no longer support the burden. Transaction costs became prohibitive for sellers.

And so, the great bubble entered its final phase of “shrinkflation”. Peripheral city prices paused or began to fall. Prices kept rising in the core bubble cities as those in the game kept trading but the number of transactions cratered as everyone else – the vast majority – were priced out of their own home.

The great realty rent-seeker was finally trapped by its own Frankenstein monster and began to fall apart.  Services attached to property saw first volumes then margins collapse. Media attached to property likewise. Government revenues attached to property were next. Eventually, the spillovers into the wider economy could not be contained and bubble prices topped out in core cities as well. As prices started falling coast-to-coast the problem only got worse as everyone held tight to their one and only asset in the desperate hope that it turn up again, and transaction volumes fell even further, right along with prices.

The sad little nation’s domestic economy ground to a standstill and none of the tricks that once worked to boost it had any effect.

Eventually, an external shock arrived that turned households inwards. With the protections of monetary, fiscal and immigration policy already exhausted by the great realty rent-seeker, the shock resonated through the community with the force of a whale hitting a dinghy broadside.

The bubble shuddered and burst and the great realty rent-seeker sank with it.

What followed was at first a great wail of woe as the bubble burst losers clamoured for rescue. But, instead, the government of day rallied the people to a national project of economic repair, deploying reform that rebooted productivity growth. Then, as the little economy kept deflating, suddenly those industries that had all but disappeared during the bubble years began to return. Tradable sectors flourished as competitiveness boomed. Income began to grow again and all of those generations of people marginalised by the bubble were able to buy affordable homes.

Within five years of the bust a dynamic and happy little nation began to rise from the ashes and everyone wondered at the madness in retrospect. How had a little nation with so much natural endowment of talent, position and resources somehow gotten so lost?

Houses and Holes

Comments

  1. And every child should be told that bedtime story each night until its in their DNA. Time for the future eaters to be identified and dealt with.

    Begin with Robb. Crowd funding to get ‘peoples’ justice.

    • ErmingtonPlumbingMEMBER

      I was listening to the radio on the way to work this morning and felt fustrated at the way this family first senator, Bob Day s company collapse story has generated such a large amount of comentary and yet so little discussion about the far greater “Crime” of the total sell out of our country for what amounts to open bribery! ie Andrew Robb, Ian McFarlane, etc

      • my wife was telling me some yarn that Juliar sent 500 million to the Clinton Foundation and associated money-laundering subsidiaries, and now is employed by one such of these? And also sent a big sum to Adelaide University before she got a Professorship there? (too lazy to google and verify, and sick of this sh!t anyway).

      • Mining BoganMEMBER

        There’s the problem John. That Gillard stuff has had plenty of airings but is always bought out when the gubermint wants something hidden.

        I’m guessing this time it’s the Robb corruption.

      • Spot on, EP. The Day issue is a coldsore compared to the cancerous affliction that is Robbsfeld …
        … wait, did someone say “Cats That Make Us Laugh” is on.

    • In the form of an interesting event with excellent speakers for those in Sydney this Friday on this topic:

      Every day we hear politicians, economists and media commentators
      telling us how important it is to grow our economy and that the faster
      it grows, the better off we are all going to be. But how credible is
      this plan for perpetual growth, considering that many of the resources
      we use are finite in nature?
      Have we all been brainwashed into thinking that more and more growth
      is the answer to all our problems?
      Could it be that the myopic pursuit of growth at all costs now is the problem?

      This public forum may raise more questions than it answers so come
      along with your thinking caps on as we try to trim away some long-held
      assumptions and get to the truth about the ideology of growth and
      where it’s taking us.

      Speakers: Dr Haydn Washington, Dr Kerryn Higgs.
      Compered by Quentin Dempster

      FRIDAY NOVEMBER 4, 6.30pm
      UNIVERSITY OF TECHNOLOGY SYDNEY (UTS)
      Lecture theatre 5C.01.031
      Block C level 1
      1-59 Quay St Haymarket

      Entry by donation

    • Yes, get your children started early on Australia’s second greatest obsession; conspiracy theories. You would think from reading the pages of MB that there are secret weekly meetings involving the PM, Treasurer, RBA Governor, Rupert Murdoch and John McGrath, who sit about devising ways to screw the “ordinary man” by enticing them in to over-investing in property. Meanwhile, the ordinary man (a tradie?) is out trying to outbid their fellow Aussies at an auction, buoyed by the lowest interest rates in history. Meanwhile investors are looking to tap in to the capital growth of Sydney and Melbourne and make some $ because other investment classes look shaky. Meanwhile the country maintains high disposable incomes and low unemployment by global standards and has above average population growth in Sydney and Melbourne, which, surprise surprise, are the markets with the highest growth rates (or is the Head of the Dept of Immigration is also at the weekly meetings…duh…).

