Steve Keen: Why Recession Is Coming — And How Governments Could Make It Worse

[00:00:00] Speaker 1: Yep. There we go. Good. Good morning, Steve. Thank you so much for joining me. I know you've just arrived in Sydney. You've just flown here from Amsterdam. Yep. And how long since you were [00:00:13] Speaker 2: last in Australia? Actually, only a very brief while because I've forgotten the reason I came out about June or so, actually May thereabouts. I had some technical reasoning. That's right. My driver's license had expired. I came out towards March and I could only come back to New South Wales to get it renewed. So, you know, I had to return for that reason and then other stuff happened. So I was here for a while. Now I'm back again. So, and this is because my passport renewal. [00:00:40] Speaker 1: So. Oh, really? Right. Okay. Because I know, you know, there's a little bit of tension around flying and, you know, what's going to happen to oil prices and the cost of the flights. [00:00:50] Speaker 2: Well, that was partly what motivated me to come out in a hurry because I'm actually selling my apartment in Amsterdam, long story, but I need to consolidate. And so I will be probably moving back to Sydney. And then as part of that, I had to come over now. And it was either, if I didn't, if I didn't come over immediately, I thought I could find either, definitely airfare's getting more expensive, but quite possibly airfare's being cancelled or air flights being cancelled. [00:01:15] Speaker 1: Yeah. Yeah, absolutely. It wouldn't take much for that to happen. Actually, my sister's an air stewardess. So she's in the industry and worrying about that herself. But yeah, that's interesting. How's it going in Amsterdam? I mean, we don't hear much about what's going on in Europe here. We're so isolated in Australia. Yeah. What's the atmosphere like there? [00:01:34] Speaker 2: Oh, it's, well, it was weird because this last summer has been absolutely crazy. Like a couple of days ago, the temperature in Amsterdam in autumn was hotter than the temperature in Sydney in spring. And it hit 36 degrees. Now that's, for an Aussie, you know, 36 degrees is a good day to go to the beach. We've got infrastructure, which is meant for those temperatures. Amsterdam slopes with Ilka, the very high quality infrastructure overall. But the Britons, the railways, rails expanded too much for trains and, and things of this nature. So everybody's stunned over here by the huge increase in temperatures. And France was the worst. France was hitting days of, you know, 40 plus 40, plus 40 degree temperatures. And so people, I think are starting to realize maybe these people talking about global warming have got a point. And that sort of seems to be soaking in. But at the same time, there's just a sense of chaos in the, in the country, because one thing which the Europe doesn't have that most of the other major centers of the world do have is reliable power supplies. And, but partly because of the war in Ukraine, they've, and they're, you know, they're losing the Russian oil coming in. They're now paying for American gas, which is far more expensive, being screwed by the Americans, basically. Germany shut down some of its nuclear power station, which was crazy. France was forced to shut them down because the temperature in the, in the rivers got too hot for the, to allow the, the, the water coming out of the cooling towers to be released into the rivers. It would have been quitting, killing the fish. The rivers are running too low. All these sorts of effects are happening. And people are realizing that Europe is extremely badly prepared for whatever's coming our way. [00:03:18] Speaker 1: Yeah, it's, it's, it's worrying, but having touched down in Australia, I'm curious to know what you think about the, you know, well, I mean, you would have been watching what's going on in Australia from overseas anyway. I mean, the, the atmosphere here over the last few years hasn't been great. And because now we're seeing interest rates rise at their highest rate for 15 years, uh, which takes us back to a, a pretty dreadful time in the market. If we go back 15 years ago, we're getting very close to what was then the global financial crisis, um, and affordability at just disastrous levels. I mean, as, as for, for most people buying a property, it's not so much what the house is worth, but what they can afford on their monthly repayments. And with rates now going up and the amount of debt that they've got, I am, you know, the way that I see it is it's, it's almost like we're, it's inevitable that we're going to fall into a recession. And I'm curious as to whether [00:04:17] Speaker 2: you're, I mean, there's a whole lot of causes of recessions at the moment, the AI bubble, which is keeping America afloat right now is hiding to nothing. It's going to burst sometime in the next one to two years because the AI companies are losing money hand over fist right now. And, uh, it looks like they're going to, uh, they'll, they'll, even the consolidation won't necessarily make the industry profitable. So there's been massive overinvestment. I've seen estimates that the level of investment in AI in terms of the percentage of GDP is larger than the level of investment back during the railways boom in the 19th century. And so that, that boom and bus cycle is a, you know, it left us with the railway system, which at least not in America so much, but in the UK and Europe is a major benefit to society that's there permanently. AI will just leave a, uh, you know, there's nothing left of AI. If a company fails, uh, then, uh, it, there's nothing really left of it in the sense of its actual, um, uh, software unless that, unless that's got out and escaped and is doing crazy things on its own. And the data centers, uh, you know, within three years, the chips are obsolete given the rate of development of software of hardware. So it's looking like a, a bus, which will certainly involve a technology, which is transformative. That's the positive aspect of it. But as to whether there'll be any leftover in terms of capital that other companies can buy and turn into something profitable, or the government can, uh, can nationalize as happened with the railways back in the 19th century, doesn't look like it's going to. So that's a crash there. We have the idiocy of the war in, uh, in Iran against Iran, uh, Trump's full, uh, Trump and Netanyahu's ludicrous adventure, uh, rather than excellent. Um, and, and that is going to cut off physical supplies for so many industries that there'll be a recession caused by that alone. And it won't be the financial sister over, over lending and then crashing, which is what happened in 2008. This will be relatively stable credit levels at the moment, far too high level of private debt still, because that's what caused the global financial crisis. And the idiots in charge, people like Ben Bernanke, uh, not knowing that that what actually caused the crisis, they've, they've made, they've tried to encourage people to continue borrowing when it was private debt that caused the crisis in the first place. The effect of that is that, uh, 20 years after the global financial crisis, debt levels have fallen from 170% of GDP in America. This is private debt, 170% to 150%, which is about a 15% fall. When you take a look at what happened in the Great Depression 20 years after their peak level of debt, the peak level of debt was 1932 at about 150% of GDP. After the horror of the Great Depression and World War II, that was down to 50%. So you went from a debt-encumbered society to a debt-unencumbered society in America at that time, and globally as well. Uh, now you've gone from a debt-encumbered society to a slightly less debt-encumbered society. You've still got to service the debt, and with the high interest rates that apply now, again, that's the responsibility of mainstream idiots like Ben Bernanke. Putting up interest rates is a ridiculous tool of so-called fight inflation. What that means is companies and individuals who've got debt to service won't necessarily be able to do that if they can't get the oil, which has obviously been cut off from the Strait of Hormones and now the Red Sea. Fertiliser, sulfuric acid, helium, lubricating oil, they're all some of the major areas that have been trashed, and as people start funding that can't get supplies, or they've got to pay too much for the supplies, then we'll find people can't service that debt anymore, and we'll have a crisis coming out of that, rather than a boom and bust, and the credit has happened back in 2007. [00:08:13] Speaker 1: Yeah, let's just go on to around rising interest rates because, I mean, I'm in full agreement with you. There's a lot of pushback over when you start talking about MMT or, you know, how the system