Debtwatch No. 40 November 2009: Have we dodged the Iceberg?

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Part 1: The USA

The most recent “unexpectedly good” growth figures for the USA appear to indicate that what will still be the worst downturn since the Great Depression is finally over.

However this is not your usual downturn. Not only is it acknowledged as the most severe since the Great Depression, it has also evoked the most remarkable government economic stimulus ever seen. It would be bizarre if this had not had an effect on the data.

Whether a recovery is truly underway in the private sector therefore depends on how the economy is likely to perform after the stimulus is withdrawn.

The “recession is over” reaction could be valid under two circumstances. Either:

  1. The figures are very high even when the government stimulus is taken into account; or
  2. If the economy could be expected to continue growing endogenously after the stimulus were withdrawn, even if the aggregate numbers for this quarter were good only because the government stimulus was so large.

Let’s consider the first option. The growth rate on an annualised basis for the last quarter was 3.5%. The BEA’s decomposition of this notes that 1.66% of the growth was due to increased motor vehicle output, which was primarily driven by  the government’s “Cash for Clunkers” program. Another 0.48% was due to the growth in government expenditure.

There are also some elements of the figures that simply seem, in the original sense of the word, incredible. For example, rising investment levels—up 11.5%—were a major reason for the positive reading. But all components of this measure were either tepid or negative—except for residential investment, which was up a whopping 23.4%.

That just doesn’t tally with the most depressed real estate market in history; possibly this huge contribution to aggregate investment could be the result of a large movement from a very small base, whereas the sector’s weight in the overall calculations of investment hasn’t been revised downwards to reflect its true contribution today. Or it could be a problem with the data sample that will be revised substantially downwards in later estimates of GDP.

Either way, the prospect that a serious recession, which was caused by the bursting of a housing bubble, which left an unprecedented stock of unsold existing houses on the market, and which has led to an unprecedented unsold over-supply of existing housing stock, has been ended by a revival in housing investment… is simply incredible.

That leaves the second option—that even though the positive figure was the product of the government stimulus, when this is withdrawn the economy can be expected to continue growing on its own.

Here trends in consumer income and non-residential investment are the important issues. These would both need to be positive (or at least turning from lows) for the private sector to resume growth in the next quarter without the need for stimulus.

Consumer disposable income fell at a substantial 3.4% annualised rate in the quarter, while fixed investment expenditure rose by an anaemic 2.3% and investment in structures fell by 2.5%.

It is thus likely that if the government stimulus were withdrawn, both these private sector areas would show even more negative figures over this quarter.

However, another way of looking at whether this is the end of the recession is to look at the timing of turning points in the data and economic recoveries (this requires attempting to deduce the cyclical components in the data from the trend). On this and the conventional set of indicators, it looks like the “avoided the iceberg” call could be right. Firstly as the next graph indicates, during the recession all factors save government spending were below trend, and the two biggest factors in the turnaround are a revival in investment (driving almost exclusively by the “23.4% rise” in residential investment!) and net exports.

The role of net exports is unusual (though unremarkable), but the turnaround in investment is a sign of recovery that has occurred in all previous recessions—as the next chart indicates.

However there is another factor that hasn’t yet been considered—the role of credit. During post-War recession, credit growth has dropped well below trend, and the recovery has involved rising debt levels. This is not the sign of a healthy economy—far from it—but this is how the US economy has “recovered” from every previous post-WWII recession.

Not this time it appears: if this is a recovery, then it’s a highly unusual one because credit growth is still well below trend—and, in fact, negative: America is deleveraging.

We therefore have the strange combination that one accepted “leading indicator” of recovery—a turnaround in investment—appears to have occurred, while another less favoured indicator—the trend in credit growth—is still pointing at recession.

I apologise for getting somewhat geeky here, but this is one issue that a simple check of charts can’t decide—we have to delve deeper to work out which of these two contradictory indicators to take more seriously. So the next two tables get slightly more technical and look at the correlations over time between changes in the components of GDP and credit and changes in real GDP.

