Steve Keen on the Australian economy and housing bubbles in Australia, Canada, UK and Hong Kong

Good video with Steve Keen, the Australian economics professor with Max Keiser. Steve not only talks about the Australian economy and that country’s housing bubble but also about the bursting of housing bubbles in Canada, the UK and Hong Kong. He believes that Australia and Canada are headed largely where the US went before them, to a deleveraging-induced economic crisis due to excess private debt.

  1. David Lazarus says

    As a UK resident this is bad news for us, but nothing that I had not already worked out. The problem is that long term there will be a trouble here as other countries recover and the UK remains stagnant because of bad policy,

  2. Jasmine says

    The only rationale this man has made for Australia being in a bubble and concerns for the banking system is that he has compared the ratio of a banks’ portfolio of mortgages now to pre-crisis in the US. This is so wrong!
    Why is comparing the ratio of a banks’ portfolio of mortgages now to pre-crisis is wrong? Volumes of mortgages that were sold off balance sheets cannot be done now with the shut down of the securitisation market. Banks endured wide losses through ’08 because the equity tranches they held went to zero. If they held the senior tranches (more volume) their losses wouldn’t have been as large as a % of volume.
    US has a very different mortgage and bankruptcy system to Australia. Australians don’t walk away from their homes when they are in negative equity.
    If this only rationale he has given is flawed, this whole piece is irrelevant. It is purely a very long discussion about the ideas of someone else’s work that he now has the data to confirm (and stats not maths).
    Some valid points on the cycle has been thrown in. Lots of points thrown in and not really discussed, ie central banks causing more issues. This video needs a lot more to back up what it is starting – a potential ‘burst’ to a bubble that could be deflated in time with the ‘downturn’ or normalising of China/Australia’s economies. Stop scaring and start backing up arguments with better data.

    1. David Lazarus says

      What you are also missing is that the level of mortgage compared to incomes is also a lot higher. Australian property is estimated to be more than 60% over valued which is higher than that for the US market. The Australian banks then had higher percentages of loans made to cover house mortgages, these two facts combined make Australian banks more vulnerable than US banks at their peak. Australian housing is in a huge bubble right now.

      Default rates are low as they are in Ireland where bankruptcy is very hard and hence why so many are in negative equity yet have not walked away. In the UK the foreclosure rate is low but that may change once rates start normalising. There are 800 000 in negative equity in the UK and nearly double that with levels of equity so low that another fall of house prices would put them into negative equity. Australia has already tried first time buyer subsidises for new builds, a couple of years ago.

      As for falls in property once it starts it can take a very long time to finish as prices are sticky downwards. In the US and UK they have been falling slowly for 5 years after an initial drop, which was addressed by huge liquidity surges to stop the banks collapsing and dragging down prices. This has not stopped the price fall but has meant that it is only falling slowly. It is still overvalued and that is why prices are still falling. The US is much closer to a bottom than the UK, which still has some way to fall.

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