The Keen Walk to Kosciuszko was a fabulous experience—as Matt Carroll (one of the organizers) put it, it was “the best holiday ever”. That’s not to minimize the effort involved: covering 235 kilometres on foot in 8 days is no mean feat. But the combination of great company, personal success for all involved in an impressive physical challenge, lovely scenery, excellent weather, and a cause that united a remarkable group of people, made The Walk far more pleasure than pain.

(The Walk was also a successful fund-raising venture, generating over $5000 for Swags For Homeless–enough to give 85 homeless people a portable bed in which to sleep–see the video further down. Please consider adding to our fundraising tally by clicking on one of the Swags For Homeless links here)

This wasn’t what was intended of course: The Walk was supposed to be a “Walk of Shame”, as several headlines termed it , for me being “hopelessly wrong on house prices” (“Walk of shame for professor who tried to burst house bubble”; “Walk of shame for economist”). Instead, it turned into a successful protest against the housing bubble, whose existence even RBA Governor Glenn Stevens recently (and bravely) acknowledged on prime time television (“Rates to rise, property speculation a ‘mistake’”).

The Walk had its genesis in a “Vital Issues Seminar”, a series run by the Parliamentary Library to keep politicians and their advisers abreast of competing views on important issues. Macquarie Bank interest rate strategist Rory Robertson and I shared the bill on November 26th 2008 (the month after the Government introduced what I prefer to call the First Home Vendors Boost, with the unspoken objective of supporting house prices–see “Rescuing the Economy or the Bubble?” and “FHB Boost is Australia’s “Sub-prime Lite”“), in what was billed as “Economic futures: two views”. In the middle of his presentation—and without any prior warning—Rory sprang the bet on me in front of 80-100 Parliament House staffers (and some politicians).

Having been caught by surprise, I agreed to it before having a chance to negotiate terms. I subsequently found that I had in effect signed a near blank contract with a banker, leaving him to fill in the details—not something that I recommend anyone do.

Now that The Walk is over, I can revisit a vital issue of my own: what the bet really was about in the first place. Fortunately the debate was recorded, and when Rob Burgess of Business Spectator turned an impartial ear to it (Rob came on The Walk to report it for Business Spectator: click here to read the series), his conclusion was that the bet was that:

Needless to say, that’s very different to how Rory interpreted it: his version was simply that the bet was over—and he had won—once prices rose past the peak set in September 2008 (the month before he pulled the bet on me). But Burgess’s summary is an accurate interpretation of our discussions that day. If you have the time, you can decide for yourself by listening to the recording; if you don’t, here are the relevant segments, transcribed from the one hour debate (the key passages relating to how the bet should be interpreted are highlighted in bold).

36:35 seconds into the recording: Rory: I think some people here probably came today to hear about why house prices are going to fall 40 percent, so that’s what you’re most famous for at this stage. So what I was going to do, in the spirit of competition or whatever, Steve’s a betting man, he sold his house.. so what I would say is if, I think it was 40 percent on average across Australia, is that what it was?

Steve: Yeah, but over a ten to fifteen year period mate, so…

Rory: so, all right, it’s a long term thing…

Steve: but over the long term I’m willing to stick to it.

Rory: Well how about this? If Australian house prices as measured by the Statistician fall from peak to trough in nominal terms by 40 percent, I will walk from Canberra to the top of Kosciuszko, and if in fact Australian house prices fall by less than 20 percent, so if it just turns out you’re less than half right, … I will wear a shirt saying “I was hopelessly wrong” if they fall 40 percent, you should wear a shirt saying “I was hopelessly wrong” if it doesn’t…

43:50: Rory: The Australian market is down 1.8 percent in the third quarter basically, so take that as the high point for our bet…

58:10: Steve: I think the timing of what we’re going through is quite different to America. On that point about Australia not being as irresponsible on lending, we didn’t lend to the same people … irresponsible borrowers rather, but we lent as irresponsibly to the entire nation.

If you look at the household debt to GDP ratio, in Australia it’s 2 percent higher than in America right now. The ratio here is 98 percent, the American ratio is 96 percent. If you go back to the 1990s, we had half the American’s ratio—which of course was lower back then than it is now. So we’ve been lending to a broader part of the community, which is why you haven’t had a collapse in the housing market straight away.

But what will happen when the debt slowdown strikes and people stop borrowing money, we won’t have the same degree of spending, that will cause a decline both in asset markets and also in employment–in the retail trade in particular cause households are the ones who’ll cut back on spending this time round. A retail led… well, recession would be a polite word for it, a very extreme drop in retail sales, increase in unemployment and then anyone who has a mortgage and no longer has a job will lose the house, and you will then have a credit crunch coming after the event.

So I see the American process as being a housing crisis, a credit crunch and then macroeconomic; we’re going to go through macroeconomic, housing and then a credit crunch after that. And I see it taking about five years. When that hits, then we’ll be in the same situation as the Americans.

59:35: Rory: I’m still only going to give Steve five years to get his 40 percent. (Banter over the top of each other at this point)… I would say that the debt to income ratio that Steve Cites aren’t nearly as important as the interest payments to income ratio, and the Reserve Bank has just cut them…

60:15: Rory: It’s only just begun, right? They cut by 2 percentage points in three months over 4 meetings… The down 2 per cent in Q3 was due to the Reserve Bank’s deliberate effort to crunch the household sector and house prices, and now it’s the Reserve Bank’s deliberate effort to support the economy as much as it can, and the housing market in particular.

Steve: The only way that’s going to work however is they actually encourage Australians to continue borrowing money, because a large part of the demand’s by increases in the level of debt. Now that’s how we got out of the 1973 downturn, it’s how we got out of the 1990s downturn. We started borrowing money again. Do you think Australians are going to start increasing their debt levels again? I’m sorry, I don’t. I think we’re reached a secular turning point, not just a cyclical but a secular turnaround.

