What is Australia's total DEBT?

Beej said:

Well that's right but if the productive use of the money earns more than the interest bill (or generates more increase in VALUE than the interest costs to us), then we are ahead, and that's the end game.

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100% agree,

hence we should invest in infrastructure, ports, rail, schools, training facilities, businesses.

but I think you are confusing where money goes when comparing

personal debt ( primarily consumption - ie overseas to china for stoves, cars, playstations )

Some business ( productivity - ie exports, protection from overseas interests )

Government ( facilities to aid business and health and education ) <- well that is where is used to be spent anyway.



Housing does not generate income for the country, it is a surefire way of using the money from mining to build houses which generate no income for the country, at the expense of businesses which employ people and government revenue which faciltates business action.

Soft Dough said:

100% agree,

hence we should invest in infrastructure, ports, rail, schools, training facilities, businesses.

but I think you are confusing where money goes when comparing personal debt ( primarily consumption - ie overseas to china for stoves, cars, playstations )

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No I don't think I am. Money doesn't just get spent once, and when we talk private debt to GDP ration's (ie the $1.9T of private debt) the largest chunk of that comes from total mortgages used to buy houses, not imported goods etc. So *that* money (the money used to buy property) has not disappeared at all and in fact a large amount of it may well have ended up flowing into the very "productive" area's you list.

You have never had and will never have a situation where all credit created within an economy is created directly for the express purpose of building a port or buying plant for an exporting factory/mine etc. You will also never have the situation (not in a globalised world anyway) where a portion of our money is not spent on imported goods.

Some business ( productivity - ie exports, protection from overseas interests )

Government ( facilities to aid business and health and education ) <- well that is where is used to be spent anyway.

Housing does not generate income for the country, it is a surefire way of using the money from mining to build houses which generate no income for the country, at the expense of businesses which employ people and government revenue which faciltates business action.

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Well notice I used the word "value". Export income is not the only way to increase the "wealth" (or standard of living) of a country you know. It's a good way, and needed if you also import, but not the only way. Every bit of productive work done can and often does create lasting value whether we export the result of that work for hard cash and or use it to make something we need or want. Eg if credit is used to build new houses or improve existing ones, (or even if the income from export mining is used for this purpose), then that provides both direct value and improves standard of living. An economy, and our standard of living, does not derive from export income alone, and there's no rule that says when you do earn export income that all of that must be spent on improving your ability to generate more export income! You have to spend some of the dividend on standard of living related items as well.

Cheers,

Beej

White_Knight said:

Fact: Australia's debt burden is sustainable. Inflation will come about because of wage pressures from a socialised labour system on top of an overheated economy. It wont be because the government printing money.

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Ask any Zimbabwean if they agree with you.

Not suggesting for one moment it will get this bad BUT ......... Looking at the numbers, according to the Australian Bureau of Statistics we have about 21,374,000 or so people living in this country. Our combined national debt (taking all government, personal, private and business debt into account) is $2.32 trillion ($3.4 trillion including equity) as of September last year - and growing. A falling Aussie dollar makes it more expensive to repay, or roll over.

Each and every Australian then, including babies, accounts for borrowings of nearly $110,500 dollars. Hope this clears this matter up. Oh yeah .. this was before Kevin Rudds stimulus packages kicked in !. Thankfully the Aussie peso has climbed dramtically assisting the repayment capacity of the Guvmnt.

Beej said:

No I don't think I am. Money doesn't just get spent once, and when we talk private debt to GDP ration's (ie the $1.9T of private debt) the largest chunk of that comes from total mortgages used to buy houses, not imported goods etc. So *that* money (the money used to buy property) has not disappeared at all and in fact a large amount of it may well have ended up flowing into the very "productive" area's you list.

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We still have money which housing costs going overseas purchasing depreciating assets.

