Australian Private Debt: And don’t skimp on the pâté

by Paul D. Egan & Philip Soos

Australia’s private debt dynamics have been thoroughly explored elsewhere, but less well understood is the country’s position relative to the OECD and BRIC nations. Thankfully, the Bank for International Settlements (BIS) provides a useful database of unconsolidated household, non-financial business and total sector debts to enable a meaningful comparison.

The difference between consolidated and unconsolidated debts is an important consideration. The former constitutes debt that is netted out within the sector, and only records debts owed to other sectors, while the latter is the actual debt a sector owes, irrespective of to whom. Unconsolidated debts are typically larger than consolidated debts.

Caution must be taken when using measures of consolidated debts as it assumes intra-sector solvency; an assumption the Global Financial Crisis (GFC) revealed to be precarious. Consolidated debts disguise the risk of intra-sector debts that can metastasise and threaten financial stability.

In retrospect, Ireland, Spain and the US are three countries that clearly experienced debt-financed housing bubbles, thus providing a useful benchmark for comparison. Australia’s household debt to GDP ratio is clearly higher than both Spain and the US at their peaks, and remains only slightly below Ireland’s peak.

In the BIS dataset comprising 34 nations, Australia has the unenviable status of ranking fourth-highest, only below that of Denmark, Switzerland and the Netherlands. Ironically, the pathology of financial capitalism drove the world’s leading social democratic state into accumulating the largest household debt ratio, peaking at close to 140 per cent in Q2 2009.

A range of factors may have boosted the income flows of Danish households and enabled such accumulation: a low unemployment rate relative to the Eurozone nations, very low income inequality, the world’s highest minimum wage, and a generous social welfare system.

As of Q2 2014 (the latest available BIS data), the Netherlands is just 0.3 per cent higher than Australia. As the former deleverages, Australia should rank third-highest by the next quarter. The ratios have remained stubbornly high in both Denmark and the Netherlands despite deleveraging, as their weak economies have resulted in falling nominal GDP (the denominator).


Australia’s total debt to GDP ratio peaked at 190 per cent in Q2 2009, before falling slightly as the non-financial business debt ratio fell. As of Q2 2014, the total debt ratio was 189 per cent, and is expected to set a new peak in the next quarter or so.

The following table lists the debt ratios for the OECD and BRIC nations. For some nations, household and non-financial business sector debts are not available, but total debt data are available for all. The non-financial business sector debt ratios are on the high end for Ireland, Luxembourg and the Netherlands, likely reflecting their generous international business taxation policies.

The BIS has done a commendable job in gathering long-term unconsolidated data from the OECD and BRIC nations and making it publicly available. It would be helpful if the data was further classified into categories of personal, mortgage and non-banking financial sector debt, as the latter is important when analysing banking and financial cycles.

As household debt has boomed exponentially over the last two decades, the savings of the household sector has plunged. According to the official household savings ratio provided by the ABS, it briefly became negative during the early 2000s, and then rebounded as the GFC shocked households into saving more.

In 2013, analysis by Credit Suisse revealed that the official ratio included superannuation contributions and extra principal repayments, which arguably should not be counted as disposable savings. After controlling for these two artefacts, the ratio falls significantly, exhibiting a persistently negative trend since 1997.

The household sector’s savings situation is dire, as reported by ME Bank in a 2014 report:

  •  Only 46 per cent of households reported the ability to save each month;
  • Only 32 per cent would easily be able to raise $3,000 in an emergency;
  • 50 per cent aren’t confident they have enough savings to last if unemployed for three months;
  • 35 per cent reported having less than $1,000 cash on hand;
  • 17 per cent have less than $100 in savings;
  • 60 per cent have less than $10,000 in savings; and
  • In 2009, Australians were saving a median $300 per year (AMP/NATSEM).

Australia’s private sector is grossly over-indebted, especially the household sector. The hysteria surrounding Australia’s non-existent public budget ‘emergency’ is a smokescreen cloaking the critical household budget crisis. The fictional narrative concerning public debt arises from an unshakeable adherence to pseudo-scientific economic theory and class war, such as ‘justified’ public austerity policies which target the poor and marginalised.

Meanwhile, the public is distracted from the true threat: the unrestrained private spending spree that further enhance the power, profit and authority of the horde of private monopolists, usurers, speculators, rent seekers, free riders, financial robber barons, control frauds and indolent rich.