works. People just don't like it. I actually don't know why. I always thought that it would have been like a revelation that would have freed people from their, you know, uh, from their slavery to the system, but unfortunately it doesn't seem to have done that. There's so much pushback on it, but I am in agreement with you, you know, putting up interest rates is actually not doing anything [00:08:43] Speaker 2: to control the nation. This is, I mean, the whole, this comes down again to neoclassical economists who I regard as the scourge of the planet, um, far more dangerous than any mullet you might find, uh, because they have a fallacious model of the world, which they have the policy power to impose that fallacious model on the rest of us. So their model, uh, tells them that putting up the interest rate, uh, twice, uh, reduces the rate of inflation, but it's a model in which people are, you know, a very calm world in which you can actually predict the future. They're realizing that the higher interest rate means they should consume less now. And therefore that's going to reduce consumption pressure and that feeds through to the prices. And it's a completely bollocks theory. And of course, the actual cause of the crisis has got nothing to do with demand right now. It's supply constraints, as it was back in COVID that's giving us this inflationary surge. So what they're doing is that the, the, the system itself is generating inflation because supplies are plunging and therefore you've got to pay more for oil, more for fertilizer, more for sulfuric acid, all that feeds through the cost structure pushing up costs. Okay. Uh, and then they're saying, we're going to cut demand at the same time. Well, that's good. Let's have a recession. Yeah. Yeah. Oh, I mean, that, that's how I see it. [00:10:02] Speaker 1: I feel that they're just pushing us into recession. I mean, Michelle Bullock came out and said, you know, did her little speech about it all. We understand people are doing it tough, but they'll thank us in a couple of years. And I thought, well, that's, that's remarkable really from probably, I don't know what [00:10:16] Speaker 2: salary that she's on, but one of our most esteemed. About three quarters of a million from memory, something of that order. Um, you know, um, but, but it is again, I mean, Reagan said the same thing when they brought in neoliberalism back in the eighties, I can't quite remember the dates for Reagan's speech, but at one stage in one of his talks about fiscal responsibility, which is the idea that government should balance their books. He said, our children will thank us and that's all the thanks we'll ever need. Well, the kids have grown up, mate, and they're angst because the rate of economic growth actually fell when we worked from the, the sort of what they call the Keynesian period. It wasn't really Keynesian, but the, the, what came out of world war two and the great depression beforehand was an emphasis upon full employment, uh, because this horrors of the great depression followed by the horrors of the second world war, when many working class people got shot, you know, killed in the war and the returning soldiers were, had a large degree of, of sort of class solidarity. That mood permeated society in a way that people today have no, uh, understanding of. And if there's a, the classic white paper on employment, uh, in Australia published in 1944, 45, uh, said that the object of government policy, this is a pretty much a literal quote. I learned it when I was 16. Uh, uh, when I did learn it at school, the, uh, the purpose of economic policy is to maintain such pressure on employment as to guarantee a shortage of men rather than a shortage of jobs. That was the mentality. So between 45 and about 75, that was the overall emphasis. And then when the inflation rose in the 1970s, and that was also due to an oil shock fundamentally the increase that, that plus a booming economy and workers could actually pass on the cost of the petrol at the pump, uh, because the unions could negotiate for wage rises. So you got increase in oil price, increase in wages, increase in prices. And that classic wage price spiraled. Um, the, the, uh, the belief was, oh, we'll get rid of that. We'll forget about worrying about employment. We'll keep prices under control. That'll be our focus. So that's the neoliberal period said, let's keep inflation down. And again, the belief they had was to get the government out of the way. Everything will work better. Uh, you know, limit the unions. They're really nasty people get rid of them. And they will grow so much faster. Well, when you take a look at the figures and you can find this on the world bank side, the rate of per capita economic growth, there's only data from 1960 to 1975. It's a sort of example of the Keynesian period. And then 75 on has all been neoclassical, neoliberal, the rate of the average rate of economic growth in America and the UK declined by over 1%. Australia was worse. So rather than growing faster, we were slower. And the, the argument was that you won't need social security. You won't need public health. You won't need public education. Your wages will be so much better. You can buy those all for yourself. Well, I said, wages are being screwed. They've cut out that services anyway. And people are, you know, absolutely full of angst now, and it's justified. This whole system has failed, but you can't get any of the top political leaders to change direction. That includes Albanese, of course. [00:13:24] Speaker 1: I think what's remarkable about the policy now is that people will argue that unemployment actually needs to be higher in order to control inflation. And, and that just bottles my mind, because I think, well, how, how is that economics? Because in my mind, you know, when I started to study economics, I always felt like what a wonderful thing it was, because it was like the cure for poverty for me. It was like, yeah, but now, you know, it's like turned on its head and said, well, actually, we need more of you unemployed, you know, in order to control inflation so that life can be [00:13:56] Speaker 2: better for you. And I was blaming the working class for the rising cost of living, okay, which used to happen when workers could actually get together and trade unions and bargain to get wage rises. Now they can't most workers, certainly younger workers are working in gig jobs with absolutely no job security. The unions have been virtually destroyed. This is a global phenomenon. So it's not the unions that are causing the rage, the increases. And the belief is that by increasing the unemployment rate, you'll reduce wage pressures, well, they're out there to begin with. And what you're actually doing by putting up the rates is you're leaving people with less money left over from their incomes to service their debts. If they can't service their debts, and they can't cut back on their, on their consumption, because it's a necessary consumption out of very little, only only if you're wealthy to have frivolous consumption, that people are going to go bankrupt. Yeah. And this, this control mechanism, it just shows how completely out of touch mainstream economists are with the real world. And I've had enough of them. I mean, I've had 50 years of dealing with these people. And they believe they know best, they believe they know how the world functions. And they've got a mythical model in their world, in their minds. And in their mythical model, this stuff works. In the real world, it doesn't. [00:15:07] Speaker 1: I'm actually wondering, because if we do go into a recession, I mean, that's something I've been forecasting for ages, just based on the cycles that I forecast, I feel the cycles are really important to understand, alongside all the fundamentals of economics, because there do seem to be these repeating patterns that happen at certain lengths of time. And, you know, we debate why, you know, why is it so long? Why, why is it all of this? And, you know, but regardless, if we were to go into recession, and we look back at what happened, you know, back in 2008, or even in 2020, you know, the way out of those recessions was to slash interest rates, and to stimulate the economy. And I'm wondering whether that's going to be different this time, because the RBA are not going to be able to slash interest rates, because the inflationary pressures are coming from overseas, they're coming from the supply, you know, oil pressures. And I think if you go back to, you know, 19, what happened in the 1970s, and it's so reminiscent of that cycle, because of the oil price spike, and there was war in the Middle East, and it was crazy inflation into that, that peak and bust. And also, the housing market was going crazy as well. There was heaps of development going on in