Australian Prime Minister warns on household debt levels; Moody warns Australian banks in uncharted territory.

Prime Minister Malcolm Turnbull has called on Australians to be prudent towards excess household debt, saying interest rates will not always remain low.

“It’s not for me to give lectures on household finance but I think most Australians are very alert to the fact that while interest rates are low they haven’t always been low and that you’ve got to be prudent in terms of your borrowing,” he told the West Australian Newspaper.

“It’s up to the Reserve Bank to maintain financial stability, and they have a number of levers, interest rates being the most obvious one, to address excessive borrowing if that’s the right term.”

In the March quarter, household debt as a percentage of household income continued to climb to 187 per cent on the back of emergency low interest rates. Australians carry the highest level of household debt of anyone in the world.

This burdening and record high household debt level has caused Moody’s Investors Service issue a recent warning that Australian banks will be in uncharted territory when the nation’s households have to contend with an economic downturn.

“The resilience of household balance sheets and, consequently, bank portfolios, to a serious economic downturn has not been tested at these levels of private sector indebtedness,” Ilya Serov, senior vice-president at Moody’s Financial Institutions said.

» Prime Minister’s debt warning for Australia – The West Australian, 15th September 2016.
» PM Turnbull urges homebuyers to be prudent with money, reminds Australians interest rates will not always be so low – International Business Times, 15th September 2016.
» Home debt threat: Moody’s bank warning – The Herald Sun, 19th August 2016.


  1. From June 2010 to December 2011, house prices nationally fell around 5-6 %…. In this time the cash rate went up around 0.75%.My analysis shows a lag of about 12-18 months between rate moves and market troughs…anyone who bought a house 2011-2012 probably paid a fair price or at least paid a price stripped of some of the pre GFC growth caused by speculation and inflation.

    Enter 2013 and beyond, the RBA panic in response to this and the cash rate halves and today house prices have climbed (nationally) by around 20-30 % since this trough in 2011/12.Inflation has nothing to do with this, this rise is all from the cheap credit binge, policy aimed at housing stimulation, pure speculation, and foreign investment.

    Im an Engineer, no real background in finance but understand math enough to see the magnitude of this. If a 0.75% rate rise lead to a 5-6 % price drop in 2011 when household private debt was lower than today, then a 1 or 2% rise in rates now would undoubtedly knock out the 20-30% growth through similar mechanics that occurred in 2011/12.There goes your equity you used to buy your 2nd Jeep and renovate your house.

    From 2014 first home owners have overtaken investors in terms of credit commitments. If I read this correctly, first home owners are the most recent into the ponzi, that is families are the latest ones to ‘exchange the debt’ and thus have the greatest amount of exposure and also the greatest amount of false equity. There also, for some reason, the most ignorant to exposure and have the greatest debt appetite.

    You do not need to be a genius to work out where this is going.

  2. Sounds like the PM is just diverting blame. “It’s up to the Reserve Bank to maintain financial stability, and they have a number of levers, interest rates being the most obvious one, to address excessive borrowing if that’s the right term”

    It is not up to the government to remove negative gearing concessions or the 50% capital gains discount.

  3. It’s much simpler, don’t listen to his words: Predict what’s going to happen.

    Just like Hank Paulson, Ex Goldman, wrote the USA bank bailout cheques, Turnbull, Ex Goldman, would LIKE the banks to collapse (without him being seen as ‘responsible’) and then Turnbull can write up the bail out cheques, approve the bail-ins (ie. take peoples cash savings and give them fresh stock or known as fraud by stealing cash and then counterfeiting stocks in return).

    Again, just like what we’ve seen the banking class do over the last 10 years, it’s beyond belief that they are doing this in broad daylight right before our eyes…. and they get away with it!

    Oh the art of distraction is alive and well: SSM votes, making noise about senators speeches, etc. etc.. Chuck in a few footy finals and the public couldn’t care less….

  4. @jAMIE (Fellow Engineer)
    Your analysis makes sense, and yes you do not need to be a rocket scientist to see we as a nation are in deep trouble.
    Realistically I don’t think interest rates will rise for years unless the government is forced to raise them. They know that if rates increase say by 2% property prices will drop significantly, households will go into negative equity, construction will slow and the economy will go into recession.

