Get ready for an Aus­tralian reces­sion by 2017

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For the last 25 years, Aus­tralian politi­cians of both Lib­eral and Labor hue have been able to brag that, under their stew­ard­ship, Aus­tralia has avoided a reces­sion. Those brag­ging rights are about to come to an end. Dur­ing the life of the next Par­lia­ment — and prob­a­bly by 2017 — Aus­tralia will fall into a pro­longed reces­sion.

Click here to read the rest of this post, and here to down­load the Excel file show­ing the link between a slow­down in the rate of growth of debt and a reces­sion.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • car­son­0900

    Steve, do you have a link to the Bank of Inter­na­tional Set­tle­ments data?

  • Dinero

    The pri­vate sec­tor has a stock of sav­ings and so and the spend­ing in a year is not from earn­ing plus bor­row­ing. The spend­ing is from earn­ings, bor­row­ings and sav­ings.

  • Except that one indi­vid­u­als sav­ings means a reduc­tion in another individual’s income. Sav­ings is an illu­sory con­cept when applied to macro­eco­nom­ics: indi­vid­u­als can save (change the amount of money they pos­sess) but economies can­not unless (a) banks cre­ate more money–simultaneously cre­at­ing debt–or (b) the gov­ern­ment runs a deficit.

  • Dinero

    The stock of sav­ings , that have accu­mu­lated in pre­vi­ous years, is a real quan­tity that can be used for spend­ing. There can be a stock of sav­ings in the econ­omy as a whole, that can be used for spend­ing.

    For clar­ity, if there was no earn­ing and no bor­row­ing in a year by the spenders in the econ­omy there can be spend­ing in that year, from the stock of sav­ings.

    So that illus­trates that the stock of sav­ings exist as a source of spend­ing.

  • twowith­inthree­thati­sone

    Both increased bor­row­ing and gov­ern­ment deficit spend­ing increase costs.…..(because it goes into the econ­omy as the enter­prise of gov­ern­ment and which con­se­quently has a flow of addi­tional costs such as depre­ci­a­tion). Thus deficit gov­ern­men­tal spend­ing does not resolve the dis­e­qui­l­li­brated mon­e­tary state of the econ­omy. A mod­ern tech­no­log­i­cally advanced and hence increas­ingly cap­i­tal inten­sive econ­omy is inher­ently cost infla­tion­ary as the increased costs of cap­i­tal assets must be con­tin­u­ally fac­tored into total costs. And even if the econ­omy can limp along for rel­a­tively long peri­ods of time with­out com­pletely col­laps­ing every other busi­ness model is dom­i­nated by Finance and prob­a­bly upward of 95% of the entire pop­u­lace is enslaved by same. Fac­tor in the just get­ting started dis­rup­tive effects of inno­va­tion and arti­fi­cial intel­li­gence erod­ing aggre­gate demand…and you’ve got a real prob­lem.

    The only valid eco­nomic way to resolve this inher­ent and increas­ing prob­lem is to inte­grate mon­e­tary grace as in direct to the indi­vid­ual Gift­ing into the debt based money sys­tem.

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  • koonyeow

    Are there ways to short the Aus­tralian mar­ket then?

  • KGKG

    Dear Prof Keen

    I am among thou­sands who thor­oughly enjoy and appre­ci­ate your non-neo­clas­si­cal eco­nom­ics and related com­men­tary. The main stream media in-par­tic­u­lar in Aus­tralia are against uncon­ven­tional nar­ra­tion!

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  • nrl­su­per­coach

    Dear Dr Keen,

    Look­ing at wikipedia page (https://en.wikipedia.org/wiki/List_of_countries_by_external_debt) and sort­ing by % of GDP .

    There are plenty of coun­tries with rations higher ( much much higher ) than Aus­tralia. Most notable to me is UK with (569%).

    How did these coun­tries accu­mu­late such high debt and why wouldnt Aus­tralia keep on accu­mu­lat­ing more? In other words which rule says that the Debt ratio has to come down once 200 % is reached?