In that case, each 1 percent cut by the Reserve Bank reduces the financial burden on the economy by about 18 billion dollars, which is substantial. But if Australians stabilise their debt levels, or try to reduce them by 100 billion dollars a year, that’s five times the scale of each 1 percentage interest rate cut. We can’t cut more than another 5 percent.

67:30 to End: Sharryn Jackson MP (Chairing): We also witnessed of course, the bet, but we might have to clarify precisely what… (drowned out by chatter).. And I’m sure we’ll all look forward to one or both of you wearing a T-shirt saying “I was horribly wrong”…

Burgess arrived at his summary by combining my long term prediction (that house prices would fall by 40% over 10-15 years) with Rory’s time frame (“I’m still only going to give Steve five years to get his 40 percent”). Since Rory set a time frame of 5 years, and my call was for a 40% fall over 10-15 years, a halfway call—that I’d lose the bet if house prices didn’t experience a 20% fall over the five years between November 2008 and October 2013—is a fair compromise between our positions.

So why did I walk anyway, over three years before the bet will be up? Because I realised that if I didn’t, Rory and the property lobby would pillory me for having welshed on the bet as Rory had interpreted it. So the best tactic for me was to undertake The Walk, and turn it into a protest march—after I had Rory agree that, if prices ever did fall by 40%, he would also walk.

In May 2009,  the Rudd Government extended the First Home Vendors Boost for another six months and I felt that prices were now certain to breach the September 2008 level. Email correspondence between myself, Rory and Chris Joye in June 2009, evoked agreement from Rory that he would walk if there was ever a peak to trough fall of 40%.  Thecorrespondence on this is reproduced at the end of this story: ordinarily I wouldn’t reproduce such emails, but Rory at one point publicly denied that he had any obligation to walk—see “Keen the loser walks”. This correspondence therefore belongs in the public domain.

Now, courtesy of Burgess’s considered interpretation of the bet, if prices fall by 20% or more at any time between now and October 2013, Rory should walk.

The Walk

One thing Rory didn’t know when he pulled the bet on me is that, while a lot of people of my age (57) might have recoiled at the very thought of a 225km walk, it actually appealed to me. I am not in Tony Abbott’s class as an endurance athlete, but I have done the odd 1km swim /30km bike ride / 10km run triathalon (including the now defunct 2DAY-FM series which included a swim across Sydney Harbour), a fair few half-marathons (I’m doing the 2010 one this coming weekend) and numerous City to Surfs.

So I approached the event with a positive perspective, seeing it as a chance to get back into shape, and also do something that few others would have done. I also expected that some of the 4,000 members of my blog (and its roughly 50,000 readers each month) would also find the idea attractive.

So it transpired: once I put the invitations out on the site www.keenwalk.com.au, about 40 people put their hands up to join me for anything from an afternoon’s walk to the whole trek from Parliament House to Mt Kosciuszko. That turned what could have been a very solitary affair into a moveable feast of camaraderie. Overall about 40 people took part in The Walk, including 8 walkers (and several support crew) who made it all the way.

I expected the Keen Walkers to be an eclectic lot, but even I was amazed. There were many IT professionals and some engineers (something I had expected since there are many computer programmers and engineers on the Debtwatch blog), several people from the finance industry itself, an economist, journalists, an ex-rocket scientist, small businessmen, several RAAF personnel, a train driver, and an ex-real estate agent. As well as having the inevitable discussions about house prices and debt, I found myself engrossed in conversations about assembler-language programming, Nelson’s victories in Egypt and Waterloo, quantum mechanics, XML coding, impressionist painting—and frequently simply discussing the beautiful scenery, the physical challenges ahead of us, and the inordinately hot weather.

It did seem that the heavens were smiling on us. I chose late April because I guessed that this would be the best compromise between scorching Summer heat and unpredictable alpine blizzards; as it happened, we had eight glorious days of sunshine and only one day—the final one on the Mountain itself—of wintry alpine conditions. The heat was so marked that we altered the start time for the morning runs from 10am to as close as we could manage to 7am.

Each day began with a hearty breakfast with the entire troupe, followed by a preparatory massage for me from our masseur Ania Pawliszak. Then we ran between 12 and 19km depending on the day, covering the terrain at an average speed of about 10 kilometres an hour, including many uphill legs when I slowed to a Cliff Young shuffle (as in the video above).

The run leg was also far more social than I had expected. I upped the ante on the bet by running half rather than merely walking, simply because the walk on its own wouldn’t have been challenging enough. I expected this would give me a solitary morning followed by a social stroll in the afternoon, but on most days I had four or more co-runners—notably the two Daves (every second person seemed to be called Dave), Adam, John, and my friend and fellow economist Liam. Conversations continued as we huffed and puffed up the many rolling hills on the Monaro Highway.

Then we took between 30 minutes and 2 hours over lunch at one of the many rest spots on the side of the road. Ania again massaged me and anyone else who was having difficulties after the morning run, and we set off once more for the afternoon walk.

Except for the first evening, when we walked over 21km out of Canberra and stopped at the paintball facility on Old Tuggeranong Road, we finished the walk before sunset and had plenty of time to relax prior to dinner. Initially we were somewhat restrained in evening activities, but as the trek wore on and it became apparent that everyone was going to finish, the evening’s dinners became more extended and even more social. I was given a lesson in pool (and pool hustling!) by David Hirst one evening; on another we relaxed in the spa at the Best Western Marlborough Motor Inn in Cooma.

The trip was well planned and marshalled by Matt Carroll—who is the public officer for the newly formed Centre for Economic Stability—and as the days went on, various walkers would take on additional tasks to make things run more smoothly still. Peter Renshaw and his RAAF buddy organised the walkers (who normally left an hour or so ahead of the running group each morning so that we’d finish at roughly the same time for lunch); Dave Lawson became de facto camera man; and prior to the event, Colin McKay arranged and paid for the printing of the T-shirts.

Duncan even became our de facto “Choice” man for Swags, testing setting one up and sleeping in it overnight (or at least until 3am, when the Jindabyne Council sprinkler system turned on!).

