Why are we so worried about household debt?

Thu, 07 Nov 2019  |  

This article was written on 10 October 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/why-worry-household-debt-190036599.html 


Why are we so worried about household debt?

The discussion of household debt and how it is meant to be the catalyst for a recession, house price crash or some other melodramatic catastrophe, is one sided, dull and invariably driven by purveyors of snake oil.

Sure, the level of household debt in Australia is higher than it has ever been, and the average Australian householder has more debt relative to their income than just about anyone else in the world.

But so what?

In isolation, this might be scary stuff. A worry. The reason why the Australian economy is at risk of an almighty collapse.

In context, however, there is very little to be worried about given the remarkable level of assets and accumulated wealth that debt is benchmarked against. In other words, the level of debt is a meaningless number unless it is benchmarked against the other side of the ledger – assets and wealth.

Household debt: Setting the facts straight

Here are some basic facts about household debt and wealth in Australia at the moment.

Household debt is 190 per cent of household disposable income.

Against this, the level of household wealth in the ownership of dwellings is approximately 500 per cent of household disposable income, even allowing for the fall in house prices between the middle of 2017 and the middle of 2019.
In addition to that are so-called household financial assets, which includes things like superannuation balances, bank deposits, direct share holdings and the like. The value of these assets is approximately 430 per cent of household disposable income.

This means the level of gross household wealth is around 930 per cent of income which, quite plainly, swamps the 190 per cent of household debt.

In turn, this means ‘net’ household wealth – which is the sum of all assets minus all liabilities (debt) is approximately 750 per cent of income.

Australian householders’ balance sheet ‘staggeringly healthy’

In the chart below, the blue line is household debt, the green line are household financial assets and the pink line is household wealth in dwelling ownership. The orange line, which is net household wealth, is the pink line plus the green line minus the blue line.

[Note – please click on the link above to see the chart]

Quite obviously, the balance sheet of Australian householders is staggeringly healthy.

In fact, net wealth is only fractionally below the record high registered in 2017 having dipped from that record in the recent past as house prices fell.

Twenty years ago, when household debt was under 100 per cent of household disposable income, net household wealth was just 500 per cent of income.

The worrywarts on household debt seemingly frame their miserable, scare-mongering analysis on the fact that householders may be stressed if there is a sharp rise in interest rates or if the value of financial assets cascades or if there is some other disaster. And to be sure, these risks are there, but they are largely present regardless of the level of household debt. 

Nothing to see here

Indeed, the last time there was a genuine problem with household debt and bank bad debts kicked higher, was in the early 1990s recession when household debt was approximately 75 per cent of income.

The level of household debt was plainly not that problem.

Household wealth in Australia is high and continues to trend higher, swamping the growth in household debt. There is a considerable buffer against a market downturn, like the recent dip in house prices or earlier bouts of weakness in stock markets, which had a negative impact on financial assets. This is not to say the household sector is immune from periodic bouts of weakness. Indeed, the current growth slump is due in large store to sluggishness in household consumption which has been triggered by record low wages growth and a weak labour market.

But don’t forget to remember, the next time you hear a doom merchant highlight high household debt as a problem for the economy, look at the level of assets and make up your own mind whether the problem is real or a gross exaggeration.


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How Labor lost the federal election SO badly

Thu, 07 Nov 2019

This article first appeared on the Yahoo Finance website on 20 May 2019 at this link:  https://au.finance.yahoo.com/news/why-labor-lost-the-election-so-badly-211049089.html 

How Labor lost the federal election SO badly

The Coalition did not win the election, Labor lost it.

The tally since 1993 for Labor is a devastating seven losses out of nine Federal elections. By the time of the next election in 2022, Labor will have been in Opposition for 23 of the last 29 years. Miserable.

The reasons for Labor’s 2019 election loss are much more than the common analysis that Labor’s policy agenda on tax reform was a big target that voters were not willing to embrace.

Where the Labor Party also capitulated and have for some time was in a broader discussion of the economy where it failed dismally to counter the Coalition’s claims about “a strong economy”.

In what should have been political manna from heaven for Labor, the latest economic data confirmed Australia to be in a per capita recession. This devastating economic scorecard for the Coalition government was rarely if ever mentioned by Labor leader Bill Shorten and his team during the election campaign.

This was an error.

If Labor spoke of the “per capita recession” as much as the Coalition mentioned a “strong economy”, voters would have had their economic and financial uncertainties and concerns confirmed by an elevated debate on the economy based on facts.

This parlous economic position could have been cited by Labor for its reform agenda.

Why animals are a crucial part of the Australian economy

Thu, 07 Nov 2019

This article was written on 31 October 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/animals-crucial-australian-economy-192927904.html 


Why animals are a crucial part of the Australian economy

Animals are a critical part of the Australian economy, either for food, companionship or entertainment.

But every month, millions of sheep, cattle, pigs, chickens, fish and other animals are bred and then killed. Most of them are killed in what we define as ‘humane’, but no doubt tens of thousands are horribly mistreated, as are a proportion of the animals we keep as pets.

Animals are slaughtered to provide food for human food consumption, to feed other animals (your cats and dogs are carnivorous) and for fertiliser.

The Australian Bureau of Statistics collects a range of data on animal slaughterings and the most recent release of the Livestock and Meat data release included the following facts.