As we know, Australian households are among the world’s most indebted people.
According to the Bank for International settlements, Australians held the second highest household debt loads as a share of GDP at the end of 2019 (120%), behind only Switzerland (132%).
Australia’s household debt loads also dwarf other advanced English-speaking nations, as clearly illustrated in the next chart:
Australian households also have the second highest debt repayment burdens in the world, again dwarfing other advanced English-speaking nations:
Australia’s risky debt metrics raise obvious concerns that households, the banking sector, and the broader economy are at risk of sudden debt-deflation.
No, says the RBA, which has released a new paper claiming that Australia’s high household debt load does not pose major risks to the economy:
It is often observed that the level of household debt (relative to income) is high in Australia compared with other countries and its own history. Many commentators argue that it creates a major vulnerability for the country’s economy.
Concerns about how this will influence the economy’s ability to navigate a major downturn have for many years been central to understanding the resilience of the Australian economy.
In this paper we investigate how important these concerns are. We ask three questions:
1. Why is household debt in Australia relatively high compared with other countries, and what are the main reasons it has increased over time?
2. How big are the risks this debt poses to the banking system?
3. How might this debt shape the response of consumer spending to severe downturns in the economy?
We answer the first question using a panel of data for a wide range of countries over a long period of time.
We apply regression techniques to identify what factors are associated with different levels of debt in these countries at each point in time. The coefficients from this can then be applied to the Australian data to assess why Australian households have their current level of debt.
Our results imply that the rise in household indebtedness has been primarily driven by strong growth in household income and by the fall in real interest rates and inflation. Together these factors have increased the share of income households can spend on housing and the amount of debt that share of income can service.
The easing of restrictions on the financial sector in the late 1980s and early 1990s also appears to have contributed, and our model cannot explain the increase in debt over the past four or five years.
High levels of household income also enable Australians to sustainably hold more debt than in many other countries. The main reason, however, why Australian household debt is relatively high is that the housing rental stock, and hence the debt used to fund it, is owned by the household sector. In most other countries, a significant share of rental properties, and the associated debt, belongs to the government or corporate sectors.
We address the second and third questions with a stress testing framework, using detailed household-level data. We start by simulating how households’ financial positions would change if the economy faced a severe but plausible recession, in which the unemployment rate rose significantly and housing and other asset prices fell sharply (using data prior to the COVID-19 pandemic). We then measure the potential risks to banks by determining how much debt is held by households that would be unable to repay it in this scenario.
Our assessment of how this debt might affect the response of consumer spending involves applying coefficients from the global literature on how consumers react to falls in wealth. We use both the literature that estimates a single coefficient (on average, across all households) and work that explores how increased levels of indebtedness can amplify individual households’ responses.
These stress tests show that banks are well placed to handle a severe downturn in the economy. The main reason for this is that they have maintained strong lending standards: most of the debt is held by households that have significant equity backing their loans and that are less likely to become unemployed than others in a downturn.
Nonetheless, we show that these households could still significantly curtail their consumption in response to a severe recession, especially if they react more strongly to declines in housing prices than
they do to rises.
We find some evidence that the potential fall in consumption has become modestly larger since the early 2000s, as household indebtedness has risen. However, the distribution of debt across households does not appear to have a material influence on the sensitivity of household spending to debt.
Our work leads us to three implications.
First, we argue that it can be misleading to say that households in Australia are more vulnerable than those in other countries to economic shocks because they have higher levels of household debt. Rather, this higher indebtedness is mostly due to measurement issues and a greater capacity to service higher levels of debt.
Second, the distribution of debt across households matters a lot for how likely it is to pose material problems to banks, but does not materially affect the risks this debt poses to consumer spending.
And third, any issues that arise from high levels of household indebtedness in Australia are more likely to manifest in a larger-than-otherwise fall in consumer spending than they are to result in bank failures. This reflects that Australian banks (guided by the Australian Prudential Regulation Authority) have mostly done a good job in allocating credit to those that can afford it, and that households have used some (admittedly small) portion of their wealth accumulated over recent years to support spending.
This is obviously the Panglossian view on Australia’s household debt. The alternative view is provided by Martin North, whose mortgage debt surveys paint a far less rosy picture.
North defines stress in cash flow terms – money in and money out – with those in negative cash flow flagged as stressed.
His latest survey shows that mortgage stress is running at record high levels, with more than 1.5 million households experiencing mortgage stress:
Moreover, around one-quarter of property investors are stressed – i.e. losing money:
This is obviously a major concern given around 500,000 Australian households have deferred repayments on mortgages worth around $195 billion, as well as the pending unwinding of emergency income support, namely:
JobKeeper reduced from $1500 to $1200 from October ($750 part-time); and
JobSeeker reduced from $1100 to $815 from October.
The Grattan institute estimates this tapering will reduce income support from $18 billion a month (10.7% of monthly GDP) to $3 billion a month (1.9% of GDP) for the six months beyond:
The key risk is that a significant proportion of stressed mortgage holders will be forced to sell, leading to a feedback loop that drives property prices lower.
This risk is obviously highest for the 25% of stressed property investors that are now caught in a pincer of falling prices and rents.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
Latest posts by Unconventional Economist (see all)
M, you are claiming a vested interest in making money is causing lies from guy with the data and the khaki shirts on repeat …. while the giant banks, property developers and real estate media have no vested interest at all and are all simply telling the truth?
Do go on.
Dominic
+1
BrentonMEMBER
+1
Ian Arun
+1
MountainGuinMEMBER
He seems busier than ever. He sells access to his data set and has expanded into one on one sessions where he shares and discusses the data the client wants.
Good on him for both getting critical data to information hungry aussies and making a couple of bucks too.
Martin for Treasurer and Drew P as Minister for Justice.
happy valleyMEMBER
+1
littleguy
Who is Drew P?
Swampy
Access to proprietary data, as opposed to alternative data supporting ever increasing house prices?
revert2mean
Does not matter how North makes money. What matters is that this paper from the RBA is blatantly myopic, leaving out all the factors that actually make our housing debt the highest in the world, namely incredibly high immigration, the ability to offset all forms of income against housing losses, artificial land use constraints, etc. None of which makes it sustainable.
It’s really sobering to see the RBA so co-opted and involved in the subterfuge.
BrettMEMBER
It really is a sh!t piece of analysis….perhaps rushed out in an effort to assuage the market, the public and other house price fairies – and provide some butt-covering for the RBA and government if the market does sh!t the bed.
GarethMEMBER
They are idiots. You can imagine the 4 Corners expose which tallies up the number of claims by the RBA vs the actual outcomes. There won’t be a single accurate prediction and they will interview people like Martin North and he will say “my modelling showed this but was ignored by senior bureaucrats”.
