Comparing US and Australian deleveraging


Steve Keen has a nice piece today at locked-BS comparing the last few years of US deleveraging with Australia’s more modest disleveraging:

For starters, we had as big a private debt bubble as the US: not quite the same magnitude, but a faster run-up from a lower level – and on the surface, a similar level of deleveraging too…Looking more closely however, there are substantial differences. 

Figure 2: Genuine deleveraging in the US

asleep graph 2

Australia didn’t delever: the change in private debt remained positive throughout the crisis.

Figure 3: A Kangaroo bounce in Australia with no deleveraging
asleep graph 3

Keen notes as well that the businesses sectors in both nations did delever (indeed Australia more than the US) before continuing:

Household debt did fall as a percentage of GDP in Australia, but only because for a while, debt rose more slowly than did income. But the reduction in the debt burden was miniscule: by far the main component is mortgage debt, and this peaked at 87 per cent of GDP in 2010, fell trivially to 84 per cent, and is now back at 86 per cent and rising.

In the US it dropped substantially, from about 83 per cent of GDP down to 64 per cent.

I will add that I really don’t think we appreciate the good fortune we enjoyed with the timing of the second phase of the mining boom which allowed the economy to catch up to our debt levels at the same pace that the US debt levels shrank back to its economy. As things stand today, the US remains slightly more leveraged in its private sector than Australia owing to much higher levels business and credit car debt. Here it is all about one thing: mortgages.

Is one mix better of than the other? Keen concludes that the different composition offers US households greater “headroom”  for consumption and he’s probably right given Australia’s debt revulsion is intact in credit cards and mortgages don’t have far to run. While the businesses sector has lower debt here, so long as demand is weak on household debt saturation, it will have little reason to expand, at least until the dollar falls much further.

One final point. What does it mean when Chris Joye and Steven Keen are singing from the same song sheet?


  1. Essentially, the proximate financial crisis and the deeper growth crisis of civilization are connected in two ways. Interest-based debt-money compels economic growth, and a debt crisis is a symptom that shows up whenever growth slows.

    The present crisis is the final stage of what began in the 1930s. Successive solutions to the fundamental problem of keeping pace with money that expands with the rate of interest have been applied, and exhausted. The first effective solution was war, a state that has been permanent since 1940. Unfortunately, or rather fortunately, nuclear weapons and a shift in human consciousness have limited the solution of endless military escalation. War between the great powers is no longer possible. Other solutions — globalization, technology-enabled development of new goods and services to replace human functions never before commoditized, technology-enabled plunder of natural resources once off limits, and finally financial autocannibalism — have similarly run their course. Unless there are realms of wealth I have not considered, and new depths of poverty, misery, and alienation to which we might plunge, the inevitable cannot be delayed much longer.

    The credit bubble that is blamed as the source of our current economic woes was not a cause of them at all, but only a symptom. When returns on capital investment began falling in the early 1970s, capital began a desperate search for other ways to maintain its expansion. When each bubble popped — commodities in the late 1970s, S&L real estate investments in the 1980s, the dotcom stocks in the 1990s, and real estate and financial derivatives in the 2000s — capital immediately moved on to the next, maintaining an illusion of economic expansion. But the real economy was stagnating. There were not enough needs to meet the overcapacity of production, not enough social and natural capital left to convert into money.

    To maintain the exponential growth of money, either the volume of goods and services must be able to keep pace with it, or imperialism and war must be able to escalate indefinitely. All have reached their limit. There is nowhere to turn.

