Prosper Australia

photo credit: Mikey G Ottawa

Isabelle Oderberg

An interview with Michael Hudson via Business Spectator

On the eve of an Australian speaking tour, highly-regarded US economist Dr Michael Hudson, talks to Isabelle Oderberg about the economic recovery that isn’t, and tells her:

* The world is in the midst of a serious depression that’s continuing to spread
* A rise in Australian interest rates would result in a financial raid that would dramatically increase the tax burden on Australian taxpayers
* Bursting real estate bubbles and rampant debt deflation are driving economies around the world to the brink
* The Obama administration’s determination to rescue the financial sector amounts to the “assisted suicide” of the US economy

Isabelle Oderberg: Quite a few of the economists that I’ve been speaking to seem to believe that the recovery is going to have sort of a W shape and that we’re only at the bottom of the first V and that there’s going to be more pain to come. What’s your view on that? Would you agree?

Michael Hudson: Yes, I would. I don’t see how there can be a serious long term recovery when the volume of debt is as high as it is. In the United States and other countries, although the residential real estate crash has happened, the commercial real estate crash has not yet happened. Here in New York, the largest residential real estate operation in the country is facing bankruptcy – Stuyvesant Town and Peter Cooper Village residential complex. The largest US commercial real estate firms are going under. And walking down Oxford Street in London the other day the big streets have vacancy signs, vacant stores that used to be bustling and this is going to lead to commercial property defaults in many countries – Iceland and Latvia I’ve been in – people are having to pay so much more money as their mortgages escalate that they don’t have enough money to buy goods and services. If you pay the creditor the money you owe on debt, you don’t have this available for spending on the market, so markets are going to shrink here and as markets shrink, stores pull out of malls and, certainly in the United States, when one big store pulls out of a mall all the other stores have the right to stop their leases and pull out.

So, what we see is a really serious depression continuing to spread and the only reason the stock market has gone up is because the government has given $US13 trillion of giveaway money to the large banks. Now, if you give $US13 trillion to the banks, obviously the net worth of the bank stocks is going to go up by $US13 trillion and there’s going to be a recovery. But this isn’t the economy, this is the stock market.

IO: But then if you’re talking about a stock market recovery that’s been inflated by a stimulus, some might say artificially because the core value of the rest of the market hasn’t risen, then it’s not really a recovery, is it?

MH: That’s right. That’s right and I was at a monetary conference in Chicago over the weekend and economists were talking about a jobless recovery. Well, that’s sounds like an oxymoron; if it’s a jobless recovery, how can you call it a recovery? If markets are shrinking and bankruptcy rates are rising and people are further and further behind on their mortgage, that’s not a recovery.

Read the rest of the interview at Business Spectator

Fred Harrison lecture – pertinent as always.

Paul Keating’s interview on the 7.30 Report this week must be promoted and discussed. This is the sort of leadership compromise Kev should be showing.

The financialisation of capitalism is exactly what Professor Michael Hudson will be discussing in his upcoming tour.

What do you think of Keating’s discourse on the power of banks, the need for stability amongst superannuation investments and from that (reading between the lines) – the need to share the wealth generated by the community that cascades into ever increasing land prices?

photo credit: MarcelGermain

Wednesday October 14th, 6.30 – 8.30pm
Melbourne Town Hall, Swanston Hall

Greenshoots? Really?
Get the inside story from three people who called it!
Download the flyer

Keynote speaker, Professor Michael Hudson is a renowned economic historian and former Wall Street balance of payments expert currently advising European governments on the global financial crisis. Read his bio here, taking you from the antiquities to the financialisation of globalisation. His most prominent prediction of the GFC was this 2006 front cover piece in Harper’s Magazine.

Steve Keen is a high profile Australian economist who has long challenged the shaky basis of modern economics. His painstaking research reveals that a great part of Australia’s household debt can no longer be repaid.

Bryan Kavanagh is a real estate valuer who has defined and quantified Australia’s real estate bubbles. Of the $2.4 trillion we spent on real estate in the ten years of this bubble, he estimates some 30% will be written off. Bryan Kavanagh predicted the GFC in this 2001 article in Geophilos.