Sydney, I think Sydney suffered in that downturn. They didn't slash interest rates, I don't think on the other side of it. I can't, I don't know whether you can remember [00:16:25] Speaker 2: what happened on that. That was when the neoliberals were taking over. So like, in terms of economic theory, and this is what I'm writing this up in my next book, which is called How Economists Will Destroy Capitalism. Another cheery title. Yeah, that period, the whole Milton Friedman, neoliberal attitude, neoclassical theory took over, and it was the theoretical coup against the remnants of what they called Keynesian economics at the time. And it was all gung-ho. And I always pronounce his name wrongly, but is it Vokler or Vok? Vokler. Yeah, Vokler, that's right. Vokler, okay. He basically swallowed the monetarist idea that if you want to reduce inflation, you've got to reduce the rate of growth of the money supply. And the way to do that in terms of mechanism was to put up the interest rates. So rates went really high, and that caused the biggest downturn since the Great Depression, until the global financial crisis came along. So what is actually going to happen out of these high rates is, that will also cause a recession. And the theory they had, and this is why, again, they're off with the bloody fairies, they have the theory that what causes inflation is expectations of inflation. Literally, that's the theory. Now, you'll hear Michelle in her equivalents around the world, inflationary expectations are really high. We've got to anchor them to a lower rate, yada, yada, yada, yada, yada, all this bullshit, pardon me, it's this total theoretical bullshit. But the idea was that the expectations would adjust, and there'd be very little effect on the real economy. That's Milton Friedman's argument. You can find it in what he called the optimum quantity of money paper, which is another piece of total shit, fantasy world stuff, where a helicopter flies over a country and drops dollar bills out of the window. Quite literally, that's where helicopter money came from, that particular idea. And so the whole argument was this economy is in general equilibrium, the helicopters flying over regularly, dropping those pieces of paper out of the sky, people are always putting up their prices, because they expect the money to keep on falling out of the sky. That's the theory. And then if you get people to not expect their helicopters, that'll bring the price down without changing the real output, the economy is still going to be in general equilibrium. Well, Jesus, pass the joint, mate. I mean, I haven't smoked anything that strong in Amsterdam, in terms of delusions about how the world functions. But that's what lies behind all this stuff. So Volker thought he'd put up the rates and reduce expectations with fertile impact upon the real economy. In fact, we had the biggest recession, since the Great Depression, and up until that time in the 1980s. So again, it'll be the same sort of thing. This recession, partially can be blamed on economists. Yeah. In that respect, how do you see [00:19:09] Speaker 1: this impacting Australia? Because last time, as you said, the debt levels in America are quite as bad as they were before. I wonder with that, because so much has been moved into the private credit system. So we can't really see what's going on. And we know that there's been some serious defaults in the government. And the BlackRock and the commercial companies have already been showing signs of [00:19:33] Speaker 2: weakness. Yeah. There is certainly a level of fog around how much actual private debt is around at the moment. Because a lot of the original investment in AI and data centers was out of giant pools of money, like, as you said, the BlackRock, but also Microsoft itself and Google, all had enormous cash reserves. So they were spending the cash reserves. But what almost always happens when you'd win this cash, there's a bank, OK? Yeah. And when these cash pools, they'd probably go to the banks and then use the cash pools and lever up that amount of money. And equally, because they're losing money hand over fist right now, their cash reserves are running down and they're probably borrowing to try to cover some of the decline in their liquidity. And I think so in that case, we're likely to see, hopefully, I mean, I wouldn't mind seeing Facebook go down. But we're likely to see one of these major companies busting because they blew all their money on AI. [00:20:30] Speaker 1: Yeah, I mean, the AI thing is interesting. I speak to a really intelligent lady in the US, Melody Wright. She's a US housing commentator. She was very integral. She was involved in the mortgage business in 2008 and sort of saw the workings of what happened at that time. And for a long time now, she's been warning that the US actually is in a much worse position in its housing market than people can perhaps see. Because I think transaction levels are back to where they were in the early 1990s recession. And yet population is so much bigger. And of course, the stock of housing is so much bigger. But she was also telling me that over there, they have the same kind of crazy home buyer schemes as we have over here, where they will allow people to buy with even less than a 5% deposit. And she said, what's interesting over there is that a lot of investors actually use the scheme for themselves. You know, they loop the scheme, which I imagine is probably happening over here too. The 5% deposit scheme is supposed to be for first home buyers. And they're supposed to live in that home until they've paid a 20% deposit at least before they can move out and use it as an investment. But I imagine that there's there's people trying to sort of, you know, you convert their properties to investments or whatever else. But I think I think that's the worry, because you know, we can we can theorize what's going to happen in Australia. But if America goes, everyone's going with it. And I don't know if you've been watching it really close as closely as you have in the past as to, you know, whether the housing market could have a topple not as close. [00:21:59] Speaker 2: Not as close. I mean, of course, back in 2007, that's what I was causing a global bubble. And I was analyzing it very, very closely. Now I'm more focusing on the next catastrophe, which is also something you can blame on economists. And that's global warming. Not that they caused it, but they said, don't worry about it. And we're about to find how deadly bad that advice was. So that's become a major focus of mine instead. But looking at the housing market, the house prices now are higher than they were at the peak of the 2007 bubble. But they're basically flatlining in America at the moment. But and because America's system doesn't have floating, floating mortgage rates. So you don't get an impact on the current owners in America like you do in Australia. I just sort of was it today they put the rates up another quarter of a percent mortgage rates in Australia. Everybody virtually everybody is paying a higher rate. Therefore, they've got less money to spend on goods and services, which have got more expensive because of the supply constraints. That's that's the situation for many, many households here. So that's obviously going to deflate the Australian housing bubble. And it is a bubble that always has been. But the American one, it may be slower because having fixed exchange rates, it only takes the wind out of new new new buyers. It doesn't hit current buyers because they've all got fixed rates and they don't see an increase in their cost when the rates go up. [00:23:17] Speaker 1: Yeah. And of course, alongside that, we've got the commercial bubble that's coming from AI, as you as you mentioned, that's feeding into the data centers. And we're seeing some huge data centers being built in Australia. I think the biggest of being commissioned over here, because I think some from the I think what I heard this is someone who called me. So, you know, don't take it as absolute red. But he was saying to me that, you know, because America doesn't want to build data centers, have all their data centers over there in case of a war risk or whatever. Yeah, want to move them overseas, because of course, they're now integral to everybody's lives, you know, that they're building them, they want to build them in Australia, we've got all this land. And I think some big swathe farming land or something was sold for part of the idea is you've got a 24 hour system. [00:24:06] Speaker 2: So you want to have, of course, people, those places work 24 hours too, but you want to people making use of them, that'll go on a wave around the planet as it rotates. So in that sense, it makes sense for companies to have data centers around the world as well. So