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Today there are 11 articles discussed 'behind the wall'. There is a substantial discussion of Steve Keen's latest analysis of the proposed Australian austerity budget.
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Yesterday's plunge generated the first bearish impulse leg we've seen on the daily chart in nearly six weeks. But is it any more threatening than the one recorded in early April, which reversed precisely on target to produce a rally that hit new record highs? My gut feeling is that, yes, the stock market's second consecutive failure to achieve more than a marginal new high is going to weigh more heavily on investors' minds than the first.
Our debt at the moment is probably around about $300 billion so that's... about two months of our activity. Is your personal debt less than two months of your activity? That's what we are as a nation. You know, we've got debts which are less than one year of our total activity. I mean that's not difficult. ("Budget based on a con: Clive Palmer")
Keen explains why the velocity of money concept promulgated by Milton Friedman has been misapplied with the result being that it is essentially that both the velocity and the quantity of money are related related to output of an economy. He then points out where money comes from:
Econintersect comment: This comes from elementary sectoral balance accounting which we have discussed here 'behind the wall' previously. Since quantity of money is equal to the sum of the three factors above and since Australia runs a persistent current account deficit oscillating between $9 billion and $16 billion over the most recent 48 months (which for this discussion can be taken as a constant $12.5 +/- $3.5 billion, a reduction of the government deficit (Hockey budget) requires an increase in private debt to maintain economic activity at current levels. This is by accounting identity. (All money in Australian dollars.)
So Keen says that Australia has a choice, and the Abbott government has chosen the one (austerity) where the outcomes are (1) growth through increased private sector indebtedness or (2) economic contraction. He suggests that a possible middle ground could be some of both (going further in debt for negative growth).
After a discussion of two hypothetical paths for the Australian government budget: (1) the Hockey/Abbott proposed budget requiring private debt to grow faster than GDP grows (pink 1.6% Trend in graph) or (2) maintaining the current government deficit of 2.8% of GDP which would allow the extreme private sector debt to continue to delever without an economic contraction (brown -1.0% Trend in graph). Keen's conclusion:
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