The current dynamics of the political and economic system means private debts will continue to spiral out of control, until the catastrophically-inefficient FIRE sector inevitably implodes. Nevertheless, the current housing booms in Melbourne and Sydney show no sign of abating in the short-term, with 2012 an opportune time to purchase according to the ‘Speculative Index’, which measures the irrational exuberance embedded in prices.

If the real estate fever gripping the nation does not break soon, Australia may well secure the top OECD ranking for the most over-indebted household sector. A financial crisis beckons, for history documents that extraordinary over-lending routinely precipitates chaos; falsifying expert claims that ‘this time is different’.


  1. With the economy not looking too swell and people up to their eyeballs in consumer debt, a determined new trend to dislevering might emerge.

    Many people have a small window of free cash flow with the fall in petrol prices. Will they seize the chance to reshape their futures?

    • I doubt it.
      Rising unemployment will cause it to break down at some point, starting with the mining dependent states. W.A. is first in the firing line.

      • Qld. Reckon that’s one of the reasons for the snap election. Something nasty is in the air.

      • I reckon you’re right MB. The colossal drop in the price of QLD’s saviour (natural gas), and the knee-jerk cut in capital spending by the majors, would have scared the shit out of the boffins at Treasury and in the Premier’s office.

      • But does Newman have a secret plan to slap tolls on all the strategic roads (as Napthine did in Victoria – revealed when the East-West Link documents were finally made public after the election).

        My guess is that the tolling point on Legacy Way (due to open in a few months) will be moved out of the tunnel and onto the Western Freeway to catch all the motorists who currently use it toll-free.

        I’m surprised the Labor Party is not asking this question.

    • Rent Seeking Missile

      “With the economy not looking too swell and people up to their eyeballs in consumer debt, a determined new trend to dislevering might emerge.”

      The slightest of slight chances.

      Australia is going to go over the cliff. It’s locked in. Make sure you’re not attached as it goes over.

      • Damn. I just realized that when I shifted everything out of Oz, I left the kids’ savings accounts. That’s OK. They’re playing the long game (although with negative real interest rates on savings, perhaps I should pull those too).

      • RapperWithABaby

        Should I consider myself attached if my substantial life-saving (read: deposit for my first home) is in the bank?

      • Rent Seeking Missile

        “Should I consider myself attached if my substantial life-saving (read: deposit for my first home) is in the bank?”


    • Nah, not a chance. Any savings will be consumed by Egfjtrfgan (pronounced Ethan) and Ogxdrygia’s (pronounced Olivia) rising private school fees, the annual trip to Bali, extended education lessons (cause, you know, they’re part of the gifted and talented class), anti-depressants for mum, dad’s “golf trips”, vet bills and the list goes on.

      • Noice!
        Trenchant! ( and pretty funny,too) Amongst those in my circles, the scratchy budget will rise in proportion to ‘fast track’ the inevitable financial independence coming from the multiple IP’s.

        Also, all those ‘big ticket’ expenses are ‘taken care of’ by the eternally rising equity, mate, and this is due to the value of all the resources needed by China which benefit all Strayans,mate.

        PS Keep those observations coming!

    • $35 a week isn’t going to fix those debt levels.

      Its not enough to buy MacDonalds for a family dinner.

      • About a month ago i got stopped in a Cinema car park here in perth by a mother and daughter begging me for money so she could feed her kid. I did a quick mental math of how much i was about to spend at the cinema, then gave her that money. She went across the road to macdonalds with her kid and i went home.

      • @Angry, good on you for doing that and to think that this sort of shit is happening in a country like Australia is truly sickening.
        Not the first time i hear stories of people asking for money to provide food lately…

      • That was really nice of you AM and Im pleased the mother actually used the cash for food. Our panhandlers just use it for grog.

        We spend about $70 a week on fuel (its a small city) and even if our petrol prices halved $35 wouldn’t make the slightest dent in the average Australian household debt.

      • At 5% that’s another $36k that people can borrow to pay more for houses. Another boost for the RE moon trip.

      • ceteris paribus

        Nice Angry Man. Abbott shouldn’t fxxk with social security.

        But I am not against a “healthy” welfare card – no booze, no gambling, no ciggies.
        Does this make me a bourgeois prick?