If I have 2000 homes worth $1 billion in housing sitting there, what cash does that bring into the country and what employment does it create

vs

2000 homes ( the exact same homes ) worth $500 million and $500 million upgrade to ports and rail

Soft Dough said:

We still have money which housing costs going overseas purchasing depreciating assets.

If I have 2000 homes worth $1 billion in housing sitting there, what cash does that bring into the country and what employment does it create

vs

2000 homes ( the exact same homes ) worth $500 million and $500 million upgrade to ports and rail

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Sure your point is a valid one. Likewise what if the 2000 homes were only worth $100M and $900M got invested in other things? Even better right? What if we built the homes and gave them away for nothing and put the full $1B into ports etc?

The problem is, neither you, or I, or any other individual, get to decide as a whole how much money gets borrowed for what and spent where - they tried that sort of thing once in the communist soviet block - it's called a "controlled economy" and it was a dismal failure on every front. So instead we live in a country where we each as individuals decide if/how much money we save/borrow, where/what we spend it on and so forth. The aggregate result of all those millions of individual decisions result in the macro statistics around net/gross debt vs GDP, the allocation of capital across the economy etc etc being discussed here. The government and central bank can attempt to influence these things by pulling levers that might sway us as individuals one way or the other, but at the end of the day it still all boils down to millions of individuals making their own decisions for their own best interest - that's the system in which we live.

Cheers,

Beej

Beej said:

Sure your point is a valid one. Likewise what if the 2000 homes were only worth $100M and $900M got invested in other things? Even better right? What if we built the homes and gave them away for nothing and put the full $1B into ports etc?

The problem is, neither you, or I, or any other individual, get to decide as a whole how much money gets borrowed for what and spent where - they tried that sort of thing once in the communist soviet block - it's called a "controlled economy" and it was a dismal failure on every front. So instead we live in a country where we each as individuals decide if/how much money we save/borrow, where/what we spend it on and so forth. The aggregate result of all those millions of individual decisions result in the macro statistics around net/gross debt vs GDP, the allocation of capital across the economy etc etc being discussed here. The government and central bank can attempt to influence these things by pulling levers that might sway us as individuals one way or the other, but at the end of the day it still all boils down to millions of individuals making their own decisions for their own best interest - that's the system in which we live.

Cheers,

Beej

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I know it is weird, when I was young and poor I was a capitalist, and the older and richer I get, the more of a socialist I become ( because I feel that in a fair and reasonable society as Australia is some socialist attitudes could benefit all at the expense of very very few ) ( and I by no means want to increase social security, I would prefer policies empowering people to look after themselves )

I think it all went to crap when John Howard et al. decided to cut taxes instead of investing money to make money, compounded by Krudd and propping up the market.

So as I would have never said when I was younger:

We need higher taxes and government investment in strategic enterprise. ( which I believe would provide australia with greater wealth )

Because as it has been shown with the housing boom, you cannot trust the general public to make wise choices with the proceeds ( both direct and indirect income ) of the business investment and government interventions that they scorn and ridicule.

Soft Dough said:

I would prefer policies empowering people to look after themselves

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I wouldn't call that socialism FWIW

Beej said:

The problem is, neither you, or I, or any other individual, get to decide as a whole how much money gets borrowed for what and spent where - they tried that sort of thing once in the communist soviet block - it's called a "controlled economy" and it was a dismal failure on every front. So instead we live in a country where we each as individuals decide if/how much money we save/borrow, where/what we spend it on and so forth.

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Isn't the problem that the vast majority of us lack 'financial eduction'. What would household debt look like if school kids for the past 30 years had been educated about credit and investment decisions in high school?

I hate long posts....

Fleeta said:

Isn't the problem that the vast majority of us lack 'financial eduction'. What would household debt look like if school kids for the past 30 years had been educated about credit and investment decisions in high school?

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Lack the financial education, jeez, I feel that way after reading some of the above posts. Wonder if some have had too much financial education which would somewhat explain as well why private debt reached as high as it has.