  2. Awesome stuff ? You gotta spread that around
    That MB fund needs to short the begesus out of this colossal cluster $&@?

  3. “Within five years of the bust…..FOMO once again poked its head out of the intestines of the fragile economy. Like the Alien in…well, Alien, it had being lying in wait; waiting to once again cast its heinous shadow across the landscape of greening productive shoots; shoots now to be obliterated by the slimy crawl of the rapidly growing reincarnation

    WHEN the bust of the bubble finally arrives it must not be allowed to reform. If it ever does as surely as The Machine will not allow another Donald Trump if he loses, so it will be with property speculation.

  4. Hmmm, I am not optimistic about the happy ending. Look at the UK for just how long this rentier model can be persisted with in the face of cycle after cycle and the chronic increase in urban land rent. The land price drop in every bust quickly turns around again at a higher “bottom” than the previous one.

    The land price inflation in Australian cities is probably around a factor of 20 to 30. In the UK it is now from 100 to 900. They would have hit the “20 to 30” point in the early 1950’s. The 1947 Town and Country Planning Act is responsible.

    • Thanks for the hot tip.

      I had a horrible feeling this thing will go on forever.

      I still want it to end. I can’t wait any longer.

      • Keep in mind that just about everyone seems to begging the RBA to cut teh rates mostly for the express reason of stimulating demand for more housing debt.

        While some claim that this will help push down the $AUD – it will not do much in that department as we watch it soar again towards 80 cents – the reality is that further cuts to the target rate will simply drive a new surge of borrowing by households who will drive prices even higher.

        The only fly in that ointment is if the banks cannot hold down mortgages rates because the cost of borrowing offshore rises OR and much less likely, APRA applies some brakes to their addiction to cheap offshore unproductive capital.

        With our trade rivals desperate to export capital and Oz being dumb enough to take it we can bet on more bubble!

  5. and the banks will be feasting on title holders in future by the look of things…..

    Big four banks destroy 1.6 million paper land titles in push to digital versions

    http://www.theage.com.au/business/property/big-four-banks-destroy-16-million-paper-land-titles-in-push-to-digital-versions-20161028-gsdcgn.html

    and Michael Wests work in following up data rentierism fits hand in glove

    Government ramps up data hypocrisy while Labor ducks for cover

    http://www.michaelwest.com.au/more-government-hypocrisy-on-data-sale-while-labor-ducks-for-cover/

    • Yes, a great way to cloud the chain of title and hide fraud. While the US system and ours are different the intent is the same, to further financialise real estate activity and keep you from attending to your own affairs except through their agents. Don’t leave your title with the bank when you pay the mortgage off, that $600 is not worth the risk

      https://en.wikipedia.org/wiki/Mortgage_Electronic_Registration_Systems

      When this really blows even those of us who acknowledge the inbuilt corruption in the system are going to be shocked at hard core criminality in the Australian real estate mafia.

      • Strange Economics

        And the NSW govt wants to privatise the titles registry. Then you’ll need $ 600 more to an insurance company for title insurance to pay your court costs if any fraud – as unlike the govt its not guaranteed title any more. Privatisation is a win for the FI and RE industry …

    • That we are switching from paper to electronic titles isn’t the concern. That PEXA has a financial interest from the big four is. They shouldn’t be able to lean on the Titles Office for their own conveniences to be met. A second concern would be creating a new means to extract fees from the process that they weren’t able to before. It would be another one of the tax farms that Philip Soos, Stephen Morris and Michael Hudson are always bringing to our attention.

      • The above was done to accelerate the move to a system where there is only electronic conveyancing.
        At this stage I don’t see the integrity of the titles being compromised.

        In Victoria titles are all currently stored on an electronic database anyway.
        So, in that regard, the move from paper to electronic isn’t the big leap that the article makes it out to be.

