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Interest rate cuts don't do nothing; May rate cut failing to stimulate mortgage demand: Loan Market
Topic Started: 25 May 2012, 02:57 PM (4,553 Views)
Strindberg
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newjez
27 May 2012, 01:03 PM
If you can find an example of a time I've ever supported Steven Keen - please post a link. I'd be interested to read it.

I was speaking generally. This type ofmoving axis graph is very common. It is what it is - a demonstration of trend, and not an actual comparison.
Apologies. I misunderstood your post as supporting Keen's chart. I've edited my post.
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
"There are two kinds of people in this world: ones that fiddle around wondering whether a thing's right or wrong and guys like us." (Hugo to Gagin in Ride the Pink Horse)
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miw
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newjez
27 May 2012, 06:20 AM
It's quite valid to use a graph like this to demonstrate a particular point or trend. Quite often when comparing anything with the USA you need to scale size and even time to demonstrate trends. But you have to be very careful not to then take the graph out of context and try and prove something else. You also need a basic understanding of what the graph is.
If the actual percentage of GDP were immaterial, then I would grudgingly allow it. Economists get away with all sorts of shit that scientists are not allowed. (Had I put a graph like that in any paper I wrote while studying engineering, the paper would not even have got marked. It would have been returned for resubmission. Diddling axes is a big crime.)

But when he first used that graph about 3 years ago, Keen himself said that proportion of GDP was very material and that the fact that Australia only got to 155% was possibly the reason why Australia (to that point) had not suffered a significant drop in property prices.

He could have shown the similarity in slope easily enough without trying to superimpose the curves. To me the trick of using different scales for things you are comparing, thereby hiding the differences in order to exaggerate the similarities and then going on to postulate some kind of inevitability about the future track of one of the variables is at best a very dodgy argument and at worst dishonest. You can impress the punters with it for some time, but it probably explains why he's still at UWS rather than having been poached by one of the tier I schools.

In this case his graph has deceived Raveswei (and probably many others). I doubt that has improved his reputation with Raveswei.
Edited by miw, 27 May 2012, 03:13 PM.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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peter fraser
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miw
27 May 2012, 02:57 PM
newjez
27 May 2012, 06:20 AM
It's quite valid to use a graph like this to demonstrate a particular point or trend. Quite often when comparing anything with the USA you need to scale size and even time to demonstrate trends. But you have to be very careful not to then take the graph out of context and try and prove something else. You also need a basic understanding of what the graph is.
If the actual percentage of GDP were immaterial, then I would grudgingly allow it. Economists get away with all sorts of shit that scientists are not allowed. (Had I put a graph like that in any paper I wrote while studying engineering, the paper would not even have got marked. It would have been returned for resubmission. Diddling axes is a big crime.)

But when he first used that graph about 3 years ago, Keen himself said that proportion of GDP was very material and that the fact that Australia only got to 155% was possibly the reason why Australia (to that point) had not suffered a significant drop in property prices.

He could have shown the similarity in slope easily enough without trying to superimpose the curves. To me the trick of using different scales for things you are comparing, thereby hiding the differences in order to exaggerate the similarities and then going on to postulate some kind of inevitability about the future track of one of the variables is at best a very dodgy argument and at worst dishonest. You can impress the punters with it for some time, but it probably explains why he's still at UWS rather than having been poached by one of the tier I schools.

In this case his graph has deceived Raveswei (and probably many others). I doubt that has improved his reputation with Raveswei.
To be fair to Keen, as I recall he first put out that graph to demonstrate the different rate of fall between the USA and Australia, and for that purpose it had some relevance. Unfortunately most who viewed it took it to mean that Australia had hit the same debt to GDP levels as they had in the USA.

The graph then grew a life of it's own, and the non-disclosure became a matter of convenience for many. So it's not all Keens fault, however it's high time that he recalled that graph for some remedial work to set the record straight.