The Walk was a wonderful instance of how cooperation can turn a potentially arduous task into a pleasure.

Though I’m sure we would have ultimately tired of the Walk had it gone on for another week or so, by the final day there was a sadness that it would soon be over. The walkers set out early, led by Peter Renshaw and his RAAF buddy (who prefers to remain nameless—let’s call him Duncan), and Dave Lindburg and I set out an hour later for our final run. As usual, Dave beat me to the finish at Charlotte’s Pass; then after a safety briefing by Peter and Duncan, we set out for the 18km return journey to the summit.

I was pleased to be joined for this stage by Peter Martin, the Economics Correspondent for The Age. Peter was also there for the start of The Walk at Parliament House, but the 9km from Charlotte’s to Kosciuszko gave us far more time for a detailed conversation about why neoclassical economics—the dominant school of thought that, until the GFC occurred, did not believe that such events could occur—was so badly flawed.

The weather was mild at the start of the day, and turned severe as only alpine regions can. As we walked towards the peak, we found ourselves inside a cloud with wind speeds approaching 50 km/hr, and the wind chill factor drove the effective temperature well below zero. The warm weather gear I’d bought for The Walk—running gloves, a gortex jacket and running skins– finally came in handy, as did the cold weather gear that has got me through several winters in Norway and Romania. I reached the peak looking like more arctic explorer than jogger.

Unfortunately that meant my “I was hopelessly wrong” T-shirt was buried beneath several layers of clothing. I began to take them both off for the sake of the photographic proof that I wore the T-shirt all the way, as required by the bet, but once again, the self-organisation of the group saved the day. Dave Lindberg had realised this might happen, and had carried a spare T-shirt just in case. We pulled it over my head with frozen fingers in a gale, and the final photos on the peak were taken.

We then waited for everyone else to arrive—including Nina Shedrin, at 59 the oldest member of the group and the only woman (apart from Ania) to cover the entire distance. All touched the pillar of stones that mark the country’s highest spot. I finally sat down to enjoy the feeling of having finished a substantial task—and to get out of the bloody wind.
Then we downed the rations that our RAAF contingent and Peter had brought with them, and finally, after too long in the wind, started the 9km journey back to Charlotte’s Pass.
Part of the way there, Peter Martin and his two photographers peeled off to stay in the Kosciuszko Hut and file their story—Peter noted on the way that he was looking forward to filing an economics story with the byline of “Peter Martin, Kosciuszko”). The rest of us walked on, and then waited until all were accounted for before driving back to Jindabyne (Matt Carroll eschewed the car to enjoy freewheeling Australia’s longest downhill run).

That night we had our final very fine dinner at the Journey Wine Bar, after which several members of the party took to late night swimming in the lake, and some woke up the next morning having not sobered up from the night before.

I can’t finish this story any better than did Rob Burgess in his personal post on www.keenwalk.com.au, so I won’t try. In Rob’s words:

Which brings me back to where I began – that this walk was about much more than house prices. The world is in an extraordinary state of flux, as if some reckless performer were spinning too many plates before a dazzled, frightened audience. Most of us see at least one of those plates falling soon (China, Greece, housing, sovereign debt, the stretched biosphere, myriad forms of social disintegration, the stock market – take your pick), but if we are to prevent the rest crashing down around us, and start rebuilding, we’ll need plenty of good-hearted and intelligent people to stand up and act – not just to passively say “the system’s broken”, but to throw all their talents into answering the questions “What’s better?” and ”What’s next?”

On this walk I saw a bunch of people with all the tools required to get to work on this mammoth task. We may not do this together, but the choices we make in our respective walks of life will, I hope, be sustained by the memory of this epic walk – or better still by keeping in touch with and encouraging one another as this difficult phase of history unfolds.
As I dropped Nina off at her south Melbourne flat late on Saturday night, I told her what I’d said to every other member of the party as we said goodbye: “Let’s all meet and climb that mountain again in ten years’ time.”

Nina shook her head. “No,” she said, “That’s too long. Make it five.”

Thanks to all of you for giving me an experience to treasure, and a wealth of ideas and inspiration to take into the future. Keep in touch. And keep walking…

Indeed! As Burgess also observed in his post on the bet itself, “Oh dear. I hope Macquarie’s Rory Robertson hasn’t thrown out his walking boots… There’s no doubt the bet is still on – still for the taking. Yet the thought of Keen winning this bet remains a terrifying prospect.”

Thanks again to everyone who took part, and to everyone who made it a successful fund-raising venture for Swags for Homeless too. And it’s not too late to make a donation… every $60 raised will give one homeless person a portable bed to make homelessness somewhat more bearable.

Staminade

Thanks also to Staminade for donating their sports drink to The Walk. I had already decided to use Staminade rather than any of its competitors because it is the only one to include Magnesium as well as Potassium in its mixture; the fact that is an Australian owned company manufacturing its product here was an added bonus.