RSVP to book your seat to this free, capacity event.

photo credit: Stuck in Customs

On the first anniversary of the collapse of Lehman Brothers, this piece sums up the cause to the GFC, as predicted by 5 economists who subscribe to the line of economic thinking we promote: land rent theory.

Dirk Bezener, the academic who collated the 12 economists who predicted the GFC, wrote in the Financial Times Why Some Economists Could See the Financial Crisis :

Glenn Stevens, governor of the Reserve Bank of Australia, said: “I do not know anyone who predicted this course of events. But it has occurred, it has implications, and so we must reflect on it.” We must indeed.
…
I undertook a study of the models used by those who did see it coming.* They include Kurt Richebächer, an investment newsletter writer, who wrote in 2001 that “the new housing bubble – together with the bond and stock bubbles – will [inevitably] implode in the foreseeable future, plunging the US economy into a protracted, deep recession”; and in 2006, when the housing market turned, that “all remaining questions pertain solely to [the] speed, depth and duration of the economy’s downturn”. Wynne Godley of the Levy Economics Institute wrote in 2006 that “the small slowdown in the rate at which US household debt levels are rising resulting from the house price decline, will immediately lead to a sustained growth recession before 2010”.

Michael Hudson of the University of Missouri wrote in 2006 that “debt deflation will shrink the ‘real’ economy, drive down real wages, and push our debt-ridden economy into Japan-style stagnation or worse”. Importantly, these and other analysts not only foresaw and timed the end of the credit boom, but also perceived this would inevitably produce recession in the US. How did they do it?

Central to the contrarians’ thinking is an accounting of financial flows (of credit, interest, profit and wages) and stocks (debt and wealth) in the economy, as well as a sharp distinction between the real economy and the financial sector (including property). In these “flow-of-funds” models, liquidity generated in the financial sector flows to companies, households and the government as they borrow. This may facilitate fixed-capital investment, production and consumption, but also asset-price inflation and debt growth. Liquidity returns to the financial sector as investment or in debt service and fees.

Neo-classical economists only focus on two factors of production – capital and labour. Bezener misses the big one in his flow-of-funds analogy. The imperative question is – what was the money was borrowed for?

Land – predominantly. Land values in Australia are twice as big as the ASX.

Fred Harrison wrote in his 1997 analysis – The Chaos Makers

By 2007 Britain and most of the other industrially advanced economies will be in the throes of frenzied activity in the land market equal to what happened in 1988/9. Land prices will be near their 18-year peak, driven by an exponential growth rate, on the verge of collapse that will presage the global depression of 2010. The two events will not be coincidental: the peak in land prices not merely signalling the looming recession but being the primary cause of it.

Fred should be given his due respect, especially as his Power in the Land (1984) also predicted the 1987/8 downturn using the 18 year land cycle. See one of his best videos on the GFC.

Who else used the role of land in their interpretation of business cycles to do what the most high profile economists in the world failed to do?
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photo credit: eqqman

Letter to the Editor
Andrew Gunter
Hawthorn East

THE Housing Industry Association’s Gil King says that “any policies that aim to speed up development applications and increase Victoria’s housing stock are welcomed” (The Age, 10/9).

So does the HIA support the replacement of stamp duty and payroll tax with land tax collecting the same revenue? The replacement of local council rates based on capital improved value and net annual value with rates based on site value?

Those policies would lead to an increase in housing stock (the HIA’s stated aim), make it available at lower prices, and tend to reduce urban sprawl – but would drive a wedge between HIA members whose focus and interest is planning, engineering and construction (delivering the physical improvements) and those whose greater interest is land banking, land speculation and monopolising economic rent (to drive up land price).

On which side of the divide does the HIA stand?

Leading financial economist and historian Professor Michael Hudson will be touring Australia October 12 – 27. Download the tour flyer

See the Hudson Tour Multimedia Highlights

Professor Hudson was one of twelve economists recognised for predicting the GFC. He is a government advisor to many nations, and is fast gaining a reputation in policy circles as the go-to man in GFC hotspots. This has seen him visit Iceland and Latvia this year to assist policy developments. From Mexico to China to the depths of Wall St, Hudson is an insider to the latest global policy trends.