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miw
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peter fraser
27 May 2012, 04:42 PM
To be fair to Keen, as I recall he first put out that graph to demonstrate the different rate of fall between the USA and Australia, and for that purpose it had some relevance. Unfortunately most who viewed it took it to mean that Australia had hit the same debt to GDP levels as they had in the USA.

The graph then grew a life of it's own, and the non-disclosure became a matter of convenience for many. So it's not all Keens fault, however it's high time that he recalled that graph for some remedial work to set the record straight.




I'm not so sure I would let Keen off the hook so easily. If you examine the left and right sides, you see that the scale on the left is double the scale on the right - for an already normalised value.

So you might even think - "Jeez Australia's debt/GDP ratio started from a lower base, but it has grown even faster than it did in the US, and now we are deleveraging just as fast as they are. We're toast just like they were."

But in actual fact, the situation is that Australia's debt/gdp ratio started much lower, peaked earlier, and has dropped off much more slowly. This is important to his argument, because he postulates (correctly in my view) that a 5% drop in the debt/GDP ratio will have a similar impact on aggregate demand to a 5% drop in GDP. (But he even fudges that a little bit by mixing real and nominal terms in the same argument when he goes on to show that stable debt/GDP will cause a drop in demand in real terms.) So it is of critical importance to his analysis that Australia is currently deleveraging at approcximately 7% of GDP/year and has been doing so for one year, whereas the US has been deleveraging at a rate of 15% of GDP/year for twice as long.

The original graph was designed to deceive rather than illuminate, and it was entirely intentional. This guy is an academic so he will understand this stuff.

I've plotted the same values on a graph with equal scales and the origin on the graph to demonstrate what I mean. I have only plotted year-end values so some of the wiggles are missing.

Attached to this post:
Attachments: debtvsgdp.png (6.36 KB)
The truth will set you free. But first, it will piss you off.
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peter fraser
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miw
27 May 2012, 05:37 PM
peter fraser
27 May 2012, 04:42 PM
To be fair to Keen, as I recall he first put out that graph to demonstrate the different rate of fall between the USA and Australia, and for that purpose it had some relevance. Unfortunately most who viewed it took it to mean that Australia had hit the same debt to GDP levels as they had in the USA.

The graph then grew a life of it's own, and the non-disclosure became a matter of convenience for many. So it's not all Keens fault, however it's high time that he recalled that graph for some remedial work to set the record straight.




I'm not so sure I would let Keen off the hook so easily. If you examine the left and right sides, you see that the scale on the left is double the scale on the right - for an already normalised value.

So you might even think - "Jeez Australia's debt/GDP ratio started from a lower base, but it has grown even faster than it did in the US, and now we are deleveraging just as fast as they are. We're toast just like they were."

But in actual fact, the situation is that Australia's debt/gdp ratio started much lower, peaked earlier, and has dropped off much more slowly. This is important to his argument, because he postulates (correctly in my view) that a 5% drop in the debt/GDP ratio will have a similar impact on aggregate demand to a 5% drop in GDP. (But he even fudges that a little bit by mixing real and nominal terms in the same argument when he goes on to show that stable debt/GDP will cause a drop in demand in real terms.) So it is of critical importance to his analysis that Australia is currently deleveraging at approcximately 7% of GDP/year and has been doing so for one year, whereas the US has been deleveraging at a rate of 15% of GDP/year for twice as long.

The original graph was designed to deceive rather than illuminate, and it was entirely intentional. This guy is an academic so he will understand this stuff.

I've plotted the same values on a graph with equal scales and the origin on the graph to demonstrate what I mean. I have only plotted year-end values so some of the wiggles are missing.

Well I reconstructed the graph much more crudely using scissors and a white out pen, and I got the graph below.

It does change the perspective somewhat. It amazes me that we started deleveraging before the USA, but perhaps that is because they are locked into fixed loans whilst we are mainly variable, and so had more immediate available options.