Hear hear, either they start teaching it in schools or the government or RBA better start taking more responsibility.

White_Knight said:

If you have a mortgage worth 450K and an income of 60K, your personal "debt to GDP" ratio is 650%. Better go kill yourselves.

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I understand how you must feel it’s ludicrous!

As I pointed out here: https://www.aussiestockforums.com/forums/showthread.php?t=9911&page=344
Ofcoarse you'd have to deduct wages, overheads, depreciation. But it’s better than buying some of those other items.

White_Knight said:

USA:
Public Debt to GDP ratio - 80%
Private Debt to GDP ratio - 350%

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Does it make it alright because the US has more debt than us?

trainspotter said:

Each and every Australian then, including babies, accounts for borrowings of nearly $110,500 dollars. Hope this clears this matter up.

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Ha and it get’s larger!

Beej said:

Well that's right but if the productive use of the money earns more than the interest bill (or generates more increase in VALUE than the interest costs to us), then we are ahead, and that's the end game.

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This must be another one of those “over financially educated” moments again.
Ya gota be joking!

Beej said:

I guess these figures raise an important point - why just look at gross debt? You also need to look at the rest of balance sheet, ie total assets as well as liabilities! In Australia, the private debt could be paid off in total with household + corporate cash savings + household superannuation funds alone. We haven't even considered the $3.8T worth of residential real estate, or the I don't know how much commercial real estate, farm land, mineral deposits etc etc? In reality, on a per capita basis, our net position is several $100k per person "in the black". The per capita gross debt figure is therefore backed by our personal net asset position, and funded comfortably and sustainably by our gross national income (ie GDP). Ie (for Uncle Festivus!) we do live within our (national) means!
PS: All bank figures from APRA (http://www.apra.gov.au/Statistics/Monthly-Banking-Statistics.cfm)

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Thanks Beej for the link and bank deposit figures.
I actually wasn’t intending to balance the books. I was interested in what Austraila’s total debt actually was/is.

why just look at gross debt?

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A debt to GDP% figure could mean the change in debt relative to the change in GDP over a period of time. I hadn’t investigated the actual sums before now, I’d taken them on face value as presented.

Also one day that gross debt should be repaid but ofcoarse it never will be in full. Asset prices rise and fall and so will our GDP but the debt figure doesn’t change with asset prices or GDP fluctuations. A debt is a debt no matter how productive it’s thought to be.

As UF claimed:

Debt itself is immaterial - it's only a problem if you can't pay it back, even then it's all about degrees of debt .....

If the bank lends you $300k and you can't pay it back - it's your problem; if they lend you $10B and you can't pay it back then it's their problem!

If the government has guarenteed the banks deposits, it's then our problem!

So your problem then becomes my problem......

Here's a new concept - living within ones means!

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I don’t comprehend why “as a nation” we let the private sector expand it’s debt as much as it has. It was unnecessary and wasteful. Why the RBA didn’t raise interest rates years ago to slow the property growth and debt, I will never know.

So it continues...... Punish savers and reward the risk takers.

It does not make sense to compare asset levels with debt and try to 'balance the books' anyway. On a micro individual scale sure, but on a macro scale you can't. The problem on a macro scale is that asset values are primarly determined by the amount of debt in the economy particularly if there is a shortage of them and people are forced to pay for it to survive (aka housing).

Your asset can go up in two ways. Either generate more income, or via capital gain. To generate more gain someone has to borrow more than you to buy it (on average). The problem is that this debt mostly is to buy established properties which does nothing for our quality of life but raises our debt level. It generates an initial benefit but the credit ends up being inflationary in the end anyway. Like a junkie we keep needing more and more.

You can't separate asset values for the bedrock of the economy with the nations debt levels especially if most debt is related to housing. They are a function of each other - i.e as debt in the economy falls so does housing and are not independent. If housing debt ever falls in Australia I'm sure housing will follow faster. But of course I'm starting to be in the housing bull camp atm as i see people finding ever more ways to borrow more for a house.

aleckara said:

The problem on a macro scale is that asset values are primarly determined by the amount of debt in the economy particularly if there is a shortage of them and people are forced to pay for it to survive (aka housing).

