The economy has contracted by a huge seven per cent which has set a crazy new record, but there’s a huge missing piece of the puzzle.
You’ve seen the amount of economic activity shrank by a huge seven per cent in the months of April, May and June.How the recession will affect jobs, wages, cost of living and the housing market
That’s bad news that makes recessions worse. The more we save the weaker the economy gets. They call this “the paradox of thrift”. As the next graph shows, we saved an estimated 20 per cent of our income in the months of April, May and June this year. That is HUGE. Money is piling up in people’s bank accounts. There’s no doubt about this effect. We’re getting the same information from banks. They say savings accounts have 12 per cent more in them than they did pre-COVID.How did it get there? The answer is partly saved income, and also partly Centrelink. Centrelink payments are a big part of household income but they don’t count towards GDP. The P in GDP is for product, as in production. GDP counts income you get for work but not income transfers.
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