Here the data favours debt growth as the leading indicator to watch. Investment is strongly correlated with GDP, but that’s hardly surprising since it constitutes a major and volatile component of GDP. Just as with consumption—the larger but less volatile major component—its correlation is highest when coincident with GDP. It is not a leading indicator.

The two best leading indicators are debt, and government spending—with the former stronger than the latter. Government spending a year ahead of GDP is a good indicator of which way GDP will go—something which supports the Chartalist approach to macroeconomics and undermines conventional “neoclassical” economic thinking. But changes in debt are a stronger indicator still, and have a stronger effect closer to the actual movements in GDP.

The previous correlations covered the whole post-WWII period (from 1952 till now), but there has clearly been structural change in the US economy over that time—especially the relocation of production to offshore low-wage countries, the growth of the FIRE sector with the economy’s increasing dependence on debt, and the shift in economic policy from a “Keynesian” orientation to a “Neoclassical” one (prior to this crisis) in the mid-1970s. So the next two tables repeat the above correlations, but just with data from 1990.

These reinforce the argument that movements in debt matter as an indicator of whether we’re out of the recession or not—and the answer is no. It also appears that the influence of government spending on economic performance weakened while neoclassicals were in charge (and behaving as neoclassicals—rather than “Born Again Keynesians” as they are now).

So I don’t believe that this quarter of growth for the USA implies it has dodged the iceberg. Instead a patch-up job has been done on the damage, but the USS is still taking on water as the private sector deleverages.

Part 2: Australia

The Australian result of only one negative quarter of growth, followed by a return to positive growth is the best in the OECD. This was driven by:

  1. The dramatic positive impact on household budgets from the cut in interest rates by 4%, which reduced debt service from 15.4% to 10.3% of disposable income;
  2. A stimulus package that was equivalent to 2.5% of GDP, the largest such package in the OECD;
  3. Australia’s unusual position as a commodity producer—so that we benefited from China’s huge stimulus package and recent stockpiling of commodities; and
  4. The enticement to households to take on additional mortgage debt that goes by the name of the First Home Buyers Boost.

The first two factors alone resulted in a 9% increase in houshold disposable income over the year from June 2008 to 2009—an unheard of development in boom times, let alone during an economic crisis. As Gerard Minack put it in his Downunder Daily on October 9th, “If that’s recession, bring it on!”

As a result of this policy-driven paradox—rising disposable income in a recession—Australia will not record a fall in real output on an annual basis in 2009, a result that is in stark contrast to outcomes in the rest of the OECD.

So fast and massive government action—by both its Treasury and Central Bank wings—averted a recession in the face of an unprecedented financial crisis.

This is a welcome outcome—and one that contradicts one of the latest fads that dominated economics prior to the GFC, “rational expectations macroeconomics”, which argued that the government couldn’t affect real output. As I noted in an earlier post, though neoclassically-trained economists drove the policy response, they did so as “Born Again Keynesians”, and if their rescue does work, then it contradicts neoclassical economics just as much as the GFC’s very existence did in the first place.

Also as noted in that post, the only school of economic thought that could be vindicated by this outcome is the Post Keynesian “Chartalist” group, which argues that any macroeconomic downturn can be averted by sufficiently strong government action.

The question for the future is what the economy is likely to do after the special factors that turned it into a comparative boom for Australian households and exporters are unwound.

Already the RBA has started to reverse the first factor above, by raising interest rates by 0.25% at its October meeting, flagging that it will do as much or more on Melbourne Cup day, and implying that the reserve rate could be as high as 5-6% by the end of 2010. If the RBA followed that plan of action, then the debt servicing costs for households would rise to over 15 percent of household disposable income. This would reverse more than half of the improvement to disposable incomes engineered by government policy during the GFC.

Moreover, this increase in debt servicing costs would come on top of the removal of the First Home Buyers Boost (FHBB)—which I prefer to call the First Home Vendors Boost.

Prior to that foolish policy, Australian households were deleveraging—reducing their debt levels. Thanks to it, they increased their debt levels so that the ratio of mortgage debt to GDP in Australia is now at an all-time record, and exceeds the level in the USA (though not the UK). in mid-2008, the mortgage debt to GDP ratio peaked at 84.9%, and it then fell to 84.2% by the end of 2008. Under the influence of the FHOB, that ratio stopped falling and is now 88.4%—an all-time record, and five times the level that applied in 1989.