“That’s not a knife”: email correspondence about the bet in June 2009

From: Rory Robertson [mailto:Rory.Robertson@macquarie.com]
Sent: Wed 6/3/2009 4:41 PM
To: Steve Keen
Cc: Christopher.Joye@rismark.com.au
Subject: RE: That’s not a knife…
I saw rp data ceo going to sponsor your (eventual) walk…maybe CJoye will put his hand into his deep pockets as well.
All good fun.
Rgds,
rory
—–Original Message—–
From: Steve Keen [mailto:S.Keen@uws.edu.au]
Sent: Wednesday, 3 June 2009 4:22 PM
To: Rory Robertson; Christopher Joye
Subject: RE: That’s not a knife…
Yes whoops, 40% or more (78.6 or below) is you, 20% or less is me (104.8 or above). I wrote too quickly beforehand.
With the prospect that we both might get some alpine exercise agreed, I’m happy with the terms. Chris’s ideas and the RP-Data website etc. could all be carried out as well.
Cheers, Steve
________________________________
From: Rory Robertson [mailto:Rory.Robertson@macquarie.com]
Sent: Wed 3/06/2009 4:12 PM
To: Steve Keen; Christopher Joye
Subject: RE: That’s not a knife…
Steve…please check your calculations…40% drop from 131 peak is 78.6 on abs index…that’s when I would walk.
If that 131 level is regained in any period of time after a fall of less than 20%…doesn’t touch as low as 104.8… then you have committed to walk.
recall that down 20% to down 40% is no-man’s land…
writing “I’m willing to gamble that 131 was the peak” seems bizarre to me…it’s a matter of fact that 131 was the peak…the obvious and only peak that matters..we now are betting on the trough that follows…you say 78.6 or lower, I say higher than 104.8…
talk about what might happen AFTER 131 regained short time or long time is beside the point (perhaps “a trivial peak to peak with a minor trough”)…
having said that…if abs or chris’s index ever falls 40% from its peak level in 2008 – over any number of decades – I will walk…
rdgs,
rory
—–Original Message—–
From: Steve Keen [mailto:S.Keen@uws.edu.au]
Sent: Wednesday, 3 June 2009 3:50 PM
To: Rory Robertson; Christopher Joye
Subject: That’s not a knife…
Dear Chris and Rory,
There is a definitional issue for a trough. The bet was peak to trough, and you need substantial top and bottom inflexion points to identify both–one blip at either end won’t do. But nor do we have to wait until the old peak is restored to identify a trough, which is the way Rory defined it below.
There is therefore a need to define this more precisely, but I’ll start by saying that if the index (ABS 641601, “Price Index of Established Homes ; Weighted Average of 8 Capital Cities ;”) is above 131 by the end of this year then I will walk. But if it falls below 104.8 at any time in the next ten years, Rory walks as well.
If on the other hand it falls to say 100 and then there’s a full year of rising readings, then Rory is off the hook.
I’m willing to gamble that 131 was the peak, but it’s possible that the First Home Vendors Boost could push it up past that level before the end of the year, only to see it fall again a lot more after then. My expectation of a very large fall over 10-15 years would then be vindicated, and if it’s half as big as I nominated (40%), the Rory walks–even if I have already walked beforehand.
In other words, we’ve got a Crocodile Dundee situation here: there could easily be a temporary boom–especially but not solely the FHVB, and if the bet was whether house prices would be above the March 2008 level in the next two years, I wouldn’t have accepted it. But I’m talking a large scale reversal over substantial time period. We could have a trivial peak to peak with a minor trough, followed by a “Now this is a knife” peak to trough afterwards.
Cheers, Steve
________________________________
From: Rory Robertson [mailto:Rory.Robertson@macquarie.com]
Sent: Wed 3/06/2009 11:00 AM
To: Christopher Joye; Steve Keen
Subject: RE: Website
chris and steve…i’m surprised there’s talk of confusion on basic peak-to-trough detail of bet…after all, the size of any peak-to-trough fall is set in concrete when series in question touches old high…it’s definitional…
peak was last year…whenever price series hits that old high again, whether after 2 years or 20 years, the size of the peak-to-trough fall is settled. only issue then will be whether the fall is big enough (-40%) to make me walk or small enough (less than -20%) to make steve walk.
chris, i’m happy for you to track/promote the bet using your measures…promoting your product by saying abs measure eventually will catch up with reality. but for me it’s neither here nor there which series we use….growth in abs and rpdrm series never will differ by more than 5pp… if steve wants to walk sooner (via rpd-rm measure) rather than later (abs measure) that’s fine with me, but i feel no need to fine-tune details of bet.
rdgs,
rory
________________________________
From: Christopher Joye [mailto:Christopher.Joye@rismark.com.au]
Sent: Wednesday, 3 June 2009 10:15 AM
To: Rory Robertson; S.Keen@uws.edu.au
Subject: Website
Steve/Rory,
Having spoken to you both, this is what I propose to do (understanding that you reserve the right to disagree!):
1) Steve is keen for us to use an independent index that captures all properties and is happy to use the RP Data indices on the basis that I have discussed with him;
2) Rory is happy for RP Data to track the bet using their indices, but, as he noted, is also comfortable relying on the ABS measure;
3) RP Data have agreed to build for free a web-page with graphics etc that is explicitly designed to track the bet using RP Data’s indices;
4) RP Data will donate $1,000 to the bet’s winner assuming that there is agreement on when the bet is won/lost;
5) RP Data will also assist with a fund-raising campaign for the loser to assist them raise money for charity for their hike up Mt K;
6) I will have you each personally approve/sign-off on the website content before it is formally uploaded.
Kind regards,
Chris

My background in Economics is minimal (to say the least!).

My first brush with Economics happened when I decided to do Economics in Years 11 and 12 because I thought it sounded interesting, and I was very interested in trying to understand how the world worked. We started Year 11 work after the School Certificate was over, at the end of Year 10, and I survived one week before I decided that Economics was ‘not for me’ and I ran away and did Modern History instead (which I felt was grounded in more fact).

My next brush with Economics was when I left home, with my Father’s advice ringing in my ears -

“Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness.
Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
Charles Dickens

When I was stirring him about this years later, his reply was – ‘At least you remembered it!’

Life intervened. My first degree was in Physics and Biochemistry, my second degree in Computing. Jobs, career, relationships, health crises, even marriage …. you know, LIFE!

My latest brush with Economics started at the beginning of 2007, when I found out about Peak Oil. Combining this with Climate Change, which I knew was coming ‘in the future’, I figured we should get ourselves properly educated on what the next 10 to 15 years may hold. We read a number of books (James Kunstler’s ‘The Long Emergency’ is the best all round introduction that I know of, but as it was published in 2005, some of the figures are a bit dated) and I started scanning the Net for up to date information. This is how I found Steve’s Debt Deflation blog, which we read regularly. I haven’t registered to comment, because I don’t know enough about the ins and outs of economic theory to be able to make a relatively intelligent comment, or ask a question that isn’t answered by Steve’s posts. So I lurk, and read, and learn.

