L-plate Treasurer Frydenberg has done what the GFC couldn’t

Congratulations. L-plate Treasurer Josh Recessionberg has done it:

“The government’s goal has always been to be that to put more money in the pockets of the Australian people and it is their choice as to whether they spend or save it.

“If people pay down their debt, then ultimately in the long run, they will have lower interest payments, and that will free up more money to spend across the economy, so it does represent a bit of a timing issue.”

As we warned, the tax cuts were ill-conceived. When a private sector is deleveraging then giving it tax cuts doesn’t drive economic activity. They get saved. If you want to lift consumption then you need to use helicopter money drops on households, as the Rudd Government did.

This kind of counter-cyclical fiscal management is the most basic principle of a hundred years of fiscal experience but it’s too hard for Recessionberg to grasp, apparently.

And so Recessionberg has achieved what not even a global financial crisis could, two consecutive quarters of private sector shrinkage. A recession in other words, via UBS:

Worryingly, private demand fell into recession (-0.3%, -0.4%). Within this, business investment contracted again (-2.1%, -1.7%); as mining relapsed (-7.8%) but non-mining bounced (1.2%). Consumption (0.1%, 1.2%) slumped to the ~worst since the GFC. The housing downturn got worse (-1.7%, -9.6%).

The truth is, the recession we didn’t need to have is typical of the L-plate treasurer’s personal scorecard. Let’s do the inventory.

  • Private sector growth: zero.
  • Real wages growth: virtually zero.
  • Jobs growth: trending to zero.
  • Interest rates: trending to zero.
  • Debt repayed: zero.
  • Intellectual leadership: zero.
  • Policy reform: zero.
  • Economic narrative: zero.

All Recessionberg has done is get house prices to run hot while guaranteeing no spillovers to economic activity. This is your self-described private sector economy champion at work.

He has no idea what he is doing.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

    • GunnamattaMEMBER

      Given the outcomes of his personal scorecard i find myself wondering if Recessionberg will also get to add

      Housing affordability – zero

      Just before he rides his chariot into the home straight being pulled by

      Unemployment rising, and
      House price collapse

      …..as the electorate reaches for their baseball bats

      • The electorate will choose the best economic managers for the job and that ain’t Labor. Josh will find himself a great corporate job to slide into and the show will go on.

  1. “He has no idea what he is doing.”
    He’s doing what big liberal donors and lobbyists tell him to do. The Hungarian doesn’t have to understand his orders, he just needs to follow them and he’ll be looked after.

  2. He’s the Treasurer we had to have! 😂
    (To reduce our debt addiction even if it is by accident of his religious belief in a budget surplas)

  3. In his defense (rarely something you’ll find from me):

    Comparing now to the GFC is a little unfair on the basis that households have had an additional ten years of debt accumulation and are therefore more up sh*t creek than they were then so it is zero surprise the private sector is sagging.

    My recollection KRudd’s helicopter drop was that it was only partially effective on account of the fact that many people did actually use it to pay down debt. As usual, the people least likely to save it are the less well off, so if you want to target spending then you only send a Gregory Peck to the low income / no income households. Forget the middle class households who up to the neck in baubles they can’t afford: homes, cars and private schools.

    • By using tax cuts instead of cheques Josh has guaranteed that pensioners, low wage earners and the unemployed (ie the most likely to spend it) get nothing.

      • True, though in their defense, they haven’t only been doing tax cuts. They inherited 2 of the largest government spending initiatives in recent memory: NDIS & NBN. Thanks ALP, though we all love to hate you. Thank christ we got all those immigration cuts from the LNP.

      • You and I both know the helicopter drop is coming, irrespective of who is in power. Josh just wants to prove he can deliver a surplus before conceding that dire economic emergencies require extreme policy measures. We (and the rest of the developed world) are going to get MMT / UBI eventually – the whole point of the burst of discussion in the media in recent years is to warm the public up so that when it comes it isn’t a shock.

        The only debate from that point is whether a) we get rampant inflation or b) policymakers, being the smart fellas they are, can keep inflation under control.

        Personally speaking, I have zero doubt as to what the outcome will be.

        • Rampant inflation would be the point. It is the only acceptable way to bring the real debt levels down. As close as we will get to a debt jubilee.

          • 100%
            And at some point, bond investors will get this – just make sure you’ve exited cash instruments before the stampede.

        • “Josh just wants to prove he can deliver a surplus before conceding that dire economic emergencies require extreme policy ”

          Nah, he wants it for historical bragging rights, “I gave Australia a surplus….and the Labor Gov destroyed it, you can’t trust a Labor Gov” and all the numpties will say “yes”.

