Image: Steve Keen's DebtWatch
Look out America! Australia wants to beat you at the dubious record awards. First we stole the title of world's best per capita greenhouse emitters, then we robbed you of the biggest new homes trophy. Then last month we surpassed the USA in household debt relative to gross domestic product (GDP). Aussie households now owe 100.4% as much as all the goods and services produced in Australia for a whole year (the US is at about 96%).
According to Steve Keen, Associate Professor of Economics & Finance at the University of Western Sydney writing in his blog, DebtWatch, only 20 years ago American household debt was double that of Australia's. So we've really put in some heavy duty exercise to catch up so fast. Not that this latest honour is anything to be proud of. Because carbon emissions, house size and personal debt are intricately linked. Debt and Climate Change
Easy credit allows people to obtain things they can't really afford. Stuff that previous generations saved up for, like large family homes. Big houses need more land, which in turn moves residential buildings further away from services like shops, schools, public transport, etc., hence more driving and higher carbon emissions. Additionally larger home volumes put increased strain on cooling and and heating needs, especially if tack-on solutions like electric air conditioning and space heating are deployed. Higher fuel and utility bills cost more money, often leading to more debt.
Few Warning Bells
Not that any of this is ringing the required warning bells. Creditcards.com reports that Australia has an estimated 16 million credit cards in circulation (about 72% of the population). It was anticipated that Australian credit card spending would break a record monthly barrier of over $22 billion AUD. The federal Reserve Bank of Australia released figures that the Daily Telegraph suggest indicate "mortgage, credit card and personal loan debts now stand at $1.2 trillion, up 71 per cent from just five years ago and equating to $56,000 AUD for every man, woman and child in the country."
Yet this is apparently all debt and rampant consumption is great news. The Sydney Morning Herald quotes Russell Zimmerman of the Australian Retailers Association, ''It looks like a lot of fashion and clothing buying, and fashion is doing well. People are also buying computer game programs, with homewares and also manchester doing well. Russell reckons, ''Things are looking fairly good."
Patience Has Deserted Us
At its height, in 2009, it was possible for First Home Owners in, say, the state of NSW, to be able to access up to $24,000 in federal and state government grants for buying a new home (less for the purchase of an existing dwelling as their first home.) While a boon to the building industry and the economy, this easy money attracted a lot of people into the property market, whose dreams were bigger than their piggybank.
Yourmortgage.com.au/ reports that although interest rates were low in 2009, Australia is likely to see a rise in mortgage delinquency or loan defaulting in 2010, particularly in low income postcodes, following three rapid increases in official interest rates.
The patience, income saving and fiscal restraint, more prevalent prior to the widespread uptake of consumer credit cards in the 1970's, has deserted us. If recent generations see something they desire, like a petulant child, they want it. Now. Debt, resource depletion and climate change be damned.
Maybe with every household grant they give away, governments could also pass on copies of the seminal book, Your Money or Your Life.