Working Papers

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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I found this article by the RBA to be light and fluffy, designed to reassure without examining the issues in depth.

Australia now has debt-to-GDP and house price-to-income ratios that are well outside historical norms, and has been funding its lifestyle by increased debt for at least 15 years.

What cannot continue, will stop. The article provided no insight into this issue, and no grounds for expecting a soft landing.

Posted by dyork  on  10/30  at  03:04 PM

Ok, the score is now officially Stiglitz 1, Kirchner 1.  Consumer spending down 3.1% (wow!).  Q4 will be horrible, and Q3 will inevitably get revised down.

Steve Keen, Stiglitz, Roubini, Faber ... and all the other doomers look to be right on the money.

I’m just wondering what happens if GM files for Ch.11?  Does that mean it can default on $600B in debt?  If so, what will that do to the CDS market?

Posted by .(JavaScript must be enabled to view this email address)  on  10/31  at  11:07 AM

Does Dr Kirchner or Gov. Ric Battellino have a chart that shows household assets vs household debt vs GDP?

These charts from Steve Keen are pretty compelling, but they don’t tell you anything about the value of assets:
Australia Debt to GDP ratio
U.S. Debt to GDP ratio

You tell me what the historical peaks correspond to.

Posted by .(JavaScript must be enabled to view this email address)  on  11/07  at  10:40 AM

Steve Keen responds:
Always look on the bright side ... of economic data

If things are really grim, it helps to have an indefatigable nature, and there’s no doubt that RBA Deputy Governor Ric Battellino has that in spades—at least in the speeches he makes at public conferences. Were I being crucified, I’d like to have Ric up there with me, singing “Cheer up Brian!…”, to take my mind off the nails.

Posted by .(JavaScript must be enabled to view this email address)  on  11/12  at  05:50 PM

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