Posted: February 12, 2005

The house of cards ...

My mate Warren Mosler sent me this chart which is drawn from the Valance reports. It bears on the outlook for the Australian economy. As noted in an earlier blog, the Federal Goverment has adopted an unsustainable growth strategy based on increasing fiscal drag (through budget surpluses) and allowing the financial engineers to push the already fiscally-squeezed private sector further into debt. It is a pipe-dream to think that it can go on forever.

While the chart does not account for 'substitution' where a person purchases a house and no longer pays rent (to the RBA: it would be good if we could get data that netted this out), it still indicates that the financial burdens are rising for Australian households (see Working Paper by Luke Reedman and me for more analysis).

The reality is that as soon as the current trend by households to cut spending in an attempt to reinforce their balance sheets gathers pace then the 'house of cards' that the Federal Government calls 'prudent economic policy' will come tumbling down ... rapidly.

CofFEE will soon be introducing a financial burdens chart as part of our CLMI

Blog entry posted by bill