        The processes of banks, lawyers and conveyancers are not something I know about.
        But, surely there was opportunity for fraudulent behaviour before this system came in as well.
        (Please don’t take that as a cop-out, it’s just an observation.)

        Also, apparently the legal fraternity is annoyed as this change may end up cutting them out of some money.
        That seems to be the source of this story.

  6. Ronin8317MEMBER

    The bust is not enough in itself : if must be followed by political insurgency or the crisis will be used to boost the power of the real estate sector even more.

      • Very, very optimistic IMO. Bet case scenario is a decade for repair and worst case scenario is a series of recessions, a product of poor policies by successive populist governments from each side each, plunging the country further into the pit (like Argentina).

  7. Hmmm was it just me or did everyone else skip the paragraph where this lazy one-trick-pony was miraculously transformed into Melbourne Cup winner. In all honesty I wish I could believe the narrative that beneath the costume bling of this lazy pony there beats the heart of a thoroughbred, unfortunately experience suggests otherwise. It’s just a fat lazy pony, even the guy at the knackery knows better than to pay top dollar for such a useless lazy old nag…seriously what else are they going to do with it…nah he’ll lowball you and that’ll be the way this chapter ends.
    The rebuild will be super hard work and this is not something that most Aussies have any experience with. Aussies dont understand work and they’re clueless about how to create a reward structure that will motivate skilled individuals to deliver what the broader society needs and that’s the real underlying problem.

    • rob barrattMEMBER

      “super hard work”? You’ve got to laugh! Last week the union mob were repairing the tarmac on a short stretch of our road. The road is a quiet cul-de-sac ending at a piece of parkland. The work was being done only at the very end where the parkland started, a one day job. So, a worker stands at the other side of the patch for the entire day holding a stop/slow lollipop despite the fact there could be no through traffic!!! I went up to him and asked him why he was doing this. Wasn’t it illogical and a waste of manpower?
      “I didn’t make the rules mate”…..

      Yeah, we’ve long forgotten the meaning of the word “work”. Just who is out there less competitive than us?

      • ErmingtonPlumbingMEMBER

        Unless they were directly employed by a large construction/Civil company, it is very unlikely these “bludgers” were “in the Union”.

        The lollipop/spotter requirement is an Insurance company/work cover (they are in bed with eachother) thing.
        The new productivity sapoing “beurocratic saftey regimes” are not a product if unions.

      • rob barrattMEMBER

        EP
        There is a section of the M1 motorway just north of Brisbane that has been the subject of an “upgrade” for the last several years. The section is several kilometers long. When we drive through it, my partner and I try to count the number of workers actually doing something. It averages 3 to 4 out of 30+. Now, you might get this effect if you took a snapshot at just the wrong moment, but a consistent result is something else.
        Watching road construction workers is very much like watching concrete hardening. You might be right about the insurance companies in the former instance, we know about H&S rorts, but that merely increases the scope of our inefficiency.

      • Rob, this is the latest scam by the FIRE sector to extract rents. File this under the groovy “risk management” category where insurers demand a particular risk management process every time a sod is turned or a machine is switched on or someone wants to use the portable shitter. There have to be risk policies, risk audits and risk management teams otherwise the insurer escapes liability so contractors have the bejesus scared out of them of negating their insurance. Consequently it takes soooooo long to do any fucking thing that simply patching holes in the pavement is a major long winded process. I worked for a local government entity where any moron who tripped over their own feet in the main street made a claim and guess what the insurer wouldn’t pay but the legal eagles advised council to settle because it cost too much to fight. Millions, yes millions was spend on ripping up paths and repairing every freaking crack in pavements and still the claims flooded in until someone said fuck this just sue us and the claims disappeared. The insurer got pissed off and that group of councils are now self insured and saving heaps. But individual contractors are caught in the trap as they can’t muster scale to fight these pricks.
        I recall this was similar to the requirement made by insurers for everyone to be “quality endorsed” so quality tomes were produced, quality teams installed and expensive third party quality audits recommended by insurers who were on the quality council so endorsed the four ticks auditors. This was an offshoot of Total Quality Management, an excellent idea for manufacturing which was seized upon and bastardised by the FIRE sector again to extract rents. This is why manufacturing and construction costs are so high in Australia compared to the world. Let’s face it when it’s cheaper to build an apartment in Singapore you have to ask why? You would find that somewhere in the plethora of government regulation is the regulation imposed by insurers. I can’t find the recent paper written where at last someone has identified that the private sector has actually overtaken the government in taxing economic activity in this way ….an American economist I think and I’ll post it if I can find the damn thing. State governments tried to cure the problem with Workcover regulations, but it became too hard so they gave up and the private insurers are back running the workers’ compensation scam these days. Everyone benefits except the injured worker. BTW the Unions were originally formulated to protect workers but they have lost their way as since they decided to become political animals. Ah privatisation is delicious!

