Monday, December 28, 2009

Aussie GDP Down Under Debt

The Lucky Country has been on a me-too tear with the US stock market in 2009. Unemployment has held to normal, lowish levels, housing prices are near the highs of recent times, and Bob's her uncle. Its own stock market is looking to end the year on its high.

No worries, right, Mate??

Maybe, but ....

Australians rack up record debt
Australian households are in record levels of debt, and for the first time have surpassed American levels.

Reserve bank figures show household debt - the combination of personal and mortgage debt - is equivalent to Australia's GDP.

Credit binge sets new debt record
Reserve Bank figures show mortgage, credit card and personal loan debts now stand at $1.2 trillion, up 71 per cent from just five years ago and equating to $56,000 for every man, woman and child in the country.

Our spending binge, fuelled most recently by the Government's First Home Owner Grant, means personal debt now totals 100.4 per cent of Australia's annual GDP - one of the highest ratios in the developed world.

Mortgages account for almost 90 per cent of annual GDP, up from 17 per cent in 1990 and by five per cent in the last year alone as first-home buyers have flooded the market.

Australians are now the biggest borrowers in the world
Our “recovery” and “growth” turn out to be debt based.

What's much worse is that these figures have apparently been sitting around for a while, gathering accolades, not concern.

Australia has been blowing its own trumpet about its economic performance for a while now, but the next tune is likely to be “Taps”, unless somebody gets their finger out.

Guambat must recognize that the level of debt is a concerning matter, but cannot be assessed in a vacuum. The structure of the debt is also important.

The large sum of mortgage debt in the US was made impossibly unsustainable due to the nature of the thin finance made available to subprime, coupled with the further thinning of the finance through securitisation and indiscriminate run for return by financial intermediaries.

Australia generally did not participate in that.

But, having debt greater than GDP is a cause for concern, as it may imply an overly valued currency. If that notion takes hold, they may carry out the carry trade Aussie-$ on a stretcher, and along with it much of the froth in the economy of late.

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