Geoff Davies

Again, clearly you need to take a closer look at the marekts. Sure house prices in Australia are high compared to, say, the US. There are geographical reasons for that. House prices may have doubled in perhaps 20 years in NOMINAL terms, but not in real terms (houses then are also different to houses now, in general, but that's a long story).

But you talk of a house price bubble. Pound this into your head - there is no such bubble at the moment in Australia. There was certainly a surge in prices, again for good reasons, but it petered out some years back with the market playing catch up. There is no evidence that house prices are out of wack with the underlying demand.

You cited Steve Keen's stuff. I had already read it and, out of curiosity, looked at the UN stuff he cited. How did they get such a high figure for Aus private debt, and what did it actually mean? the answer is not a lot. Its not unusual say, for a householder to have a debt of three time his or her annual salary on a house. I'm not about to explain it all here but the key point is the servicing of the debt. Instead of looking at debt levles you want to look at indexes for defaults..bankruptcy stats for example (higher at the moment due to economic conditions, but not seriously so) or debt write offs by banks (low).

In all, Geoff, I'm not about to bother with your book. You'd have to do a lot better than any of this before I pay attention.

For some historical background of what Steve Keen is saying about debt you only have to look at one of OLOs finest articles:
http://www.onlineopinion.com.au/view.asp?article=6528&page=1

Note the date this was written. We all know what happened in 2008. He has updated much of his data since then.

His ideas aren't generally accepted, but this guy is a forecaster with a successful track record. You may ignore or dismiss him of course, but do so at your own risk.

Bugsy

Sigh! go back and look the article you linked. All it really does is illustate the problems with that sort of forecasting. Despite Dr Doom's prognostication (Keen's nick name is Dr Doom), the GFC only affected Australia because it affected most other countries. There was no system melt down like there was in the depression and 1890s, despite the graph. What it does show is that debt tolerance has changed.

See what happened in 1990 with the graph? That was a time of vast change in the Aus system. There was a property boom and a lot of bad lending by major banks. When it collapsed all the old state banks had to be amalgamated with other banks. that was a bad time and went on for years. You'll see its a bump on that graph.

So all the graph is doing is showing us what happened. It doesn't say anything useful about when we may expect a correction (actually we're already having it - but its a mild one forced on us by others). If a doomster like Keen keeps on saying the same thing he's bound to say it before a downswing..

A lot of people warned about American lending practices (the cause of the crisis), but no one realised that the American bust would cause problems everywhere, straight away. Keen never forecast that.

Ok his forecasting is not totally on the money, that's true.

But given this graph does not predict the future, you can infer one or two things from it.

Given the data as it stands, would you expect the ratio to continue increasing over time or not?

If not, why not?

It does show with a pretty good temporal correlation that downturns after the peaks in that graph are associated with major deleveraging events. What it does not predict is when that is likely to occur, but occur it will because there is an actual limit to how much debt you can actually afford to pay relative to your income, regardless of ones 'tolerance' to it. Where that limit is on a population scale is a matter for debate of course. Unless you think that there isn't one...

Bugsy - dunno about debt limits .. the actual peaks are just what you'd expect if there's been a major collapse. GDP has stopped growing and no one can pay their bills.. The peaks occur after the downturns. Property prices are a much better leading indicator, but the actual level does not help.. there has to be a build up and speculation..

As for debt limits, I'd have to take a closer look at the figures which Keen cites - part of it is certainly corporate debt which is a different animal altogether and may well be partially equity of foreign companies operating here (long story to do with tax).. Another part of the reason is that Aus house prices are higher than most other places for geographical reasons (we crowd into just a few cities).. beyond that I'm not sure, although I doubt that there is any real cause for worry..

Curmudgeon -

You are not alone in believing everything about Australian debt and economy is fine, it's true. You have most of the Oz establishment on your side. However I'm persuaded by Keen's arguments and data. Simple enough idea (net new debt increases aggregate demand) and data to show the effect.

Btw, referring to your discussion with Bugsy, Mortgage debt accounts for around 100 of the 160% of GDP that is private debt in Oz, as I recall. It is major.

Beyond those things, I will not "pound this into my head". Nor respond to the sarcastic "Mate". If you were interested in a reasonable debate, rather than forcing your view down others' throats, then I might be more inclined to continue a discussion. You're playing to win, not to learn. Your style is unpleasant. Not the worst on this site, but that's not saying much.