    • Work smarter not harder. Lots of people work hard, isn’t worth jack. Our wealth has more to do with natural endowment and military outcomes than with work ethic. I think you’ll find that as desperation levels increase, support for systems that are detrimental to productivity will collapse. Thats not to say we’ll always find the most efficient path, but humans are the same everywhere so every society has some red tape bullshit to deal with.

      • “work smarter not harder” agreed however I find most Aussies are clueless when it comes to creating a reward system that properly compensates the “smart worker” for the advantage that they’re creating. Aussies like to socialize the unearned profit (from smart labor) they’re genuinely surprised when these same skilled individuals decide to not take on business risks and therefor do not deliver the broader social advantage that comes with creating and leveraging a smarter workforce.

      • rob barrattMEMBER

        “socializing the unearned profit” – yes – that’s a good way to describe it. No better example than the car manufacturing industry, where workers were calling for significant pay rises as a result of automation increasing desperately needed efficiency.
        Turkeys voting for Christmas.

    • I think most with half a brain caught the big gap between fairy story and reality. Recovery in 5 years?????? We’ll be lucky if we managed it in 5 generations!!!!!! It’s pretty much impossible.
      The answers lie back in time.

  8. Calling the top? That’s bold, I suspect the next boom is coming. Just ask Reusa, he’s often right.

  9. I haven’t got past “it wasn’t interest rates”.

    Is this because Macrobusiness advocated zero interest rates?

    • To be fair they also said it wasn’t immigration.

      I.e. Individual policy settings don’t cause housing crises, people, people and their attitudes do.

      • It wasn’t possible without ridiculously low interest rates.

        Was Macrobusiness advocating low immigration?

    • casewithscience

      Its not interest rates that keep up the property demand, it is the provision of legal means of taxable income minimisation through negative gearing on real estate assets.

      • You can borrow $1,000,000 @ 3.56% and pay an affordable $35,600 p.a. interest, and houses climb to the sky.

        If you borrow $1.000,000 @ 8% and pay $80,000 p.a. interest, housing prices flat line.

      • casewithscience

        Nope – that interest rate is not the guiding factor – it is the number of demanding purchasers, whether home buyers or investors, that is dragging the market.

      • To say this is not mainly interest rate driven is just plain wrong. If interest rates were at a level that balanced the economy the whole negative gearing issue is not relevant. Yes houses should be in capital gains the same as everything else. With proper interst rates there would not be capital gains. At that level you then come up against the immigration question pressuring prices.

    • I blame the states. Howard kept saying “release more land”.

      The states could have done that or deregulated height limits in certain suburbs or even have floating houses given that most voters live near the ocean.

      The states could have charged the kids of 457 visa workers steep fees for studying in government schools and charged non-Aussies $2000/year for car rego.

      The states could have also put a massive tax on foreigners buying Aussie houses.

      It is the states that want houses to be unaffordable.

  10. ” It wasn’t interest rates.”
    Causation is hard to prove in anything economic because there are so many variables all changing constantly, but if you want to see great correlation for potential causes of house price rises look no further than the changes in interest rates in Australia from 2012.
    http://www.rba.gov.au/chart-pack/interest-rates.html – Australian Housing Lending Rates
    http://www.rba.gov.au/chart-pack/household-sector.html – House Prices

    Interest rates reducing provide two pillars of support for housing prices
    1. An expansion in the PE multiple (ie for the same rent the price goes up because the PE is the inverse of the yield and the yield required falls with a slight lag to the fall in interest rates. This “search for yield” causes lower interest rates to infect the bidding for other assets in preference to term deposits and bonds, thus bidding prices up.)
    2. An increase in borrowing capacity under a 25 year mortgage.

