Australia’s Debt Lead “Recovery” raises concern of Credit Crunch in 2010

Australians are trying to starve off recession by spending, something which can only end in disaster as the debt continues to pile up.

Figures from the Reserve Bank of Australia show Australians now have more household debt than the countries’ GDP. Personal Debt is now 100.4 per cent of Australia’s Annual GDP or $1.2 trillion dollars, surging 71% in the past five years and surpassing that of America.

Mortgages contribute almost 90% to personal debt, up by five percent this year fueled by the Federal Government’s First Home Boost.

With Interest rates due to rise in the next year, this level of extremely high debt will ensure pain is felt. News Limited reports “There are also concerns rising rates will create a belated “credit crunch” as banks pull back on lending to heavily indebted customers. When that happened in the US and the UK, house prices plummeted.”

“Our debt is our Achilles heel, there’s no question about that,” Shane Oliver, chief economist at AMP Capital, said.

The financial accounts from the RBA show just how irrational and risky current markets are. It shows household net financial assets excluding real estate shot up 17% in the September quarter alone, making the sharpest rise in wealth since the start of records 21 years ago. This is $8200 per person in three months. While this may sound good, it is only half of what was lost during the global financial crisis.

This extreme volatility has caused households to take cover. 2 years ago households had $370 billion in bank deposits and $431 billion on the share market. In September bank deposits grew to $507 billion, while stock market investments fell to $327.

» Debt level enters danger zone – The Courier Mail, 27th December 2009.
» Aussies $1.2 trillion in debt – Yahoo 7 Finance, 27th December 2009
» Household debt tops national income for first time – The Sunday Telegraph, 27th December 2009.
» Australians rack up record debt – Yahoo 7 Finance, 27th December 2009.


  1. Only idiots have not seen this coming.

    Woops! I think I just offended 90% of Australians.

    A 71% rise in debt in 5 years- Doesn’t that sit perfectly next to the increase in house prices.

    This rot was never ever sustainable. We will witness the worst property crash in Australia’s history shortly. I can’t predict what year, but I can say I hope we don’t have a useless spend-happy government in office at that time. Or, like the USA, every taxpayer will be riddled with government debt———-I avoided getting sucked into this, don’t waste my taxes on junk mortgages-PLEASE!!!!!!

  2. Its interesting how the different papers portray the story.

    In Adelaide, there is no mention of the $1.2 trillion of debt. Zip, nothing. Rather an article that takes up almost the entire page titled “the age of affluence”. It has a family pictured in front of a “magnificent Kensington Gardens mansion.”

    It mentions Australian wealth is “up $6500 in the past three months alone”, the fastest rate on record. It mentions overseas money will stimulate the housing market this year (leading to even more debt) and a stronger job market will support consumer spending (gee Christmas and Boxing day sales were a flop).

    No need to hold back here, everyone is $6500 richer in the past three months so you can spend it now. While your at it, $6500 is sustainable, so spend Mar 2010 quarter’s as well. That’s $13,000 to spend.

    Spend, Spend, Spend. In are so far in debt now, what’s another couple of thousand going to do?

  3. It is of interest that the value of debt is based on October’09 figures – one suspects that things may well be worse once the Christmas figures come out.

    Australia has avoided a recession simply by promoting cousumer spending (houses, cars (50% tax deduction on Commercial vehicles)), not by increasing industrial output (what Industry??!), or increasing exports. As the rest of the World Economy emerges from the recession, so interest rates in our major competitors / markets will also increase. To assure inward investment, our interest rates will also need to increase, which is far from good news for those with $500,000++ mortgages!

    The money spent so far in propping up the “Housing Bubble” cannot be re-spent, so the amount of reserves available for a second wave of “stimulus spending” have been significantly decreased. Printing money simply leads to currency devaluation and run-away inflation (good examples of this – Post-War Germany, Present-day Nigeria), so the only reasonable expectation would be at best a (maybe prolonged) period of economic stagnation, reduction in employment, and housing debt escalation – hardly a rosy future for the “Lucky Country”.

    It will be interesting to see just how bad things have become post-Christmas – especially if the GDP is revised downwards in view of decreased export vs. import performance. Steve Keen (Debtwatch) must be tearing his hair out!!

  4. Home prices probably have to fall by about 20-30% from current levels for the Australian economy to be sustainable long term.

    People invest too much money in property and far too little into productive assets.

    Negative gearing has to go.

  5. OMG! The Australian cities housing market is in for a big crash. It seems Steve Keen was right after all. His only mistake was timing. The 40% crash we had to have is a coming.

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