More debt for less work

From JP this week:


Similar to one of our long-term investment trends – although the use of retired workers only (ignoring kids which were a much larger proportion in the 1960s) does make the graph look more dramatic than it might otherwise be.

Follow me


  1. All current living people are supported by all current production.

    This fact applies regardless of any abstraction measures like superannuation.

    Might be time to consider bailing on this political and economic basket case.

  2. Jumping jack flash

    It would be nice to see private debt/GDP compared to active workers. I guess it would look remarkably similar.

    And on the other hand, why work when you can get instantly and insanely rich from being handed a mountain of debt that someone else is liable for? You’d need to work for hundreds of years to achieve the same in wages and savings.

  3. boomengineeringMEMBER

    Probably why Germany let so many refugees in. Problem is many majority have no skills at all. Australia can be more selective but at the moment unemployment negates the need.

    • Boom 27% of Australian permanent residents are foreign born vs 20% in Germany, and that includes EU citizens, mostly skilled. If any country exemplifies the quantity over quality migration policy it is Australia, where genuine refugees are locked in offshore, 3rd World islands while corrupt officials from around the world are encouraged to launder their loot, their only skill being dodgy. Australia is once again becoming an island for criminals but without the charm.

  4. boomengineeringMEMBER

    Jason so we agree then.
    (unemployment negates the need to take more of any immigrants.)
    Sorry should have been more specific.
    Not enough young people in Germany to pay for the soon to be pensioners, so it seems logical to try to increase the working age population but by any means may be a mistake.

    • OK, I get you now. Yes, I think we agree. However if I where in Merkel´s shoes I may have also made the same mistake. After all, when you spend years being accused of being cold-hearted, a nazi, etc, you are likely to relent. What nobody expected was the sudden, pent-up influx of mostly non-Syrian refugees. Some spoke of only having left Bangladesh a couple of weeks before (Albanians literally the day before). I am guessing borders throughout Central Asia and North Africa are as porous as they have ever been, and this is actively being exploited by human traffickers. After the scare they are being sorted much more efficiently. Learning curve problems are unavoidable.

      • I was recently surprised by the depth of anger of an Australian/German who visits Germany regularly at the way Merkel let in the immigrants. It sounded like an Alan Jones rant full of complaints about the benefits they are getting while German homeless had languished and at how non-refugees were unable to be effectively deported and how so many of the new immigrants were not asylum seekers from Syria, just economic refugges looking for a better life at German expense.
        I don’t know whether he represents a common, modal or rare extreme outlook, but I was taken aback and given cause for thought.
        But in spite of all that he wasn’t convinced Merkel would lose the next election.
        Germany has a slightly lower population in 2015 than in 2005, around 80mill and the total new influx represents about 2 years growth at recent Australian rates of population growth.
        But the big question is whether any of this immigration and increasing population is actually to the benefit of existing citizens as a whole, or even as a clear majority. In Australia we have had falling real net incomes over the past few years, so population growth might actually be a negative for most people in direct net real income, living standards and social disruption.
        You seem to assume that population growth in Germany would be a good thing if there was better vetting, but I think that when all (social and economic) costs are taken into account there is no net benefit to the majority of existing citizens and permanent residents.

      • Hi explorer. I have met all sorts in Europe when it comes to the immigration crisis so I can’t say if your encounter represents your average Joe. However there has been a failure to acknowledge the problem amongst the population itself, particularly in N and c Europe. When migration was across the Med, the problem was somebody elses (Club Med). But as soon as they started walking across the Bosphorous and knocking on the door, then and only then did it become an issue. This has been exploited by intellectual light weights like Le Pen and Wilders who, simplistically promise to solve all the issues if they go back to some supposed golden period. The problem is still the same: you need to sort these people out and that takes time and money. Another cost to add to the oil tab. As for benefits to germans, your aquaintance is forgetting about the previous waves of migrants (Spaniards and Italians in the 50’s, Turks in the 60’s and 70’s) that integrated successfully and contributed to powering German manufacturing. Many came unskilled so that is not the issue. Now as well they source their engineers from across Europe, simply because they can hire more than they can produce. The real problem is that Chinese manufacturing has bathed the world in deflation (hence the asset inflation to drive the wheel) which has damaged the blue collar workers in the West as well as middle income countries (South America mainly). Now we have increasing automation and primitive AI further worsening the situation. We can either acknowledge that our economic system needs to change (universal rent, Marshall-style plan for Africa) or just go to 21st century Victorian society ending in a class civil war.