    There are too many vested interests in this whole scam to change it.

    Yes negative gearing and 50% capital gains concession are a big problem, but it is the governments responsibility to oblish these. This was one of the reasons I voted Labour, at least they were going to address these issues.

  5. I agree with all three previous comments, although I think Pete meant to say “IS it not up to the government.. “, because yes it is! This is clearly the same case as the US before the GFC where cheap irresponsible lending led to bankruptcy and foreclosure. Mum and pop investors and especially the young first home owners will be heavily hit when the tide turns, but the question is, who profits from this? Is this just the consequences of the governmental policies that tried to stimulate the economy during the GFC and should have been done away with, or re-calibrated afterwards or is this a product of something more sinister? will we also be bailing out banks when the bubble bursts and loans cannot be repaid and who reaps the cheap property afterwards? These are the questions that will come in due time and the way the government reacts to these questions will say a lot about the relationship between our politics, banks and big business.

  6. What a cheek – ol’ Silvertail himself telling us to tighten out belts, whilst Howard, Hawke, and the other ex PM parasites draw $300K a year until they die for doing nothing.

    The reserve bank levers do not work. Interest rates get cut, and the numnuts continue to pay ever increasing house prices.

    This bubble will continue till people are maxed out. The high rate of household debt shows we are almost there. We have had the highest household debt in the world for some years. The party has to end soon.

  7. @ Chippa , they do say Engineers can appear autistic hence why my friends think my interest in this is abnormal and my partner (whilst appreciating my enthusiasm and rigour) thinks I’m obsessed.

    The problem is the average Joe today is naive, potentially lazy, undereducated, risk blind, and raised in a ‘bricks and mortar’ culture where their parents known as “prudent property investors” regularly repeated the statement “safe as houses, mate” and preached about equity in a godly sense. These “prudent property investors” milked returns in excess of triple that offered on term deposits whilst tax payers footed their loses and ensured their profits stayed aloof like helium filled balloons via negative gearing and CGT concessions. Still today, years on, proof of this mentality can be seen around us…. Scott Cam gets on the radio the other day saying something to the effect of “You should be in the property market by your early twenties, use your parents equity if you have to”. Thanks Scott for your invaluable advice, I’ve just paid my HECS off, pay rent not too far off the definition of mortgage stress and whilst faced with prices 8-10 x my median income require almost a decade to save a deposit. Meanwhile houses in my area are still being auctioned like paintings with new owners happily exchanging the debt…Is there any wonder people call it a Ponzi.

    I agree with you Chippa that the government will not take this sacred cow to the slaughter house where it belongs.I am in my early 30’s and completely disillusioned by where this has gotten to. The recent RBA cash rate drops in my opinion are are akin to a Captain desperately shedding weight from a sinking ship in the hope it will stay afloat…meanwhile the hull still has a hole in it.

    In agreeance with Steve Keen’s thoughts, this is how I see the whole thing cascading into oblivion.

    1. Banks restrict lending.
    2. People reach the threshold of their own debt appetite, governed mostly by their income.

    1 is happening now, 2 is less likely as people are generally too optimistic and foolish, but it will eventually happen as wage growth is extremely stagnant.

    Regardless, either scenario has the same outcome – reduced consumption, that is, less flow of money into the economy and a fall in private credit. The RBA panics, lowers the rates, banks get the shits and mail out more credit cards but no one cares, they’re up to their eyeballs and their wages have maxed out.Husbands and wives have discussions about eating out less and cutting back on holidays to instead pay down their debt, which by then is at absurd levels. The loss of economic stimulation results in businesses ‘crying poor’ and in seeking to stem the bleeding, reduce credit commitments and lay off staff.Banks again get the shits and hike rates to offset the loses.

    Unemployment coincides with rising interest rates, the shit has officially hit the fan.

  8. It will go pear shaped….sooner or later. it will happen.

    the trick is to keep ya eye on everything at the same time.

    Unemployment…interest rates … china … production and sale of raw materials … electricity use … Europe … baltic dry sea index … failing crops … oil … velocity of money and bit of history.

