Red book : Household debt significant economic threat to Australia

A secret treasury economic brief to the government warns Australia’s high level of household debt and Australian bank’s reliance on overseas funding are significant risks to the Australian economy.

The brief, known as the “Red Book” was made public on Friday after many freedom of information requests.

“Highly indebted households, together with high dwelling prices, further heighten the vulnerability of the economy to shocks. While household finances are in good shape overall, and arrears rates and other financial stress measures remain much lower than in the early 1990s, households are more exposed than previously to adverse shocks.”

”A key risk for the Australian economy is our reliance on short-term external debt, largely intermediated through the banking system,” it said. ”Among Australian financial institutions, there has been some shift away from short-term funding since the crisis, but exposure to financing risk remains significant.”

89 percent of household debt is caught up in the Australian residential housing bubble.

ยป Treasury warns of household debt risk – The Sydney Morning Herald, 25th September 2010.