          • Well, with any luck he’ll still be in the hot-seat when the surplus goes to hell and then your theory will be rendered void 😉

            Won’t that be fun

    • Hey Dom, this part
      “Comparing now to the GFC is a little unfair on the basis that households have had an additional ten years of debt accumulation and are therefore more up sh*t creek than they were”

      This part all happened with the furious encouragement of the LNP. Housing prices were starting to moderate before the 2019 election and these twats threw more petrol on the fire.

      • To be clear, this isn’t about who was responsible – the result would have been exactly the same whoever was in power at the time – it was just pointing out that the debt-fueled consumer society we live in eventually borrows itself to a halt. The idea that you hear bandied about from time to time about the consumer ‘deleveraging’ is a myth. Sure, in aggregate they reduce their debt loads by 3 or 4% (if you’re lucky) but that hardly leaves much room to ‘go again’.

        We’re at the end of the road for this gig.

        • I’m in partial agreement with you, except for the part about “the result would have been the same regardless of who got in“

          Labor wanted to grandfather negative gearing, it was in favour of housing rebalancing – and it cost them the election.

          But yes, the debt frenzy has peaked and the economy is going to buckle under its weight.

    • That’s all very well but I’m not feeling the ‘trickle down’ from all that gubbermint largesse. My exposure is to the chumps in recession.

      The few new vehicle purchases occurring these days must be courtesy of engineers and civil contractors. It certainly feels good to be sucking the Govt teat.

  4. stop the stoats

    Pushing on a string is a metaphor for the limits of monetary policy and the impotence of central banks. Monetary policy sometimes only works in one direction because businesses and households cannot be forced to spend if they do not want to. Increasing the monetary base and banks’ reserves will not stimulate an economy if banks think it is too risky to lend and the private sector wants to save more because of economic uncertainty.

    • Very sensible words, however, economists have ‘complex models’ and these models tell the ivory tower peanuts that for every 25bps fall in rates, there will be delivered a certain amount borrowing and spending. I’ve never actually studied one of these models before but I gather from discourse in the media, over the years, that the models are so, um, ‘sophisticated’ that the outputs are linearly correlated with inputs which is precisely why economists see absolutely nothing wrong with the concept of negative rates i.e. as the economy descends into the abyss, it’s perfectly logical (to them) that rates should go negative.

      It has not (to my knowledge) occurred to even one of these peanuts that lower rates may actually lead the economy lower. History will not be kind to neo-classical economists.

  5. Private sector growth: zero.
    Real wages growth: virtually zero.
    Jobs growth: trending to zero.
    Interest rates: trending to zero.
    Debt repayed: zero.
    Intellectual leadership: zero.
    Policy reform: zero.
    Economic narrative: zero.

    All Recessionberg has done is get house prices to run hot while guaranteeing no spillovers to economic activity.

    He has no idea what he is doing

    Well, well…. he has certainly proven youse all wrong in your predictions that housing will not boom just because some silly so-called “fundamentals” like wages and exports and productivity and other wonkish things look “weak”.

    Now, I told youse blokes years ago that I would tell you when Aus housing stops being a one-way bet, and I will do this – if that time comes.

    • *categorically said we wouldn’t see prices fall due to supply & demand, even as prices fell 15% over 2 years. Let’s not get too big for our britches.

      • Refer Goldstandard1’s post below. Nobody lost money in your supposed 15% crash, because people don’t move every 2 years…. unlike renters.

        • Specufestor boom pre-2017. Specufestor rout post-2019.
          People lost money, big time! Hence the butthurt credit sentiment outside of OO’s.

        • The dopey chunt who bought my place in box hill in 2015 and sold it for less in early 2019 lost money. Probably around $100-130k or so.

          So yes, some people have lost money. Not to mention the equity mate or interest only club.

    • I dont think houses are booming. I call BS on the core logic figures. They are broken when compared to REA and what M.North is seeing

    • Or has come? I’m curious to know if you are of the slow melt school of thought or crash. I observe that bears are getting very thin on the ground. With rates dropping as they are buying is fast approaching rents. Open teh Gates and lower teh rates really does fix thing. Perpetually.

      • I’m in the “it depends” school.

        There are circumstances that could cause a crash.

        There are circumstances that could cause a slow melt (or a permanenlty high plateau).

        There are circumstances that could cause a boom.

        It’s all theoretically possible. The question is about what is likely.

        From where we are now, boom times are likely.

        That’s my assessment. Like I say – when I change my mind, I’ll let you know.

      • Goldstandard1MEMBER

        Well this is an interesting question. So I don’t see housing including stamp duty as an 18 month investment to flip like a share. I see it as a home for my family that allows me to get to and from work within 30 mins and has amenities my family needs around it. So with that in mind it’s more a 5-10 year decision for us. Therefore my money is literally on this being a bull trap and will buy well after the tipping point comes. Simple. When? not sure but it certainly doesn’t make sense to go “all in” on a market that even bulls are calling it at the end game based on debt levels, a dead domestic economy and unemployment on the rise (not to mention global uncertainty everywhere). There is just too much that can tip property over. It’s a game of probability.