This government-induced $50 billion increase in mortgage debt has been a major factor in driving the economy upward, despite the GFC. The takeup of the boost is truly staggering—from a nationwide total of 121 in October 2008, to 5,385 the next month, and a peak of 20,389 in June 2009. The total enticed into taking out a mortgage will surely exceed 200,000 by the end of December—and represent more than one percent of the Australian population.

How did the Government get such a fabulous “multiplier” out of its Boost—put in $1.5 billion, get $50 billion additional spending on housing (at $7000 per recipient, times roughly 200,000 recipients by the time the Boost ends—there were 171,000 recipients as of the end of September 2009)? Because the recipients of the grants used the $7,000 to get an additional $40,000-$50,000 in finance from their mortgage lender, and then handed this over to the First Home Vendor (FHV) in a grossly inflated sale price.

The FHV then took this additional cash and leveraged it into an additional $200,000 or so for their next house purchase. So the FHVB caused a bubble, not merely in the sub-$500,000 price range that most First Home Buyers inhabit, but right up to the $1 million range that accounts for more than 90% of Australian housing. The leverage on the FHBB was not merely seven to one, but closer to 50:1 given this flow-on effect.

With this government-engineered mortgage debt spree, it’s no wonder that the Australian house price bubble, which had begun to deflate in late 2008, has taken off once more. It’s rather apt that my walk to Kosciuszko (as a result of Rory Robertson’s bet with me) will start from Parliament House, since there’s no doubt about Parliament’s role in keeping this Ponzi Scheme alive.

The impact on Australia’s financial position was dramatic and will, in the long run, be very, very bad. It has encouraged us to go back to the same unsustainable trend of rising debt to income levels that caused the GFC in the first place. It has also engineered an unnaturally fast return to rising debt levels: in the 1990s recession, it took 29 months to go from “peak debt” (85.34% of GDP in February 1991) to “trough debt” (79.14% in July 1993). This time it has taken just 14 months (from 164.8%in March 2008 to 158.84% in May 2009).

After the 1990s recession, debt levels took off in the Great Aussie Mortgage Bubble, rising from 85% to almost 165% of GDP in just 15 years. If we are to get out of this crisis the same way we escaped from “The Recession We Had To Have”, then debt levels would need to continue rising relative to GDP. Which raises the question, “Who Are You Going To Lend To?” Both households and businesses are carrying more debt than in any previous recession, and the business sector is still deleveraging—only households are taking on more debt.

All these factors lead me to expect that 2010 will be a bad year for the Australian economy:

  • The combination of the RBA’s rate rises and the ending of the First Home Buyers Boost will in all likelihood prick the house price bubble inspired by the Boost in the first place—and lead as many as 175,000 households to be very angry that they were enticed into this speculative bubble in the first place. If this happens, there is little prospect of making the House Price Souffle rise twice by yet another foolish enticement into debt.
  • The political pressure on the government may lead it to unwind its stimulus, which will remove a key prop from the economy; and
  • Deleveraging, which has been the looming problem that government policy (especially the First Home Vendors Grant) has simply delayed, will kick in as it has in the USA. The most likely manifestation would be a decline in discretionary consumption and non-mining investment.

I therefore expect that the RBA won’t get to complete its intended program of raising interest rates, but will be forced to go into reverse in 2010 as it was in 2008. It shouldn’t be forgotten that the RBA was still raising rates in mid-2008 to fight inflation. They didn’t see the GFC coming, and I believe that they’re making a similar mistake this time—believing that it’s all behind us when the special factors that minimised the impact are terminating.

So no I don’t believe we have dodged the iceberg—we’ve merely pushed it below the surface, from where it will rise again to dent out economic hull once more. And all the while the neoclassical economists who didn’t realise they were in an ice field in the first place are busily rearranging the deckchairs on the Titanic.

Table One

Table Two

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122 Responses to Debtwatch No. 40 November 2009: Have we dodged the Iceberg?

