2011 likely to be grim


Many of the Minsky-inspired analyses of the Great Recession fail to emphasise that the massive debt run-up and asset-price inflation of the pre-2007 years was led by household borrowing rather than, as in the canonical treatment, over-leveraged firms. Throughout most of the 2000s, US non-financial corporations actually lent to the financial sector.

Australia suffered less than other economies because, after the early-2009 blip, household debt resumed growing quickly. But today’s national accounts release shows private credit growth has again slowed, and this time may turn into outright private-sector deleveraging. Investment levels certainly don’t look like growing enough to make up for the looming withdrawal of government spending and household borrowing. The near future doesn’t look great.


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2 Responses to “2011 likely to be grim”

  1. floodingupeconomics Says:

    I think that one of the root causes of high household borrowing must be the fact that wages have remained flat for the last 40 years or so (at least for the U.S.) all while productivity has been growing… hence the increased wealth gap and decline of consumer spending power that has been offset by credit….

  2. Nick Says:

    Yes, maintaining aggregate demand in trade-deficit countries like Australia and the US through “privatized Keynesianism” is certainly one reason.

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