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Mate, where does it say there is a shortage of housing in Australia and more particularly, what part?
I don`t see a shortage of housing, just a shortage of people who can afford the things when their prices multiply at the rate they do.

Macquack said:

Ask any Zimbabwean if they agree with you.

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What i meant is that the RBA ISNT printing money.

People need to stop reading news articles from the US and applying them to Australia.

Just like KRudd's speech on greedy bankers taking excessive risks and damaging the whole financial system...when Australia's banks have been pretty much been unscathed by the crisis.

aleckara said:

It does not make sense to compare asset levels with debt and try to 'balance the books' anyway.

You can't separate asset values for the bedrock of the economy with the nations debt levels especially if most debt is related to housing. They are a function of each other

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It's not real clear what you have written. I take it your opinion is that one can't look at housing debt without housing assets. ?

Like comments from others, one should not be looked at without the other then? But property prices have increased because of cheap credit and promotion. Not from rental yields. There values are questionable and are not sustainable from their rental returns. Therefore real estate and their debt should not be looked at together.

aleckara said:

It does not make sense to compare asset levels with debt and try to 'balance the books' anyway. On a micro individual scale sure, but on a macro scale you can't. The problem on a macro scale is that asset values are primarly determined by the amount of debt in the economy particularly if there is a shortage of them and people are forced to pay for it to survive (aka housing).

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This is true to a point, however perhaps the way to look at it is to think about what is our national "LVR" if you like. As long as the LVR is low/conservative, then asset price movements are not a problem - same way you might assess the risk of a margin loan for shares right? In Australia's case, it looks to me from the figures I posted earlier that our national LVR would be in the order of 25-35%, which is low risk. So as long as serviceability is OK (which can be measured by looking at debt/GDP ratio), then really there is no great problem. I would suggest that only if debt/GDP rations went past say 300% would start to be looking at general serviceability problems.

Your asset can go up in two ways. Either generate more income, or via capital gain. To generate more gain someone has to borrow more than you to buy it (on average). The problem is that this debt mostly is to buy established properties which does nothing for our quality of life but raises our debt level. It generates an initial benefit but the credit ends up being inflationary in the end anyway. Like a junkie we keep needing more and more.

You can't separate asset values for the bedrock of the economy with the nations debt levels especially if most debt is related to housing. They are a function of each other - i.e as debt in the economy falls so does housing and are not independent. If housing debt ever falls in Australia I'm sure housing will follow faster. But of course I'm starting to be in the housing bull camp atm as i see people finding ever more ways to borrow more for a house.

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That is true, but again no one holds a gun to anyone's head and forces them to borrow money to buy a house (they can rent, move to a cheaper location etc), or invest in the stock market via margin loan, or take out a car loan to buy a new car (instead of saving for a second hand one) etc etc etc. Therefore the growth in credit is primarily a reflection of the demand from private individuals, + of course the fact that a low inflation/low interest rate environment globally has made the money/credit easier to come by for more people perhaps than in past times. This could be seen a sign of increased prosperity, household income and job security etc, which are all positive things.

In terms of the credit growth driving ASSET price inflation, I think that is also true, however the difference between this and general CPI type inflation is that people can choose whether to buy land/property etc as an asset, but they don't have to as they can rent, but CPI forces cost of living increases on all through non discretionary items - you can't opt out of a CPI increase.

I would also use Sydney during the 98-03 property boom as an example (when prices rocketed but rents were static) that shows that even when monetary inflation might be driving a rise in asset prices, the utility aspect (ie rent and therefore CPI) does not get pushed up to the same extent. Rents did subsequently rise, but that had more to do with increased disposable income + high demand/low supply for rentals in that market through that period as opposed to pure monetary inflation effects IMO.

