Lunatic RBA: High household debt curbing spending

It’s always funny to read the RBA – which is partly responsible for Australia’s record household debt load – lamenting that high household debt is curbing spending. Via a new RBA research paper:

We explore the relationship between owner-occupier mortgage debt and spending using detailed panel data on Australian households. We find evidence consistent with a ‘debt overhang effect’ – households cut back on their spending when they have higher levels of outstanding mortgage debt. This overhang effect holds even when households’ net housing wealth remains constant, implying that households reduce their spending when the gross value of both their debt and assets increases… We find evidence that indebted households reduce their spending by more than other households during adverse macroeconomic shocks, such as the global financial crisis, but the negative effect of debt is also pervasive at other times…

The household debt-to-income ratio has risen to record levels in Australia in recent years, while household spending has been relatively weak (Figure 1)…

Australia has seen a strong increase in household debt and weak spending over recent years despite a persistently stable banking system and reasonable economic growth even during the GFC. This suggests that a high level of household debt may weigh on spending even when the economy is in a more ‘normal’ phase of the business cycle…


Consistent with international research, we find evidence that high levels of owner-occupier mortgage debt reduce household spending. Higher mortgage debt is associated with less spending even when we control for changes to net housing wealth and cash flow (adjusted for mortgage repayments). This implies that a deepening of both sides of the household balance sheet is associated with weaker spending, and that debt matters for spending over and above its effect on net wealth…

Overall, the negative effect of debt on spending is pervasive across households with owner occupier mortgage debt.

Thankyou Captain Obvious.


  1. Well, I have been an embodiment of Captain Obvious, so being a Captain Obvious is not a bad thing.

    If anything, the RBA should have been Captain Obvious more consistently over the last 20 years and things wouldn’t have been as bad as they are.

  2. I wonder if low interest rates do the same thing? Probably they’ll tell us…in 10 years.

  3. A high debt is an impediment to the debt expansion?
    Debt jubilee, perhaps, and start afresh?

  4. Alfred Sparkes

    The finest minds in the country. Hahahahahahahahahahaha ! They may as well all join our evangelical prime minister down at their local Hillsong campus and start praying for more love.

    • darklydrawlMEMBER

      Their choice of drug is Hopeium….. Scomo seems to indulge himself occasionally….

      • Scumo doesnt give two flying fcuks what happens to Australia or its economy..he has a huge pension for life..hes fine..the rest can go flagilate themselves…

  5. mikef179MEMBER

    I think they figured the positive equity game could keep on going forever. After all, it doesn’t matter how much debt you are in if your property/s keep going up in value, you can just keep extracting and spending that equity.

    Pity they couldn’t seem to figure out it was a giant ponzi.

    • DominicMEMBER

      Yup, and this is why the debt-based money system cannot last. It’s a ponzi scheme top to bottom and slowing population growth in all major economic blocs simply brings forward the denouement. Almost every one of us on this blog will be around to see the end of it.

    • Wait till QE and interest rates go negative – then the bank will pay you back your mortgage!
      The more expensive your house, the more the banks will pay you each month.

    • Jumping jack flash

      Yes, yes!
      Infinite debt.

      Its never worked before, but this time they cracked the code, right?

      The problem is the interest. They try everything to hide it, call it something else, ignore it, but at the end of the day it must be paid for the banks to continue to exist.
      Zero cash rate and QE just shifts the burden of the interest payment away from the banks and onto the poor fools holding the debt. Banks love it.

      Debt slaves’ interest rates will never be zero. Not even close. On the other hand, the banks’ interest rates can easily be zero, less than zero, it matters not because their debt slaves pay them the interest.

    • Torchwood1979

      Reading all the garbage they’ve written in the past 5 years I’d conclude the RBA thought this would never be a problem because:
      a. the wealth effect is unstoppable, just cos it is.
      b. the imminent wages boom will take care of any serviceability problems.

  6. I see they have identified high household debt as a problem at the exact same time they have cut interest rates TWICE – specifically to ENCOURAGE FURTHER BORROWING.

    Absolute atomic-strength f#cksticks, the lot of them.

  7. Anyway, gold back up again. If FED cuts 50 basis points or when FED cuts again 25 basis points watch gold jump to $1500usd.
    It seems there will be race the bottom with the IRs.

  8. Jumping jack flash

    And here we read the struggles of a career banker trying to understand the fact that nonproductive debt is a net drain on the economy, not a boon.

    For banks, debt of any kind is a boon because it generates interest. Interest that must be paid, in addition to the repayment of the principal.
    When trillions upon trillions of nonproductive debt dollars have been magicked up, created only by the inflation that the creation of the debt has created, the multi-billion dollar question is then, “where does the interest come from?”

    Oh right, it comes out of spending. It comes out of everything.

    Couple the effect of the billions of dollars of interest sucked out of the economy, with rising cost of living due to the gouging that occurs because everyone is vying to obtain as much debt as they can possibly carry. Essential living expenses are completely gougable. So they are.

    • JJF:
      you probably posted the most important comment here.
      It’s all about the readies. What sending money is available.
      It’s related to what the So Very Wise Economists Who Wear Suits and Sh1t term
      Demand is dying and will come to a spectacular end in the coming year or so.

  9. If the US economy hits the skids, all Trump needs to do is deport as many illegal immigrants (22 million already there) as possible, and any job cuts can be borne by them instead of Americans.

    Then cut social security taxes and give the money straight back to employers.

    Easy to keep the whole thing afloat.

    Legalise marijuana at a federal level to get some money into State coffers, and workers at the edge of society are better off on mairjana instead of crack cocaine, opiates or alcohol.

    • Jonno is being Jonno…..cut social security. cut taxes. Everything will then be roses and rainbows.
      He probably thinks the “trickle down effect” is a real thing that can be observed and measured.

      • Jumping jack flash

        The trickle down effect could feasibly work in a “chaotic good” economy. (shout out to all the D&D players!)
        Anyway, the problem with trickle-down is pretty much the same as the problem with anything in the New Economy – the lust for necessary, infinite quantities of debt.

        Any capacity that COULD be used to trickle-down, is instead used by the owner of that capacity to source or repay debt.

        Indeed, when you add debt into the equation you achieve trickle-UP, when poorer people take on debt to bestow onto the next rung above them in exchange for assets that have incredibly inflated prices due to the debt that is/was attached to them, and a flawed valuation model that completely favours the debt inflation.

        Also consider why we even have wage theft, which is a natural evolution of the New Economy that must occur to obtain more debt.

  10. So we have the spending issue from one side, then we have business, the higher property is the more rent that businesses have to pay, this then leads to higher goods costs, so now the economy is getting a double whammy.