  1. mfo says:

    Quote of the week. “Building approvals are still less than demand because people can’t afford housing, therefore prices can only go up.”

    Just about says it all.

  2. Paul Andrews says:

    Can anyone explain to me why the GDP Price Deflator is so far out of whack with CPI the last two quarters?

    I’m getting this from$File/13500DO005_200911.xls

    Table 3, cells H35 & H36, show this measure of inflation running at -1.4% and -2.2% (per quarter) respectively in the last two quarters. Am I interpreting this correctly?

  3. ak says:


    Let’s leave alone for a while what people think should be done to fix the debt problem. I will again try to explain the difference between what you think may happen if our government continues current policies and what Bill Mitchell thinks about it. My goal is to convince you to challenge him directly as it might be very interesting to see the arguments of both sides.

    The point he is trying to make is that the neoclassical economics is incorrect when it comes to describing how the current monetary system works. He says that applying the same rules which were in force when currencies were bound to gold standard is plainly incorrect. It is not that Mitchell advocates money printing – he simply acknowledges that all our money has been already printed (created out of thin air) by the governments. Hence the name “fiat money”.

    You have restated your view that buying back the bonds by creating money (what the government can always do) will lead to “our currency eventually vapourised and becoming worthless”. Because of that the government is trapped in a sovereign debt trap, has to pay back money borrowed with interests or become insolvent, etc.

    The point Mitchell is trying to make is that this neoclassical theory is incorrect. The only side effects of buying back bonds from freshly created fiat money would be interest rates approaching zero and possibly currency devaluation as foreign investors will lose their incentive to subscribe to free lunch at our expense in the form of interests paid on bonds. He also thinks that if this policy is implemented gradually it doesn’t have to be very inflationary. We will not follow the path to destruction like Zimbabwe if the economy still has unused productive capacities – what is quite clear in the current deflationary environment. In Zimbabwe the destruction of productive capacities preceded the hyperinflationary meltdown. My experience from the short bout of hyperinfation in Poland in the late 1980-ties was exactly the same – you could not buy products for the money you were getting because of the relative lack of products.

    The hyperinflation was throttled by introducing the special extraordinary tax on wages

    There were multiple instances in the recent history when all the old money in a country was simply ditched and new money was introduced. The strongest Western European currency of the second half of the 20-th century – the Deutsche Mark – was conceived and born in exactly that way.

    “The Deutsche Mark was introduced on 21 June 1948 by the Western Allies (the USA, the United Kingdom and France). The old Reichsmark and Rentenmark were exchanged for the new currency at a rate of 1 DM = 1 RM for the essential currency such as wages, payment of rents etc, and 1 DM = 10 RM for the remainder in private non banks credit balance, with half frozen. Large amounts were exchanged for 10RM to 65 pfennigs. In addition, each person received a per capita allowance of 60 DM in two parts, the first being 40 DM and the second 20 DM.
    The introduction of the new currency was intended to protect western Germany from a second wave of hyperinflation and to stop the rampant barter and black market trade (where American cigarettes acted as currency).”

    So the value of money is nothing objective and we don’t have to treat it as a kind of fetish. The Western Germans were able to rebuild the country in a few years time – because they knew how to do it and got some limited help.

    BTW Mitchell is probably the last person to agree with the unsustainable policies increasing private debt like FHOG:

    “So when the sector should have been reducing debt it has been increasing it. This suggests that the low interest rates were somewhat expansionary (given some of the changes were probably refinancing at lower rates). But how much extra pain the extra debt will now cause as rates rise is unknown. That is one of the problems of relying on monetary policy for anything – it is too uncertain. There are no acceptable models that can tell us the distributional and timing effects of a rate change.

    But with so much debt still being held by the household sector I fear we are setting ourselves up for another dive as fiscal policy contracts under the immense pressure that will be brought to bear leading up to the next federal election sometime in 2010.”