        • “It’s a game of probability.”

          Yes, managing risk is about as accurately as possible assessing the potential upside vs the downside and then applying probabilities to both outcomes.

          I was looking at a chart of the S&P500 vs US GDP last night and every time stocks have headed into bubble territory they ended up correcting all the way back down to GDP growth line before the recovery began again (both Dotcom bust and GFC). If the S&P500 were to repeat that pattern, it would need to correct more than 65% to re-connect with the GDP growth chart. Given that profits growth stalled a while back and the current expansion is on its last legs I find it staggering that there are people out there saying that stocks are ‘not over-valued’ …. ‘fairly priced’ etc. The stupidity / ignorance out there is truly blinding. Of course, ‘this time is different’, as it always is 😉

          • Goldstandard1MEMBER

            Enter the next problem…… If property and shares are overvalued because of east debt money, where do you get growth from as you can’t afford to be left behind with bank interest. As they print more money your cash is worth less.
            Basically you have to bet on the crash being close to medium term and keep cash, or count on it being not soon and gamble the hell out of it all (and play the game of the idiots who have not thought of any of this and simply rely on “but property always goes up”). That is a dangerous game in my opinion.

        • Yep, I remember David Einhorn, who clearly thought stocks looked too rich (years ago!) pondering in his hedge fund’s quarterly review whether in fact stocks were actually now a creature of monetary policy rather then fundamentals and if the answer was ‘yes’ then it made sense to remain invested as they would simply continue to inflate.

          ‘Not QE’ is undoubtedly giving stocks a second wind right now so it becomes dangerous to short the market (or be underweight if you’re a mutual fund manager). Rather than sitting in cash the best option is sit in gold, IMO. The real risk is whether you can rely on easy money to keep stocks inflated or whether a natural limit will be reached and investors will simply get out — to the extent that passive flows are now dominating actively managed funds, this current bull market could continue for some while yet. The real concern is that there will be basically zero liquidity in a bear market / crash, because active money now represents a much smaller proportion of invested funds and banks have less balance sheet available for prop trading.

          In the end though, gold is the place to be — it will vastly outperform stocks in real terms in an inflationary melt-up.

        • “Therefore my money is literally on this being a bull trap and will buy well after the tipping point comes.”

          I hope you’re patient.

        • Debt free and rent! Peachy has a pretty good record.

          And as secure a job as you can get these days (I think!).

    • Jevons ghostMEMBER

      I’d be starting to get concerned when some/all of those variables that you mention get to -0

  6. Jumping jack flash

    “If people pay down their debt, then ultimately in the long run, they will have lower interest payments, and that will free up more money to spend across the economy,”

    People are starting to catch on and the i-word is being bandied around. Banks aren’t going to like that. Interest is kind of their secret shame and so it is never mentioned.

    Yes, people are getting it, but not our glorious leader:
    “All Recessionberg has done is get house prices to run hot”

    Which increases nonproductive debt and also the interest which is economic suicide in any economy especially one in this shape presently.

    It really seems as if our omnipotent leader with a planet-sized brain has been exclusively consulting with banks for what to do…

    LNP are seen as the “bank whisperers” after all, I guess.

    • A healthy economy has confident entrepreneurs investing heaps in productive enterprise.

      In this country, however, the economic model is to inflate property prices, creating the illusion of wealth, which then induces the populace to spend their illusory wealth in the shops, in the process going deeper into debt (de facto equity release).

      To be fair to the Govt, though, the economics establishment is cheerleading this bullsh*t when they should be calling it out.

      It is no exaggeration to predict utter doom for the economy – such a model is utterly unsustainable.

      • Jumping jack flash

        +1
        It has been surviving this long simply because the debt has expanded fast enough to counter the sucking effect of the nonproductive debt’s interest on the economy.

        Once the debt stops expanding as quickly – and it seems to be slowing – the problems will intensify as the nonproductive debt needs to suck more productive money from the economy to repay its interest.

        And there is a LOT of nonproductive debt, a couple of trillion at least, and growing all the time.
        Average mortgage interest rate payable by the average debt slave is still around 5%pa.

        That’s a lot of drain on the economy. Around 100bn dollars every year of productive money flushed away to the banks. And that’s only counting mortgages.

  7. St JacquesMEMBER

    This is so funny. He’s so utterly clueless. When businesses start sacking, oh wait “letting go” of their workers in ever larger numbers and the wages of those who still have a job see their wages under even more pressure and fearing the sack all because people are tightening their spending, I wonder what’s going to happen to this joke of an economy? lol BRING IT ON.