    • Over the long term, asset prices and debt levels are function of how a society chooses to divide up current production.

      Demographically, Boomers went through a sweet spot that resulted in much more production and consumption for the same level of effort, with them choosing to invest the surplus in house prices (the fallacy of collectively deferring consumption and thinking that it will be there waiting for them in the future – society cannot save by deferring consumption).

      They could have genuinely saved for the future by making the economy more efficient so that it could cope with a time when there will be fewer workers and more dependents. However again their short sightedness resulted in them consuming any productivity gains that better infrastructure would have delivered to future inhabitants, by back filling the efficiency gains with more population.

      Having inflated their assets they’re now seeking to maintain that illusionary wealth they’ve created for themselves by opening the floodgates to immigration, massively benefiting the new immigrants, who have played no part in the creation of the social and economic capital that has previously been built up in the society to which they’re moving too, while massively disadvantaging young people who were born into that society.

      High immigration is of no long term benefit to the majority of Australians, it is simply a means of extending the Boomers asset ponzi scheme, and kicking the costs of the demographic can down the road to their kids…. and this is just the economic cost. No reference to the social costs of a less cohesive more fragmented society, that increasingly plays of each other as opposed to focusing on the real issues at hand – an elite ripping the guts out of the country. But then that is how they want it.

      Economics is not the end game, society is. How these policies are impacting society and would society really be worse off with lower growth rates, but perhaps higher per capita growth rates, under a lower immigration setting, than high immigration and all the accompanying social fragmentation?

      • ‘Illusory’ wealth is right on Stewie!
        Supported nearly completely on a willingness to assume ridiculous personal debt levels, an A gov’t backed, banking industry-driven initiative to swamp the citizenry in mortgage debt to advance their profitability and any and all ancillary methods also to keep the system from imploding including hi-vol immigration, land release policy and media control with soft propaganda.

        I know many of those you describe who shuffle about their crumbling, leaking, mildewed and draughty pinnacles of 1970’s Strayan architectural magnificence (the BV ‘castles’ of asbestos sheeting surrounded by those disgusting agapanthus) who truly ‘believe’ “she’s worth $1.2 mate”.
        Ignoring the OC cash buyers who’ll bid for these unconcerned about FMV and eyeing more carefully the ‘laundering aspect’, how could anyone possible justify applying a $200-300k down payment and taking up close to $1.0 mil mortgage?

        And, to believe that in another 10 years “she’ll top $2.4 mate” reflects a delusion that is so pervasive across society that one wonders if this is a collective mental illness (ignored, undiagnosed and untreated) and what impact this has on just about everything else?

        From a Gumtree perspective on what I might pay for one of these, I ‘might’ go $88,000 and that’s the top. What’s so interesting is how far apart we are (seller v buyer) in expectations.
        At least right now.

    • The countries without growing populations don’t have shortages of labour, although such things might have existed after the world wars. They just have higher participation rates because employers can’t afford to be as choosy about hiring older people or school leavers who will need to be trained. Productivity is also rising.


      Only 7.9% of Australians (of all ages) own investment properties, so the vast majority of baby boomers don’t have one.

      They might have a modest house that they bought when the average house only cost 3.5 times the median wage. They don’t benefit from high house prices unless they are prepared to get out of the city. If anything, they are hurt because their rates are higher. 50% of retirees are on the full pension and about another 30% on the part pension. As of 2008 (couldn’t find anything more recent) half of pensioners had less than $20 a week in private income and less than 5% more than $400 a week. If the oldies are ripping off young people, they aren’t doing a very competent job.

      Where is your evidence that baby boomers as a whole generation support mass migration?

      The truth is that laws and government policies on immigration and everything else are made by politicians (not the pensioner couple next door) to benefit themselves and their rich mates, on whom they depend for election funding and lucrative careers and investment opportunities after they leave politics. Younger members of the elite also support the rorts that you identify because they expect to benefit from them themselves in due course, not to mention getting a bigger inheritance from their parents.

      • Spot on Tania — ” Stewie,
        Only 7.9% of Australians (of all ages) own investment properties, so the vast majority of baby boomers don’t have one.”

