Wednesday’s national accounts release for the September quarter confirmed that Australia’s FIRE economy – Finance, Insurance and Rental, Hiring & Real Estate Services – continues to scorch the economy, increasing its share of the Australian economy to a record 11.7% (see next chart).
Since financial markets were first deregulated in the mid-1980s, the FIRE sector has grown at nearly twice the pace of the rest of the economy, sucking the life out of the productive sector:
The FIRE sector is loving life at the moment. Households are re-leveraging, as evident by the trend decline in the household savings rate over the past three years:
And the ratio of mortgage debt-to-GDP has risen to a new record high 92.5% of GDP:
The banks are also borrowing offshore like drunken sailors, funding the huge balance sheet (read mortgage) expansion:
Indeed, gross external liabilities outstanding as at September 2015 hit a record $888 billion, a $52.2 billion rise over the previous quarter and a $135.5 billion increase on September 2014.
With that growth, the ratio of offshore borrowings to GDP has hit an all-time high 56% of GDP, easily surpassing the pre-GFC peak:
And the net result is that Australian house prices have increasingly decoupled from rents as capital has flooded into non-productive housing:
With overall housing credit growth expanding at 7.5% in the year to October 2015 – much faster than nominal GDP (1.9%) – the FIRE economy is set to continue pushing to new highs, taking Australian risk even further beyond GFC levels, but this time with a failing Budget, falling national income, higher unemployment, and less interest rate cuts still in the chamber.
The dumbest bubble in history rolls on…