  4. GSM says:

    A couple of points;

    1) I see that Mitchell and I both agree that ;
    “……buying back bonds from freshly created fiat money would be interest rates approaching zero and possibly currency devaluation as foreign investors will lose their incentive to subscribe to free lunch at our expense in the form of interests paid on bonds.” IE our currency would be devalued, perhaps seriously so. Attendant with that devaluation would be runaway inflation in a worst case. Interest rates then would move far positive from zero, thus a devalued currency servicing a much higher bond rate. Hardly a good outcome.

    2)”He also thinks that if this policy is implemented gradually it doesn’t have to be very inflationary.” This misses the point entirely. In a serious debt deflation you sure CAN print extraordinary ammounts money and still NOT achieve price inflation OR sustainable economic growth. But you sure do have the remaining mountain of sovereign debt to be serviced.This is what has happened in Japan and is happening now in the US . Now, taxpayers are burdened with an increasingly onerous tax burden in a still tanking debt deflating economy. So, do you a)raise taxes to service the debt or b)print more money (inflate away the debt) or c) default or d) a combo?

    IT DOESN”T MATTER because all these options are decidedly negative.

    There IS only one failsafe answer to our problems – DON”T incur the debt. Therefore it’s not a question of how to manage the debt with funny accounting and obscure economic theories – it’s a question of how do we rid ourself of absurd levels of onerous (public) debt brought on us all by self serving Govts.

  5. ak says:

    “Attendant with that devaluation would be runaway inflation in a worst case. Interest rates then would move far positive from zero, thus a devalued currency servicing a much higher bond rate. Hardly a good outcome.”

    What would happen if the reserve bank doesn’t defend exchange rates by raising interest rates?

    We have already agreed that bond rates will be close to zero. The government can always achieve that by QE.

    So will a hefty devaluation of the currency in a defationary environment cause a spike of inflation?

    Let’s check what happened in the real world:

    (Eurozone is the main trading partner of Poland)

    Except for troubles for those who have foreign denominated loans – nothing serious happened. Can we spot the hyperinflation?

    What if prof Mitchell is right in this case?

    By the way nobody questions the opinion that too much private or public debt is not good. Mitchell wrote that issuing public debt (as opposed to simply running outright budget deficits – enabling private savings) serves only one purpose – setting non-zero interest rates. He is certainly against excessive private debt levels.

    But if interest rates are close to zero the monetary control instruments do not work. Fiscal policy (especially taxation) must be used to manage the inflation and direct spending may be used to control the public component of the aggregate demand.

    Again – you may not like that. You may hate using taxation and direct government spending to achieve these goals. Fine – I agree – you may have a point, this may look like micro-managing the economy or even resemble to some extent socialism.

    But this doesn’t mean that prof Mitchell’s theory is incorrect. IMO he is right in saying that the government is not constrained in its fiscal policy – if they don’t do silly things and certain side-effects are accepted.

    But governments often do silly things in the interest of some social groups. We can all agree on this I think.

  6. Stats Watcher says:

    Hi Paul

    The cynic would say that the negative Price Deflator was necessary to ensure that GDP stayed positive and Australia avoided the recession.

    A closer look at that Table shows that the household deflator remained positive (0.9 and 0.3) and what turned the GDP deflator negative was the massive moves in the import and export deflators.

    The large move in the export deflator can be explained by falls in commodity prices. For the import deflator this would most likely be due to changes in the $A and lower Crude Oil prices.

    The CPI is a “measure” of inflation on a basket of consumer goods and services – which can be changed and adjusted as necessary (to take account of changes in buying patterns and changes in the quality of goods and services).

  7. bx12 says:

    Re : # 90. Thanks Goldilocksisableachblond.

  8. Goldilocksisableachblond says:

    Re : #89/90

    bx12 – You’re welcome. I hope I gave a correct interpretation of Steve’s definition.