McPaddyMEMBER
This type of contrarian analysis is, however, far beyond the capabilities of any of our so-called journalists with a substantial platform. In this, as in every other sphere of activity in Australia, you’ve got to go along to get along, and certainly it helps if you can’t tell the difference anyway.
Display NameMEMBER
After a dozen or so inflation and growth predictions that can only be described as fiction, the RBA has forfeited any claim to serious modelling or analysis in my book. I assume they are talking their book not contributing to analysis of the current state.
Jumping jack flash
+1
patrick
“… namely incredibly high immigration…”
That’s it, revert2mean.
The root cause of the huge household debt is the imposed mass third world immigration program.
Goldstandard1MEMBER
North’s data is far more robust than the RBA’s because he shines a light on real information, not vested interests to keep things going as they were- an ever inflating debt bomb.
Let’s come back to this topic at about Christmas time. Pretty sure you’ll see the RBA is 6 months behind as usual and they’ll simply ‘revise’ their forecasts and opinions’.
Thank goodneess there is alternative narrative.
Research by the Central Bank of Ireland following the 2007 crash, which put all its Banks to the wall requiring 70 billion euro of bailouts, found high loan to income lending a far greater problem than high loan to value lending.
Lending Multiples of necessity mirror the Median Multiples of specific urban markets.
In normal markets housing should not exceed 3.0 times annual household incomes, with mortgages about 2.5 times. Note what Martin North of Digital Finance Analytics said about this years Demographia Housing Affordability Survey at the time of its release January ‘Housing Affordability Sucks’ …
Across Ireland’s metros following the 2007 crash, the average Median Multiple slumped from 4.7 to 2.8.
Not surprisingly the Central Bank of Ireland generally capped mortgages to 3.5 times gross annual household incomes … which is still in place … Mortgage Measures – Central Bank of Ireland …
Another possibility is that the ratio of housing price to income in large Texas metropolitan areas is going up.
The ability to purchase a home is not solely dependent on housing price. It also depends on the household’s income and, in particular, the ratio of housing price to income. Traditionally, the rule of thumb was that there should be a 3:1 ratio between home price and income. For example, if a home costs $210,000, the household should have an income of $70,000. This rule of thumb has been stretched in recent years as home prices have gone up and interest rates have come down…. read more via hyperlink above …
The Irish bubble exposed the same problem with regulation and institutional capture which is a mirror image of what has panned out in Australia:
“The evidentiary bar for intervention was therefore raised, removing the precautionary instinct implicit in the prudential governance of Central Banks.”
What happens to anyone trying to blow the whistle on Australia’s 2 decade long real estate orgy? The media rips them to shreds as if they are insane and the regulators provide a comment to confirm that everything is fine. Same as Ireland but without the Celtic tiger.
That’s the same media in Straya that wholeheartedly and unquestioningly support the population ponzi, as to do anything else would be racist?
Display NameMEMBER
Even worse here. The two MM broadsheets own the two big property promoting sites. Domain/realestate.com.au.
blindjusticeMEMBER
The parallels are indeed ridiculous https://www.irishtimes.com/business/irish-times-buys-myhome-ie-for-50m-1.1263303
2006 (peak boom time in Ireland was between 2006 and 2007):
The Irish Times Ltd, publisher of The Irish Times, has bought MyHome.ie, the leading online property portal. The deal values the business at up to €50 million
fitzroyMEMBER
Great post Clive😀
Arthur Schopenhauer
The difference being, Ireland is not a giant quarry shipping bulk commodities to its neighbors. We’re a can kickers dream.
Without the quarry, all the positive media couldn’t sustain what will ultimately be unsustainable.
Mike Herman TroutMEMBER
Thanks Clive. That’s excellent. The parallels are ridiculous.
Goldstandard1MEMBER
Love it, thanks for the post.
Australia has the dirt diggin’ which is now the only thing spruikers can hold onto.
Before March, we get told that property will always go up over the medium to long term because:
-more warm bodies into the country
-people will borrow as much as they are allowed and so long as they have a job they can scrape by
-Most people have jobs
-FOMO
Now, that’s all gone………….so the media says……yeah but iron ore.
It’s actually comedic but time will tell!
Goldstandard1MEMBER
Love it, thanks for the post.
Australia has the dirt diggin’ which is now the only thing spruikers can hold onto.
Before March, we get told that property will always go up over the medium to long term because:
-more warm bodies into the country
-people will borrow as much as they are allowed and so long as they have a job they can scrape by
-Most people have jobs
-FOMO
Now, that’s all gone………….so the media says……yeah but iron ore.
It’s actually comedic but time will tell!
yogiman
Irish Lesson: If you don’t have your own currency, you’re in big trouble.
Icelandic lesson: If you have your own currency, you’ll probably be ok.
McPaddyMEMBER
Not just your own currency. You also need the balls to use it. That’s where the Icelandic and Australian ways part, I’m afraid.
NEW ZEALAND … just panic and pour on the fiscal and monetary ‘sugar’ ! …
Latest Reserve Bank monthly mortgage figures show that the post lockdown bounce back in activity continued at hot pace in July … David Hargreaves … Interest Co NZ
“Not says the RBA, which has released a new paper claiming that Australia’s high household debt load does not pose major risks to the economy”
The RBA happy clappies are absolutely correct on this. They and their private bankster mates have screwed depositors to subsidise borrowers – just like taxpayers subsidise excess franking credit “refund” zero taxpayers.
Dominic
“We apply regression techniques …”
Well that’s alright then – I was becoming concerned.
revert2mean
👁👁 “Look into my eyes, look into my eyes, the eyes, the eyes, not around the eyes, you’re under.”👁👁
McPaddyMEMBER
[I’ve got this formula thingy on excel. It’s really quite amazing. You should see it!]
Les
Messy analysis and confused writing from the RBA.
Debt to income ratio has increased due to greater income? Hmm.. 🤔
They could’ve simply copied a select few US and UK studies that show that higher household debt translates to higher consumer spending – applicable to Australian data. Maybe they tried that and it didn’t give the conclusion they were after?
Simon
I’m still stuck on the logic of the ratio being ok, debt proportional to increased incomes, especially given low wage growth preventing the problem inflating itself away. If my ratio of debt to income is 130:1, then why would it be of any benefit if I earn $1 and I have $110 debt vs the RBA’s position that earning $100k and having $130k debt is somehow more manageable?
Dominic
The answer lies back in time — about two weeks ago, in fact, when the public discovered the RBA were panicking about an imminent collapse in the housing market and wanted to ‘suspend it’.
Now they’re releasing placatory papers to calm the horses ….
Arthur Schopenhauer
If you can’t sustain the unsustainable, suspend it! Those guys are the smartest in the room.