        Telling that ignoramus the facts won’t stop him from talking $hite. He’s been told the facts multiple times but — – — – – Brick wall!

  5. Look around: every single manual/ low paid menial job will be replaced by robots in th next 30 years. Every taxi and Uber driver, every truck driver, every delivery person, every public transport driver, all will be redundant within a decade. What on earth are we going to do with all the surplus, low skilled people?

    • armchair economist

      They can plant trees, save forrests, do more conservation work, maintain gardens, clean houses, be barristas, go into construction work, childcare, there’s plenty of examples of what they could do….the problem is people don’t want to do it…easier to get on the easy ride of generous pensions in OECD countries…

      • .the problem is people don’t want to do it

        No, the problem is nobody wants to – or can – pay for it.

      • Surely the baristas will go too? We’ve had auto coffee machines for years, if you can get a car to drive itself surely it’s not much to up the coffee machine’s game to do away with the pompous tattooed wanker.

    • x1000.

      It is productive industries + workforce that supports the retired population, not just bodies of working age. ‘Productive’ means tax dollar generating, NOT public sector red tape generating / paper shuffling types and their private sector ‘consulting’ counterparts or indeed anything else that consumes tax dollars. Australia is losing the former and adding to the latter at an unsustainable rate. If you redrew graphs like the one above in these terms it would look much, much more terrifying. Good luck running the country when the entity of the employed workforce are actual or de facto public servants, and all private expenditure is either on repaying mortgages funded with foreign capital or buying imported stuff.

    • Every taxi and Uber driver, every truck driver, every delivery person, every public transport driver, all will be redundant within a decade. What on earth are we going to do with all the surplus, low skilled people?

      Well, “every” is probably a bit dramatic and within a decade is probably a bit ambitious, but there are certainly some seismic shifts coming.

      As for what to do with them ? Well, there’s plenty of useful work that could be done – childcare, teaching, planting trees, keeping the streets clean, helping little old ladies across the road, etc.

      But there’s not much profit in those things, which means private industry won’t fulfill them, which means Government needs to, and if there’s one thing Government hasn’t been allowed to do for the last few decades, it’s operate effectively.

      • drsmithy,


        Importantly, and often overlooked, is that a fiscal deficit may simply be the result of taxes being less than essential government expenditure. For some, who are sceptical of how governments spend money, beyond essential services, this can be an important issue.

        More money left in the wallets of low and middle income earners (by say a higher tax free threshold or a low earned income rebate) mean they can afford to buy services they currently do not currently consider. Low skilled services would provide plenty of opportunities for those with less or perhaps more importantly redundant skill sets.

        As a method of stimulating economic activity it beats hands down the current trickle down / wealth effect model of inflating asset prices with mountains of interest accruing private debt. Fiscal deficits that do not involve interest accruing obligations are a far superior alternative.

        As noted below restrictions on unproductive capital inflows that bloat the exchange rate remain critical to avoid a CAD / trade blow out.

      • +1 Not only not allowed but actively encouraged to turn education into another debt producing product rather than considering the skill needs of society.

    • I like my “Barista test” for this one. The technology to replace Baristas has been around for a couple decades. Why then are there no automated coffee shops amongst the thousands in Aus? Or McDonalds… why not just have people choose their meal at a kiosk and minimal staff to make sure customers get the right order?

      The point is it is much much more difficult than people think to replace humans with machines particularly when there may be interactions with other humans (e.g. its easier in a car factory, despite the work being more technical than a hotel clerk or whatever). There are all kinds of reasons for this – legal, cultural, and particularly the complexity of ‘edge cases’ which humans can handle easily but computers cannot at all, or which would require 99% of the development effort for 0.01% of the use cases.

      I think all this robotics hype obscures the real and more worrying trend which is the complete drying up of job-creating entrepreneurial activity in most Western economies. In that, the companies that are emerging employ basically no one, being composed of parts from the digital economy or operating entirely within the digital economy itself. Take something like LinkedIn or Seek, displacing large numbers of jobs in recruiting, media etc worldwide and in relative terms, employing basically no one. I’m personally more concerned with that than with AI and robotics. At least for the next couple decades.

      • The Traveling Wilbur

        Spot on Dave. Replacing people with an IT system, or better yet, with customer self service will always be more effective than a robot solution. And therefore more disruptive. Say goodbye to real-estate agents, lawyers and cashiers.

