This is the second daily dispatch from Business Spectator correspondent Rob Burgess who is accompanying economist Steve Keen on his walk to Mount Kosciusko.

“Where are you walking,” asks a cyclist who has paused for a moment at a busy junction on the Monaro Highway. When I explain I’m walking with Steve Keen, who’s walking to Kosciusko because he lost his bet on house prices, the cyclist’s reaction is instant.

“Yeah, but they’re still gonna fall. It’s just got ridiculous.”

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There has been a lot of interest along the road today — and horn honking, mostly supportive — from the moment the Keen circus set off from Federation Mall in front of Canberra’s Parliament House. Accompanied by stilt walkers handing out balloons, a unicyclist, and the snapping photographers running ahead, Keen’s entourage of around 40 people walked up to the step of Parliament (permission to gather there was initially denied) and then set off south through the Canberra suburbs.

Earlier, news cameras clustered about him, and photographers took photos of other photographers snapping pics. Former treasurer John Kerin popped in (what current Treasurer, of any era of Australian politics would be seen publicly with a rabid property bear?), but declined to speak to Business Spectator on the record.

Keen, always with an eye to publicity, towards the edge of the city posed for a moment in front of a sign advertising dwellings in the $500k price range, and the assembled bears joked about how the buyers were going to pay for it. Then it was off into the countryside with the two support vehicles causing traffic snarls, and less supportive honking from a few locals trying to get home from work. Just after nightfall, and 20-plus kilometres into the walk, the party ended the day’s hike for a hot meal put on in a roadside layby. The team washed it down, perhaps foolishly given the circumstances, with beer and wine – then the support vehicles were packed, and repacked, about six times to take the party to motels.

Stopping to talk to bystanders — including a young couple who’d come out to meet him on a street corner because they “wanted to buy a house” — handing out balloons, taking calls from radio stations on his mobile, Steve Keen is doing everything in his power to prick the “property bubble” and put the Australian economy back on what he thinks is a sounder footing. But to reiterate yesterday’s doubts, is it responsible for Business Spectator to tag along on this journey of economic vandalism?

That depends on your view of the fundamentals versus sentiment debate. And that’s because the media is often accused of manipulating market sentiment for the sake of a good story. Or sometimes for “the greater good”.

At the time of the 1987 Black Monday crash, for instance, Rupert Murdoch was in Melbourne looking over two newspaper additions to his global media network — the then separate Herald and Sun mastheads. As news of plummeting stock values broke, so journalistic lore has it, Murdoch leant heavily on his editors, both here and around the world.

“I’ve spoken to President Reagan,” he purportedly told them. “He agrees we have a responsibility to talk the market back up.”

So why would Keen want to use the media to talk housing “down”?

The reason, as he told me in the dusty layby this evening as trucks hurtled by in the dark, is that the fundamentals are broken.

“Whenever you get asset price growth diverging from consumer price growth, there’s a bubble building,” says Keen. “If you look back to the 1970s, business borrowing was something like 150 per cent of private debt. Now, that ratio is the other way around. And the problem with that is business borrows to be productive, but borrowing more and more to buy the same houses doesn’t produce any more wealth.”

For Keen, there is a tipping point when private debt reaches around 150 per cent of GDP — he puts Australia’s current figure at around 100 per cent and rising. At this point, says Keen, householders will no longer be able to borrow to fund asset purchases (especially mortgages) and so are forced to stop buying and start selling, leading to a spiralling depreciation of assets. So Keen’s one-man crusade is all about using the headroom the economy has now, between the 100 and 150 per cent figures, to pop the “bubble”.

“When you get to that 150 per cent, and the bubble pops” he says, “the economy just won’t recover. There’s a chance that if Australians wake up to the debt problem now, we still have time to fix it.”

Perhaps one in every 500 cars whistling by on the highway honked and waved their approval for Keen’s crusade. Keen’s critics will no doubt suggest that ratio is much higher than it should be. For now, though, Keen is getting the air time and, for better or worse, his message seems to be getting traction.

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Peter Fray
Peter Fray
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