      • a mother and daughter begging me for money so she could feed her kid

        A memorable event. You sound like a very decent person AngryMan. I have no doubt the story is true. It is a shame the mother took the money to McDonalds and effectively wasted most of it.
        It is often hard to know exactly what to do when a strange situation arises. With hindsight I would suggest taking the lady to a supermarket and buying her a loaf of wholemeal bread and a jar of peanut butter. My lunch today was a peanut butter sandwich. McDonalds is a luxury food for people short on time. People in reduced circumstances should not be eating it.

  2. That is a huge safety margin. Only 189% when it has been shown that 240%+ is possible.

    Keep beating that nag, it ain’t dead yet.

    • Yeah right,

      In an economy going off a capex cliff with a government cornered into austerity to make sure the banks dont lift rates as the currency melts, reliant on housing speculation to give the semblance of health, while devoid of a competitive globally exposed sector except for commodities (see oil, coal, iron ore etc charts).

      Its all good, in fact i feel like loading up on debt and buying an investment property now.

    • Rent Seeking Missile

      “That is a huge safety margin. Only 189% when it has been shown that 240%+ is possible.”

      Hey, now there’s a challenge!

      240% FTW!!

  3. “The fictional narrative concerning public debt arises from an unshakeable adherence to pseudo-scientific economic theory and class war, such as ‘justified’ public austerity policies which target the poor and marginalised.”

    Again, this is part of the New Elite Consensus.

    The motive is undermine what little remains of democratic accountability by transferring strategic monopolies into the hands of private controllers, and by alienating public revenues into the hands of private “tax farmers” (think private road tolling).

    Politicians become ever more dependent on the goodwill of private financiers and ever more obedient to their demands. It is a return to the ferme generale of the ancien regime.

    Unless some way is found to effectively control the politicians (of both parties) who subscribe to the New Elite Consensus then the outlook for most people is terrifyingly grim.

    Slowly but surely we are returning to a pre-Modern society with the psychopaths in control.

    • +100. The language emerging, calling these economic times a class war, seems utterly inflammatory but more measured phrases misdescribe what is going on.

      It isn’t the top 10%. It isnt the 1%. It is the machinations of the 0.1%.

      I am no incendiarist, but our entire economic-political system has been captured and we the people need to regain control.

      • People this naive should learn the hard way, the 0.1% is doing them a favour. Populace regain control to do what? To rinse and repeat what got them here in the first place while scorning those good enough to warn like on MacroB?

        Fed up with all this – let em burn!

      • Sure it’s the 0.1 per cent. But you have to remember that the jobs, and therefore livelihoods, of the next 10-20 per cent of the population is involved largely with enforcing that rule. Think bank employees, lawyers.

    • Neoliberalism’s [hyper corporatism] first order of acts is to destroy any sort of functioning democratic governance, whilst it is allowed to exist as ordoliberalism, in the first order of acts, its secondary function is to lay all blame for negative externalities and consequences on.

      Skippy… concur with the thrust of both above comments.

      • Hyper corporatism already has a name – fascism.

        Why are people so reticent to use this most apt adjective ?

      • Fascism is the state colluding with monopolies and upper tier wealth in order to insure the continuity of their control over society.

        I think the term – Inverted totalitarianism – is better suited to the currant hyper corporatism, as the state is a second tier player e.g. almost completely subservient to it.

        It behooves everyone to identify the power relationships hierarchy accurately or people end up tail chasing or worse blindly attacking the wrong antagonist i.e. the one set up for them.

    • Suppose we are heading back to a form of feudalism.

      What if it is different this time, because most of the 99.9% are not really required for the maintainance of the world of the elites? They have their Waterfront estate and fleet of Tesla cars – mostly untouched by human hands. Peons to till the fields and run the factories are no longer needed. The elites can conjure up money (or equivalent) at will, so they can have almost anything they want.

      What if the 0.1% regard the rest of humanity as we regard animals in the zoo? Do you think that the urge to power would cause them to brutalize other people just for the pleasure of it? Will history repeat, or has technology really changed the rules? I don’t have a clue.

  4. Good stuff!

    I think it is worth noting two things
    1. The Decline in the debt to GDP ratio was accompanied by a transfer from the government sector. The debt reduction was not due to some newfound prudence.Now we have both government and private debt increasing.
    2. We have the increasing debt, even in the face of massive sales of private sector assets, to foreign interests.