What I find interesting is the changing story. Initially we were deleveraging faster than the USA and the story from MB and others was that we were falling faster tha the USA, so it was painted in that light.

Now we have tapered off, and so the new story is that we are the new Japan, and the new story is verbally coloured accordingly. I reality if we are deleveraging (and we are) then our trend line will fit somewhere on the spectrum, but it won't necessarily mimic any other trend line, so it's a pointless graph in that sense.

But it's popular in some quarters.



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Attachments: real_debt_graph_10001.pdf (33.46 KB)
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Sydneyite
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muzza
27 May 2012, 11:54 AM
So Syd,
Do you think the previous cuts have had an effect yet ?
Which ones do you mean? The 2 x 25 basis points from late last year? I think they have had some impact, yes, but given they were not passed on in full, plus a lot of other issues have still been sapping confidence, I don't think their impact has been large, as in enough to reverse the house price trend completely. We can see the impact in the moderate improvements in Melbourne and Sydney auction clearance rates this year, the rise in housing finance numbers since mid / late last year, plus the fact some areas like Perth are starting to see pretty clear house price increases. At the end of the day, we need to see where things are at by the end of this year to see the full impact of those plus the more recent rate cuts.

PS: I'm not calling a boom or anything, but there was an article in the paper this morning about a house in Sydney (north shore) that sold at auction yesterday for nearly $900k over it's expected sale price ! Ie $2.2M when about $1.3M was being sought :bl: Probably an anomaly at this stage I think, but strangely reminiscent of the sort of things that used to happen regularly when the market has been red hot in the past.
Edited by Sydneyite, 28 May 2012, 02:12 PM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Lefty
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I can see how this graph could easily mislead. It would be good to see it in the context of the Steve Keen article that it was part of though, before accusing anyone of being disingenuous.

I haven't checked, but when did Australian mortgage debt reach 155% of GDP? I thought it was around 90%. That chart looks like total private sector debt to GDP. There was enormous borrowing in the US to fund the huge stock market bubble. It may be that borrowing to fund rapidly inflating house prices in Australia exceeded that of the US as a % of GDP, while total private sector debt in the US may have risen to much higher levels as a % of GDP than that of Australia's.

But I haven't looked.
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Sydneyite
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Lefty
27 May 2012, 06:38 PM
Posted Image

I can see how this graph could easily mislead. It would be good to see it in the context of the Steve Keen article that it was part of though, before accusing anyone of being disingenuous.

I haven't checked, but when did Australian mortgage debt reach 155% of GDP? I thought it was around 90%. That chart looks like total private sector debt to GDP. There was enormous borrowing in the US to fund the huge stock market bubble. It may be that borrowing to fund rapidly inflating house prices in Australia exceeded that of the US as a % of GDP, while total private sector debt in the US may have risen to much higher levels as a % of GDP than that of Australia's.

But I haven't looked.
It is total private debt. Raveswei posted it on this thread and claimed that it "proved" that Australia's private debt peaked at a higher level than the US, and therefore will likely fall further than theirs did. His statement was complete bullshit and this chart was used either stupidly or dishonestly to try and prove that claim. As miw quipped - quite a "head shot" when going for the foot!

If people want to discuss household debt levels, that's fine, but use a chart that shows that data then. Simple really? It is also interesting that Ravingmad has been strangely absent / silent since this monumental stuff up was exposed?
Edited by Sydneyite, 27 May 2012, 06:48 PM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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nipa hut
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Despite the disingenuous/dishonest use of units of measure in the graphs under discussion, no one has disputed that both the US and Australian curves have turned down, in similar timeframes, and neither downward trend has found a bottom.

Consumer debt deleveraging remains a force in current Australian economic events, albeit a (fortunately) more gentle one than across the pond.
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Starlightdiscs
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Bulls have extreme normalcy bias and obviously can not add 1+1. 1+1= one he'll of a massive price reduction coming in Australian property. I like moops.
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