We went on the walk (Mark ran and walked, I just walked on the Saturday afternoon) to say thank you to Steve for the advice and warning he has given over the years, which we paid attention to and are much better off as a consequence. I thought the conversations I had with people the whole day were great! It was a really interesting mix of intelligent people from many different walks of life who had well thought out opinions on many topics. Thank you!

Over the last three years I have become increasingly horrified as to the depths the people in power overseas (in the Western World) will go to keep their power and control and ignore the rule of law if it is inconvenient to their goals. As Chris Martenson (The Crash Course) says ‘the next 20 years will look nothing like the last 20′.

One of the Posters on the Australian Oil Drum gave some very good common sense advice – all changes you make in your life should be able to pass this question – ‘Is this a change for the better in my life (e.g. getting out of debt, getting fit) regardless of whatever happens in other countries? So for me, I’m learning Horticulture – fresh organic produce, with a food mile sticker of about 10 metres sounds (and tastes) good to me!

My name is Adam Kaczynski (I am not a relative of the deceased President of Poland). I have a MEng in Electronics from Gdansk University of Technology http://www.eti.pg.gda.pl/katedry/ksmi/ but worked more as a software engineer than hardware designer. I spent several years working on development of embedded systems and telecommunication software. Currently I am responsible for software testing and design of test tools, leaning towards development work in the near future. My critical (“contrarian”) attitude towards ideas expressed by other people helps me at work as what I do is actually looking for holes in somebody else’s reasoning.

I joined the walk because I think that Steve is right in regards to identifying a housing bubble in Australia and going public about the negative effects on the economy and society the bubble has now and will have when it bursts or deflates in the future. I also think that Steve has correctly identified the limitations of neoclassical economics in general.

As a student I was quite active in an anti-communist Independent Students Union (NZS). However a few years later I became very unhappy about the way the Polish society was evolving after restoring democracy and state sovereignty in 1989. I would blame the disinflation policy from 1998-2003 on driving the unemployment rate to 20% and amplifying pre-existing social problems. The effects of social dislocation made certain groups of people prone to manipulation by the ultraconservative groups within the Catholic Church and the nationalists trying to bring back obsolete ideas from the 1930-ties. Belonging to Polish nation has been redefined as being a good Catholic. I am not.
”There are no other value systems than the Catholic Church”
http://translate.googleusercontent.com/translate_c?hl=en&ie=UTF-8&sl=pl&tl=en&u=http://wiadomosci.gazeta.pl/Wiadomosci/1,80708,5411072,_PiS_bedzie_wspierac_Kosciol_we_wszystkich_mozliwych.html&prev=_t&rurl=translate.google.com.au&twu=1&usg=ALkJrhgwMvwvCR0d478a_VdOGbc5uVBF1A
I am an agnostic and I will not tolerate anybody trying to impose religious views on me or my children. I felt like a foreigner in my own country of birth. When I moved to Australia I never had that feeling again. Another reason why I left was that I was sick of the mentality of some people who simply wanted to make life of everyone as miserable as possible (think of a bank which sets a debt collector upon me because the bank clerk didn’t close my business bank account correctly – and then nobody apologises for the mistake)
http://www.english-to-polish-translation.co.uk/polish-business-etiquette.htm

The first thing I saw in Australia when I arrived in 2003 were expensive and unaffordable houses. (Actually I had been aware of the problem before I left Poland but only when I moved the full extent of the problem became evident). As a migrant I had to start climbing the ladder almost from the bottom – we had some savings but we didn’t want to waste them. It is the feeling of swimming against a rip – only the strongest swimmers do not drown and only if they choose to swim across rather than straight back to the beach. But I never considered moving back to Poland. Actually we missed on the housing bubble in Poland which started developing in 2004 but quickly eclipsed the Australian one (before starting to deflate in 2008-2009).
http://www.soc.cas.cz/download/871/paper_laszek_widlak_augustyniak_W04.pdf
When I realised that I told myself not to make the same investment mistake again and educate myself in economics. I do not care much about getting rich and I am happy to work hard for the rest of my life rather than obtain money by speculation but at the same time I am not a kind of guy who likes delivering free lunches to somebody else.

I may not be fully convinced that the bubble has to burst in exactly the same way as in the US if the Australian Government keeps fiddling with the market. But whatever is going to happen will be bad to a large group of Australians. Stabilising nominal prices while allowing inflation to do its job (3% inflation gives 34% reduction of real value over 10 years time) could be the best long-term scenario however I can easily see potential events which will upset the bubble and collapse the market so that Rory may need to walk. One of possible triggers may be a sharp deflationary slowdown of the Chinese economy related to their own housing and commodity bubble. This would be transmitted into dwindling profits of Australian companies, into rising unemployment rate and falling exchange rates. We have no independently verified data describing what is really going on in China so we can only speculate but if they ever sneeze we will catch the flu.

Even if the bubble doesn’t burst in Australia the current situation leads to some very serious social consequences. Large groups of young Australians and these migrants who haven’t brought a significant amount of capital to Australia are virtually locked out of the housing market. But at the same time there are large groups of investors who get free lunch. Similar problems are present in Central Europe (not to mention Baltic States where bubbles actually have burst). Housing there is even less affordable than in Australia. This situation combined with high unemployment has led to massive migration of skilled young people to Western Europe. One can easily imagine the situation where the recovering US economy can absorb virtually all young professionals leaving our universities – if salaries in the US are 30% higher and houses more affordable than in Sydney or Melbourne. 5% of the population left Poland and an even higher percentage of Romanians left their country, probably forever.
The housing bubble and mortgage debt are not the only symptoms of the current malaise. There is a lot of people (not only in Australia but also in the US and Europe) who have been brought up surrounded by the cult of overconsumption, greed and the need for instant gratification. These people do not understand that they have been brainwashed and enslaved by the system. But the most serious problem which has recently been swept under the carpet is the depletion of non-renewable resources and the irreversible in the short time scale degradation of the natural environment. The Great Financial Crisis is just a rehearsal. Instead of trying to mitigate these risks to our democratic society and modern civilisation in general we have chosen to kick the can down the road. We must not get distracted by the climate change data fudging scandal. We will hit the wall quite soon, probably in a few decades time.