    The extent that we, as a nation with massive resources per head of population, live beyond our means is astounding. We just book it all up to future generations and that is a process that has been going on for a little over two generations so far.
    Unfortunately we still haven’t learned a damned thing.

  5. ceteris paribus

    This artcle is highly subversive and the capitalist police will already be planning their pre-dawn raid on the writers.

    Indeed, it is laughable how talk of public debt has so diverted attention from the debt slavery of private households.

    Piketty’ treatise on Inequality could have been a turning point if anyone had read it. (Yes, I know they bought it but did anyone read it, except for the plutocracy to spread disinformation about it).

    In the meantime, I think we should stop feeling so superior to failing States in Africa, where business- dictator cabals rip off the common wealth of the people. Physician, heal thyself.

  6. Does this indicate that each Government thru different means have been slowly transferring public debt to that of private debt.

    Items such as HECS?

    • Yes that is exactly what has occurred, asset sales etc, and it now has to be reversed. But Tony or the alternative leaders don’t seem capable of that and the notion has been poisoned in the publics eyes by Tony at the last election.

      Maybe at the election after the next the public will be willing to understand.

      Tony has been a miserable failure.

    • To some degree I would say yes – although I think the simple generational phenomena of promoting debt to satisfy lifestyle aspirations now while paying them off later is the biggest driver of private debt there is something of a generations worth of government loading that tab with bits and pieces they might otherwise be funding to go with it.

      The question(s) for mine from here is

      1. What does government do to reduce the private debt burden, and how does it do that (if we assume that the private debt is largely in overpriced RE, ‘owned’ by a section of society via the banks, when the costs of that transfer would come from a wider demographic)
      2. What does it do about economic growth/narrative in the absence of credibly being able to use private debt as a crutch [when that point comes if it isnt here already]

      • 1. It moves its policy settings away from encouraging borrowing (negative gearing would go for a start) towards encouraging saving and debt retirement, and accepts more responsibility for provision of essential services

        2. Growth is, like, so last century.

      • stat – whatever you do in that regard you crash the economy. We’ve got this consumption thing going and can’t get off!

      • @flawse,

        Those unacceptable consequences don’t stop that action being pretty much the only one available, in the same way that removal of most of a major organ – with attendant risk of death – may be the only course of action if said organ is sufficiently cancerous.

        Quitting smoking is still strongly recommended for people with advanced lung cancer.

  7. high debt combined with low inflation and low income growth is deadly combination.

    High debt is only good when inflation is running at 10% or 20% pa

    With low inflation and wage growth high debt means decades long debt slavery

    • So a good scenario for those of us who carry no debt?

      I’m waiting until that materialises. It’s not here yet.

      • I like the way you are thinking. Increasing debt increases risk. Risk needs to be managed, not eliminated.

    • doc…again that’s a short term phenomenon and too many people confuse it with sensible policies to reduce debt. Inflation, and the accompanying negative RAT rates, lead to increased debt.
      That’s EXACTLY how we got to where we are over a period of about five decades.

      • people in 70s and early 80s not only had lower house prices but high inflation that enabled them to pay off mortgages in less than 10 years.

      • doc – some people did. Others, like producers, were crucified by it. There was NO net gain. Working capital was taxed and confiscated. Debt, overall, did not stop growing. (I don’t have charts to hand) At the same time we set this economy up to be the debt-driven consumption model, reliant on sales of assets to foreigners, that it now is.

      • Spot on doc, young borrowers in the mid 70’s early 80’s had the easiest ride imaginable due to high inflation.
        Flawse the only people who suffered were the retirees. The same people who earned stuff all interest on their bonds during the 50s and 60s and helped finance the post war development. Partly out of a feeling of civic duty.

      • My father told me a story about an older man who retired in the early 70’s (I think) with a decent fixed pension, possibly an income from bonds. A few years later he was back on the job because inflation had destroyed the buying power of his savings.

      • so clearly Australians have issue with understanding simple math: they take big debt when rates are low and they go for fixed income when inflation is low.

        I wonder who benefits from our poor educational system? any guess?

      • “Flawse the only people who suffered were the retirees”

        It seems you know not and know not that you know not.