Dominic
Yep, ‘suspension’ of the market is sheer genius. Nothing panicky about that at all. Takes years of study and experience to arrive at a conclusion like that.
littleguy
“Takes years of study and experience to arrive at a conclusion like that.”
🙂
Fra Mauro
@Dominic
THIS plus 1 x 10^20
The minute the dumb unwashed get the memo that buying RE is – and will be for several years – a very poor move, it’s lights out. Especially with the food delivery specialist / Tarneit subdivision buying pipeline cut off by COVID.
I have said it before and I will say it again: if I were Martin North, I would be checking the brake lines of my car each and every time I took it out for a spin.
DLS and LVO perhaps also.
The Penske FileMEMBER
Your point appears to be about the psychology of the situation which, in my half baked reading of this boring Salada dry document , I read zero about. Debt hurts people and without the hit of gains (on paper of course) every year I think even Aussies could fall out of love with it. I also couldn’t help looking up the individuals who wrote the document and always wonder what their own debt position is when writing this fluff. Do you think the younger writer is geared into the Sydney market? He’s seeing his first recession and will feel it after September.
Dominic
+1
LSWCHPMEMBER
Good point. I always appreciate your contributions here PF.
Jumping jack flash
Yes I completely agree re wages. The only time wages were anywhere close to inflating with the debt was that golden period of growth around 2006 where they had the debt expansion rate high enough to counter the deflationary forces caused by the debt. After that period there was barely anything left over for wage increases after obtaining and servicing those most necessary amounts of debt.
We poured the mining boom into creating debt. The mining boom which was arguably simply a colossal amount of debt spending created from when the US manipulated their interest rates down c2001 and caused a tidal wave of consumer spending on Chinese manufactured goods to avert the dotcom bust. Predictably it all stopped after 2008 happened, never to return.
Simon
Yes exactly.
It’s like the upward inertia of financial growth hit a brick wall for some facets of the economy, and the rosey picture of stock and assets continuing to climb was the only telemetry people were looking at.
BabundaMEMBER
It’s amazing the rubbish the RBA sometimes produces, but this is one of their better efforts. The authors are trying to estimate the drivers of Australia’s rising DTI ratio.
They find that:
almost all of the 125 percentage point rise in the DTI ratio between 1988 and 2018 can be attributed to the effect of lower real interest rates and inflation, financial liberalisation and higher real incomes
They then find:
structural changes that increase the ability of households to afford more debt (specifically, higher incomes and lower inflation) can account for around one-third of the increase in the DTI ratio in Australia. Lower real interest rates and financial liberalisation can account for much of the remaining increase. It is possible that these last two factors have contributed to excessive borrowing that may be disruptively unwound in the future
Which all seems entirely reasonable to me. They conclude that there aren’t major risks to the banking system but there are risks to the real economy (via consumption) which is actually the more important consideration
BrettMEMBER
Who cares about the questions the RBA is posing…. How about they analyse how household debt is a monkey on the back of the Australian economy, preventing it from becoming as productive, agile, equitable as it can and should be.
boomengineeringMEMBER
Productive, agile, equitable.
Today’s job, redesigning Chinese spring compressor free standing machine for Mercedes suspension. Cheap as chips but doesn’t work.
Yesterdays job, machining for client’s invention,a Sprinter tray that lowers onto the ground when needed.
Productive = some are trying.
Agile = for how long, the Sprinter invention probably won’t sell.
Equitable = not possible the whole Chinese spring compressor unit cost less than just the hydraulic ram would here.
Jumping jack flash
I suppose it depends.
The industry I work in is heavily subsidised so we can still find buyers for the expensive machinery we manufacture so long as our customers purchase them partly with grant money. Not always the case though for some of our smaller and cheaper gear.
Occasionally we sell some to the rest of the world as well. The French government is interested in my current project, for instance. I had to submit a report to them the other day that contained some high-level algorithms and my preliminary results.
There needs to be a lot more companies that do the work we do. The problem of course is the high amount of debt that everyone needs.
We can’t take on the best part of a million debt dollars to buy a starter house within a decent commute to work, and get paid $8 hour.
pfh007.comMEMBER
No surprise that inane paper from the RBA completely ignores the obvious problem with Australia’s household debt and that is that it is the result of a massive misallocation of capital towards the stock of existing housing.
And why did that happen?
Because the Australian banking industry that, according to the myths and spin, is supposed to ensure that capital is allocated to its best and most productive purpose has been more interested in feathering its own nest and cranking out bonuses to its executive class.
And it did this with thousands of “Bank Police” RBA, APRA and ASIC all watching on and applauding. So you can forget your do nothing theories that minor tweaks and deck chair movements are enough.
We simply must fundamentally reform capital allocation in Australia if we are to have any chance of meeting the challenges of COVID-19 or the end of the China boom.
The best way to do that is to break the banks stranglehold and open up capital allocation to serious competition.
It’s time to end the protected status of our hopelessly bloated Jabba the Hut banks.
Someone in the RBA needs to grow a backbone a pull a Volcker.
13% interest rates, even 5% interest rates would kill the banks.
RBA opens a people’s bank, and buys the private banks for cents on the dollar.
However I think the main hurdle to doing this is that agreement we are a signatory to that allows us to be part of the IMF or something like that. As part of that agreement we need to embrace Thatcherism (privatisation of everything) and have a central bank overseeing a gaggle of private banks. I’m not 100% sure on all of that, but I did hear it somewhere a while ago, and then again just recently, so perhaps it is a thing?
pfh007.comMEMBER
I don’t doubt that the IMF would not like the RBA operating as a bank but that is NOT what I am proposing.
MyRBA involves deposit accounts at the RBA for the general public but no interest is paid on the balances.
The critical advantage is that introducing MyRBA ends the advantages private banks have as capital allocators.
They will be on the same footing as everyone else who seeks to raise capital.
Dominic
With work like that, who can deny these flobs are worth every cent of the millions they are paid every year.
4. Conclusion
The long-run rise in household indebtedness has increased concerns about the risks this poses globally to banking sectors and economies more broadly. Given the current level of household debt relative to income in Australia is high compared to many other countries, and its own history, these risks are often highlighted for Australia. Our exploration of these risks shows:
You can’t stop the music, nobody can stop the music.
Take the heat from flame, try not feeling pain,
Though you try in vain it’s much easier.
No, you can’t stop the music, nobody can stop the music.
Change the master plan, take the hope from man
’cause that’s easier to do.
SpunkyMEMBER
the pause button, dammit.
revert2mean
RBA has Baghdad Bob syndrome. They absolutely deny there is any problem, but they are only moments away from suspending the entire market as they wet themselves with fear. 😱
In case of more severe downturn, press the pause button.
Jumping jack flash
Oh very nice.