that's it. These are just American queries. In other words, they've got to make their money out of. That makes sense as a commercial decision. But the trouble is, these data centers are enormous consumers of power. And the only country that's set up to have the power to supply them is China, not America. So it's partially also the fact that we don't have the high quality of electrical electric power infrastructure that's needed to sustain and grow these power systems. [00:24:54] Speaker 1: My query, I guess, is from all of this that's growing, we don't really know what the impact is going to be. So we can say, okay, it's almost inevitable we're going to go into a recessionary environment because of what's happening to rates and, you know, what that's doing, you know, pulling money out of the economy and pushing, forcing people underwater without them wanting to go underwater. Property prices going down after we've pushed people into the market on, you know, crazy first home buyer schemes in the US. [00:25:19] Speaker 2: The bloody thing Albanese did, which should be. I mean, one of the things I learned when I moved to the UK is that the way economic policy is worked out is Australia comes up with a stupid idea. And six months to a year later, the UK implements the same stupid idea. And then the Mayor Australia looked, oh, that's a great stupid idea. Let's make something even more stupid down here. And they soccer between each other. So I was just disgusted, frankly, when I heard Albanese make that two and a half percent deposit bullshit over here. And what is the just two or three days ago? I think it was. Who's the new prime minister in the UK? Forgotten his name. Not Bernanke might as well be. I should know because my mum bones are back all the time. His latest great idea is a two and a half percent deposit to buy a house. And people outright are coming out like straight away and saying, don't fall for this shit, because you're likely to get into a house where your leverage is 40 to one. Your equity is, you know, two and a half percent of the cost of the property. If the property price goes down, effectively your equity falls even further. And so the commentators are saying, for Christ's sake, kids, don't take this up. But you see, you know, first of all, Albanese does it. It's just they're just trying to make the only thing, the way to boost the economy they know to do is to cause a housing bubble. That's it. And so a government policy, which should be used to build infrastructure. In the West is used to underwrite housing bubbles. [00:26:44] Speaker 1: Yeah. [00:26:45] Speaker ?: Yes. [00:26:45] Speaker 1: So, so true. I mean, that, you know, it was, I always used to say all the economies choreographed around the housing market. But Lee Van Onselen, who I do a podcast with each week, came out with, we're a housing, we're a housing market with an economy attached. And I thought kind of an even better way to put it. But it's so true. I mean, but this is what's leading me to think, you know, if we, if we go into something, are we going into something that could be akin, like it was in the Great Depression, which lasted a lot longer than it needed to do because of the policies at that time. And just because, you know, of the inability really to put in the mechanisms that have been put in in previous crises, which would be slashing interest rates, if we've still got inflationary pressures coming from overseas, and they can't do that. And then all the stimulus has already been pumped into the economy with the 5%. And you're absolutely right. The way to think about it is to think about it is how much you're leveraged rather than I can buy cheaply because Louis Christopher put this very well in some commentary that he was doing where he said, look, if you're underwater, it's really second only to bankruptcy. You know, it's like second worst. You're that close. Yeah. [00:27:55] Speaker 2: Yeah. And that's the reason that there used to be a 30% deposit. [00:28:00] Speaker 1: Yeah. [00:28:01] Speaker 2: Because it guaranteed you had a large amount of equity when you took out your house. Now, I mean, it's all about that. All this has benefited the financial sector, which is causing a great growth in all the financial intermediaries, so-called financial service industries. But it's been maintained by higher and higher levels of private debt. Yeah. And we've now, I think, reached the terminal state of that because the only people that can afford it are now in their 50s, you know, first-time buyers. An age of people used to take early retirement for some decades back. And that means that the pool of potential buyers has shrunk. The amount of debt they're required to take on is ridiculous of already carrying student debt before they even get to that point. So all this reason that the financial sector succeeded in overselling debt to everybody, private debt. And that's why we've got a basically clogged system. And the only way that people know how to promote it is to cause the take on more debt. We're going from a clogged system to a clogged artery. So it is something you should simply stop and reverse. But, you know, neoliberal brain-dead politicians like Albanese here and like Burnham in the UK, they don't think this through. And they go for the short, you know, sugar hit of boosting the property market and then hope it's all going to work out well. Well, I'm sorry, we're doing it for 40 years, guys. These policies have a use-by date. And that use-by date probably expired 10 years ago. [00:29:31] Speaker 1: But now that they've pumped all of their sort of stimulus in with the 5% deposit and whatever else, you know, we've had a huge amount of government spending, I think, in wartime levels over the last few years. And if we come into a crisis now, what mechanisms are there to get us out of that crisis quickly? [00:29:48] Speaker 2: Government spending. I'm sorry, Kathleen, I'm going to contradict you on that particular point. The popular belief is the government has to borrow when it spends and government debt is weighing the government down. When you do the accounting, and I've invented the only software package that enables you to see this properly, which I call Revell. I used to call it Minsky, now it's called Revell. Government creates money. It doesn't borrow. And when it issues bonds, it creates the money it pays as interest on those bonds as well. And guess who benefits out of that? The financial sector, because they're the ones who buy the bonds. So it's far from being a form of, you know, the government's going to be ruined, it's going to have to declare bankruptcy, that sort of stuff, you know. It's all nonsense. It's all based on bad accounting. And again, the responsibility for that bad accounting lies with mainstream economists who think they understand the accounting of banking, and they have no bloody idea. So the whole I can't claim that the government is unable to do it. Bullshit. And if you take a look at World War Two, for example, when World War Two began, for America, it was, of course, a delayed experience, but they started gearing up because of the cash and carry scheme and all that, and having to build liberty ships to take supplies across to the UK in the early years of the war against the Germans before the Japanese dived in. Government spending hit 40% of GDP, not 4%, 40%. And it was just a dramatic increase in spending with very little change in taxation. The government created the money that built the ships, that hired the workers, that converted the factories and building cars to building tanks. So we've got a completely false model of accounting in our heads. And again, economists are responsible for pumping that garbage out. Because normally, when you talk about cranks, you know, cranks are outside the academic circle. In economics, the cranks are the mainstream. [00:31:39] Speaker 1: I mean, I totally agree with you in government spending. I think it's the psychology that we've got over here. Because no matter how much you explain that system that the governments can't go bankrupt and you keep spending and, you know, I mean, yourself has done it. Warren Muslow did an absolutely brilliant job of sort of educating on it as well. The psychology just doesn't change. [00:32:01] Speaker 2: It's the open window effect. Yeah. You know, they say, because journalists believe that, you know, I speak with journalists all the time on this front. They believe the government can go bankrupt. Oh, hang on a second. My mate of mine just decided to give me a call. Hang on. I just say, mate, I'm doing a live interview. I'll come back to you. See you later. She's better looking than you anyway. Bye. Okay. Pardon me. I did like that little reference. There is a good mate of mine. So where are we? I'm using a Macintosh these