Debt Funded Investments & Lifestyle

[Halebop]

Howard Relaxed About Household Debt

Australia's household debt has surpassed 1 trillion dollars. A milestone of sorts but Howard has a point when he suggests to look at the asset side of the equation as well. There is a lot of cash, real estate and risk equity assets in Australia worth quite a bit more than that.

It got me thinking though. I can remember similar headlines (I think it was 1986 but it might have been 1987) when Australia first broached $100 billion. If it was 1986 that amounts to around 12% per annum compound growth in household debt. Population, Productivity and GDP growth would not be enough to fuel that sort of increase. Risk tolerance (from both debtors and creditors) must have also expanded (interest rates / debt servicing costs have also halved).

Is this a train wreck waiting to happen? I see inflationary pressures from taxation and labour shortages as Baby Boomers age and retire. Inflation and low interest rates are generally strange bedfellows. High interest rates and low discount rates are also generally incongruous. Get to that point and opposing negative pressures are applied to the asset and liability sides of the balance sheet. Now I'm not talking next week here but in 5 or 10 or 15 years time? Where is it all heading and what can we do about it?

[Lizard]

quote:Originally posted by Halebop
Where is it all heading and what can we do about it?

Large Australian trade surpluses on the back of a dramatic ramp up in export of mineral resources, with consequent high Australian $ and imported deflation?

(Sorry, economics not my subject, but I'm hoping others will post on this thread because I'm interested in the answers