“The RBA paper, titled How Risky is Australian Household Debt? suggests that “only a small portion of the rise in indebtedness [is] either unaccounted for or related to potentially more speculative factors”.
This, it says, is in part because debt is not concentrated among households with high loan-to-valuation ratios.”
And then the article goes on to mention LVR a ton of times and to point out that there is no risk.
LVR is the only thing that matters.
The really nice thing about LVR from the banks’ point of view is that it improves itself as more debt is created and added to the “market” and asset prices inflate as a result. The inflation of prices decreases the LVR for all the existing debt, but the actual risk of owning that enormous piece of debt hasn’t really changed at all.
Except of course when the size of the original piece of debt is measured against the pieces of debt that are available as a result of lower debt eligibility standards due to manipulated interest rates or rejigging HEM, and all those other totally non-risky things that are used to allow more debt to be handed out using the same set of parameters.
Used as a measure of risk is absurd. Used as the *only* measure of risk is absolutely and totally insane.
steve99
You make it sound like its been a fancy upside down pyramid, ponzi scheme all along. Who’d a thunk it!?
GlendaF
‘ they have maintained strong lending standards: most of the debt is held by households that have significant equity backing their loans and that are less likely to become unemployed than others in a downturn.’
1. Those same lending standards that were torn to shreds in the RC only 12 months or so ago?
2. Those same lending standards that only a few days ago were suggested to be to vigorous as banks were being a bit ‘cautious’ and need to ensure credit was still flowing?
3. And the RBA have data on those households holding the large debt such that they know the current employment conditions and industry in which they belong so as to be sure that these prople won’t become unemployed?
Oh, and I particularly liked the cause/effect statement that the high debt was ’caused’ by high income….
Am I missing something?
bda2206
rates back to the “emergency” setting of 3% please.
Jumping jack flash
Apart from the RC, I’m pretty sure nothing like that ever happened…
Arthur Schopenhauer
Thank goodness 😅 Albo, the international man of mystery, and his robust team of ghosting specialists will save us.
Forget ‘Where’s Wally’, it’s ‘Where’s Albo’. Forever lost in an opinion poll some place.
LEIGH SALES: But you are an influential politician. You would like to be the Prime Minister if you had the opportunity, so I’m asking what is the logic and how long should it go on that states with zero cases just keep their borders closed to each other?
ANTHONY ALBANESE: Well, I’m not a member of the National Cabinet, Leigh, and one of the things that is very clear is that the National Cabinet now has been reduced to state premiers and chief ministers telling each other what they are doing and…
LEIGH SALES: But what’s your opinion? I’m asking you now. What do you think they should do?
ANTHONY ALBANESE: … and then going their own way.
I think they should take the advice of their respective chief medical officers, but I also think that the National Cabinet, if it was something other than a title, should be playing a role in working these issues through.
I’m not around that table, Leigh, that is a decision that Scott Morrison made and that’s up to him.
Gutless
maddz
Probably Albo would do what Premier Dan has done, but with a less petulant authoritarian air. For all their #believeallscience should just appoint the Chief Scientist as PM. Cause Science least is in agreement with itself (until it disproves itself) and is free of personal motive.
fitzroyMEMBER
He wouldn’t lie like Dan. He wouldn’t sign up for OBOR or take Andrew Robb’s advice like Dan
frag out
Albo following ALP leaders footsteps and doing his best to snatch defeat from the jaws of victory.
Mark
RBA: “Nonetheless, we show that these households could still significantly curtail their consumption in response to a severe recession, especially if they react more strongly to declines in housing prices than
they do to rises.”
Straight from the horses mouth. In a sever recession they expect household to further curtail their expenses… So are they saying the death spiral begins there? Because that is what I’m reading.
Hill Billy 55
Yes, it will be interesting where the consumption level of the EZFKA will sit in 12 months time. It used to travel at 62%, got as high as 66%, will we see mid 50’s, the high 50’s? What will that mean for RE, Shopping Malls, Commercial RE, pensions, dividends and (gotta laugh) Franking Credits, our unquestionably strong banks etc etc etc
PaperRooDogMEMBER
Yeah, they are laughable! Everyone will curtail household spending but somehow all businesses will not be harmed, in an economy where consumption is by far the biggest sector!
Jumping jack flash
More government stimulus.
We needed 600 billion just to account for the missing debt growth over the past 10 years. The effects of this were obvious and something massive happened around 2017, probably hitting the wall on debt.
We have an extra 200 billion on top of that now. What’s that for? Is it for countering the effect of the coronavirus, or is it to substitute for economic growth? It can’t be for both.
In my opinion they need at least another 200 billion to take the total “stimulus” spend to a cool trillion. And then after that they should take a hard look and see whether they still need more.
Keep in mind that whatever stimulus they spend, 100 billion more or less has to be taken out each year and handed to the banks for the interest on their mortgage debt.
If they can’t get the debt growing again through resumption of interest rate cuts or their equivalent, the resumption of foreign investors, and the resumption of 3rd world slaves/students to steal wages from, then they will almost certainly need more “stimulus”.
Lock Her Up
I was all for the Aussie housing bubble popping, until my family needed a place to live and we bought. Now we hope the policies that caused the bubble are not unwound leaving us in the lurch. Who else is in the same boat?
Goldstandard1MEMBER
I’m in the bigger boat coming towards you. It’s got debt bomb written on one side and Depression written on the other.
Sorry, politics won’t save it and it makes no sense joining the fleet of boats that is about to blown to smitherines.
Just make sure you are not over-leveraged and relying on capital growth to survive for the next 3 years. Also keep your job.
For transparency, we sold our family home last October and chose to rent since. Already an ok decision but kitchen shall be thrown by gov.
Dave666MEMBER
Leave you in the lurch? I understand you need a home for your family and the stress that buying in this bubble has no doubt caused you. However, you should also have only purchased if (a) you can repay the debt within a reasonable time frame (before retirement) and (b) you a accept that the value of the property will fall significantly (who cares if its shelter for your family).
The best thing you can do for your family (children) is hope that the policies are unwound so that they can afford shelter for their family without working for a bank for their entire life.
jimboMEMBER
+++
Mega65MEMBER
In other words. Fvck you I have mine.
SnappedUpSavvyMEMBER
I think a lot of people are in the same boat, my wife wants us to be asap
Jumping jack flash
same
PaperRooDogMEMBER
“and our model cannot explain the increase in debt over the past four or five years.”
In any other profession this would be a red flag that their model is complte bollox! But no mainstream economists just ignore these sort of inconvenient truths. The rest of their analyses likewise ignores many of the facts as seen in other countries as you guys above have exposed.
IanMEMBER
If the model stopped working 4 or 5 years ago why are they still using it.
Covid-19 has contributed to median incomes falling for the first time since records began in 1998, Stats NZ says.