Our demand-constrained global economic system is completely incompatible with the hard resource availability constraints.

Steve is one of the few economists who dared to speak about all these issues.

I lived 36 years in Poland so I made a lot of observations in regards to social dynamics when the economy collapses and the political system changes. I don’t need to imagine how a town with 30% unemployment rate looks like as I visited similar towns multiple times.

I believe that my personal situation is good. I cannot complain about the low level of consumption in general. We both have good and stable jobs. Our exposure to potential capital losses is limited as we have conservative attitude towards over-borrowing. We own a small and cheap house far away from the City and the mortgage repayments are under control. We definitely have more space than average families in Poland. Our equity in the house we own is approaching the current value of the flat we had had in Poland so after 7 years we are breaking even. The fact that we are not annoyed by hundreds of little things we would experience in Poland means that I am extremely happy that I live in Australia and I only regret that we made the decision to move so late.

I simply don’t want the same negative social processes which occurred in Poland to happen here in Australia.
That’s why I support Steve.

The walk itself was very good and I had no fitness problems – I was only able to spend 4 days there. I like running and similar physical activities. The scenery was great. Walking was still nice because of the people I could talk to. (I prefer bushwalking than highway-walking for rather obvious reasons). Everyone whom I met on the walk had something interesting to say and the atmosphere was great. I had a chance to have a few discussions with Steve. Even if I have my own views on several issues I am grateful for this opportunity as only a few other people I met in my life presented a similar level of personal integrity and contributed so much to science and our political life.

The news that the Rudd Government was rolling back its changes to Australia’s foreign investment rules on housing came as we were still on The Walk. Just prior to starting it, I received a note from Dr John Daffy, with the following letter from him to the PM attached. I asked John whether I could publish his letter on the blog, and he agreed.

Just as the absence of statistics on foreign purchasers means we’ll never really know the impact they had on the market, we’ll probably never know how many individuals like Dr Daffy sent similar letters to their MPs and the PM; but judging from the rapid backflip on that policy, there must have been plenty.

Prior to the change, 50% of “off the plan” apartment sales could go to non-residents; after it, 100% could; now we’re back to the 50% ratio. So the changes restore the status quo on that point.

But they don’t go far enough. The property lobby forever asserts that the cause of high house prices is undersupply; here’s a simple policy measure then to increase the supply of apartments for people who actually live in Australia. Why should only 50% of new apartments be reserved for local buyers? Why not 90%?

Allowing up to 10% of new apartments to be purchased by non-residents should more than cater for warranted purchases by globe-trotting non-residents in our globalised economy. I suspect that allowing a further 40% to be purchased by non-residents caters more to the property lobby than it does to the jetset.

Dear Mr. Rudd

Re: Australian Residential Property Prices and Foreign Investment Laws

I write to you to ask for an explanation as to why foreign investment laws have been changed in Australia allowing non residents to purchase residential property (otherwise known as family homes)

This decision has resulted in approximately 30% of family homes in inner Melbourne being sold to people who are not residents of this country and has been a major factor in increasing family home prices dramatically, in what was already the most expensive real estate in Australia’s history relative to wages.

Successive governments have also inflated prices with home owner’s grants and approximately 5 billion dollars of tax breaks per year for landlords at the expense of potential home owners (with negative gearing) Successive governments (State and Federal) have also dramatically increased immigration and ensured outer suburban land is artificially more expensive than it should be due to a number of policies which limit supply.

The Rudd Government has played a major role in increasing these prices to the absurd levels we now have with the average person completely unable to buy the average home in this country. So much for working families. It has managed to do this with the first home owners grant, a flood of foreign investors and changes to the superannuation laws.

The recent changes to the superannuation limits were “spun” as “closing a loophole” whereby the “rich” received a tax deduction. The net result of this policy is to drive people in to negative gearing in property and further inflate house prices away from the average home owner who pays the full interest on his loan( with no subsidy from the Australian Taxpayer). The Rudd government is obviously convinced that the home property market needs to be inflated even further and is very willing to support the banks in this pursuit.

To add further insult, people who are saving for a deposit on their home have the interest on their deposit taxed at their marginal rate (keeping them further away from a rising market.) They may as well be subsidizing their own landlord who is invariably getting a tax deduction.

I have watched in disbelief as governments have done EVERYTHING they possibly could to pump up house prices. Foreigners’ buying our family homes and further inflating prices is the final straw. Allowing people who don’t live in this country and do not pay tax to drive Australians out of Australian homes is a national disgrace.

I call on the Rudd government to roll back immediately the foreign investment laws which allow this national disgrace to occur.

Yours Sincerely Dr John Daffy

It’s nearly a week since we were all there in the mist on the top of Kosciusko – hardly enough time to process everything that happened, but here’s my take.

As a journo, I marched to cover a historic event and correct an imbalance for my own publication [see the resulting articles here: http://tinyurl.com/23w6q5m ]. We’d given much more coverage to bullish positions on housing, so this walk helped rebalance things a bit.

But my brief as a reporter was only decided after I’d decided to walk for my own reasons. I do, of course, think that current house prices and debt load in Australia are very unhealthy – the community symptoms of that are everywhere. And yet it was also obvious to me very early on that this walk was part of something much bigger.

Walking alongside free thinking individuals day after day, listening to their life experiences and ideas (and sharing my own) quickly created a sense that it didn’t matter what we all thought about house prices – and not everyone agreed with Steve’s prognosis. Rather, the important thing was to strive to work things out for yourself. And so we discussed history, literature, religion, relationships, environment, warfare, politics and diet, just to name a tiny sub-set of the topics broached on the road.