days. I've got to say I'm not impressed, but anyway. [00:32:37] Speaker 1: No, I mean, I think the way that I kind of see it is that because we're stuck in that psychology and there's so much negative press around government spending as you see it now. And this is the one thing because I do this podcast each week with Lee financial and he'll talk about it. You know, the government spending and the amount of spending and why don't you know, they just cut down on government spending and then that will help inflation and all of this. And I don't say too much when I'm doing those podcasts because there's so many anti-MMT people out there. It's just not we've got enough to cover as it is, but that that is what I'm thinking in terms of coming into this downturn because like, you know, sort of during the Great Depression where they were dealing with tariffs and all sorts of things over that period as well. Aren't we going into something like that if we have a downturn and we have a government that feels that spending is going to be a problem, we still have inflationary issues coming from overseas. So the RBA can't cut the rates that I think that's where I'm sort of thinking, aren't we going into something that could be as bad? Because if that's the only option, the only option would be government spending. [00:33:44] Speaker 2: And then there would be the argument of exactly how they would implement that, you know, because we're rerunning the 1920s, because this again, people don't realize this. And to my sins, you know, the old saying that those who don't study history are doomed to repeat it. It's even worse. Those who do study history are doomed to watch other people repeat the repeat history. So in the 1920s, Calvin Coolidge, who was American president at the time from the beginning of the 20s to the end, was a total tightwad, the absolute opposite of Trump in terms of behavior and personality. And he maintained a 1% of GDP government surplus for the whole way through the 1920s. And government debt fell from 30% of GDP to 15% of GDP. And in his final State of the Union address, which is the very end of 1928, he said, oh, this is the absolute foundation of prosperity. It must be maintained in flowing forward. What he didn't take a look at, and this is the same for modern economists as well, private debt went from about 90% of GDP to 150% while he was paying down government debt. And part of the reason was when the government pays down debt, it destroys money. And this is the point, this is why I developed Ravel, because, you know, MMT can talk itself blue in the face about analogies. What really wins the argument is the accounting. You look at the accounting, and you can see the government does not need to issue bonds in order to create money. You know, if it could actually, it could issue bonds and sell them to the central bank. It doesn't have to sell them to the public. So all this stuff could be taken off the books in that sense. But anyway, what happened when the government spends, it puts money in your bank accounts. When the government taxes, it takes money out of your bank accounts. So if the government runs a surplus, it's taking money out of private bank accounts. Now, that means the amount of money, amazingly enough, that means the amount of money in private bank accounts falls. Who'd ever thought that taking money out of your bank account would reduce your bank account? I mean, it's so, you know, this is why I get so frustrated talking to typical journalists about this stuff. I can have a bit of fun with you. But what that means is with less money, people said, oh, I haven't got much cash. I know what I'll do. I'll go borrow some money from the bank, and I'll go buy a non-financial asset. That's what a house or a share is. This is, again, slightly technical. But a financial asset is your claim on somebody else. A financial liability is somebody else's claim on you. They sum to zero when you add them up. But houses, we put a notional value on a house and a notional value on shares. And they are something we own, which does not have a liability attached. You might have a mortgage or a margin debt, but fundamentally your house is your asset and nobody's liability. That means it's a non-financial asset. So you buy, borrow money, you go and buy a non-financial asset with it, and you see if its price rises or not. If its price goes up, you notionally say, oh, thank God, my money, my value is greater now. I might have a larger debt than I've got a bank deposit, but my house has gone up in value, or my share has gone up in value. That's the mentality we get caught up in. So government running surpluses actually encourages the private sector to go and gamble. And the outcome of that is the financial sector does very well, and then the debt becomes overwhelming and the system crashes. That's what happened back in 1929. So the government went from running a 1% of GDP surplus all the way through the 20s to a 5% of GDP deficit during what they call the New Deal. Now, that meant the government was injecting money into the economy rather than taking it out. And my God, what happened? It actually meant the economy recovered moderately. So unemployment in the States peaked at 25% of the population. This is before unemployment benefits, by the way. So some are far more severe than we've experienced post-war. So 25% of people out of a job. They can't spend all the strikes, the potential communist revolution at the time, and fascists. They were both competing in the 1930s in America. Again, we're ringing the same bells today. In that situation, when the New Deal, the unemployment rate fell from 25% to 11%. Then Roosevelt was persuaded by his advisers, neoclassical economists, better get the budget back in order. You know, cut government spending, which he did, and unemployment rose from 11% to 20%. Now, so that's, we're doing the same crap again. [00:38:02] Speaker 1: Yeah, yeah. I interviewed Michael Howell. Do you know anything about his research? Michael Howell? Michael Howell. H-O-W-E-L-L. [00:38:14] Speaker 2: I think I know a bit, but you better inform him. [00:38:17] Speaker 1: Look, he's really interesting. He's a really interesting researcher. He's an English guy. And he's got a massive following. And he talks a lot about global liquidity. And he monitors global liquidity, you know, when it's going down and when it's going up. And of course, he has a lot of concern regarding bond yields and the bond crisis. And I, there's so much social media that's now come out about this, you know, bond yields going, you know, pushing on 5% and what this is going to cause and how the US is going to continue to finance itself and everything. And that's the kind of narrative that I'm interested in your take on because he's, you know, his understanding of that, he's so focused on that. And I actually put to him when I interviewed him about, you know, what about a debt jubilee? And he said, it would never happen. It would never be able to happen. I never will. [00:39:06] Speaker 2: It will happen in the circumstances of a war and things of that nature. It won't be done by a conscious policy. And it certainly won't be done by the current political. I don't want to call them a leap, but I'll use that word for want of anything better. But they're, they're so, they're so dominated by the financial sector and the real estate lobby and the military industrial complex. They do what they tell them to do. They're not really thinking on their own behalf. [00:39:35] Speaker 1: If, if we have a, his, his idea is if, you know, investors stop buying government bonds, what happens? [00:39:42] Speaker 2: The central bank buys them. [00:39:44] Speaker 1: Yeah. [00:39:45] Speaker 2: It's underwritten by the central bank. I mean, there's no, no, if I, if I took, if I got Michelle's job and I wouldn't say no. I'd probably, I'd probably send out all the, I need a, I need a jubilee to get rid of all the economists there. They're all useless. They all believe in our classical theory. Sorry, guys and girls, but you are useless on that front. You just, the central bank can buy all the bonds overnight. And this, this is the, this should be the weakness to say, can, if you get into debt and you can't service it and you're really struggling, can your wife buy your debt and fix you up? Yeah. Or your husband? Answer, no. If the treasury, since it starts to worry that it can't finance, can the central bank buy all the bonds? Yes, it can. Okay. Now, if the central bank buy the bonds, what interest does the treasury pay the central bank? Either two possibility, either zero, you know, big fat zero or same rate. And then it remits, the central bank remits its profits over time to whoever owns it. Who owns it? The treasury. You know? So all this stuff, it's, when you look at the