Stats NZ labour market statistics for income in the June quarter showed median weekly incomes were lower in the June 2020 quarter than they were a year ago, down 7.6 per cent to $652 a week.
The income measure captures income from wages and salaries, government benefits, such as Superannuation and Jobseeker Support, and self-employment.
Median weekly earnings from just wages and salaries actually increased 4.3 per cent in the June 2020 quarter mainly because many people from lower-income industries reported no earnings, Stats NZ said. … read more via hyperlink above …
Jumping jack flash
Why do we have so much debt?
Well its easy. We had a mining boom at the same time as we started manipulating interest rates, (arguably the mining boom occurred BECAUSE interest rates were manipulated) and then factor in insatiable greed, and the lack of boomer retirement savings. Once that kicked it all off, it just went on from there because nobody wants to be a loser in the New Economy.
Then as the population became saturated with debt, immigrants were used to take on debt, immigrants were used to steal wages from to allow the privileged some more debt, and interest rates were progressively lowered which lowered the bar on debt eligibility and made people eligible for larger piles of debt at the same set of circumstances.
Wages barely moved after 2008. I don’t know where he gets the drivel about expanding wages from. It was only during the ideal period, the “golden age of debt” up to 2006 where the debt was expanding fast enough that some was able to flow into wages before it got sucked out of the economy from obtaining new debt, or for repaying interest on existing debt.
All three of those mechanisms for debt expansion are pretty much seized up presently. It is a simple matter to predict what must happen to get the debt growing again.
In the meantime, we have just short of a trillion dollars of stimulus to fill the gap. The stimulus must go higher while everyone argues about the method and manner in which the 3 mechanisms for debt expansion can be restarted.
Kolchak
Nail on the head. Drops mike.
BabundaMEMBER
Good summary but none of it means that we get a flood of defaults and a banking crisis. It just means consumption crashes and we stagnate for a couple of decades
Jumping jack flash
Not even.
It means massive government stimulus to keep the economy running until the debt starts growing again
BabundaMEMBER
yeah prob more likely
King Bunyip
1.Collapse then reset.
2. Debt jubilee.
3 Govt debt/asset takeover
DPM
I thought 500,000 people with deferred mortgages pretty much settles this argument.
If the RBA is right then they can all go back to paying their mortgages tomorrow.
How does Martin North make money again?
OnlyFans
M, you are claiming a vested interest in making money is causing lies from guy with the data and the khaki shirts on repeat …. while the giant banks, property developers and real estate media have no vested interest at all and are all simply telling the truth?
Do go on.
+1
+1
+1
He seems busier than ever. He sells access to his data set and has expanded into one on one sessions where he shares and discusses the data the client wants.
Good on him for both getting critical data to information hungry aussies and making a couple of bucks too.
Martin for Treasurer and Drew P as Minister for Justice.
+1
Who is Drew P?
Access to proprietary data, as opposed to alternative data supporting ever increasing house prices?
Does not matter how North makes money. What matters is that this paper from the RBA is blatantly myopic, leaving out all the factors that actually make our housing debt the highest in the world, namely incredibly high immigration, the ability to offset all forms of income against housing losses, artificial land use constraints, etc. None of which makes it sustainable.
It’s really sobering to see the RBA so co-opted and involved in the subterfuge.
It really is a sh!t piece of analysis….perhaps rushed out in an effort to assuage the market, the public and other house price fairies – and provide some butt-covering for the RBA and government if the market does sh!t the bed.
They are idiots. You can imagine the 4 Corners expose which tallies up the number of claims by the RBA vs the actual outcomes. There won’t be a single accurate prediction and they will interview people like Martin North and he will say “my modelling showed this but was ignored by senior bureaucrats”.
This type of contrarian analysis is, however, far beyond the capabilities of any of our so-called journalists with a substantial platform. In this, as in every other sphere of activity in Australia, you’ve got to go along to get along, and certainly it helps if you can’t tell the difference anyway.
After a dozen or so inflation and growth predictions that can only be described as fiction, the RBA has forfeited any claim to serious modelling or analysis in my book. I assume they are talking their book not contributing to analysis of the current state.
+1
“… namely incredibly high immigration…”
That’s it, revert2mean.
The root cause of the huge household debt is the imposed mass third world immigration program.
North’s data is far more robust than the RBA’s because he shines a light on real information, not vested interests to keep things going as they were- an ever inflating debt bomb.
Let’s come back to this topic at about Christmas time. Pretty sure you’ll see the RBA is 6 months behind as usual and they’ll simply ‘revise’ their forecasts and opinions’.
Thank goodneess there is alternative narrative.
LESSON FROM IRELAND …
Research by the Central Bank of Ireland following the 2007 crash, which put all its Banks to the wall requiring 70 billion euro of bailouts, found high loan to income lending a far greater problem than high loan to value lending.
Lending Multiples of necessity mirror the Median Multiples of specific urban markets.
In normal markets housing should not exceed 3.0 times annual household incomes, with mortgages about 2.5 times. Note what Martin North of Digital Finance Analytics said about this years Demographia Housing Affordability Survey at the time of its release January ‘Housing Affordability Sucks’ …
https://www.youtube.com/watch?v=u_p1DjbBXw0
Across Ireland’s metros following the 2007 crash, the average Median Multiple slumped from 4.7 to 2.8.
Not surprisingly the Central Bank of Ireland generally capped mortgages to 3.5 times gross annual household incomes … which is still in place … Mortgage Measures – Central Bank of Ireland …
https://www.centralbank.ie/financial-system/financial-stability/macro-prudential-policy/mortgage-measures#:~:text=The mortgage measures are aimed,-income (LTI) limits.
The ‘Irish lesson’ of high risk excessive Lending Multiples was ignored by the RBA and RBNZ.
Why ?
They are well aware of the importance of the housing affordability / mortgage affordability issues in Texas …
Can Texas afford to lose its housing affordability advantage? … William Fulton … Kinder Institute, Rice University, Texas
https://kinder.rice.edu/urbanedge/2020/04/14/can-texas-afford-lose-its-housing-affordability-advantage
… extract …
… The rising ratio of home price to income
Another possibility is that the ratio of housing price to income in large Texas metropolitan areas is going up.