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  • mat­tnew­man

    Dr Keen
    Is neg­a­tive gear­ing an eco­nomic tool by which the Aus­tralian gov­ern­ment con­tin­ues to incen­tivise debt and spend­ing. I’m new to Aus hav­ing emi­grated a year ago and stuck in the quandary of decid­ing whether to play the neg­a­tive gear game every­one here is play­ing.
    It seems com­pletely counter intu­itive to be required to take on more debt , to fix a prob­lem of an improved LTV ratio of your port­fo­lio.

    Is neg­a­tive gear­ing just rigged eco­nom­ics and when is the music going to stop?

    Matt — Mel­bourne

  • Hi Matt,

    It is counter intu­itive, but it’s been wired into the Aus­tralian psy­che so much over the last 4 decades that Aus­tralians seem to think it’s nor­mal. Arrange­ments like that, along with our dread­ful con­di­tions for renters (espe­cially in com­par­i­son to Ger­many) dou­bly moti­vate them to take on debt to buy. The two fac­tors are con­tra­dic­tory as well. Neg­a­tive gear­ing only works if you (pre­tend to) rent out your prop­erty, but being a renter is so bad peo­ple are always try­ing to buy their own place to live as well. The dou­bly whammy dri­ves every­one to take on more debt.

  • You’re con­fus­ing a num­ber of very dif­fer­ent mea­sures there. When I’m see­ing 150–200% of GDP as a dan­ger level, it’s for domes­tic non-finan­cial sec­tor debt. That table reflects a country’s role as a finan­cial sec­tor as much as (or more than) its effec­tive indebt­ed­ness, and from how it’s defined it may well be the sum of its assets and lia­bil­i­ties. For com­par­i­son, check this table which nets out assets and lia­bil­i­ties:

    https://en.wikipedia.org/wiki/Net_international_investment_position

    That doesn’t paint such a flat­ter­ing pic­ture of the top-ranked coun­tries with neg­a­tive net assets.

    Coun­tries and Regions Date GDP Date NIIP Date NIIP in % GDP
    Ice­land 2014 1,993.336 bil. kr[46] 2014 –7,936.987 bil. kr[47] 2014 ?398.2[48]
    Cyprus 2014 17.506 bil. €[15] 2014 –28.899 bil. €[16] 2014 ?165.1[17]
    Greece 2014 179.081 bil. €[15] 2014 –218.273 bil. €[16] 2014 ?121.9[17]
    Por­tu­gal 2014 173.044 bil. €[15] 2014 –193.075 bil. €[16] 2014 ?111.6[17]
    Ire­land 2014 185.412 bil. €[15] 2014 –197.878 bil. €[16] 2014 ?106.7[17]
    Spain 2015 1,081.190 bil. €[15] 2015 –978.321 bil. €[16] 2015 ?90.5[17]
    Croa­tia 2014 328.927 bil. HRK[18] 2014 –291.495 bil. HRK[16] 2014 ?88.6[17]
    Hun­gary 2014 31,863.969 bil.HUF[18] 2014 –23,929.899 bil.HUF[16] 2014 ?75.0[17]
    Bul­garia 2014 82.164 bil. BGN[18] 2014 –59.429 bil. BGN[16] 2014 ?72.3[17]
    Slo­va­kia 2014 75.215 bil. €[15] 2014 –52.654 bil. €[16] 2014 ?70.0[17]
    Poland 2014 1,728.676 bil. zl[18] 2014 –1,162.792 bil. zl[16] 2014 ?67.4[17]
    New Zealand 2013 237.769 bil. NZ$[44] 2014 –154.592 bil. NZ$[45] 2014 ?65.0
    Latvia 2014 24.060 bil. €[15] 2014 –14.730 bil.€[16] 2014 ?61.2[17]
    Roma­nia 2014 666.637 bil. RON[18] 2014 –382.594 bil. RON[16] 2014 ?57.1[17]
    Aus­tralia 2014 1,558.586 bil A$[42] 2014 –866.700 bil. $A[43] 2014 ?55.6

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