      • Spare me
        I know that complaints about how bad the late 70s early 80s were are completely over the top. Assuming they didn’t lose their job in the early 80s Howard recession, it was a great time to be entering the workforce, buying a house and having your mortgage inflated away at the expense of retirees. Compared to what the young 20 somethings have to deal with today it was paradise. And I say that as someone who isn’t a young 20 something.

    • Which measure of inflation are you using? For example, property remains in hyperinflation status until mean reversion (40-50% nominal reduction).

  8. The continued existence of a monetary system that is based upon fractional reserve banking is seen to depend upon growing levels of debt at the private and, or, public level. In the long term, unless this debt continues to expand, economic recession ensues. Furthermore, the cyclical nature in which the commercial banking system expands and contracts money supply, by first increasing and then decreasing the rate of lending, is a prime factor in encouraging a ‘boom-bust’ cycle in economic activity.

  9. Wow. A few loaded statements in that piece.

    Frankly, I miss the thrust – private debt is private and the concern of holder of the debt and the financier. Individuals and corporates accept responsibility for the debt. Of course if it all goes pear shaped recent times have demonstrated the financier may lean on the public purse for support. All the more reason to have public finances in order should need arise.

    Public debt used to fund entitlement spending must be judicious prudent and minimal. Public debt used to fund necessary and productivity enhancing social infrastructure more acceptable.

    Would financiers be so willing to lend if no precedent existed for taxpayer bailout. Would consumers be so prepared to borrow if speculative reward did not beckon and the desire for ‘Stuff’ dominate self perception .

    Individuals and/or companies accept the responsibility of private debt – if they transgress

    • Bullshit. Private debt has been the mantra of our government for a generation, it has been the fig leaf over economic performance over that time, and is about the first place anyone will look as a pointer to the road ahead. It has also been the pocket moistener for a load of right wing/user pays/industry self regulation style philosophy being deposited in the general publics letterbox.

      More importantly when it has beeen taken on at the uber levels that Egan and Soos point to, it is the entire economy (and anyone trying to craft an economic development narrative for that economy) which has an issue.

    • youve never heard of systematic risk have you?

      You know, like unfettered, unrestricted extraction of minerals for the profit of only a few (mainly foreign owned) at the risk of an entire nation’s finances?

      Your thrust is designed to obfuscate any attempt to use public debt as a regulator of prosperity and minimising systematic risk.

      That is what you are paid to do, of course.

      • 3d1k
        If you (as in the wider political and economic community not 3d1k) ) don’t give a damn about foreign debt then it is all easy. You just stimulate activity and debt in the private sector, thus producing higher tax revenues, and that lets you balance your public sector budget. Of course your foreign debt explodes, in conjunction with your private debt, but nobody cares in this modern economic world. Foreign debt is free money.
        In a country like Aus if the foreign debt looks like it could get serious you portray the takeover of Aus industry, business, farms and RE as a desirable thing reflective of how great we are! So we flog the assets so we can keep up the level of activity and pretend everything is ‘huinky dory’

        In Aus case it is a proven formula.

      • Chris
        We CHOSE to sell those mineral assets to foreign interests. We did it so we could keep up our consumption. Our problem is not the foreigners who invested in them with an eye to the future. The problem is us as we are only interested in current short term consumption benefit.

      • @flawse why are those responsible for selling us out not charged with treason? I’d love to throw a few rotten tomatoes at many politicians whilst they rot in jail for their crimes (howard, costello, rudd, plibersek…)

      • @Andy!.

        Because the average voter hasn’t got a hope of understanding the situation. It’s not until it’s all too late that fingers will be pointed. We deserve what’s coming. Even some on here promote blindingly dumb policy, such as population growth in the deluded view “we need to do our bit”. 90 million extra people a year on the planet. We could triple our population and absorb 6 months global growth. Geniuses.

        We are too soft, too dumb, too entitled, too deluded, too distracted to expect to keep our privileged lifestyles.

      • “We CHOSE to sell those mineral assets to foreign interests.”

        You may have chosen to but I had no say in the matter.

      • Of course I’ve heard of systemic risk.