    As a followup to the stuff by B.M.Friedman I quoted above , here’s a recent piece by Richard Clarida at Pimco , who studied under and worked for Mr. Friedman:

    “Chart 2 depicts the history of private credit and nominal GDP since we did our original work in the early 1980s. It is well known that the relationship between the monetary aggregates and economic activity broke down in the past 25 years, but as the chart shows, the same is true for aggregate credit extended to the private sector. Given the stability of this relationship for the 30 years ending in 1984 – through two wars, the great inflation, the breakdown of Bretton Woods (I) – it is startling to see the chasm that emerged between credit outstanding and nominal GDP since then. Indeed, the chart provides one measure to assess the extent of the “great leveraging” that U.S. households and firms took on during the credit boom. For example, in 1984, $3.5 trillion of nominal GDP supported $3.5 trillion of private credit outstanding. By 2007, $14 trillion of nominal GDP supported $25 trillion of private credit outstanding. Similar charts could illustrate the credit bubbles in other countries (for example, the U.K.).

    His ‘Chart 2’ shows nominal private debt and nominal GDP running neck and neck till about 1984 , where they diverged sharply. Since Federal debt/GDP fell post-WWII , becoming stable until about 1980 when it started rising , it seems that this data also conflicts somewhat with Steve’s charts , which show total non-financial debt/GDP starting to rise earlier. State and local debts were only a couple hundred $billion or so in 1980 , so I don’t think that would account for it. Any clarification on this would be appreciated.

  9. Steve Keen says:

    It’s in a press release from Tanya Plibersek:

    There’s a more recent one linked in the blog entry.

  10. Laurence says:


    . But I am concerned about this government guarantee of the banks, and of us maybe ending up like Iceland. I would hate to think of my kids being:
    a) Impoverished by huge taxes to cover bank overlending
    b) Living in a dictatorship once our creditors destroy our economy and political system (Hudson’s prediction for Iceland if they try ans pay their debts); or
    c) In a war to escape the above situation.
    With reference to b), do you see the Stalin or the Khmer Rouge tactics being deployed in Australia so that we would be forced to work under unbearable conditions to repay our debts? If the cities do not have the productive environment, we could be forcibly decentralised to the rural regions to work on the land.

    That’s a possible scenario. A dictatorial Govt would not be needed for that to happen. The way Govts are being run, a consultant is all that would be required to execute the contract. Guess who would be administrating the contract?

    If we don’t want to march too far away from home, then we should plan ahead of the game. Perhaps we should urge our councils to start the “reduce consumption, produce locally” campaigns asap. At least we should create more agricultural lands and rural spaces within the urban areas; otherwise we will face forced decentralisation against our wishes sooner or later.

  11. msms says:

    @29 Stats Watcher

    the complete contribution from elliotwave in that post you referred to was


    Gold will trade at US$1224 on or before November 5 2009.

    Remember this and when it happens alot of people on this blog will be owing me and apology.

    You can use this information for trading purposes i do not mind if people profit from my calls, even if they agree or dislike me.


    Now that’s a cocky statement and quite a demand (for an apology). He is referring to the US time zone so in one day gold will have to jump from about $1090 to $1224. The question is, will apologies be forthcoming in the other direction? Sure, gold has risen since his statement but it’s one thing to predict rises and another to be cocky and make demands with a set timeframe and you (may) prove to be incorrect, instead. We wait another 24 hours for either gold to hit $1224 or for some further comment (and/or the word “apology” from someone).

  12. Philip says:

    Laurence @ #110

    I like Michael Hudson’s free market idea of letting the banks and financial institutions go bankrupt. This means that they would be repurchased at pennies to the dollar, and that their assets (our debts) would either be erased or written down to very acceptable limits. Then they could be restrucuted and put back into business.

    Of course, the rich owners and managers of these institutions acknowledge that individualistic responsibility are for those less fortunate than themselves. They will huddle under the protection of the nanny state, as they have always done. Dean Baker has a good introduction to the extensive welfare programs for the rich (it’s freely available online):

    Baker (2006) The Conservative Nanny State – How the Wealthy Use the Government to Stay Rich and Get Richer, CEPR, Washington D.C.

    I see (a) occurring to a degree but it can’t be excessive because it will further strangle any recovery but it remains a possibility.

    As for (b) the state and capitalists are likely to have such an uprising on their hands due to unemployment, foreclosures, bankruptcies, etc. that I think they would be forced to make huge concessions to the middle/working class as was seen in Paris 1968 in order to neuter any strong reformist/revolutionary tendencies.