accounting, and that's what I'm now one of the global experts on the, on the accounting of money. That being Richard Murphy, you might know from the UK. Um, and Richard, Richard Vague, of all things. Uh, they're all Richards, except for me. Richard Vague, Richard Verner, Richard, and Richard Murphy. But you do the accounting, and look, the central bank can buy the damn lot. And so you, you wouldn't even see the debt turning up in the public system. And frankly, I'd prefer that. Uh, and it, because it would just remove this whole confusion. Because if government debt was bought by the government, you know, it's, it's a bit like if, if, if, if a tree falls in the forest and nobody hears it, has the tree actually fallen? Well, the government can handle all of this stuff itself. And the first group to complain about that, if they actually decided not to sell bonds anymore, would be the financial sector. The ones who are raising the alarm right now, they'd complain about no government bonds to be bought. [00:41:40] Speaker 1: Yeah, yeah. Um, so then I, I wanted to ask you this question as well. It's one that I get a lot from my subscribers, which is they're anticipating that there's a downturn coming. They're thinking, okay, we pull our money out of stocks, you know, we sell down, you know, decide which assets we're going to hold, which assets we're going to get rid of, move into cash. If we move into cash, how do we know that we're safe in the bank? Because, you know, essentially we could have a banking run on the banks or something like you typically do when there's mortgage fraud or whatever else, you know, happening behind the system. And they're looking at the government guarantee, you know, the guarantee of 250,000 in the deposit guarantee. Yeah. And they're asking me, you know, is that safe? What should we do? Is it, have you looked into that? [00:42:23] Speaker 2: Oh, again, deposits should not be dangerous. Deposits should not be a speculative asset. The government should back all deposits, not starting at a quarter of a million, you know, go up to maybe, maybe put the ceiling at $100 million. But it's ridiculous to say that deposits should be at risk because one thing that makes a capitalist economy work well is the fact that we have a monetary system which we can transact with each other. You take that away, we'll be going hunting to, you know, we'll have cannibalism in the streets if you take that away in a hurry. So you want the financial system to be maintained. The whole idea that you've got to take a risk to push your money to deposit account is setting the system up for failure. And that shows how little conventional economists know about how the monetary system actually functions. So the deposit guarantee makes perfect sense. Part of the reason why we're having financial instability now, again, something that should be bloody obvious, but this bunch of economists that make all this policy, they believe banks are financial intermediaries which don't actually lend money. They don't actually think they're stuck through at all. But when you start putting up interest rates, you devalue existing long-term bonds. Now, that means that any financial institution that has a large proportion of long-term bonds sees their value of their assets fall. And if their value of their assets fall while their liabilities remain constant, they can go bankrupt. So the fact that we had the LizTrust experience in the UK and various other financial, like the Silicon bank crash as well, that's because they had too many long-term government bonds. Now, this is all – the actual cause of the financial crisis is economists again. And so this is – it is just insane how bad this stuff is. And when – one thing that really makes me even more frustrated than it was during the global – lead up to the global financial crisis is I've – not only do I see the numbers, I've built the software that lets me look at the accounting system. And I know that the government could simply say, okay, we'll buy all outstanding bonds tomorrow. They could issue bonds which were indefinite, like the bonds that are easily turned over. They had a floating rates on bonds. All those sorts of things could happen. And you would remove the damage they're doing by putting up the interest rates. But their models – and again, people probably won't believe me on this one, but it's true – the macroeconomic models that economists use to decide what to do about the interest rate do not have banks or private debt or money in them at all. So their conclusions to their models don't tell them anything about what's going to happen if we reduce the value of outstanding bonds. Will that make the financial system more fragile? They don't know until they do it. And this is again why there's such a horror that this delusional theory still dominates how we think about a capitalist economy. [00:45:14] Speaker 1: Brian Kavanagh who served on the board with me at Prosper Australia. He's moved off the board now, but he sometimes watches the interviews I do. He would be very disappointed with me if I didn't ask you about taxation policy and to do with property prices. Because we can talk about the monetary side and the economic side because, you know, the tax kind of comes into this as well, doesn't it? I mean, it has a very different concept in MMT from what it does to the rest of us. People walk around thinking that their taxes are for funding, government spending, whereas they're really not. And, you know, there's been a few policies that have come out in Australia over the course of this cycle. There has been more concentration on land taxation and we've seen in Victoria, the tax thresholds were changed. And as a result, property prices actually in Melbourne have gone nowhere really. Well, I mean, I can look at properties now that are selling in Melbourne and I can look when they were last sold, which would be around 2018. And the prices really haven't shifted much. So we may have had that COVID boom, but the bust on the other side of it once we had the rise in interest rates and then the changes to land taxation policy have kept prices very low here. And then at the same time with everything else that pushed away investors. So we got rid of investors because they weren't interested in the market because they didn't want to buy properties that weren't going up anymore. It didn't make sense because the land tax bills weren't, you know, the capital growth wasn't really covering, you know, the land tax as they had before. So we got quite a buoyant home buyer market and a high supply of first home buyers. You know, it's quite incredible sort of looking at the lens of that as to seeing that experiment as to how land taxation impacts the real estate market, because that really has stopped a boom in Melbourne. And then I kind of conceived that if we do have a bust, probably wouldn't be as bad here as certainly as you're going to get in the Gold Coast or Brisbane where they've had a tremendous housing price inflation. So I'm curious because when I interviewed Warren Musler, he talks about his concept of only having a property tax. Have you heard about him talk about that? No, I haven't. [00:47:26] Speaker 2: I agree with some things Warren says. Otherwise, I think others I criticize. So I'm not sure I fit on that particular one. But my like my issue is, once you understand the taxation's real role is to take excessive government money creation out of circulation, then what income tax does, it makes people right wing. Okay, because you can see the government taking money out of your pocket, you can't see the impact of other policies that create the money that's going into your pocket at the same time. And so we get the ironically, the most right wing politician in Australia is Pauline Hanson, obviously. And the one thing that I think she's got right, she talked about a transaction tax based system, because that's harder to evade. You don't actually notice because every taxation, every transaction is taxed. That'd be a better way to take excessive money out of creation out of circulation than income tax. And income tax ends up being paid by the working class and the middle class, because they can't afford the tax lawyers to, you know, minimize their tax. They can't afford to buy the politicians like the wealthy do, and therefore evade tax that way. So it all falls on the working class and they end up voting for people like Pauline Hanson and bloody Trump on a right wing front. So I'd reform the taxation system to find another way of taking excess government money out of circulation. And that's another like, if you look back in the 1900s, the level of government spending in America was about 2% of GDP. That's not the deficit. That's total government spending. So at that stage, you could have had no tax, and