    • What’ll happen is the same as in the 1890’s for the population except that this time house prices will continue to rise. You already have subdivision townhouses costing what a freestanding house did and apartments what townhouses used to. You’ll get multiple families sharing apartments to make rent being the norm. Malnourished kids falling asleep at school, life expectancy dropping to third world levels. It’ll creep up on you. Year by year.

      • It’s already happening. We’ve imported much from the third world, not just people. We have:
        -3rd world housing standards
        -3rd world educational standards
        -3rd world transport infrastructure
        -3rd world internet
        -3rd world corruption among the policians

    • Jumping jack flash

      Which is also why they have to sweep the whole underpayment, wage theft, furore under the carpet quickly.

      Imagine if employers started needing to pay their slaves fairly!

      There’s simply not enough spare wage capacity and it’s really difficult to create when every spare dollar that could have been used has been leveraged against debt and is therefore locked away for the next 30 years or so.

    • Obviously the answer there is to reduce taxes on business so they use the extra money to hire staff.

      You know, because business hires out of the goodness of its heart whenever there’s a bit of spare money lying around.

      • St JacquesMEMBER

        Yeah, I’ve always liked that meme. It’s one of the very best. If you believe that one, know that you’re an idiot.

        • Jumping jack flash

          Well, that’s not the best joke of the New Economy, I really like the one where the RBA lowers the cash rate and then expects that to somehow create extra jobs.

          If they dance on the “runway” just right, and wear the coconut headset, then I’m sure that plane is going to descend out of the sky…

  8. If they really wanted to boost consumption an easy fix would be to increase Newstart. Not many of those on Newstart have massive debts to repay but they would love to be able to afford 3 meals a day and a little extra to spend to increase their chances of getting a job or buying some Christmas pressies for those nearest and dearest. Seems like an easy fix to me but we wouldn’t want to encourage people to take the easy way out and live below the poverty line now would we!

    • Great suggestion, but it’s the LNP, so Newstart to be axed. Lifters and Leaners, get a better paying job etc etc.

    • Jumping jack flash

      Yes, what Brenton said.
      No encouragement to not work! Are we still capitalist, or have we turned communist now?

      They should take a leaf out of Howard’s book and pork barrel the pensions to try to get a few more unemployed losers to get up the nerve to attempt to leap across to the dsp…
      Everyone’s depressed these days so it’d be like shooting fish in a barrel.

      I suppose they’re waiting until the unemployment rate rises to fire that volley.

    • Do we really need to ‘boost consumption’? (that’s called bath-tub economics, just FYI). I don’t about you but I’m sick to the back teeth of the mass consumption model. It appears (to me, at least) to have run out of road. Aside from the insane amount environmental damage it does, it has been abetted by a mass credit creation model leading entire populations into grinding amounts of debt and subsequent stress on the broader family unit.

      Thanks, but I’m over it. We need to get back to a sustainable model in which citizens live within their means and value people over ‘things’. GDP as measured today is driven by consumption, making GDP as a measure of economic health, useless. Debt has hollowed us out, both financially and morally.

      The good news is that this will end — very painfully, but at least it will end.

      • “I don’t about you but I’m sick to the back teeth of the mass consumption model.”

        Fcuk, because it’s all they know and all they have left, thus the near suicidal effort to increase house prices.

        Donald Horne was right, we have 2nd rate politicians who have no idea about how to run an economy and we basically have businesses that know nothing but having monopolies and gouging. If we didn’t have the resources we have we would be the poor white trash of Asia, not there yet, but our ruling class is surely trying as hard as they can to get us there.

        Imo we are heading back to a ‘ruling class’ style society of the 1800s, except it’ll look nicer that that period. Half of society will struggle to put food on the table and a roof over their head. There will be no revolution, people still believe the aspirational bs and think it’s the dole bludgers and welfare recipients, except when there the recipients as that was their tax coming back to them. Any pushback and just as in the 1800s there will be plenty of people from that area who will wield the truncheon and boot to keep the plebs in line.

  9. Glad I’m not heavily invested in the Aus economy (other than the old IP on cheap interest rates).

    Most my of my cash sits in US based Broad based share index ETFs, unhedged. Thought putting all my eggs in Australia was not a great idea, seem to have been validated with Recessionberg’s leadership so far!

  10. David WilsonMEMBER

    I disagree with the last lot of comments by houses and holes and as usual the comments are more lefty politics rather than economics and being factual

  11. Yuval Legendtofski

    REcessionberg, as an ex Mt.Scopus boy is GUARANTEED a high-paying job in Finance after he quits. Pratt already has an office for him.