The ability to purchase a home is not solely dependent on housing price. It also depends on the household’s income and, in particular, the ratio of housing price to income. Traditionally, the rule of thumb was that there should be a 3:1 ratio between home price and income. For example, if a home costs $210,000, the household should have an income of $70,000. This rule of thumb has been stretched in recent years as home prices have gone up and interest rates have come down…. read more via hyperlink above …
TEXAS METROS … HOUSE PRICE TO INCOME TREND GRAPH
https://infogram.com/ratio-of-housing-price-to-income-1h8n6mz973g92xo
As far as the Irish crisis went, this is what sustained the bubble and it is exactly what is happening in Australia – the media sustained it:
https://www.tandfonline.com/doi/abs/10.1080/13563467.2013.779652
The Irish bubble exposed the same problem with regulation and institutional capture which is a mirror image of what has panned out in Australia:
“The evidentiary bar for intervention was therefore raised, removing the precautionary instinct implicit in the prudential governance of Central Banks.”
https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-923X.2011.02239.x
What happens to anyone trying to blow the whistle on Australia’s 2 decade long real estate orgy? The media rips them to shreds as if they are insane and the regulators provide a comment to confirm that everything is fine. Same as Ireland but without the Celtic tiger.
This man simplifies it and tells it as it is:
https://www.youtube.com/watch?v=koY6kXhQDQo
That’s the same media in Straya that wholeheartedly and unquestioningly support the population ponzi, as to do anything else would be racist?
Even worse here. The two MM broadsheets own the two big property promoting sites. Domain/realestate.com.au.
The parallels are indeed ridiculous
https://www.irishtimes.com/business/irish-times-buys-myhome-ie-for-50m-1.1263303
2006 (peak boom time in Ireland was between 2006 and 2007):
The Irish Times Ltd, publisher of The Irish Times, has bought MyHome.ie, the leading online property portal. The deal values the business at up to €50 million
Great post Clive😀
The difference being, Ireland is not a giant quarry shipping bulk commodities to its neighbors. We’re a can kickers dream.
Without the quarry, all the positive media couldn’t sustain what will ultimately be unsustainable.
Thanks Clive. That’s excellent. The parallels are ridiculous.
Love it, thanks for the post.
Australia has the dirt diggin’ which is now the only thing spruikers can hold onto.
Before March, we get told that property will always go up over the medium to long term because:
-more warm bodies into the country
-people will borrow as much as they are allowed and so long as they have a job they can scrape by
-Most people have jobs
-FOMO
Now, that’s all gone………….so the media says……yeah but iron ore.
It’s actually comedic but time will tell!
Love it, thanks for the post.
Australia has the dirt diggin’ which is now the only thing spruikers can hold onto.
Before March, we get told that property will always go up over the medium to long term because:
-more warm bodies into the country
-people will borrow as much as they are allowed and so long as they have a job they can scrape by
-Most people have jobs
-FOMO
Now, that’s all gone………….so the media says……yeah but iron ore.
It’s actually comedic but time will tell!
Irish Lesson: If you don’t have your own currency, you’re in big trouble.
Icelandic lesson: If you have your own currency, you’ll probably be ok.
Not just your own currency. You also need the balls to use it. That’s where the Icelandic and Australian ways part, I’m afraid.
NEW ZEALAND … just panic and pour on the fiscal and monetary ‘sugar’ ! …
Latest Reserve Bank monthly mortgage figures show that the post lockdown bounce back in activity continued at hot pace in July … David Hargreaves … Interest Co NZ
https://www.interest.co.nz/property/106746/latest-reserve-bank-monthly-mortgage-figures-show-post-lockdown-bounce-back-activity
… meantime …
Incomes fall for first time on record … Statistics New Zealand
https://www.stats.govt.nz/news/incomes-fall-for-first-time-on-record
“Not says the RBA, which has released a new paper claiming that Australia’s high household debt load does not pose major risks to the economy”
The RBA happy clappies are absolutely correct on this. They and their private bankster mates have screwed depositors to subsidise borrowers – just like taxpayers subsidise excess franking credit “refund” zero taxpayers.
“We apply regression techniques …”
Well that’s alright then – I was becoming concerned.
👁👁 “Look into my eyes, look into my eyes, the eyes, the eyes, not around the eyes, you’re under.”👁👁
[I’ve got this formula thingy on excel. It’s really quite amazing. You should see it!]
Messy analysis and confused writing from the RBA.
Debt to income ratio has increased due to greater income? Hmm.. 🤔
They could’ve simply copied a select few US and UK studies that show that higher household debt translates to higher consumer spending – applicable to Australian data. Maybe they tried that and it didn’t give the conclusion they were after?
I’m still stuck on the logic of the ratio being ok, debt proportional to increased incomes, especially given low wage growth preventing the problem inflating itself away. If my ratio of debt to income is 130:1, then why would it be of any benefit if I earn $1 and I have $110 debt vs the RBA’s position that earning $100k and having $130k debt is somehow more manageable?
The answer lies back in time — about two weeks ago, in fact, when the public discovered the RBA were panicking about an imminent collapse in the housing market and wanted to ‘suspend it’.
Now they’re releasing placatory papers to calm the horses ….
If you can’t sustain the unsustainable, suspend it! Those guys are the smartest in the room.
Yep, ‘suspension’ of the market is sheer genius. Nothing panicky about that at all. Takes years of study and experience to arrive at a conclusion like that.
“Takes years of study and experience to arrive at a conclusion like that.”
🙂
@Dominic
THIS plus 1 x 10^20
The minute the dumb unwashed get the memo that buying RE is – and will be for several years – a very poor move, it’s lights out. Especially with the food delivery specialist / Tarneit subdivision buying pipeline cut off by COVID.
I have said it before and I will say it again: if I were Martin North, I would be checking the brake lines of my car each and every time I took it out for a spin.
DLS and LVO perhaps also.
Your point appears to be about the psychology of the situation which, in my half baked reading of this boring Salada dry document , I read zero about. Debt hurts people and without the hit of gains (on paper of course) every year I think even Aussies could fall out of love with it. I also couldn’t help looking up the individuals who wrote the document and always wonder what their own debt position is when writing this fluff. Do you think the younger writer is geared into the Sydney market? He’s seeing his first recession and will feel it after September.
+1
Good point. I always appreciate your contributions here PF.
Yes I completely agree re wages. The only time wages were anywhere close to inflating with the debt was that golden period of growth around 2006 where they had the debt expansion rate high enough to counter the deflationary forces caused by the debt. After that period there was barely anything left over for wage increases after obtaining and servicing those most necessary amounts of debt.
We poured the mining boom into creating debt. The mining boom which was arguably simply a colossal amount of debt spending created from when the US manipulated their interest rates down c2001 and caused a tidal wave of consumer spending on Chinese manufactured goods to avert the dotcom bust. Predictably it all stopped after 2008 happened, never to return.
Yes exactly.
It’s like the upward inertia of financial growth hit a brick wall for some facets of the economy, and the rosey picture of stock and assets continuing to climb was the only telemetry people were looking at.
It’s amazing the rubbish the RBA sometimes produces, but this is one of their better efforts. The authors are trying to estimate the drivers of Australia’s rising DTI ratio.
