Economist Steve Keen
HONG KONG (MarketWatch) — Australia’s seemingly bulletproof economy could soon face fallout from high debt levels and purportedly misguided policies designed to pump up asset prices, according to an outspoken skeptic of the nation’s housing boom.
Economist Steve Keen of the University of Western Sydney, who claims to have accurately foreseen the global financial crisis, said he’s been dismayed by what he sees as a growing nationwide housing bubble stoked by government efforts to forestall economic pain.
Keen points to a first-time homebuyer subsidy program, various other stimulus programs, and a 4-percentage-point reduction in interest rates — policies introduced in the wake of the 2008 crash and which he termed “The Boost” — as having helped fueled a new housing boom and a 6% rise in mortgage debt last year.
“The Boost has … given Australia a dubious distinction when compared to the rest of the OECD. Yes, we are the only country that avoided a technical recession; but we are also the only country where debt levels are rising once more compared to GDP, rather than falling,” Keen wrote in comments posted on his Web site, keenwalk.com.au.
He now believes Australian home prices could mimic Japan’s decades-long slump, where prices have drifted 40% lower from their highs in the early 1990s.
To raise awareness of what he says is the nation’s dangerously inflated debt bubble, Keen launched the keenwalk Web site. It details the author’s plans for an eight-day march from Canberra, planned for April, the result of a losing bet with a Macquarie analyst that Australian house prices would fall last year.
The Reserve Bank of Australia’s minutes of their Feb. 2 monetary policy board meeting, released Tuesday, described the housing market as “fairly buoyant,” with average prices rising 10% to 12% last year, while data on detached house showed slightly higher gains. See text of RBA minutes.
Australia’s central bank held its policy interest rate unchanged at the meeting earlier this month but said it wouldn’t rule out a hike in the near future. See related story on minutes of RBA decision.
Chris Oliver is MarketWatch’s Asia bureau chief, based in Hong Kong.
Feb. 16, 2010, 1:11 a.m. EST
By Chris Oliver