that would have been a 2% rate of increase, you know, creation of money coming out of that 2% deficit, 2% spending with no taxation. But after World War II, we had all the social security, the health, all the services that made modern life worthwhile in many ways, an educated workforce, a healthy workforce, et cetera, et cetera, healthy population. So that takes more money. And if you did leave that amount of money in the system and didn't tax it out, then you would have massive inflation being caused by that over time. If government spending was always, say, 20% of GDP and tax was zero, that would be ultimately, yes, I would concede that would cause inflation. So you've got to take it out of circulation. And one way is income tax. That's why we, that only came in in World War II, when taxation levels went from, you know, spending went from 2% of GDP up to 20%. Then they started income tax at that stage, believing it was to finance government spending. Okay. But then the experience of World War II toward them, that wasn't the case. But we've still stuck with it afterward. And people have lost the lesson that it just takes excess money out of circulation. And now they think it offends government spending. You know, it just, it's like looking at an extremely bad student essay. How the hell do I repair this? [00:50:26] Speaker 1: It's a really good analogy, because it is like that. I mean, it's, you know what, it's belief systems. Belief systems become so, I think beliefs are very dangerous. [00:50:36] Speaker 2: Extremely. [00:50:37] Speaker 1: Yeah. Because they become so foundation. [00:50:40] Speaker 2: They become entrenched. [00:50:41] Speaker 1: Yes. It becomes somebody's identity, that belief. Then you just cannot shift it. And, you know, we're all, we're all leaning in that direction. You know, we're all, we're all at risk of falling into those. But it's very tragic when you see it happening, you know, that when you can't shift that concept, even though there's so much narrative now on social media, there's so much ability to get that. I mean, you're bringing that education. I actually think the way that you're doing it is probably the best way that it can be done, because it's just great. It's like a, you know, healthy water dripping in all the time. [00:51:12] Speaker 2: Drip, drip, drip. Yeah, all the time. Yeah. I mean, I get sick of it because, you know, how many times can I go through showing the accounting of government spending? But I've got to keep on doing it because, you know, if I'm happy to be getting close to a million views for videos now on some occasions, but that's, you know, how many people are on the planet? 8,000 million, you know? So I'm only getting a tiny proportion of the world each time. So if I continue repeating it, I'm getting bored, but it's a revelation to people who see it for the first time. So I've got to, I've got to keep on doing it. [00:51:42] Speaker 1: Yeah, it has to spread because, you know, each of those people then spread it to more and more people. And gradually now it's getting known and your name comes alongside it. You know, people will say, well, you know, if you watch Steve Keen's stuff, and I should congratulate you because you've had some massive geeks over the last, you know, sort of 12 months. I mean, you did the, the secret, is it, what's it called? The Secret Life of a CEO? Or The Secret, what, what's... [00:52:06] Speaker 2: The Diary of a CEO. Diary of a CEO. [00:52:08] Speaker 1: That's right. I don't know. The Secret Life of Adrian Mole. I'm back in those. Do you remember those books? Yeah. I mean, that was a, you know, to get the, that kind of coverage just is absolutely, it's wonderful to sort of see you, you know, your career kind of break out in that way and that you do now get... [00:52:25] Speaker 2: I'm an overnight success after 50 years. [00:52:27] Speaker 1: Yeah. That's right. Yeah. That's what it looks like, isn't it? It's funny. You go, you work and you work and you work, and then finally you get a big break and suddenly people think that, you know, they've just discovered you. But, you know, it was, it was kind of great to see you get out and to talk about this on, you know, to such much wider audiences like that. But just, just finally, if we, if we do go into a downturn in the condition that we're in now, you know, if we say, I don't know how you're seeing it or whether you're putting even a timing on it, but I'm saying that we would be likely to see a panic happen next year and then a recession into 2028. [00:53:02] Speaker 2: I don't think that's a reasonable timeframe. Yeah. Yeah. Yeah. I mean, because again, it's the impact of the Strait of Humble, the war in Iran, a war against Iran, the stupid bloody war. That, that still has yet to really hit, you see, you're starting to see rising diesel fuel prices, for example. But there are, there are so many buffers in the system that it took a while for those impacts to come through. Now those buffers are running out. And we're likely to see, you know, accelerated price increases, but more importantly, accelerated shortages. And in the shortages, then you're going to be forced into things like rationing. You've been able to maintain food delivery. So it is, it's just, you know. Is that where we're heading? [00:53:47] Speaker 1: Do you see that actually happening in Australia? Oh yeah. Yeah. [00:53:51] Speaker 2: I mean, again, I think Albanese made a stupid decision not to start rationing diesel six months ago, because Australia is a heavy importer of diesel oil. And we actually at one stage had, sorry, had no refineries left that produced diesel because they were outcompeted by mainly refineries in Asia and the Middle East. They let them shut down as a commercial decision. But if you don't have diesel, people starve because you have to ship the food from the country to the city. And one thing, one little, I knew Australia was diesel dependent. So the guy who actually rang a moment ago is a petrol head friend of mine. He told me that the Labor and Liberals together decided to revive one of the refineries. So I had learned that I think about a year or so, that had maybe two years ago. So there's one or two refineries now in Australia that can process diesel. But Australia is not only the highest importer of diesel on the planet per capita. It is also, and I only found this out recently, as a country, the highest importer of diesel, period. No country apports more diesel oil than Australia does. Now, of course, we don't have rail systems that can move the product used from, you know, the back of Berg to Sydney, from, you know, from country Victoria to Melbourne. So the diesel has to be there for those shipping purposes. And because we have extremely low stocks of it, and we don't produce it, then we're, Australia is massively exposed to being unable to ship its goods from the countryside to the cities. And that could mean that, you know, Australia produces so much more food than it consumes, you probably won't see food rationing here. But you need to ration to be able to actually ship the supplies from the countryside to the city. So the, I would have, Turex, what they call them, Turex tractors, was the nickname they gave to diesel-powered SUVs and all that sort of jazz. I would have banned, I would have banned sales of diesel to retail users six months ago. [00:56:01] Speaker 1: Yeah. Yeah. Yeah, really interesting. So, yeah, I mean, I don't sort of want to conceive what's going to happen as we go forward. But that would be a pretty serious recessionary environment for us then, wouldn't it? [00:56:15] Speaker 2: Yeah. And until the increasing price, the truckers are going on strike around the world. There have actually been demos in France. Of course, France is always the place to have a demonstration. But demos and blockages and even the Americans are talking about blockading Washington now because, of course, it's Trump's war that has caused this particular shortage. So, yeah, the truckers, rather than have Trump as for truck, we're going to see Trump as against truck, truckers against Trump coming our way. So that's going to be a fun little development in the future, the near future. [00:56:46] Speaker 1: It sounds like it's one of those things where you make these forecasts and it's all great. You know, like we were saying, doing social media and getting out there and talking about it, but it's such a depressing. It is. [00:56:58] Speaker 2: It's mismanagement on an enormous scale. And the mismanagement comes, first of all, out of the fact that politicians think economists know what they're doing. They haven't got a bloody clue. They've got a model of the world which is completely false. In their false model, all the stuff they do works. In the real world, it's a catastrophe. In fact, even on