And sometimes the words stopped altogether – not only from fatigue, but because understanding and communication sometimes go beyond a cerebral outpouring of words. Actions say a huge amount, and I remember in particular Duncan’s chilly night sleeping in the park in a homeless swag; Peter’s checking and rechecking that every member of the party got safely up and down the mountain; John’s reminder of what really matters when he left early to get home and watch his son play soccer; the visible focus, care and commitment Ania showed in keeping Steve’s body in one piece through a gruelling physical ordeal; and the great intensity with which Colin was able to really listen and absorb the thoughts and feelings of fellow walkers (mine lot of time) – a vanishing skill that is extremely valuable.

It also quickly became clear that some of the party were carrying heavy burdens with them over the miles – bereavements, troubling life-experiences waiting back home, and the usual scars and injuries of lives that, it seemed to me, had been a lot more than ‘half lived’.

One of the natural antidotes, of course, is to live life with a flourish along the way. Leading this charge was David Hirst, shiraz in hand, loudly toasting Goldman Sachs for finally being busted for fraud, telling preposterous stories (that we only later realised were true) and giving a certain professor a lesson in pool hustling.

By necessity I often hid myself away in my room to write up the articles for my publication (do you know how hard it is for a journo to leave a party to do this?), but whenever I emerged there were friendly faces conversing furiously, laughing, expounding, or just sharing wine and stories late into the night. I couldn’t believe what a wonderful cross-section of people had randomly responded to Steve’s call to join the walk. But then as Ania told me one day, “if you have pure intentions, you attract good people”. I think she must be right.

Because, to the extent that I understand human character, I can say that Steve Keen’s intentions are pure. As I wrote in the final article for Business Spectator: “Whatever the future holds for Australia’s economy, it is clear that Keen’s relentless message to Australian policy-makers is sincere and, at the very least, founded in constant intellectual exertion.”

I think we all owe him a debt of gratitude for having the wit and courage to organise such an audacious protest against the ‘group think’ that threatens to ruin us all.

Which brings me back to where I began – that this walk was about much more than house prices. The world is in an extraordinary state of flux, as if some reckless performer were spinning too many plates before a dazzled, frightened audience. Most of us see at least one of those plates falling soon (China, Greece, housing, sovereign debt, the stretched biosphere, myriad forms of social disintegration, the stock market – take your pick), but if we are to prevent the rest crashing down around us, and start rebuilding, we’ll need plenty of good-hearted and intelligent people to stand up and act – not just to passively say “the system’s broken”, but to throw all their talents into answering the questions “What’s better?” and  ”What’s next?”

On this walk I saw a bunch of people with all the tools required to get to work on this mammoth task. We may not do this together, but the choices we make in our respective walks of life will, I hope, be sustained by the memory of this epic walk – or better still by keeping in touch with and encouraging one another as this difficult phase of history unfolds.

As I dropped Nina off at her south Melbourne flat late on Saturday night, I told her what I’d said to every other member of the party as we said goodbye: “Let’s all meet and climb that mountain again in ten years’ time.”

Nina shook her head. “No,” she said, “That’s too long. Make it five.”

Thanks to all of you for giving me an experience to treasure, and a wealth of ideas and inspiration to take into the future. Keep in touch. And keep walking…

My name is Colin, and I’m a SME owner. For most of my life I was a very driven, focussed, and competitive person. The goal of becoming financially successful completely dominated my teenage years and the first dozen or so years of my adult life. I think there are many who know what I am saying.

I will always recall a defining moment in my early teens. Standing beside a country road as my mother wept in frustration over yet another sub-$500 second-hand car that, in Rolls Royce parlance, had “failed to proceed”, I made a decision. I told myself that “I will never have a family of my own until I am rich enough to own a house outright and not have money worries”.

As a teenager I experienced the mental and emotional challenge of trying to study for my HSC with my family’s lives packed up in boxes. We were waiting to be thrown out of our childhood home by the bank.

From the perspective of a teenager, I understand the distress both felt and thought by so many in our society today. Trying to study and prepare for adult choices. Living under a dark cloud of uncertainty. Faced with being uprooted from the only home I’d ever known, and from an entire lifetime of memories. With nowhere to go. I can only imagine the trauma experienced by a parent in this situation.

As Australia’s housing crisis began to attract media attention in 2007-08, the pained eyes and worried faces on TV were a reminder to me. I wanted to help.

I had a wonderful childhood. A home is simply a place where love is. And while there was always a shortage of money, there was never any shortage of love in ours. I am grateful that I was raised like a good Scotsman to value thrift and economy. In a family of six children, we learned to share, to work together, to be content and make do with what we had. That is the soil where many years later Australia’s housing crisis germinated my first foray into political activism. The seed being simply the idea of “making do with what you have”.

As interest rates and house prices rose, as carpet-baggers, sophists, and spruikers galore waxed lyrical about the “housing supply shortage”, back down here in the real world beneath the experts’ ivory towers I saw a rather different picture.

I knew of one man, a property developer, who had fallen on hard times. He had overseas students boarding in every room of his house. He was living in the garage.

I knew another man whose marriage had ended. He did not wish to see the home that he had built with his wife owned by someone else. But she wanted the money, and she wanted it yesterday. So he had offered to buy the house from her, near the pre-GFC peak in the property market boom. Buying her half of the home’s then-current value meant that he effectively had to pay for the same house twice. He too had boarders in every room.

These men were… and still are… making do with what they have.

In early 2008 I began to research Australia’s housing crisis. I learned that for the past 30 years, Australian households have grown smaller. But our home sizes have grown ever larger. I learned that there are over 8 million spare bedrooms in Australia (ABS 2005-06 Housing Occupancy and Costs). Over 80% of Owners with a mortgage, and over 89% of Owners without a mortgage, have at least one spare bedroom. And over 50% of renters are Couple-only or Lone Person households.