Prof Hudson was the Chief Economic Advisor to Dennis Kucinich in the recent US Presidential Campaign.

On Monday evening (Oct 12th) make sure you tune into Phillip Adams – Late Night Live on Radio National at 10pm.

Hudson will also be interviewed on SKY News TV (7pm Monday). Our own Renegade Economists radio show will have an in depth interview on the Wed Oct 14th show. A raft of other interviews are lined up.

Read his bio outlining his extensive history in economic policy circles and his prominent position in the global media marketplace. Few can sum up a media sound bite like he can. Hear him on the Renegade Economists discussing Latvia. Check many of his recent pieces here, here or here.

Presentations:

Numbers are building rapidly – RSVP now to assure your place to these free events.

• Wed Oct 14th – Lifting the Lid on the GFC, 6.30pm, Melbourne Town Hall, with Steve Keen and Bryan Kavanagh, RSVP
• Thurs Oct 15th – Economic Policy & Asset Bubbles: The Implications for a Sustainable Society, Melbourne Uni, Centre for Public Policy, 5.30pm, RSVP
• Fri Oct 16th – The Earth vs the Neoliberal Paradigm — the Baltic Experience, Prosper Australia, Frank Halkyard Library, 1/27 Hardware Lane, 7pm, RSVP
• Wednesday Oct 21st – Economics for a Future, CSIRO Discovery Centre, Canberra, 7.30pm, RSVP
• Friday Oct 23rd – Forever Blowing Bubbles: Asset bubbles, economic policy and sustainability, Sydney, Customs House, 6pm, BOOKED OUT

Professor Hudson will also be lecturing at the Federal Parliament’s Vital Issues seminar, presenting to government officials at the Victorian ALP Economics conference and meeting with the Reserve Bank.

Hudson is someone who makes economics imperative to our understanding of freedom. As a testament to his skill, the Polish union movement called a snap strike when he visited earlier this year, demanding all members visit their trades hall to study Hudson’s work so that GFC-like events do not occur again. We are lucky to have this high profile speaker on our shores.

Subscribe to the Renegade Economists podcast, broadcasting weekly interviews on economic issues with experts like Hudson.

The paranoia many renters face trying to find a place to genuinely call home is undermined by the juggernaut of rising property prices. Why do rents outpace wages? Is the market about to turn?

It is time prospective first home owners looked beyond mainstream media to arm themselves with information crucial to the biggest decision of their lives. We believe the following series of news snippets may help in deciding upon the right time to enter the market….ie NOT now!:

RP Data reports via realestate.com.au

Weekly house rents fell by 3.5 per cent ($15), while unit rents remained resilient, recording a fall of just 0.6 per cent for the same period.

The largest falls in house rents have been recorded in Canberra, where the median weekly rent is down just over six per cent for the June ’09 quarter, falling from $530 in March ‘09 to $498 in June.

At the other end of the spectrum, the only mainland capital city to record an improvement in the median weekly rental rate was Darwin, which now has the most expensive weekly rental rate for houses of any capital city. On average, renters in Darwin are paying about $100 a week more to rent a house than someone renting in Sydney.

If ever there was a sign that a speculative bubble was still in full swing, look no further than Darwin with rents $100 above Sydney?!! With clearance rates in Melbourne at 85% last weekend, it is interesting to note that the supply of properties to market has only recently lifted above last year’s supply (having been down drastically all year). Will we see a cascade of properties hitting the market before the end of the boosted FHOG?

With yesterday’s ABS property sales data showing a 0.2% drop in the sale of new dwellings and a flat 1% increase in existing (once affordable dwellings), the property market is yet to recover. RP Data’s link above shows that property prices are now at record levels. Watch Phil Anderson on SKY news as a reminder that this is an 18 year cycle, not a month to month timeline.

Gavin Putland’s Recession’s Begin at Home report shows that for 32 out of 40 countries, there was a 8 – 9 quarter lag between a fall in property turnover to the onset of recession. That 8th quarter falls due at… the end of September. With the FHOG clouding the market, the 9th quarter looks very interesting.
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