Reasons why bailout will fail

Since I’ve come across Steve Keen’s blog, many pieces have been fallling into place for me. This essay is no less insightful presenting a clarity of thought and a simplicity that are rare in the dismall science. Highly reccomended.

Excerpts: (long ones with charts)

The Rudd Government may well rue Treasury’s “sure thing” advice when unemployment here starts to skyrocket as it has in the USA and elsewhere. They will then have a cohort of–on current trends–at least 30,000 First Home Buyers who are in the firing line for unemployment, homelessness, and bankruptcy courtesy of yet another futile attempt to stimulate the economy by maintaining the Great Australian Dream.

This economic turnaround is inevitable, because the driving force behind it is de-leveraging: credit growth is evaporating, and as it diminishes, the debt-financed component of demand is collapsing and taking economic activity with it. This process is now rampant in the USA:

And it is also building up a head of steam in Australia:

The rise in unemployment will impact severely on house prices, since, as Gerard Minack commented in today’s Sunday Telegraph, “I don’t care what rate you’re paying, if you have a mortgage five times your income and you lose your job, you’re toast”.


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