        I question the quality of discussion in the final paragraphs. References to pseudo-economics, class warfare, the marginalised and the poor, rejection of the notion there exists structural Budget deficiencies, then reference to usurers, robber barons, rent seekers, free riders add no value to the debate and ensure the post aimed entirely at the undergraduate,

        I’ve admired Soos’ work before and share some concern at the level of private debt. I politely suggest prudence required when using resorting to political terminology.

    • This ignores the fact that the transfer of public debt to private debt (through the sale of strategic monopolies and the alienation of public revenues to private tax farmers) doesn’t actually improve public debt.

      Historical experience – both modern and ancient – is that public borrowing capacity released by such transactions is quickly squandered by inadequately monitored political agents pursuing their grandiose schemes or (in more modern times) trying to buy the support of powerful voting blocs at the occasional elections.

      The final situation is worse than ever, with revenues alienated, nominal debt little changed (but with worse debt service coverage), and the private financiers wielding ever more power over the government.

      Under the ancien regime this led eventually to the complete collapse of government finances, revolution, and the mass execution of the remaining fermiers on the 8th May 1794.

      Debt (whether public or private) is an important tool for monitoring principal-agent relationships. If the agents have no more money to spend, they cannot waste it. This applies to the directors and managers of companies (as agents for the shareholders) and to politicians and bureaucrats (as agents for the People).

      Releasing public borrowing capacity by transferring debt ( and corresponding revenues) to private financiers may enrich those financiers (and eventually the corrupt politicians who act for them) but it is catastrophic for everyone else.

    • Yes, and of course, private debt used to fund individuals’ entitlement spending can be injudicious and excessive as long as it is secured by real estate and Bank shares, and the accordant implied support of the public balance sheet (repaired via reduction in health, education, welfare spending) and Central Banks.

      No avoiding the hangover from that Champagne Economic policy rationale conservatives have been swilling for the past three decades. Just be grateful the plebs don’t grab hold of the bottle and start cracking some skulls.

    • “private debt is private and the concern of holder of the debt and the financier”

      Thank you 3d1k, I needed a good laugh after a long day. People think you’re serious, but I know better! 😉

  10. Systemic risk is the key term

    While the idiot regulators are running around making financial planners write 150 page documents that nobody reads – the debt pimps have leveraged up the populace into the most illiquid assets of all.

    Well done RBA !

    Well done APRA !

    Well done Treasury !

    Bad news for Australians overall, however, as once the country turns ‘Irish’ – a very large chunk of that debt is going to end up on the public balance sheet as Megabank hits the skids.

    Unemployment and bankruptcies are going to explode higher.

    Luci is still working on her model to explain it all

  11. Only 46 per cent of households reported the ability to save each month;
    Only 32 per cent would easily be able to raise $3,000 in an emergency;
    50 per cent aren’t confident they have enough savings to last if unemployed for three months;
    35 per cent reported having less than $1,000 cash on hand;
    17 per cent have less than $100 in savings;
    60 per cent have less than $10,000 in savings; and
    In 2009, Australians were saving a median $300 per year

    Wow. I’d just like to say that I find these stats quite appalling. 😯

    I had no idea it was that bad. I have a little niggle of concern now about our future as a nation; very uncomfortable feeling. 😕

    • It’s telling stuff. After 30yrs or so of unbroken economic growth, 60% of the nation doesn’t even have savings of 10K.

      We have really bet the house.

    • Apart from how alarming it is, There’s one thing I can’t quite make sense of.

      60% don’t have $10k in savings, which would imply that 40% have at least $10k in savings. Yet only 32% could easily raise $3k in in an emergency. Surely that 40% who have $10k in savings could by definition easily raise $3k.

      That is unless I am misunderstanding what their meaning of savings and raise are.

      • So I had a look at the original report. Savings are defined as cash savings, which would make this even more puzzling, though would probably address @aj’s problem (someone fully invested in bonds, shares, property, etc. would have low savings by this measure).

        The thing that makes the 32% easily able to raise $3k less scary is that a further 32% could raise the money
        “but would involve some sacrifices, such as reduced spending or drawing money from an existing o” (original source truncates here). That leaves only 34% who would have trouble (24% can’t, 12% would have to sell something important).

  12. Hmmm I dont remember passing through any invisible gate at Sydney airport that suddenly saddled me with a mega private debt…I guess that must have been on the “something to declare” line (such as an undisclosed agenda). Individually Australians are accepting and indeed embracing indebtedness I dont see a problem with this if they have the capacity to repay these debts and if they lack the capacity then a whole lot of creditors are going to get burned. Hopefully neither result will adversely impact me, which is as it should be.