Cheers,

Beej

Beej said:

Therefore the growth in credit is primarily a reflection of the demand from private individuals, + of course the fact that a low inflation/low interest rate environment globally has made the money/credit easier to come by for more people perhaps than in past times. This could be seen a sign of increased prosperity, household income and job security etc, which are all positive things.

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Australia’s credit growth is still falling
September 29th, 2009


Marc Faber once said that for an economy that is addicted to debt, all it needs to tip it into a recession is for credit growth to slow down- no contraction of credit is required. Also, as Professor Steve Keen explained, at this stage of the debt cycle, the aggregate spending in the economy is made up of income plus change in debt. In the absence of income growth, a slowdown in credit growth implies declining aggregate spending by the private sector.

Now, let’s take a look at Australia’s year-on-year credit growth (up till July 2009):

Year-on-year credit growth in Australia (July 2009)
It’s now the government doing a bigger and bigger share of the spending.

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http://cij.inspiriting.com/?p=813

Do we see a sign of increased prosperity here?

I haven't find a similar chart for public debt yet, but you can be sure there has been a massive growth mainly due to the stimulus packages. Replacing private debt with public debt is what Keynesian inspired economists tend to do.

The question remain is, HOW DO YOU force the private sector to borrow again? Do you point a gun at their head and say, BORROW FROM THE BANK NOW OR ELSE GO TO JAIL? Give them incentives like lowering interest rates? Give them tax credits? But what if the private sector is still reluctant to borrow?

Looking at the chart above may seem bad, but in reality, it's ALOT WORSE in the US right now. As defaults are rising, banks are afraid to borrow and hoard reserves, while the consumers who have lost a large chunk of their assets become savers all of a sudden and reduce spending/borrowing. In turn, private businesses does the same in response to this.

Temjin, is that graph for total private sector credit growth including corporate, or household alone? Most of my comments pertain to household credit growth in general, and I was referring specifically to the period from mid/late 90s through to 07-ish as well. I do still agree with your point in general.

Re the US - yes, they are certainly in big trouble right now.

Temjin said:

The question remain is, HOW DO YOU force the private sector to borrow again? Do you point a gun at their head and say, BORROW FROM THE BANK NOW OR ELSE GO TO JAIL? Give them incentives like lowering interest rates? Give them tax credits? But what if the private sector is still reluctant to borrow?

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That is the big question! Low interest rates, tax rebates, investment allowances and so are the regular tools used. Like I said earlier, you cannot force them, government/central banks can only pull levers that attempt to influence the behaviour of individuals and businesses. That's why no outcome is certain! If you can't get things going again then yes, recessions etc will follow as obviously aggregate demand is going to contract.

Cheers,

Beej

Temjin,

I think you will find that businesses do want to borrow but the banks are unwilling to do so, credit rationing.

Talking to a good friend who headed up the risk management department with one of the big four leads me to believe this along with friends and clients opinions. He has now setup his own company specializing in finding credit for mature and good cash flow businesses. He said it is very tight and difficult at the moment with sound business unable to secure money for further expansion or just day to day activities.

It is this anecdotal evidence that leads me to believe that all is not well in the corporate and business world.

It is business that are the power generators of the economy not the RE market. No business growth, no growth in employment, no money to pay of massive RE debt.

Again only time will tell.

Beej said:

That is the big question! Low interest rates, tax rebates, investment allowances and so are the regular tools used. Like I said earlier, you cannot force them, government/central banks can only pull levers that attempt to influence the behaviour of individuals and businesses.
Beej

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Beej, is it your opinion in Australia that things were travelling well as they were before the US stuffed things up?

satanoperca said:

Temjin,

I think you will find that businesses do want to borrow but the banks are unwilling to do so, credit rationing.

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Why continue rationing credit? Lack of it? The banks must still feel that the businesses in question are still at risk!