their false models, it doesn't work. They've got to make crazy. I've used a very technical term in my new book about some of the assumptions economists make at various points. It's batshit crazy. [00:57:25] Speaker 1: Yeah. [00:57:26] Speaker 2: That's the only way to explain some of the assumptions, the batshit crazy assumptions needed to maintain so that they can reach the conclusions they wish to reach when their own logic does not reach those conclusions. [00:57:36] Speaker 1: If we go into a recessionary environment, will the RBA have room to cut rates? [00:57:41] Speaker 2: Oh, yeah. They could drop them to zero tomorrow. There's no reason why the rates need to be what they are. The rates are set by the government. They're not set by the market. The secondary market, yes, the rates are affected there by speculation. But the reserve could cut the currently paying interest on reserves. They could cut that to zero. The bonds, they could cut the bonds down to 2%. There's nothing stopping the government make those moves. The secondary market does not affect the capacity of the government to sell its bonds in the primary market. [00:58:13] Speaker 1: But that would have an ongoing impact in the real estate market. [00:58:17] Speaker 2: Yeah, yeah. Of course, you know how sympathetic I am to that. [00:58:21] Speaker 1: It would inflate the real estate market again. [00:58:25] Speaker 2: Oh, well, yeah. I mean, yeah, that's the other problem. Everything goes into a bubble in Australia. But, you know, it's about time we try to build some industry here rather than inflating asset prices. Yes. [00:58:37] Speaker 1: Yeah, it is, which is kind of like an ongoing round and round subject, isn't it? Because then you would come to a how do you control those property prices, which are the best mechanism to do that. [00:58:50] Speaker 2: Well, that's the only reason I put it forward, what I call the PIL, the property income limit leverage. Rather than encouraging higher rates of leverage with what bloody Albanese has done with that, you know, was it 5% or 2%? [00:59:03] Speaker 1: 5%, but there were some people that were able to access a 2.5%. Yeah. And then most people had access, all first home buyers had access to the 5%. [00:59:12] Speaker 2: Yeah, okay. Well, rather than increasing leverage, you decrease it. And the idea of the PIL, as I call it, the property income limited leverage, would be to limit the amount of money that you can borrow to buy a house no more than 10 times the annual rental income of the house, whether actual or imputed rental. And that would mean that we wouldn't get the level of leverage we've got now. And you wouldn't have inflating asset prices to begin with. [00:59:35] Speaker 1: And Georges would say, do it the other way around, whereas tax the land. And therefore you would, the banks wouldn't be able to, you know. [00:59:43] Speaker 2: Yeah. I'm dubious about taxing the land in some ways, because I think that like local councils, if they start taxing, if they tax the land, they'll see it as a revenue source and they'll feel encouraged to actually cause house prices to rise. So you've got to look at all the people talk about incentives. You look at the incentive that exists in the current system. And one thing is the government, the federal government is not taxation constrained, but local councils and state governments are. So what I'm worried about if you did actually have this as a basis of revenue for local councils and state authorities that actually like to see rising house prices. [01:00:19] Speaker 1: Well, they would. And it's interesting how it's used as a election tool because we have these short term governments. You know, you can see the fight now as we're heading towards the Victorian election, which is going to be in November. Yeah. Between, you know, the party that now everyone's saying, oh, OK, it's all right. We know that the change, you know, the lowering of the land tax, sorry, the lowering of the land tax threshold hasn't been popular. So now we're all going to make it better for you. You know, we're going to restore the thresholds to what they were. Exactly. Yeah. [01:00:47] Speaker 2: They get back and start reflating the bubble. And that's like the Australian government has been pumping up the Australian housing bubble for 40 years, ever since Hawke and Keating and negative gearing and the first home buyer scheme in 19, what was it, 1987, '88. The government has been pumping up the scheme. And again, it comes down to a fallacious understanding of how the economy functions to believe that rising house prices are a good thing to begin with. [01:01:13] Speaker 1: Yeah. Was that the date, 1987, that it was? [01:01:16] Speaker 2: '87 was the stock market crash, 25% in one day. That's right. And in the response to that, they simulated the housing market in '88. You had a huge bubble down in '90 and then it crashed into the recession we had to have. [01:01:27] Speaker 1: So that was the first time they'd implemented the home buyer grant in '88. Yeah. Yeah. I mean, it's interesting because then that's a complete mirror to what we are today. I mean, if you look at it from an 18-year cycle perspective, you know, you go back 18 years from 2008, you're back to 1991. You know, flip back at around 18 years back before they, you're back to 1974, you know, which is a crash. And of course, then you've got the same pattern in the lead up to the 1990s downturn. I didn't realize that was the first day. It's not in my head that that was the first home buyers grant was implemented at that time. [01:01:58] Speaker 2: Although it was before it was before the recession we had to have because that caused a 30% bump in prices. [01:02:04] Speaker 1: Yeah, it was a stronger increase in prices at that time than it was during the COVID boom and the COVID boom was unbelievable. Yeah, but it didn't beat what happened in 1989. [01:02:15] Speaker 2: Yeah, that was a huge bubble. [01:02:16] Speaker 1: Yeah, because it's the narrative around that because everyone talks about that. And I've said this before, I said it recently in a report, you know, that the 1987, it was the stock market panic in 1987 that caused the property prices to go up because people pulled their money up the stock market and put them into property prices. The government actually inflated and dragged them in. [01:02:37] Speaker 2: Hawk and Keating were responsible for that. [01:02:39] Speaker 1: Yeah, yeah, yeah, yeah. That makes much more sense than people getting spooked by the stock market and saying, oh, going in. [01:02:46] Speaker 2: They were literally encouraged into the asset market by government policy that gave them the first-time buyers boost, first-time buyers grant. [01:02:56] Speaker 1: Yeah, yeah. [01:02:57] Speaker 2: It was three and a half thousand dollars back then, rose to seven. Of course, then, you know, bloody enduring this. The reason Australia avoided a recession at the time of the global financial crisis is because Rudd brought in what he called the first-time owners boost. I called it the first-time vendors boost. Yeah. So that bubble, Australia got out of the crisis by reinflating the bubble that caused the crisis. [01:03:17] Speaker 1: Yeah, yeah, yeah. They were great days writing about that era. I remember writing about that, writing about your first-time vendors, because it became the headline for that, you know, the first-time vendors. Yeah. Because people, again, it was flipping it on its head so that people could really see what was going on. [01:03:32] Speaker 2: What actually was. [01:03:33] Speaker 1: Yeah, yeah. I mean, just like, yeah. It was great writing over those periods of time looking back on it. It seems so much better than it does now. You know, writing about what's going on now just feels like it's an intensity that's in the atmosphere that I didn't feel back then, even despite everything going on. Maybe it's just, you know, because I'm more aware of it now, but I think with war and, you know, what's going on. [01:03:56] Speaker 2: It's a crazy time in human history. Yeah. We've got a crazy idiot in charge in the States. You have the Epstein class dominating the global political system. The war, the wars are ridiculous. You look at all this stuff and there's no sense at the top and we still treat them as though they're their elite. Yeah. [01:04:15] Speaker 1: We're just pawns, pawns in the system, Steve. Well, I will. I'll let you go. I've kept you for far too long. Good fun to share. Yeah, no, it is. It's really good. And I'm really appreciative that you gave me time. I know you've only just got to Sydney, so I'm really grateful. And yeah, hopefully we'll catch up again soon. Will do. [01:04:31] Speaker 2: Okay, Catherine, great to share. Bye. [01:04:33] Speaker ?: Bye. [01:04:33] Speaker 1: Bye.