    Fairy stories don’t help analysis (although it is true there aren’t many with investable funds who don’t believe that residential real estate is a worthwhile part of an investment portfolio, and that includes politicians, bureaucrats and senior executives).

  11. As I recall, this blog was all in on Steve Keen’s forecasts in 2008 that house prices were about to crash. Then when they didn’t crash, we were going to have the “slow melt”. Banks were going to collapse and the country would be ruined.

    None of it happened. In fact, house prices in the major capitals have doubled since 2008. One of your commentators kept signing off his comments with the warning, Don’t Buy Now! Hopefully no one ever took his advice.

    This blog has been wrong, wronger and wrongest for a decade, and still you keep telling yourselves these fairy tales.

    • We didn’t exist until 2011. When the slow melt ended so did our reference to it.

      Leith was bullish a few regional markets from 2013. I began calling the macroprudential top in late 2014.

      But if it comforts you to think of us this way then go ahead.

      • Speaking of macroprudential, you were also full of praise for the RBNZ, saying more than once that Graeme Wheeler should be appointed Governor of the RBA, because he sure knew how to get house prices down. No pussy footing around from him.

        How did that work out? The Auckland property market is one of the hottest, if not the hottest, in the world.

      • “Speaking of macroprudential, you were also full of praise for the RBNZ….”

        That’s not what an apology for being wrong about “MB & 2008” looks like.

    • Nice try Frank.

      The thing is, there are very good reasons, dissected here over the years with data and analysis, that explain what has been going on. If your argument for an ongoing boom is that it’s what has happened in the past, then I’d be more than a little concerned.

      What it all comes down to though is that one day, unquestionably, the party will end. It might be soon or it might be later. It might happen quickly or slowly. But mathematics won’t allow it to go on forever. How much mortgage debt do you want to be holding when it stops? Equity can vanish in a heartbeat.

      • The explanations here for what has been going on have been contradictory. On the one hand, it’s all because of immigration, negative gearing, zoning, blah blah blah. Unless these policies are reversed prices will keep on rising and no one will be able to afford a home, more blah blah blah.

        On the other hand, it’s a bubble with no rational explanation, so it’s all about to burst.

        You say it can’t go on forever. Really? Why can’t Sydney and Melbourne prices reach London, Paris or San Francisco levels? There’s no mathematical law that says they can’t, and the experience in those place says that they can.

      • If you’re comfortable with betting your financial future on a never-ending boom in a poorly diversified, highly leveraged, illiquid asset class, then go right ahead. You might be right every time. But if the “fairy tale” comes true just once, look out for the big bad wolf.

      • Yeah, it’s a risk. It might pay off. It might not. Nobody knows and anybody who says that they know that prices will crash is a fool.

      • Mathematics is what n has been pushing the prices. Those predicting the fall were either ideologically driven or clutching at straws. At the moment the maths says onwards and upwards for the time being. i.e. CB’s across the western world are printing madly. If they stop it likely to be temporary and renewed with infinitely more vigour. It’s all they know and all modern economics knows.
        I’m a big fan of Herb Stein too but the maths is saying something else just now.

  12. Francisco d'AnconiaMEMBER

    An alternative ending:
    In 2019, the government overhauls the taxation regime for commodity exports and taxes iron ore and coal exports an additional USD10/tonne. With 900mtpa of iron ore exports and 400mtpa of coal export, the extra levy raises USD13 billion, equivalent to at least AUD26 billion at the prevailing exchange rates. The effect of this change is essentially the equivalent of raising the GST rate from 10% to 15%. The nation rejoices and continues its’ happy journey through time by “living off the land”.

    • TailorTrashMEMBER

      Gotta love it …..spruke seminars on the way up …..spruke seminars on the way down …give us your money …we’ll save ya !!
      …….if those numbers of 1.5 billion a month are real looks like a lot of empty Fiberous cement boxes comming up …….

      • Yes, this particular mob are trying to capitalize on the way down.. if what they’re saying turns out to be true, then we’re looking at a massive correction.. These dog boxes’s only value was that they appreciate 10%+ year over year. If that reverses, then they are useless because people who bought them overlooked the shitty quality and the corresponding yield and were salivating over the capital gains.. With no capital gains, these investment vehicles are useless and no one will buy them.. I personally expect an over 50% correction in some segments (though have no idea about the timing). Those responsible, including those in government who used tax payer money (via negative gearing incentives) to create these dodgy apartments should be held to account.. This is our subprime.. but if the GFC is any guide, non of those responsible will go to jail..