    When the majority start trending in the same direction … not a correction … more like an extended depession will arrive.

    Its already upon us. A good time to be free of debt … money in hand … productive plot of land maybe … and a jack of all kinka skillset …. oops and a community of folk that give a toss about each .

    We arent the first or the last civilization to decline.

    Just an opinion.

  9. @ Jaime

    Firstly, you’re an engineer. So you know there’s no action without re-action: That everything is a zero sum game. And now for the big one! You think logically, either a statement is real, or it’s false.

    Wish there were more like you.

    As for the housing market being ‘called’ a ponzi. Guys like me, don’t call it a ponzi: IT IS A PONZI.

    An ‘asset’s’ price should be set according to what it’s return will be: Housing can only return increases, over the long term in-line with wage growth (technically less as our lives become more complicated and our cost of living increases eg. mobile phones, internet charges, new levies and taxes etc.).

    So how are house prices rising faster than wage growth??? Because they ALL figure they can sell for more than they bought for…. In fact many invest in housing to loose money (-ve gearing)….

    So who are they selling to??? New home owners/investors…. Without these, the ability to sell for more implodes… The definition of a ponzi is a system where existing investors aren’t paid a return on their investment, but they are paid out of the NEW investors buying into the scheme.

    Classic, ponzi.

    As for you saying people are reaching peak debt, yes that’s occurring right now: Private debt is slowing rapidly, and business debt is stalled (what business is going to borrow in this environment????).

    That’s why the government really did nothing about foreign investment. Crazy, crazy stuff.

    The real elephant in the room is how hard the banks will raise rates as our dollar tanks. Alot of cash has been borrowed in US$$$ and will be very expensive to pay back……

    Yes interest rates will rise, regardless of how hard the RBA slash them. In fact the only thing getting slashed harder will be interest only investment property values.

  10. Amusingly dumb comments from Turnip. The debt bomb has been building over a couple of decades as a result of the neoliberal economic bullcrap of the Howard and Costello comedy show. Don’t you know that in the neoliberal economic world people always have information to make to make well informed investment decisions.

  11. And the weird thing is the 187%-wages debt is the average debt of all income earners. They do not include the savings of people without debts.
    10 million have debt, 5 million don’t, total 15 million average debt.
    Most of the debt is to banks and the like, which should concern any one with money deposited in a bank after the bail in laws set up recently.

    But this is an ABS figure, so it could be as accurate as unemployment figures, work one hour and you are not unemployed.

    I know some who will be in real trouble when house prices stabilise or fall and interest rates rise. They are overextended, on interest only loans, losing money every year, and some with kids on the way with the associated budgetary problems, all telling me to buy now as I can afford it.

    A few farmable/grazeable acres maybe, houses, no way.

  12. As we all know Perth will be first, with so many Perth people tied to the Pilbara or Pilbara people tied to Perth property and the banks moving in.
    Immigration falling like a stone in WA and construction alike builders are going to the wall.
    Although it doesn’t seem like a lot of jobs in this article we all know that subbies do the majority of the work and a lot have low doc loans, everyone out here knows someone in trouble, the problem is so many think it’s time to buy the trough and are going all in and the banks will gladly take their equity to keep the music playing.
    It’s going to get ugly within the year!

  13. Fantastic discussion, good points from all.

    As an Immigrant to Australia from America, I have seen winner and losers of a housing collapse. If you are reading this blog, count your blessings. As some who now calls Australia home, there plenty to learn from America and Canada.

    Google: ‘Zerohedge Vancouver’. See what’s might be around the corner, if HAM (hot Asian money) stops. for house horny Canadian, as they moved from collapsing oil money to a real estate boom. Sound familiar?

    best advice from those who survived the Ponzi:
    Don’t put the money in stock/bonds (will collapse in tandem)
    Wait the 2-3 years to bottom
    Buy from a foreclosure
    Don’t listen to

    The apartment boom will effect single detached houses. There is plenty of parallels between the U.S. And Australia, and plenty of unique differences. Full recourse mortgages, ie you can’t just walk away…this amazing country has has ~25 years without a recession, there will be one eventually, and it will be an amazing opportunity.