        Now, get back to your real job in IT and make some more workers redundant. And please never use the ‘Edge’ word again. Unless you’re a PM as we can’t expect you to know better then. 😉

  6. Worth keeping in mind the alternative ways a government could finance its deficits.

    Current method

    Sell interest bearing bonds to private banks who ‘pay’ for them with debits to their exchange settlement accounts at the RBA – the proceeds are credits to the governments ES account. Some of these bonds or others like them are then ‘sold’ to the RBA who ‘pays’ for them with credits to the banks ES accounts. This is necessary to stop the government sale of bonds from pushing up the target rate as the ES balances of the private banks fall as they pay for their bond purchases.

    Under this charade the private banks make money from being the ‘middle man’ between Treasury and the RBA. This method also conceals that ultimately the RBA is monetising the government deficit. It creates the false impression that the government is borrowing money that already exists.

    The purpose of this method is to deceive the public as to how public finances operate and to introduce an artificial constraint on fiscal policy – borrowing costs. Inflation of course remains a real constraint.

    Alternative 1

    The governments sells ‘bonds’ that pay no interest direct to the RBA who credits the govt ES account and debits the RBA asset account. Govt then spends the proceeds. No interest is paid and the government is free to repurchase the bonds in the event it is considered necessary to run a surplus – i.e. economy picking up heat, inflation rising etc.

    The attraction of Alternative 1 is that the transaction involves the exchange of a promise to repay from the government for the credit by the RBA to the ES account. This may help reduce the “money for nothing’ or ‘magic pudding money’ hysterics or seem to think the current model is not effectively that already – just with banks clipping tickets on every dollar created.

    Alternative 2

    At the government direction RBA simply credits the government treasury ES account and debits an RBA account with a suitable title say “Public Money on Issue” account. The govt can then spend the new balance in the ES account. If the govt becomes concerned about inflation etc it can reduce expenditure or increase taxes. The balance in the ES account will then rise and if choose it can direct the RBA to debit the government ES account and credit the “Public Money on Issue” account.

    Advice from the RBA

    In alternatives 1 and 2 the RBA could provide the government with regular, independent advice on the expected level of inflation and recommendations on the size of the fiscal surplus or deficit.

    It would give no advice on the objects of government spending or taxation. That will be purely the responsibility of government.

    Contrast this with the current role of the RBA and APRA where they pick winners by pumping up the prices of assets right across the economy in an attempt to ‘stimulate’ economic activity.

    It is likely that the whole debate about Public Debt will fundamentally change when it is seen as an issue of the amount of “Public Money on Issue” rather than the amount of interest accruing debt that has been sold to private parties.


    Restrictions on unproductive capital inflows remain important under both alternatives as they do (but are currently ignored) for the current mode

  7. boomengineeringMEMBER

    Jason, Merkel may well think that, but Germany let in a lot of Polish Jew refugees before that war, so in reality they were never that cold hearted to begin with.

  8. boomengineeringMEMBER

    Nathan, Why stop at low skilled workers, had a newsletter from Mauldin the other day saying white collar workers were just as vulnerable. Already assessors are being replaced by voice command computers.

  9. boomengineeringMEMBER

    Stewie, Thanks, couldn’t agree more, like Dick Smith said, he was a free range kid. The future doesn’t need more population. The govt wants high GDP, thinking population growth will assist that but neglects quality of life. Why not have shrinking population with technology to boost GDP.

  10. The graph is also misleading as US production is still up due to the morphing of US production to robot based production (zero hedge had charts by ). Would anyone have any insights into where * Australian gross external debt is headed (ne all good till iron runs out). VERSUS *USDZAR (ne gold). *USDCNY (ne gold production and workers/scale). *USDINR (ne hoarded gold and workers/too old workers)?

  11. In the late 90s the Australian Productivity Commission released a report stating that it would be foolish to use rapid population growth (high immigration) to counter an aging population as it would create many other problems we are currently witnessing (overloaded infrastruce, house prices, etc).

    They instead recommended govt “encourage” people to work to an older age. I can’t remember the specifics of this but I assume they mean a combination of other policies such as reducing the pension, tax exemptions for employers, etc.

    • One of the craziest things is that many immigrants, once established, then bring their parents across hence adding to the aged care burden.