Yesterday, branchless bank ME released its biannual Household Financial Comfort Report. If you’re an upbeat sort, you could read this snapshot of our newly sluggish spending habits as billed: insights “into the financial psychology of Australian households”. If you’re a cynic, you might see this record of our thrift less as an account of our deepest feelings and more one of our deepest debt. No, not public debt. That stuff could stand to grow. The scale of our private debt is the problem. We’re not failing to buy stuff out of fear. We just don’t have the money, because the banks made it, then took it all away again.   

Here in The Nation of Glorious and Uninterrupted Growth, our household debt-to-income ratio continues to enjoy glorious and uninterrupted growth. Following the 2007-08 financial crisis, many comparable economies experienced a decline in the level of private borrowing. We didn’t. We borrowed our way to the $1 trillion mark in mortgages alone, a fact that will leave optimists untroubled because there’s never been a time or place when bricks-and-mortar was not a faithful investment.

By a trick of double-entry accounting, we can make our debt look respectable, not the prelude to local trouble of which the Bank for International Settlements has recently warned. Asset-rich commentators and thick, or possibly deceitful, policymakers say that our balance sheet looks great. In the long run, your house will be worth so much, this difficult period of debt will be but a winning dinner party tale of struggle. In the long run, though, we’re all dead.

Let’s actually give old Keynes his due and not, as is the custom, truncate that famous quote.

“But this long run is a misleading guide to current affairs. In the long run, we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”

Keynes never meant “it’s all shit, so let’s party”. What he intended to convey was an insight now lost to neoliberal optimists: capitalism has cycles. If you fail to understand the cycle you’re in — say you just keep supposing that the housing price will climb and the economy will prosper — the cycle may fail you. It is as easy as it is useless to declare that our chances of continued comfort are as safe as houses. I mean, FFS, people, if Alan Greenspan, a guy who took his first oath of public office with Ayn Rand standing at his side, can admit a “flaw” in his thinking, then maybe we can, too. The only way is not up. To believe that capitalist growth is the natural human progression and not, as it has been on so many occasions, the precondition for turmoil, is to be so smitten by the asset side of your ledger, you refuse to sniff the approaching storm.

Look. It’s not just me and my Cassandra commie mates fretting. Surely it just makes good, capitalist sense to not want so many over-indebted households so vulnerable to shock. Yes, more than 20 years of borrowing as much as lending institutions would allow — and this is how housing price is chiefly determined—has accelerated Australia’s financialised growth. But if we’re at the point that people are not spending—even failing to meet energy bills—then it might be possible that in the short-run, they will not be able to service their debt. Call me old-fashioned, but I don’t think that’s good for “growth”. Nor does the RBA, an organisation hardly known for its heterodox approach to economics.

Professor Steve Keen, an Australian now of London’s Kingston University, is kindly called a heterodox economist, less kindly, “that spoilsport who made me feel bad about my equity”. Even if you choose to remember him as a guy who lost a short-run bet, his long-run thinking on lending institutions is entirely worth your time. He rejects, as have many economists before him, the curious notion that a national economy will simply find its equilibrium with no form of intervention greater than the inspiring human spirit, etc. He asserts, as do some of his reputable contemporaries, that the failure of dominant economic models to treat lending institutions as the special thieves they are will be to our detriment.

Our most orthodox and influential economists, he says, “have sealed finance from economics. They have constructed a way of thinking about the world that excludes the important stuff, that ignores empirical data.” This is a new era where the largest pools of money are financialised. These do not flow into wages and do not rush into the development of marvellous new factories. In 2007-08, this unregulated movement did produce, in the words of Greenspan, a “credit tsunami” — one that the Fed chairman hadn’t seen coming. Still, the possibility of a tempestuous season is beyond the ken of those who insist that those housing prices just keep going up on their own, because that’s how markets naturally drift.

“Leverage has overwhelmingly driven up house prices,” says Keen, adding that this tsunami overture has enjoyed a little help from the state through schemes like the first home buyers grant. Now, we find ourselves with a household debt to GDP at about 120%, around seven times of that we had in the mid-century, a time where interest rates were similar.

History tells us that growth can easily create the conditions for its opposite. Maths tells us that if people can’t afford to buy things, per yesterday’s “psychological” insight, then eventually, nothing will be bought.

“You can keep shopping as long as you borrow money. We have a booming economy while people are borrowing money.” But if we continue to borrow money when our wages are stagnant and banks have   increased our level of debt by a factor of seven throughout the neoliberal policy period, well. We may need to recognise a flaw, and describe it better than Bill Shorten has. Any mention of “inequality” with no mention of the urgent need for radical finance sector reform is just bad capitalism.

“The banks determine the cost of living by lending too much fucking money,” says Keen. Perhaps if there is any psychological insight that needs to happen, it’s in the minds of those policymakers and commentators who treat our lending institutions at once with kid gloves and the delusion that they behave like any other ordinary economic activity.