    The future of Australia is next to guaranteed. He irrational house leverage will revert to the mean, and hose with cash will buy a bargain, beachside.

  14. Mapping back to my earlier comments, I find this interesting.. look at how this maps to my first post, the relationship is remarkable.

    *Source RBA Lending commitments (D6), with some averaging of seasons

    Mar 2007 – 2008: Annual Av Credit Growth +12.8%
    Cash Rate Averaging 6.50 -7.0 %
    Things are booming, credit debt growing, rates are near 50 year historic averages….house prices climb

    Mar 2008 – 2009: Annual Av Credit Growth +0.9%
    Cash Rate Averaging 5 % (7.25 – 3.0%) private credit is stagnating due to the GFC , rates begin to drop.. house prices fall.

    Feb 2010 – 2011: Annual Av Credit Growth +2.1%
    Cash Rate Averaging 4.25 % (3.75 – 4.75%) time to get on with it…lift the rates, they’re still low ‘enough’, the GFC is “over”. Private credit rises so too does consumption, things look optimistic…house prices climb again.

    Aug 2011 – 2012: Annual Av Credit Growth -1.0%
    Cash Rate Averaging 4.1 % (4.75 – 3.50%) urghhh, hold up..something up here…rate drops aren’t increasing private credit… the RBA slams the levers down hard on the cash rate and puts it back down around GFC levels..people here genuinely felt the pinch, we cant have that… house prices fall around 5-6% nationally (8 city average.

    June 2013 – 2014: Annual Av Credit Growth +0.6 %
    Cash Rate Averaging 3.0 % (3.50 – 2.75%) Rates fall some more and Private credit recovers from the reversal but is still stagnant..the average Joe realising the situation finds it hard not to rack debt up in this climate, look at the rates! house prices soar.. again, just borrow!

    June 2014 – 2015: Annual Av Credit Growth +1.1%
    Cash Rate Averaging 2.25 % (2.50 – 2.0%) not going good enough clearly….rates drop like an anvil to almost half that of 2010-2011 but private credit doesn’t bounce back as hard a sit did then,house prices keep on climbing..hard

    July 2015 – 2016: Annual Av Credit Growth -1.0%
    Cash Rate Averaging 1.8 % (2.0 – 1.75%) this is the most astounding one for me.. rates down, credit down, houses up , i.e cheaply available money not being taken advantage of…. and increasing house prices. Sound like were up to our eyeballs yet?

    One month later RBA drops the rate again (1.50%)

  15. note, I’m referring to private credit growth above, such as loans and credit cards, mortgages not included

  16. Jamie- good stats, when credit is easy (and prices are high) you don’t want any more money. When credit is tight (and prices are low), good luck getting approved. Had a chat today with my elderly patient who had to get 2 loans (yes two) at nearly 18% interest back in the early 1980s…of course houses were ~$100,000K (3X annual salary).

    Mr Titty, never heard of Phillip Anderson, but his YouTube videos looks like he was an extra for Paul Hogan and never changed his haircut. Name your economic guru who money off subscriptions….do agree about his demographic time lags. Millenials won’t be stepping up to the plate to buy that $100,000 fibro shack off the previous generation $1million (9x-12x annual salary).

    Had a fantastic conversation with a mate who works at Macquarie Bank. They picked up some value in America during the GFC. Also during the Mining Boom, foreign money was used….making the bust more palitible for Australians. It’s foreign money…..fuck ’em.

    The seamless transition to a housing boom from a mining boom must not be overlooked. Glen Stevens stated recently Australia should self fund more. Why? Because rate will increase abroad (ie the U.S.)…..and Australia will be fucked from foreign interest rates rises.

    (Ok, yes the Fed may not raise rates this week…but think back the early 80s when Volker raised rates despite high unemployment to tame inflation.) which will come…..

    Ok, lower for longer for a little longer…..until…

  17. James…. All very interesting, can’t beat insight of previous generations.

    Can you elaborate on what impact a hike in US rates has on our cash rate? I don’t know much about this.

  18. Jamie-

    Can’t tell for certain, how much a 0.25% interest raise in the U.S. will effect Australia…but centiement is worse now than BREXIT. Fantastic read:

    Secondly, I believe the access to foreign capital will be the kicker. As mentioned previously the mining boom and a significant proportion (?anyone) residential construction funding comes from abroad.

