Long-Run Wealth Accumulation and Household Debt

RBA Deputy Governor Ric Battellino tells the public what Steve Keen won’t:

Australian households have much bigger holdings of financial assets than financial liabilities. Financial assets at 30 June averaged around $275 000 per household while liabilities averaged $150 000 per household. Since then, we estimate that average assets have fallen to around $245 000 per household, though this is still quite a strong position.

This balance sheet structure is very favourable in terms of maximising long-run accumulation of wealth, because the return on these assets over long terms exceeds the cost of debt by a substantial margin. The returns do not, however, accumulate evenly from year to year. Some years produce very strong returns while others produce negative returns.

posted on 30 October 2008 by skirchner in Economics, Financial Markets

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