They find that:
They then find:
Which all seems entirely reasonable to me. They conclude that there aren’t major risks to the banking system but there are risks to the real economy (via consumption) which is actually the more important consideration
Who cares about the questions the RBA is posing…. How about they analyse how household debt is a monkey on the back of the Australian economy, preventing it from becoming as productive, agile, equitable as it can and should be.
Productive, agile, equitable.
Today’s job, redesigning Chinese spring compressor free standing machine for Mercedes suspension. Cheap as chips but doesn’t work.
Yesterdays job, machining for client’s invention,a Sprinter tray that lowers onto the ground when needed.
Productive = some are trying.
Agile = for how long, the Sprinter invention probably won’t sell.
Equitable = not possible the whole Chinese spring compressor unit cost less than just the hydraulic ram would here.
I suppose it depends.
The industry I work in is heavily subsidised so we can still find buyers for the expensive machinery we manufacture so long as our customers purchase them partly with grant money. Not always the case though for some of our smaller and cheaper gear.
Occasionally we sell some to the rest of the world as well. The French government is interested in my current project, for instance. I had to submit a report to them the other day that contained some high-level algorithms and my preliminary results.
There needs to be a lot more companies that do the work we do. The problem of course is the high amount of debt that everyone needs.
We can’t take on the best part of a million debt dollars to buy a starter house within a decent commute to work, and get paid $8 hour.
No surprise that inane paper from the RBA completely ignores the obvious problem with Australia’s household debt and that is that it is the result of a massive misallocation of capital towards the stock of existing housing.
And why did that happen?
Because the Australian banking industry that, according to the myths and spin, is supposed to ensure that capital is allocated to its best and most productive purpose has been more interested in feathering its own nest and cranking out bonuses to its executive class.
And it did this with thousands of “Bank Police” RBA, APRA and ASIC all watching on and applauding. So you can forget your do nothing theories that minor tweaks and deck chair movements are enough.
We simply must fundamentally reform capital allocation in Australia if we are to have any chance of meeting the challenges of COVID-19 or the end of the China boom.
The best way to do that is to break the banks stranglehold and open up capital allocation to serious competition.
It’s time to end the protected status of our hopelessly bloated Jabba the Hut banks.
https://theglass-pyramid.com/2020/08/20/investment-manager-special-edition-myrba-superior-for-productive-capital-allocation/
Yes!
Someone in the RBA needs to grow a backbone a pull a Volcker.
13% interest rates, even 5% interest rates would kill the banks.
RBA opens a people’s bank, and buys the private banks for cents on the dollar.
However I think the main hurdle to doing this is that agreement we are a signatory to that allows us to be part of the IMF or something like that. As part of that agreement we need to embrace Thatcherism (privatisation of everything) and have a central bank overseeing a gaggle of private banks. I’m not 100% sure on all of that, but I did hear it somewhere a while ago, and then again just recently, so perhaps it is a thing?
I don’t doubt that the IMF would not like the RBA operating as a bank but that is NOT what I am proposing.
MyRBA involves deposit accounts at the RBA for the general public but no interest is paid on the balances.
The critical advantage is that introducing MyRBA ends the advantages private banks have as capital allocators.
They will be on the same footing as everyone else who seeks to raise capital.
With work like that, who can deny these flobs are worth every cent of the millions they are paid every year.
flobs? I like it. 🙂
🙂
RBA considered hitting the cue button on the decks:
https://www.abc.net.au/news/2020-06-18/reserve-bank-considered-asking-for-real-estate-transaction-pause/12363222.
But now…
4. Conclusion
The long-run rise in household indebtedness has increased concerns about the risks this poses globally to banking sectors and economies more broadly. Given the current level of household debt relative to income in Australia is high compared to many other countries, and its own history, these risks are often highlighted for Australia. Our exploration of these risks shows:
You can’t stop the music, nobody can stop the music.
Take the heat from flame, try not feeling pain,
Though you try in vain it’s much easier.
No, you can’t stop the music, nobody can stop the music.
Change the master plan, take the hope from man
’cause that’s easier to do.
the pause button, dammit.
RBA has Baghdad Bob syndrome. They absolutely deny there is any problem, but they are only moments away from suspending the entire market as they wet themselves with fear. 😱
Laughable, really.
Now this: https://www.abc.net.au/news/2020-08-26/senate-inquiry-bail-in-bank-deposits-rba-household-debt-covid19/12594380
In case of more severe downturn, press the pause button.
Oh very nice.
“The RBA paper, titled How Risky is Australian Household Debt? suggests that “only a small portion of the rise in indebtedness [is] either unaccounted for or related to potentially more speculative factors”.
This, it says, is in part because debt is not concentrated among households with high loan-to-valuation ratios.”
And then the article goes on to mention LVR a ton of times and to point out that there is no risk.
LVR is the only thing that matters.
The really nice thing about LVR from the banks’ point of view is that it improves itself as more debt is created and added to the “market” and asset prices inflate as a result. The inflation of prices decreases the LVR for all the existing debt, but the actual risk of owning that enormous piece of debt hasn’t really changed at all.
Except of course when the size of the original piece of debt is measured against the pieces of debt that are available as a result of lower debt eligibility standards due to manipulated interest rates or rejigging HEM, and all those other totally non-risky things that are used to allow more debt to be handed out using the same set of parameters.
Used as a measure of risk is absurd. Used as the *only* measure of risk is absolutely and totally insane.
You make it sound like its been a fancy upside down pyramid, ponzi scheme all along. Who’d a thunk it!?
‘ they have maintained strong lending standards: most of the debt is held by households that have significant equity backing their loans and that are less likely to become unemployed than others in a downturn.’
1. Those same lending standards that were torn to shreds in the RC only 12 months or so ago?
2. Those same lending standards that only a few days ago were suggested to be to vigorous as banks were being a bit ‘cautious’ and need to ensure credit was still flowing?
3. And the RBA have data on those households holding the large debt such that they know the current employment conditions and industry in which they belong so as to be sure that these prople won’t become unemployed?
Oh, and I particularly liked the cause/effect statement that the high debt was ’caused’ by high income….
Am I missing something?
rates back to the “emergency” setting of 3% please.
Apart from the RC, I’m pretty sure nothing like that ever happened…
Thank goodness 😅 Albo, the international man of mystery, and his robust team of ghosting specialists will save us.
Forget ‘Where’s Wally’, it’s ‘Where’s Albo’. Forever lost in an opinion poll some place.
Albo was abysmal on 7.30 report last night.
https://www.abc.net.au/7.30/anthony-albanese-discusses-the-coronavirus-crisis/12595270
LEIGH SALES: But you are an influential politician. You would like to be the Prime Minister if you had the opportunity, so I’m asking what is the logic and how long should it go on that states with zero cases just keep their borders closed to each other?