    Japan in the 1980s….bought landmark American purchases at high prices, and started sell them low in the 1990-2 recession. Much like the Chinese today. Buying Australia at top dollar….if you want a deal on a house just wait. Example: Post mining boom prices on repo Catipillars…

    Australia will need its banks to be strong to weather China’s pending correction and Americas higher interest rates (original article above, Turnbull knows it…Glen Stevens knows it):

  19. And the solution to the world’s biggest debt bubble in 5000 years which can never be repaid …The Chicago Plan.
    which involves eliminating central banks, 100% bank reserves and private debt forgiveness. When the current system self destructs it will be essential not to replace it with more of the same as controlled by the international banking cartels. For our children’s future it is essential that we educate ourselves about the alternatives so as take back control of our destiny.

  20. ATTENTION!! Turnbull-the onus and responsibility is on YOU!! for the situation that you fear. You have done nothing to reverse or stop the debt trend. YOU!! are in power. YOU!! are the PM-Don’t go looking for a scapegoat when things go south very soon or blame previous governments lie. We will come looking for YOU!! to blame. Man up!!

  21. Only problem is that lots of people will never listen to warnings about borrowing.

    People will borrow until they can borrow no more.

    People will borrow more than they could ever repay if you let them.

    The only way to reduce people’s bad choices regarding debt is to restrict lending and/or raise rates.

  22. @ Bubby , I agree, people are risk blind and dare I say just plain stupid and uneducated. You cant even have these discussions with most people, they’re in denial.

    Denial or not, the moment will come probably left of centre from absolutely nowhere it was suspected, for example a collapse in another economy like China or a country our banks borrow significantly from.

    Looking back, in 2008/9 and 2011 we had debt to GDP ratios drop, that is borrowing reduced and in both instances around these times house prices dropped.

    See the graph at

    I am more convinced now than ever that house prices in this country correlate with credit availability more than any other measure.When people in this country have credit access, the first thing they want to do is buy a house, and another one and another one.Further to this, the mortgage debt accelerates with the credit money, expensive houses…no one really wins, just the lenders.People don’t even understand any more that a fall in house prices might be a good thing because they’re mortgage commitments would be less which would increase disposable income.No, we just like to feel rich by looking at the equity.

    I remember years ago a mate who didn’t even own a home was off to meet a finance adviser to buy IP’s so he could ‘get rich’. We are a nation of hypnotised idiots blindly accepting the suggestion from the FIRE sector who are focused on profit, meanwhile the government who crafted this problem are now backed into a corner.I think we were due for a correction circa 2011/12 but the government panicked and used lowered rates to ‘fix’ it,meanwhile working on a ‘transition plan’to bring us from the mining boom to………………….were still yet to know what to do……… the meantime, build some more houses, followed by roads (which are our other favourite) and holes, we like to dig holes too for rocks we can sell.

    We dug holes through 2005 onwards and it saved us till about 2012. Since then its just gotten worse….Oh and not to mention, discussing this whole thing with anyone…. you’re just a doomsayer…you’re just being negative…Watch their eyes role the moment you start talking fundamentals, no one cares, the correction will not come from out own backyard..were just too hypnotised and ignorant.

  23. Might not have to be a country we borrow heavily from. Germany’s biggest bank, Deutsche, is about to collapse. Angela Merkel is apparently working on a bailout.

    Then there is Italy. Across the entire banking sector, 17% of loans are non performing. For the world’s oldest surviving bank, Monte dei Paschi di Siena, est in 1472, it is 30%.

    They say another crisis in the Eurozone will see demand for Chinese goods plummet. This comes at a time when the Chinese are preparing for a banking crisis.

  24. @26,

    Jamie, same issue here my friend. I’m deemed the sandwich board man crying “the end is nigh”

  25. From that Daily Reckoning article above:

    If you look at the chart below, the largest increase in debt can be seen in the higher income brackets.

    This is why the housing market will not be allowed to correct. The population ponzi will ensure that it doesn’t.