    Personally I see two serious problems effecting Australia’s long term prosperity and the word debt does not appear in either

    The two problems are;
    1) A political/regulatory/tax environment that punishes personal initiative and discourages entrepreneurial risk taking
    2) An Education system that dramatically under delivers

    Interestingly neither problem can be fixed with financial capital except in so far as political capital (that it controls) is freed to act in the best interests of the populace rather then the support of the FIRE industry.

    • If creditors get burned, which means banks, and you’ve got any money there, you’ll be affected.

      • Yea that’s a real beginners mistake blaming others for your own failure:
        my capital, my investments, my risks, my rewards….its a novel concept called personal responsibility….yea maybe they just dont teach that subject in Australia anymore.

    • “Hopefully neither result will adversely impact me, which is as it should be.”

      The key word here is “hopefully”. In the past four years I’ve worked for two businesses that have gone bankrupt. In both cases I was told that they were waiting to get paid for work completed in order to pay me. In both cases they went bankrupt before paying me. I have dramatically cut my spending (and increased my savings) since those two experiences.

      Thankfully I have a pretty good employer now, but I rather not rely on hope. Unfortunately trust is an important part of our fragile economic system.

      • To be honest its all about minimizing the impact of what you cant control, sure it sucks when your plans and those of your employer go south at the same time. Its happened to me on more than one occasion and frankly is the reason that I prefer to rely on myself rather than believing in the fairy tales that others would tell me.

        Now unfortunately I tend to lie to myself …..but that”s another problem.

    • “A political/regulatory/tax environment that punishes personal initiative and discourages entrepreneurial risk taking.”

      Why take risk and why innovate when one can simply get a Mate in government to flick you a contract. Or – better still – create an entire industry (like superannuation funds management) protected by government.

      Australia is a rent-seeking society, and it is a rent-seeking society because of its undemocratic and highly centralising Constitution.

      Centralism, opposition to genuine Democracy and rent-seeking all go hand-in-hand. They all involve the Few exploiting the Many. To sustain that over time it is essential that the Many have no effective means of redress. To sustain that over time it is essential to have as large an economic entity as possible to spread the load of allocative inefficiency.

      That is why the New Elite Consensus seeks to:

      a) create ever larger economic entities (the EU; “free-trade” agreements designed to benefit rent-seekers over customers) ; and

      b) wind back the democratisation of the 20th century.

      • I’m interested in your ideas SM, although viewed thru the veil of skepticism.

        I responded to your post yesterday thus

        January 7, 2015 at 1:53 pm

        There is a tectonic shift underway in the transfer of wealth and power to as you term the New Elite.

        I expect this to continue and I do not anticipate any democratic uprising at all, rather the opposite.It is not all bad! Many will be freed from the drudgery of routine work providing ample opportunity for engagement in the virtual world or the cultivation of a garden or the pursuit of knowledge.

        Voting will no longer be mandatory thereby releasing the disinterested or malcontent from participating in the political process.

        Basic needs will be met to ensure stability/docility and peoples liberated to concentrate on the self!

        A plebeian nirvana.

        – how far off the mark?

      • a 1%ers wet dream…..

        Of course they cultivate expectations for the punting masses to something close to subsistence, thus laying a good basis for those punting to respond appropriately.

        Nothing leads to heads on sticks so spectacularly as a leadership in lala land….

        ….and I for one would be inclined thus to egg them on

      • Basic needs will be met to ensure stability/docility and peoples liberated to concentrate on the self!

        They’re not today – quite the opposite – what possible reason would there be to believe they will be at some point in the future ?

        More likely the majority will be left to starve and fight over scraps while the elite and lucky few who remain employable will demonise their “laziness” and “lack of personal responsibility”.

      • Mmmm. Derestriction of recreational substances; advent of scarily good virtual reality; social media generally; the ‘next big thing’ manipulated according to requirements; food cards issued for use at acceptable corporates; Brave New World.

      • no nearer or no further than precisely that same mark has been for countless elites for generations

        You know as well as I do that all these things which make us more efficient and which someone can make money selling to us, enable us to do things which cant always be predicted with much accuracy.