    Today, the impasse in our ability to convert nature into commodities and relationships into services is not temporary. There is little more we can convert. Technological progress and refinements to industrial methods will not help us take more fish from the seas — the fish are mostly gone. It will not help us increase the timber harvest — the forests are already stressed to capacity. It will not allow us to pump more oil — the reserves are drying up. We cannot expand the service sector — there are hardly any things we do for each other that we don’t pay for already. There is no more room for economic growth as we have known it; that is, no more room for the conversion of life and the world into money. Therefore, even if we follow the more radical policy prescriptions from the left, hoping by an annulment of debts and a redistribution of income to ignite renewed economic growth, we can only succeed in depleting what remains of our divine bequest of nature, culture, and community. At best, economic stimulus will allow a modest, short-lived expansion as the functions that were demonetized during the recession are remonetized. For example, because of the economic situation, some friends and I cover for each other’s child care needs, whereas in prosperous times we might have sent our kids to preschool. Our reciprocity represents an opportunity for economic growth: what we do for each other freely can be converted into monetized services. Generalized to the whole society, this is only an opportunity to grow back to where we were before, at which point the same crisis will emerge again. “Shrink in order to grow,” the essence of war and deflation, is only effective, and decreasingly so, as a holding action while new realms of unmonetized social and natural capital are accessed.

    • Goodness that’s depressing, maybe you should double check that you have taken your meds.

      All jokes aside I hear you, when I’m in Australia I often feel like the goddess Cassandra, I can see the future but can do nothing to change it. Unlike in Greek mythology my curse is not that I’m not believed but rather that even with foresight it is impossible to create any other outcome.

      This the systems against me man! sentiment is something that gnaws at my soul, In my opinion self empowerment is with-out-doubt the greatest human virtue. The power to look adversity in the eye and create a solution, is the life-force that gets me out of bed each morning, it’s the force that creates satisfaction and fulfillment.

      For some reason in the US I always feel that I’m free to invent a new me and a new world, if just for myself, while in Australia I must find some predefined job and simple exist in this predetermined role. The root cause of this malaise exists in the minds of my fellow Australians. It is really seems to come down to the mindset is a door normally open or normally closed.

      In the US most doors are normally open, while in Australia most doors are normally not just closed, they’re both bolted and nailed shut.

      • “The power to look adversity in the eye and create a solution…”

        Alas, whilst ever the “solution” we create in response to looking adversity in the eye, is one that seeks to preserve / protect / advance the individual (self, and kin) only, then nothing changes. Collectively, we continue the long downward slide.

        The only solutions worth creating — in the Big Picture — are those that actually address the root problem (the usury-based money system). Anything else is just self-serving tilting at windmills.

  2. I’m surprised recent debt growth in the US was that high. It’s frustrating listening to main stream economists account for sub par GDP growth by claiming it was due to households delevering. The above charts show otherwise, especially Aus and NZ where delevering has been minimal. What it shows is how many households have been treading water since the GFC.

  3. General Disarray

    One final point. What does it mean when Chris Joye and Steven Keen are singing from the same song sheet?

    Buy ear-plugs and short Australia.

  4. Hill Billy 55MEMBER

    Thnaks op8r. :).

    In Brisbane Nov to Dec twice the homes came onto the market that were sold. We have 2 years supply of house for sale at the current rate of some 1200 sales a month.

    I have been thinking, if the Sydney/Melb complex is so overdone, where are the people who you would expect to speculate on Brisbane as “the next best thing”. The sales are just not coming through!

    Maybe that suggests the dynamics of the ponzi has a very narrow base, and that the cliff is closer than we think.

    The amount of REA’s here suggests they spend more time relisting houses than actually selling them. This of course helps keep the “time on the market” to a minimum and helps the sales pitch. Is it possible to get accurate time on the market from when a house/unit first lists? That would be a scary proposition for the FIRE industry.


    • Correct me if I’m wrong, but could it be due to a lack of Chinese interest in the Brisbane market? It seems to be a big part of what is driving the insanity in Sydney and Melbourne. Maybe that is the ‘narrow base’ you are thinking of.

  5. I will add that I really don’t think we appreciate the good fortune we enjoyed with the timing of the second phase of the mining boom which allowed the economy to catch up to our debt levels…

    I’m definitely one of the “unappreciative”. The continued growth of obscene house prices to ridiculous new highs, and the pathetic NRAT IR’s is nothing to celebrate or be joyous/thankful of.

    Also, did we really catch up to our debt levels? My understanding is that debt-growth has been increasing for years (as per SK’s charts above for example).