    On the other hand you can only set immigration policy when you’re in charge and I see that ScoMo is trying to fight a rear guard action against the people who voted for Pauline. Good luck with that when income is stagnating while the cost of housing is increasing.

    In any case you cannot prepare for all contingencies. Deutsche Bank disappearing down a sink hole or Trump winning the US Election may cause problems everywhere.

  26. I have given up as an Aussie trying to realize the dream of affording my own house-With property speculators fuelling the campaign funds of corrupt politicians is more than I can bear to see anymore-What is worse and sickens me the most is the electorate-people who vote the Labor/Liberal party to stay in power. I will be going to another country and live-Better nightlife, affordable daily expenses, I will even buy a house and still have enough money left over to live comfortably. Living on rent is no more for me. The voter has sold out this country to satisfy their own personal reasons and not for the country as a whole.

  27. Is it just me or is this the start of the implosion for Melbourne?

    “230,000 off-the-plan properties due to settle over the next 24 months
    Bank freeze on overseas lending
    Buyers caught out by the lending freeze
    List on for re-sale
    Australian FIRST HOME BUYERS can pick up a bargain with the deposit already paid for”

  28. @ 32 Theo

    I agree with your sentiments, and uttrely share your frustration, but leaving Australia may not be the answer.

    Politicians are the same the world over, and in most places they are far worse – look at America for heaven’s sake! Trump and Clinton – really? If it was Bernie Sanders or Jill Stein it would be different, but we all know what happened there.

    Two hours outside London might be affordable, but the UK has really shitty weather and is a mess right now – as is the rest of Europe, what with corruption, over-crowding, pollution, poverty, a massive refugee crisis etc. Avoid Europe for the foreseeable future I reckon. New Zealand? Auckland is as expensive as Sydney. Beautiful, but it’s colder and wetter than Australia.

    As for affordibility, we are now in a total global inflationary period and have been for some time (thanks bankers, real estate agents, politicians, tax-evaders, fiscal and monetary policy-makers etc), so nowhere really has affordable daily expenses, unless you want to live in an ’emerging’ market, but those countries have their own problems that are far worse.

    I guess my point is the grass is not always greener, and while Australia is not perfect by any means, I wouldn’t rather be anywhere else rigt now, even if that means renting and moving every couple of years.

    However I would be really interested to know where you are thinking of, because I might be your neighbour one day!

    Peace brother.

  29. Waiting for this state orchestrated centrally planned goosed up housing’market’, where the powers that be act as one almighty plunge protection team, to meaningfully decline in price may be a long wait indeed.

    Still, it passes the time, along the road of creeping senescence.

  30. The IMF again are putting out the warning bells to Australia, somehow no ones listening..
    I think Turncoat is trying to slow up the economy. Mining boom, housing boom and know nothing. With the trillions unaccountable within the Chinese shadow economy, the writings on the wall. WHEN?? We all ask, but honestly none of us know, but WILL IT HAPPEN? absolutely.
    Without Keating saying it, ” This is the recession (correction) we have to have” the process to slow it all down is well under way. However what a deep, long and shitty recession it will be, unless the world opts for war again, but that’s another conspiracy?

  31. Don’t worry everyone, we’ll just convert the mining boom into an apartment construction boom. The tradies enjoy the boom, the banks enjoy the boom, the local governments who collect rates enjoy the boom and the whole country goes boom.

  32. The section of the Hyman Minsky entry in Wikipedia that focuses on his instability hypothesis seems to explain why the asset bubble in Australia hasn’t burst in the spectacular fashion that it did in the US. Australia has a lot of speculative borrowers but no Ponzi borrowers. That is there have not been many (any?) negatively amortising loans issued by banks (as far as I am aware).

    When asset price inflation stops the speculative investors will attempt to exit. Every option available is being used to ensure that doesn’t happen.

  33. @ David C

    You are right that every political/corrupt option has been applied to keep the whole real estate bubble inflating. In fact it is all a Ponzi/Madoff scheme in that it requires a constant supply of new money to keep inflating with little or no hope of ever being repaid.

    Interesting assessment from Zero Hedge below which explores the banking corruption and media cover up necessary to inflate a 20 year nuclear bubble which threatens to destroy our economy.

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