        …and that little reward for pushing the envelope in a corporate sense, also provides a tasty dividend on occasions for those seeking to upset applecarts.

      • Its Maginot line thinking 3d, stasis as an ideological wet dream

        By all means push on, Sisyphus is waiting for company

      • This response itself reflects the essential elements of the New Elite Consensus. In principle it is indefensible. In practice it is inconsistent with everything we know from psychology and history.

        The use of the term “plebeian” (without irony) betrays the fundamental Elite doctrine that “other people” are essentially inferior beings: “We hold these truths to be self-evident, that all men are created unequal.”

        In keeping with the New Elite Consensus it is a reversion to Charles I’s doctrine that “A subject and a sovereign are clean different things”.

        It is a reversion to Alexander Hamilton supercilious view that: “All communities divide themselves into the few and the many. The first are the rich and the well-born; the other the mass of the people … turbulent and changing, they seldom judge or determine right. Give therefore to the first class a distinct, permanent share in the Government.” (Although the track record of “the rich and the well-born” leaves a little to be desired!)

        In principle, it invites the obvious question: “On what authority – according to what ‘Charter from Heaven’ – do these Elitists base their assertion of their own superiority, their Right to Rule.”

        In principle, it is a bald assertion of superiority that is logically indefensible.

        In practice, the suggestion that the New Elite program of:

        a) restoring entrenched wealth and privilege;

        b) subverting even the limited accountability provided by elective government; and

        c) replacing local and national self-determination with centralised and trans-national regimes,

        would somehow benefit the mass of human beings is either disingenuous or naive.

        Looking at the history of Elite government – both ancient and modern, and including the corrupt system of “elective” government – there is certainly nothing to suggest that “the rich and the well-born . . . judge or determine right”. Quite the contrary. Leaving aside the few truly democratic regimes (such as Switzerland) all the present problems which face the world are the result of Elite rule.

        Moreover, the supercilious view that “ordinary” people may be fobbed off with a few trinkets is at odds with everything we know about human psychology.

        A wealth of psychological evidence (see some of the discussion here and here) suggests that human happiness (or at least self-reported happiness) has little to do with material well-being.

        Beyond a minimal level of penury, self-reported happiness depends far more on relative status than on material possessions. This is simply the well-known hierarchy of needs.

        And yet it is an element of psychology that the Elitists go out of their way to ignore.

        Why might that be? Two reasons:

        a) it totally undermines any argument that the ends of “increasing output” can somehow justify the means of “promoting further inequality”; and

        b) from their own happiness-maximising perspective, they themselves want to increase their relative status, something which can be achieved only by pushing “other people” lower.

        Relative status is a “positional” good. One person’s relative status can be increased only by crushing the relative status of other people. And for some homo sapiens individuals (the psychopaths who by some estimates account for 4% of males and 2% of females) that drive is overwhelming.

        It is second aspect of behaviour which we see throughout history. Stripped of its ephemera, the history of the human race (at least since the development of agriculture and settled societies) is a story of psychopathic individuals competing with one another to achieve positions of power . . . and then using that power to dominate and brutalise their fellow human beings.

        To suggest that abolishing the Modern Era ideals of egalitarianism, democratisation and self-determination would somehow usher in a Benevolent Dictatorship in which the “Wise Elite” governed for the benefit of all people is naive beyond the power of words to describe.

  13. It’s a systemic problem, but a personal issue.

    Debt funded consumption (within which category we should include status housing, and trend “investment”) has been sold with a skill and dexterity that most cannot seem to comprehend.

    The marketing machines are good, extremely good and extremely clever. People continue to miscalculate their own talents at resisting (or even understanding) how their decisions are manipulated.

    • “The marketing machines are good, extremely good and extremely clever. People continue to miscalculate their own talents at resisting (or even understanding) how their decisions are manipulated.”

      Not only that, most people are terrible at assessing and understanding probabilities and complex risk.

      The problem is most mainstream economic theories (and their models) assume the opposite of what you and I argue! Then they wonder how things like the GFC occur..

    • aj
      Actually the problem was really accelerated by the economics profession itself. Probably some three decades ago ‘hiousing’ was shifted from ‘consumption’ in the national accounts to ‘investment’ This was endorsed by all and sundry including university academics. It was just another brick in the wall of the growing stupidity that is now modern economic thinking.