ANTHONY ALBANESE: Well, I’m not a member of the National Cabinet, Leigh, and one of the things that is very clear is that the National Cabinet now has been reduced to state premiers and chief ministers telling each other what they are doing and…
LEIGH SALES: But what’s your opinion? I’m asking you now. What do you think they should do?
ANTHONY ALBANESE: … and then going their own way.
I think they should take the advice of their respective chief medical officers, but I also think that the National Cabinet, if it was something other than a title, should be playing a role in working these issues through.
I’m not around that table, Leigh, that is a decision that Scott Morrison made and that’s up to him.
Gutless
Probably Albo would do what Premier Dan has done, but with a less petulant authoritarian air. For all their #believeallscience should just appoint the Chief Scientist as PM. Cause Science least is in agreement with itself (until it disproves itself) and is free of personal motive.
He wouldn’t lie like Dan. He wouldn’t sign up for OBOR or take Andrew Robb’s advice like Dan
Albo following ALP leaders footsteps and doing his best to snatch defeat from the jaws of victory.
RBA: “Nonetheless, we show that these households could still significantly curtail their consumption in response to a severe recession, especially if they react more strongly to declines in housing prices than
they do to rises.”
Straight from the horses mouth. In a sever recession they expect household to further curtail their expenses… So are they saying the death spiral begins there? Because that is what I’m reading.
Yes, it will be interesting where the consumption level of the EZFKA will sit in 12 months time. It used to travel at 62%, got as high as 66%, will we see mid 50’s, the high 50’s? What will that mean for RE, Shopping Malls, Commercial RE, pensions, dividends and (gotta laugh) Franking Credits, our unquestionably strong banks etc etc etc
Yeah, they are laughable! Everyone will curtail household spending but somehow all businesses will not be harmed, in an economy where consumption is by far the biggest sector!
More government stimulus.
We needed 600 billion just to account for the missing debt growth over the past 10 years. The effects of this were obvious and something massive happened around 2017, probably hitting the wall on debt.
We have an extra 200 billion on top of that now. What’s that for? Is it for countering the effect of the coronavirus, or is it to substitute for economic growth? It can’t be for both.
In my opinion they need at least another 200 billion to take the total “stimulus” spend to a cool trillion. And then after that they should take a hard look and see whether they still need more.
Keep in mind that whatever stimulus they spend, 100 billion more or less has to be taken out each year and handed to the banks for the interest on their mortgage debt.
If they can’t get the debt growing again through resumption of interest rate cuts or their equivalent, the resumption of foreign investors, and the resumption of 3rd world slaves/students to steal wages from, then they will almost certainly need more “stimulus”.
I was all for the Aussie housing bubble popping, until my family needed a place to live and we bought. Now we hope the policies that caused the bubble are not unwound leaving us in the lurch. Who else is in the same boat?
I’m in the bigger boat coming towards you. It’s got debt bomb written on one side and Depression written on the other.
Sorry, politics won’t save it and it makes no sense joining the fleet of boats that is about to blown to smitherines.
Just make sure you are not over-leveraged and relying on capital growth to survive for the next 3 years. Also keep your job.
For transparency, we sold our family home last October and chose to rent since. Already an ok decision but kitchen shall be thrown by gov.
Leave you in the lurch? I understand you need a home for your family and the stress that buying in this bubble has no doubt caused you. However, you should also have only purchased if (a) you can repay the debt within a reasonable time frame (before retirement) and (b) you a accept that the value of the property will fall significantly (who cares if its shelter for your family).
The best thing you can do for your family (children) is hope that the policies are unwound so that they can afford shelter for their family without working for a bank for their entire life.
+++
In other words. Fvck you I have mine.
I think a lot of people are in the same boat, my wife wants us to be asap
same
“and our model cannot explain the increase in debt over the past four or five years.”
In any other profession this would be a red flag that their model is complte bollox! But no mainstream economists just ignore these sort of inconvenient truths. The rest of their analyses likewise ignores many of the facts as seen in other countries as you guys above have exposed.
If the model stopped working 4 or 5 years ago why are they still using it.
NEW ZEALAND …
Incomes fall for first time since records started in 1998, Stats NZ says … John Anthony … Stuff NZ
https://www.stuff.co.nz/business/money/122566939/incomes-fall-for-first-time-since-records-started-in-1998-stats-nz-says
Covid-19 has contributed to median incomes falling for the first time since records began in 1998, Stats NZ says.
Stats NZ labour market statistics for income in the June quarter showed median weekly incomes were lower in the June 2020 quarter than they were a year ago, down 7.6 per cent to $652 a week.
The income measure captures income from wages and salaries, government benefits, such as Superannuation and Jobseeker Support, and self-employment.
Median weekly earnings from just wages and salaries actually increased 4.3 per cent in the June 2020 quarter mainly because many people from lower-income industries reported no earnings, Stats NZ said. … read more via hyperlink above …
Why do we have so much debt?
Well its easy. We had a mining boom at the same time as we started manipulating interest rates, (arguably the mining boom occurred BECAUSE interest rates were manipulated) and then factor in insatiable greed, and the lack of boomer retirement savings. Once that kicked it all off, it just went on from there because nobody wants to be a loser in the New Economy.
Then as the population became saturated with debt, immigrants were used to take on debt, immigrants were used to steal wages from to allow the privileged some more debt, and interest rates were progressively lowered which lowered the bar on debt eligibility and made people eligible for larger piles of debt at the same set of circumstances.
Wages barely moved after 2008. I don’t know where he gets the drivel about expanding wages from. It was only during the ideal period, the “golden age of debt” up to 2006 where the debt was expanding fast enough that some was able to flow into wages before it got sucked out of the economy from obtaining new debt, or for repaying interest on existing debt.
All three of those mechanisms for debt expansion are pretty much seized up presently. It is a simple matter to predict what must happen to get the debt growing again.
In the meantime, we have just short of a trillion dollars of stimulus to fill the gap. The stimulus must go higher while everyone argues about the method and manner in which the 3 mechanisms for debt expansion can be restarted.
Nail on the head. Drops mike.
Good summary but none of it means that we get a flood of defaults and a banking crisis. It just means consumption crashes and we stagnate for a couple of decades
Not even.
It means massive government stimulus to keep the economy running until the debt starts growing again
yeah prob more likely
1.Collapse then reset.
2. Debt jubilee.
3 Govt debt/asset takeover
I thought 500,000 people with deferred mortgages pretty much settles this argument.
If the RBA is right then they can all go back to paying their mortgages tomorrow.
Post-coronavirus deposits are safe with the banks, and debt for property is not a huge risk, say regulators
http://www.abc.net.au/news/2020-08-26/senate-inquiry-bail-in-bank-deposits-rba-household-debt-covid19/12594380
Tick Tock goes the clock .