Over at Macrobusiness today, the boys discover that
Data released this month suggests Australian households are deleveraging at a furious pace.
https://www.macrobusiness.com.au/2020/10/the-great-aussie-household-deleveraging/
and incorrectly conclude that households are caught in a paradox of thrift:
Australian households are caught in their very own paradox of thrift, which means that the federal government will need to intervene directly in the economy to support demand.
https://www.macrobusiness.com.au/2020/10/the-great-aussie-household-deleveraging/
Of course, this is a complete misreading of the situation. We’re just seeing the perfectly predictable effects of the sort of fiscal stimulus that MB seems to love so much (UBI/MMT). Indeed, in Jobkeeper/Jobseeker boost we had something like a UBI, funded by government deficits. The results are a predictable outcome of basic accounting – if government borrows to give money to households, then government debt goes up, private debt goes down.
Government – borrowing to pay UBI:
| Dr Cash | $umpteen billion |
| Cr Government Debt | $umpteen billion |
Government – paying UBI/Jobkeeper/Jobseeker:
| Dr Fiscal expenditure | $umpteen billion |
| Cr Cash | $umpteen billion |
A perfectly predictable thing then happens to households – their indebtedness goes down:
Households – receiving UBI/Jobkeeper/Jobseeker
| Dr Debt | $umpteen billion |
| Cr UBI/Jobkeeper/Jobseeker income | $umpteen billion |
Yes, yes, this is the mechanism by which private debt is made EZFKA public debt, to much rejoicing and adulation. This is the mechanism by which the EZFKA is reset for another round of private debt expansion.
The fact that the fiscal policy called for by Macrobusiness would do this was, of course, perfectly predictable:
What’s that they say about being careful what you wish for?