Professor Steve Keen says, Australia headed for recession ‘as soon as next year’

http://www.abc.net.au/news/2016-07-29/australia-headed-for-recession-next-year,-professor-keen-says/7674154

Australia’s credit binge will lead to a bust as soon as next year, with house prices to fall between 40 and 70 per cent and unemployment to rise sharply, Professor Steve Keen says.

Well, so says Professor Steve Keen.

A house price fall of 40% would be mammoth. Sydney is the most volatile market due to its strong growth and highest house prices. To wipe 40% of the Sydney market is a huge call. But 70%? Where is that going to happen? Sydney? Or some remote outpost of a defunct mining town in WA?

Anyway, sounds like great buying opportunities lay ahead. Let’s see if some of us can nab a bargain before the Chinese swoop in and buy them all up! (Not that I’m against the Chinese; I’m against them buying our real estate. There are some 200Mn Chinese in their south-east Coastal Economic Zone becoming wealthy. The Chinese will be able to buy all the real estate in Australia and not satisfy their insatiable demand for our real estate. We simply need to restrict the ownership of our real estate to Australians rather than foreigners.)

Professor Keen says that consumer debt has ballooned from 150% of GDP to 210% since the GFC, aided by the Reserve Bank’s low interest rate environment.

He goes on to say that the RBA will be forced to lower rates all the way down to 0%; another big call. He says 3 catalysts for the upcoming recession are the declining terms of trade, the continued fall in investment in the economy and Federal Government’s “stupid” pursuit of a budget surplus.

Really? So Professor Steve Keen is a Keynesian economist then? Believing that government spending can pull an economy out of recession?

I believe that the government’s overspending has a larger role to play in any recession. Keynes himself said that a government deficit aimed at restoring an economy will only bring forward demand and pre-empt a slump in the years soon following. Wayne Swan was informed enough (not smart enough, but someone told him the facts. Probably Ken Henry I guess.) to warn us of a ‘double dip.’

Government spending simply ‘crowds out’ investing. It will cause an inflated spend like Julia Gillard’s school halls. Remember they splurged some $14Bn on that fiasco. Some economists estimate that the inflated demands on the costs of construction were in the order of $2Bn. But that doesn’t matter when you are trying to save the economy, does it? Or is it Wayne Swan’s personal record? He said it wasn’t going to happen on his watch and so he spent like a drunken sailor to make sure it didn’t. But was that really the best for Australia or was he using the Federal Government’s credit card to save his own reputation?

Keynesian spending out of recession has never really worked. Going all the way back to the 1930’s in America under Roosevelt’s ‘New Deal,’ the mother of all Keynesian spends to be sure, simply put America into a decade long slow recovery. So too under Obama who initiated a $787Bn stimulus package in 2009 in an attempt to save the economy from the biggest economic downturn since WWII. Since becoming president, Obama has increased the US national debt from some $9Tn to $18Tn and it is expected to tip $20Tn before the years end. For all this spending, the US has experienced slow recovery from the GFC.

Consider New Zealand that recovered extremely quickly from the GFC and had no stimulus package. Who would have thought that the free market could right an economy quicker than a left wing, Harvard graduate, socialistic presidential Keynesian big government spend?

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