Do we understand the debt burden behind COVID-19?

Today in The Australian

In the midst of the Weimar Republic’s disastrous hyperinflation of 1923, Eduard Koppenstatter, a prominent astrologer, correlated movements in the value of the German mark with those of the planets. Having concluded that there were “law-like relations” between monetary indicators and “the course of the stars”, he produced economic forecasts for the years ahead.


About Henry Ergas

Henry Ergas AO is a columnist for The Australian. From 2009 to 2015 he was Senior Economic Adviser to Deloitte Australia and from 2009 to 2017 was Professor of Infrastructure Economics at the University of Wollongong’s SMART Infrastructure Facility. He joined SMART and Deloitte after working as a consultant economist at NECG, CRA International and Concept Economics. Prior to that, he was an economist at the OECD in Paris from the late 1970s until the early 1990s. At the OECD, he headed the Secretary-General’s Task Force on Structural Adjustment (1984-1987), which concentrated on improving the efficiency of government policies in a wide range of areas, and was subsequently Counsellor for Structural Policy in the Economics Department. He has taught at a range of universities, undertaken a number of government inquiries and served as a Lay Member of the New Zealand High Court. In 2016, he was made an Officer in the Order of Australia.
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14 Responses to Do we understand the debt burden behind COVID-19?

  1. Bad Samaritan

    As things currently stand this fear of hyperinflation is BS. There is no comparison with Weimar or Zimbabwe or Yugoslavia or Turkey or Venezuela etc since Oz debt is in $A; the level of debt is easily covered by Oz economic assets/resources, and the $A is holding up very very well due to these realities.

    The commonwealth is running a large deficit which it is covering by QE money-printing at the RBA. Supply is very easily matching this QE within Oz…and imports are also easily bought by the “stable” dollar.

    Anyone really worried should be buying gold and stashing it. Real estate may also be an option, but is a little harder to hide than physical bullion. If the govt loses control and there is serious social unrest etc a destroyed house is far more likely than someone finding your gold bar stash.

    Meanwhile, most cases of dramatic recessions and depressions in wealthy societies have lead to deflation. This is what i expect this time around. Impoverished people cannot spend up big.

    BTW: Why hasn’t decades of easy consumer credit caused major inflation? All those Credit cards, personal and car loans, all those instalment / hire purchase sales etc are pushing prices up?

  2. flyingduk

    Very few people understand how serious an issue the collective debt of the world is. The existing borrowings were un-repayable even before the ‘current health crisis’, and the unfunded liabilities (future promises) were 10x larger again. Since then, we have added trillions, the economy has changed, and the people have become even more accustomed to even larger handouts.

    Buy guns, gold n bitcoin, its over.

  3. flyingduk

    BTW: Why hasn’t decades of easy consumer credit caused major inflation? All those Credit cards, personal and car loans, all those instalment / hire purchase sales etc are pushing prices up?

    It has! The price of my favourite icecream (the Pine Lime Spice of course!) has gone from 17c in my schooldays to $3.50 now, demonstrating a 95% loss of purchasing power over the last 50 years.

  4. egg_

    The existing borrowings were un-repayable even before the ‘current health crisis’

    Did anyone caution the numpty in charge about futile lockdowns destroying our Economy?
    If not, why not?

  5. stackja

    Harwin charge dropped.

  6. flyingduk

    Did anyone caution the numpty in charge about futile lockdowns destroying our Economy?
    If not, why not?

    Probably not, when you let the doctors run the war, the only victory condition they set is ‘no one gets hurt’. Logistics are an ‘SEP’ (someone elses problem) to be funded by ‘OPM’ (other peoples money).

  7. Hay Stockard

    Why put a link up that’s behind a paywall? Some kind of joke or a lack of foresight, much like an hysterical panicked response to a bout of flu?

  8. mundi

    Astrology was once taught at university.

    There is a lot of math in modeling movements of stars/planets and obviously a lot of statistics etc, and studies to do etc.

    Astrology lost its prestige not because it was wrong, but because it’s predictions became so vaugue, that they would claim any event or measurement to for their model and their theory.

    There are a lot of parallels with the global warming movement.

  9. Dave in Marybrook

    Hay Stockyard-
    if you value it, pay for it. Economics 101. That’s why the Oz still has some outstanding value writers like Ergas, Creighton, Albrechtson and Kelly… and by that I mean Katrina Grace Kelly, formerly Grace Collier.

  10. Chris M

    It’s always a good guide to listen to the experts view, like with the pandemic. That being so we can assume the opposite is likely to happen, of course. Thinking stagflation may be coming; the only inflation I see is government created / legislated / regulated, not from the private sector.

  11. sfw

    “BTW: Why hasn’t decades of easy consumer credit caused major inflation?”

    It has, only in the places where there is limited supply. Almost all manufactured and farm goods have been able to expand supply to meet or exceed demand. The same isn’t possible for property and stocks etc. That’s why the inflation has all gone to those things, the gov only measures things that have been relatively isloated from the inflationary money supply. If governments continue to keep our economies pretty well closed then there will eventually be a shortage of consumer goods and services, then the inflation will come.

    Who has the money to buy those properties and stocks? Those who get their hands on it first and they are the connected people, as always the burden will fall on those who are at the end of the money stream.

  12. Squirrel

    Hyperinflation might be another thing, but inflation is clearly now just a matter of definition in Straya – so anything which starts getting too expensive magically disappears from, or gets a much lighter weighting in, our measure of CPI. That’s why exploding house prices didn’t even cause a CPI blip.

    The dreams about managing the COVID debt like the WW2 debt are just that – this time around, the denominator part of the fraction won’t be growing at anything like the rate it did in the 50s and 60s.

  13. entropy

    Dave in Marybrook
    #3502489, posted on July 3, 2020 at 12:51 pm
    Hay Stockyard-
    if you value it, pay for it.

    Yeah but you would also be paying for the Bittered Sav.

  14. I can’t believe some of this nonsense. What happened in the Weimar Republic was not normal inflation at all. With normal inflation the acid test is paying more notes of existing currency for the same goods in the future. With Weimar there were less notes of currency needed, printed in ever increasing denominations overnight for distribution next day. This type of inflation could never have happened with coinage because there would not have been enough metal and that’s just for starters. I have seen photos of the haystacks of notes in banks waiting to be put into circulation the following day. So the state had to be deliberately and systematically inflating the currency as government policy. I think history will show that this was the way to overcome the huge reparations problems in the Versailles treaty which by then had stuffed the German economy but also that of the treaty’s financial beneficiaries. I suspect it was done with a complicit America (which never ratified the lunatic treaty) It was politically more doable than to repudiate the treaty itself. I think Keynes is like a south pointing compass like so many economists, but his take on reparations was exactly over the targetin this instance.

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