By Leith van Onselen
Above is an interesting CNBC video interview with the International Monetary Fund’s (IMF) senior economist, Daniel Leigh, who argues that “countries where there was a bigger build up in household debt had a much more painful recession, unemployment went up more, GDP fell significantly more and stayed lower for up to five years.”
The IMF’s findings, which are based on an examination of 25 economies over the last 30 years, should provide cold comfort to Australia, given that it has one of the highest levels of household debt in the world and experienced one of the biggest run-ups in the decade to 2009, driven mostly by increasing mortgage debt (see below McKinsey and IMF charts).
To date, the Australian economy has been able to sustain its high household debt, and avoided painful deleveraging, courtesy of the rivers of gold flowing from the mining boom, which has boosted national income, employment levels, and government finances, as well as enabled the Federal Government to provide large scale cuts to personal income taxes (further boosting disposable incomes).