To a thrifty Scotsman, it seemed entirely logical to me that since Aussie house prices were among the most unaffordable in the world, if renters in our major cities were struggling to find accommodation or save an adequate deposit for a mortgage, and 50% are singles or couples, then why not board with someone who really needs some extra income? Say, with a homeowner who is struggling to meet their mortgage repayments and is at risk of losing their home? Or perhaps with a pensioner or retiree on a fixed income who is struggling to make ends meet?

That’s where an idea called Room To Move was born. It occurred to me that one way to ease Australia’s multiplicity of housing crises (rental squeeze, housing supply, price bubble, ever-rising homelessness) would be to encourage people to consider traditional thrifty solutions like boarding. But to be most effective, this required a political solution.

I knew that lots of retirees and pensioners would happily take in a boarder, except for one problem. The fear that Centrelink would reduce their pension, or take away much-needed benefits like their health care card. I also knew that many struggling wage-earners take in a boarder in return for undeclared cash payments, to avoid the risk of the ATO deeming it as Income and taxing their board money.

So I prepared a website and made a formal submission to Kevin Rudd’s much-touted Australia 2020 Summit in early 2008, suggesting that a simple change be made in our tax legislation. One that might encourage more Aussie homeowners to take in a boarder. Knowing that the idea was hardly so glamourous as the shining halos of inspiration that might be expected to emanate from the ever so earnest deliberations and mutual backslapping of “1,000 of our best and brightest”, I also directly contacted all the parliamentarians with relevant portfolios in both the government and opposition repeatedly for more than a year. In most cases, there was not even the courtesy of a reply. One might conclude that our elected representatives are not particularly interested in the concerns of struggling households, or simple solutions to the problems created by their encouraging massive over-investment in McMansions that remain mostly empty.

This is one of many reasons why I leapt at the opportunity to join Dr Keen in his KeenWalk To Kosciuszko. Not to push my own idea. But rather to simply and wholeheartedly support Steve in his own related quest.

There are few people who appear in the public eye for whom the brightest thread woven through their life is spun not from spin, but from virtuous motivation. I think Steve is one of those few. I have real admiration for his personal courage and determination to persist in spreading his fundamental message. That too much private debt is a disaster waiting to happen.

The lineup is always long and strong to throw stones at a man who preaches a message that the prideful and selfish do not wish to hear.  This is a fact of history that transcends time and culture. In the same way, we too can reject the lessons of history as inapplicable to our time, or remove our blinkers of self-interest and choose to see the true story that history tells us. Debt does lead inevitably and inexorably to disaster and suffering. House prices do not go up forever. Australia is not different. And “experts” are very often nothing more than drips under pressure.

I want to take this opportunity to publicly thank Steve Keen. Firstly, just for being Steve Keen. And secondly, for his central role in this once-in-a-lifetime human experience called the KeenWalk to Kosciuszko.

I will surely never forget the past week and a half. And I will never forget many of the unique and amazing souls who participated in this remarkable journey. So my very hearty “Thank You” to Rob (“Movement with Rest” mate), Duncan “I love the smell of 2-stroke in the morning!”, “Shutterbug” Pete, Dave the Younger (with his cheeky tattoo), Dave the Legend (“A toast to Goldman Sucks!”), John the “Human Face” of Bredbo Inn, and to all of my wonderful roommates and chaletmates during this journey; Adam, Dave the Elder, Matt, Liam (“I think it’s a complete load of BS!”), Alan, Rodney “Don’t drop the bottle!”, the calm and elegant Nina “Queen of the Mountain”, and of course Ania and her healing hands.

Part way into the Walk during a memorable night of food, wine and incredible conversation in Cooma, I first began to feel conscious of one thing which truly united this disparate group of Australians. I felt that we all shared in one common sense – that Australian house prices are symptomatic of a great injustice. And that sense of injustice had brought all of us together.

For all the argument and debate about economic theories, house prices, investment, money, and markets, one thing remains consistently true throughout the history of the human race. People suffer when debt and house prices rise.

From the single mother living with her kids in the car, to the divorcee living in his garage, to the highly paid executive living under the weight of a million dollar mortgage, rising debt and rising house prices bring anxiety and the burden of care to all. Not one of us escapes some degree of suffering – including those who believe they’ve “made it” in the housing market.

Knowledge of the universal human suffering caused by debt should be sufficient for any person whose Conscience is not yet irretrievably scarred by greed to pause and reflect on their own motivations… and morality… when it comes to the topic of house prices.

If more of us will choose to do this, then I am sure that in time many more of us will choose to forgo the tantalising false promise of easy wealth, and instead discover the richness and virtue of simple contentment. In making do with what we have.

The dicky knee made it all the way

P.S. I was asked to include a mention of a little project I began in February 2010 – a blog called Barnaby Is Right.  

I began the blog due to a growing sense of outrage about debt and Australian politics.  Noone in Parliament (except Barnaby Joyce) was bothering to speak out strongly with concerns about our rising levels of debt, or indeed, that of other countries, and how this might impact on our economy in the future. And whenever Senator Joyce spoke, he was ridiculed by all and sundry – including those very same “experts” in government and the RBA who all utterly failed to foresee the GFC. 

I knew from my own daily financial research that many of the comments and concerns raised by Barnaby – especially with regard to the massive debt levels in the USA and Europe – were actually echoed by leading authorities around the globe, and notably by those few who did predict the GFC! But our media dutifully reported none of this – only the minor gaffes, slips of the tongue, and the pompous ridicule of our ivory-towered “experts”. 

Remarkably, the blog has been quite successful in spreading the word that Barnaby is not a lone-voiced nutter, but in fact is better qualified to comment on the Australian economy than the entire Government economic team. Averaging around 80-100 visits a day, with a peak of 600+ for a post titled “Tanner Lies About Budget, GFC”, it is pleasing to see that many other average Australians like myself have come to appreciate that, more often than not, Barnaby Is Right.