      • On the way down are the tiny dogboxes, poor quality boxes stacked on top of each other, with no room to swing a cat, windowless bedrooms, the thinnest of walls and expensive maintenance bills. They are way overpriced now, and would still be overpriced if they dropped by half.

        What isn’t on the way down is house prices. What seemed expensive at $1M is now $2M, and what was affordable only a few years ago is now somewhere up in the stratosphere.

        Two different products; two different markets.

  13. Jumping jack flash

    “And so, the great bubble entered its final phase of “shrinkflation”. Peripheral city prices paused or began to fall. Prices kept rising in the core bubble cities as those in the game kept trading but the number of transactions cratered as everyone else – the vast majority – were priced out of their own home.”

    Unfortunately we’ve been in this exact position before, possibly not quite as dire (but then again each time we arrive at this point in the cycle it gets a little worse). Last time they had a bit of cash, so used a few obvious tricks to stimulate debt demand. It will happen again. The government in its extreme stupidity may actually take on debt to hand to FHBs to use to leverage more debt to hand over to vendors to keep the debt machine chugging along. They may even dream up and use tricks that are more ludicrous than this, with the help of the banks, no doubt.

    Getting insanely rich from someone else’s debt is by far the best way to get rich from the least amount of effort. Who needs to do anything else when people hand you mountains of debt they are liable for, but you get to spend?

    The government taking on debt to hand out to people in the name of “affordability” and “growth” is one of the most stupid things it could do. With howls from the first home buyers, and the increasing use of the concerned voice from the government, it is only a matter of time before it must “do something” to appease people.

    Remember, human laziness and stupidity have no limit.

  14. You forget that the foreign investor gate will be held wide open. And with increased foreign ownership comes increased foreign influence on domestic policies.
    No guesses who will be the global force in 30yrs time.


    • No guesses who will be the global force in 30yrs time

      I assume you’re referring to the African millionaires who will have bought up most of China’s currently empty housing stock by then.

      • I do not.
        Dont worry about China’s empty houses and massive debts. Its all internal. They can keep printing and lending if need be.
        They still have $2t USD resevers and $50b a month trade surplus.

    • Tamash rer China there are obviously internal distributional stresses on the debt but you just uttered a fundamnental truth totally missed by nearly all modern economists. They’ve been predicting the end of Japan for 20 odd years and haven’t figured out why they have been totally wrong. Now they say all the same things about China.

      • Japan, absolutely perfect example. Still a first world country in every aspect. All you read about is the shrinking population ( and no growth for 20yrs ) which must sentence them to the poorhouse. Well not so far. They have something like $3t of net foreign assets – net – and a current account surplus. They only really import food and energy, and you would think they will import less of these with less population.
        And no natural resources.
        Contrast that with Oz. it’s very sad.

  15. You don’t need to be Keynes to work out there’s a bubble, it’s debt fuelled, and that all the multiples are out of whack.
    You don’t need to be Soros to predict that at some point this will correct itself in some way (even though there are “flat-earthers” around).
    The intelligence comes in predicting WHEN. We need someone in MB to take the gamble Keen did, and predict a price drop range by a certain date. Otherwise its just hot air.

    • Know IdeaMEMBER

      “The intelligence comes in predicting WHEN”.

      I suspect that predicting “when” is more about luck than intelligence. On that basis one adopts strategies to manage the known unknowns – think diversification, etc.

    • You can’t predict when because you are predicting one or all of several things including how central bankers minds will work. All you can do is understand the main drivers and look for when they change.

  16. Aussie1929MEMBER

    This is some fine work right here. One of the best MB posts I’ve read in 3 years.
    I had 2 people read that today and tell me “That totally makes sense” and don’t comprehend economics or finance news.
    Could be a another MB website to expand yourselves as I’m sure you would like an increased reader base and revenue to expand.
    This format as a story in past tense is engaging to read and I’m sure for those in a state of cognitive dissonance, as well as, the uninformed/those that get their information only from mainstream news and not forgetting, the kids that can’t get a few hours a week working a job for some extra pocket money because of the population Ponzi filled those jobs, that they may find it engaging also.