    If such things do actually occur (25%+ unemployment, bankruptcy cascades, debt-deflation, etc.) it would be a great time to organize labor to do something better than to simply ask for more wages and benefits e.g. democratize the workplace and get rid of managers and politicians. They need labor but labor sure doesn’t need them. If this were to ever occur then the capitalists and state would drop any pretense as been the wonderful benefactors of society and attempt to smash labor and social movements.

    For (c), we are already in two wars. Which other country can we declare war on?

  13. bx12 says:

    Re : #108

    Wow! Both the stability of the PH Credit / GDP ratio before 1984 AND it’s decoupling thereafter are impressive. These two lines aren’t event scaled to overlap each other, they’re actual values.

    Steve has alluded to France behaving differently than others among OECD countries on that measure. In his ppt (below) though, on p14, France is not shown. Besides these are yearly changes, not levels. Has anyone seen such graphs, perhaps updated (these were 2007)?

    Also, it would be interesting to see the level of total debt (Private + Public) to GDP as France is known as a government friendly country : does the public debt make up for the private one? For example, 2009’s “OECD in figures” page 80 (the pdf is free) public debt in France doubled since 1989 whereas Ireland’s has declined.

    A major issue in assessing debt sustainability are the actual assets facing debt : Investment? Welfare? but also a country’s demographics. Russia, for example, has a decreasing population, so it’s debt per capita should be inflated relative to the standard Debt / n ratio where n is the # of inhabitants. Any existing visual tools for this?,3343,en_2825_293564_43896303_1_1_1_1,00.html

  14. Goldilocksisableachblond says:


    You might find something in the links at this post on Seeking Alpha :

    I can’t vouch for validity of the data. Some is from the “CIA World Factbook” , a title that’s always struck me as oxymoronic.

    Another variation of the data I posted by Friedman is shown in this post by Menzie Chinn ( see Fig. 1 ):

    There you can see the disconnect , again starting around 1983-84 , from the balanced offsetting between public and private deficits/surplus that held previously (graph only covers back to 1967).

  15. Goldilocksisableachblond says:

    It just occurred to me , after looking at Chinn’s graph , why Steve’s charts show an earlier rampup in U.S. debt/GDP levels , relative to the picture you get from Friedman et al.

    The U.S. used to be the largest creditor nation , then steadily transitioned to where we are now , the largest debtor. Steve’s data probably incorporates the decline in the current account , which I’m guessing started in earnest in the 1970’s , and that difference might explain why he shows deterioration of the previously stable debt/GDP ratios starting about then.

  16. MMitchell says:

    Laurence #110,

    TruthIsThereIsNoTruth’s reply to my post #44 in which he stated bank debts were swapped to $AU made me feel a little better about our bank debt, but not much better about the continued flood of money pushing up house prices (it seems the Gov FHVG can be largely blamed for that though). The arguments by others that attempting to inflate people out of this debt would be disasterous did not bring much peace of mind either.

    As for forced movements to the country, I am not sure how far we are ever removed from authoritarian gov. It seems we inch closer everyday. In any case, in the Great Depression people were moved to the country to work. That was how they dealt with unemployment, I have no doubts they would do the same today if necessary.

    I have conducted a small (but expensive) sustainability experiment in my own area, and I am now convinced that raising sufficient local awareness and involvement for any ideas like yours at the local level is unlikely in most suburbs (with exceptions such as Brunswick maybe) – at least until a substantial number of people are really affected (I believe many are now, but these people are the most marginalised and voiceless in our society). It probably still worth trying though – eventually the time may be right.

    Philip #112

    What sort of concession could be made? Assume we do end up in an Icelandic situation; what concessions have they /could they be given by capitalists and the state?

  17. bx12 says:


    Thanks for these links. Great resources. Had no time to look in detail but some countries look better than others on some measures of debt and conversely.

  18. Laurence says:


    Where do we get our pays and pension cheques if “the banks and financial institutions go bankrupt”? The job of paying everyone including the pollies has been outsourced to them long time ago.

  19. Laurence says:


    I agree. Raising awareness is a long process but it has got to be done.

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