Active Thinking Topic 15 - Does Debt Matter?
Monday 27
September 2021, 6:30 pm - 8:30 pm
Any replies to the organizer - thormay@yahoo.com
Venue: Cafe Brunelli, 187 Rundle St · Adelaide (You must buy a drink or something. We are 'renting' the space for 2 hours)
About Focus Questions: a) Please read them before you come to the meetup. Think about them so you have more than "instant opinions" to offer. b) Feel free to add more focus questions. c) THE FOCUS QUESTIONS ARE JUST A MENU TO CHOOSE FROM. From this menu we can discuss whatever seems interesting. d) Focus questions are not intended to push one viewpoint! You can adopt any position you wish. We actually like friendly disagreement - it can lead to deeper understanding
Focus Questions
1, Does it bother you to owe money? Why? How much personal debt is troublesome? What kind of debt (if any) do you find OK? For example, some people don't ever save, but have every luxury (cars, phones etc) which they pay week to week at high interest, then lose if they happen to lose a job etc. ... next job and the cycle repeats.
2. Is it worth taking on large, long term debt (a mortgage) to buy a house? What about paying rent and investing in shares instead?
3. What part does "the bank of mum and dad", or an extended family, play in setting up young adults in a home, or even in business? How does this vary amongst different ethnic groups? Is this kind of financing considered a debt by those who benefit?
4. How many people actually borrow money (or something else) for a short time from friends or other people? What is your feeling about this kind of borrowing? What are the dangers of having personal debts like this?
5. How should people who can't or won't repay debts be treated? In 19th Century England, people would even die in debtors' prisons. We don't have debtors' prisons now. Magistrates generally order unemployed or poor debtors (for example) to repay a few dollars a week, but many don't.
6. What are some reasons that so many small businesses fail? Estimates are that one in three new small businesses in Australia fail in their first year of operation, two out of four by the end of the second year, and three out of four by the fifth year.
7. How exactly is government debt different to personal debt? Does the word "debt" even mean the same in these different contexts? (hint: google "Modern monetary theory Vs monetarist economics")
8. Why does the United States Federal Government debt have a different importance to the debt of any other country? How stable is this situation?
9. Does deficit or surplus matter in the Federal budget? Since federation in 1901, the Australian budget has been in deficit at least half the time (https://www.newealth.com.au/wp-content/uploads/2019/04/2019-04-12-JBWere-Federal-Goverment-Budget-Deficits.pdf )
10. Governments around the world have had to borrow or create enormous amounts of money to keep countries afloat during the Covid crisis (e.g. Jobkeeper in Australia). What will be the consequences of this huge new debt overhang?
Extra Reading
Clancy Yeates (September 6, 2021) "Suncorp joins the rush into buy now, pay later". Brisbane Times @ https://www.brisbanetimes.com.au/business/banking-and-finance/suncorp-joins-the-rush-into-buy-now-pay-later-20210906-p58p40.html [Quote: " it would offer customers short-term interest-free loans of up to $1000, which would be quickly approved through an app and must be paid back over four fortnightly instalments. ... The move comes as a growing number of banks and payments businesses including Commonwealth Bank, Citi and PayPal all enter the BNPL stampede. The trend points to growing competition in booming BNPL sector, which includes specialist players such as Afterpay, Zip Co, Sezzle and a range of smaller specialist players. ... The Reserve Bank has also signalled it is inching towards tighter regulation of BNPL firms, as they become more popular and major financial institutions enter the fray." ]
Philip Cogan (3 May 2021) "Does government debt matter any more? - Running up debt used to prefigure political ruin, but in the 2020s nothing seems to stop governments living in the red". Prospect Magazine @ https://www.prospectmagazine.co.uk/magazine/does-government-debt-matter-any-more-austerity-deficit-spending-borrowing [Quote: "Provided there are no signs of inflation, a government deficit doesn't matter. There is no need to worry about the government defaulting on its debt, since the government can create new money to pay its creditors. ... It makes little difference whether the government is on the left or on the right".]
Stephen Bartholomeusz (September 9, 2021) "The US is risking financial chaos as it moves closer to defaulting on its debt". Brisbane Times @ https://www.brisbanetimes.com.au/business/banking-and-finance/the-us-is-just-weeks-away-from-defaulting-on-its-debt-and-unleashing-financial-chaos-20210909-p58q6i.html [Quote: "America may be only weeks away from defaulting on its debts, undermining its pivotal position within the global financial system and throwing the US economy and global financial markets into chaos... The Republican position is laden with hypocrisy. .. When [Trump] gained office and the Republicans control of Congress, the debt was just under $US20 billion. By the time he left in January this year it was more than $US27 trillion, with his tax cuts and pandemic-related spending the main factors in the increase.... An actual default would do irreparable damage and, in the process, rob America of one of its most valuable and potent assets. ... The role the Treasury bond markets plays in the global financial markets not only allows the US to borrow more cheaply than other economies but, via its currency and its dominance of the global financial system, provides it with its hegemonic power. ... With the US bond market at the centre of the global financial system – it has been the world’s “safe haven” at any sign of financial stress, provides the benchmarks for global interest rates, the reference rates for almost all financial assets and influences the value of all currencies – the Republicans are risking plunging the US, and the world, into another global financial crisis."]
Jeremy Warner (September 3, 2021) "Little did we know, but 9/11 was the start of the West’s economic crisis." Brisbane Times @ https://www.brisbanetimes.com.au/business/the-economy/little-did-we-know-but-9-11-was-the-start-of-the-west-s-economic-crisis-20210830-p58mzs.html [Quote: "The Dow Jones fell 7.1 per cent on the first day of trading after the [9/11] attacks, the biggest daily decline ever at that time. It was even worse for the S&P 500, which lost 11.6 per cent, while the hi- tech Nasdaq shed a jaw dropping 17 per cent. There was genuine fear on the street. But the dramatic easing in policy that followed, way in excess of anything justified by what had previously been happening to the economy and inflation, lit the fuse on a mindlessly reckless expansion in credit that was eventually to give us the sub-prime meltdown and the virtual collapse of the Western banking system. In the absence of real earnings growth, the politicians fed the masses with a diet of cheap debt instead... The war on terror hardly helped; it was not just the expense of the whole thing, disobeying as it did the old rule already proven by the disaster of Vietnam that you can have either guns or butter, spending on war or the domestic economy, but not both. .. Thus was established a pattern that has ruled ever since; any economic shock is met by another flood of money printing, so as to keep the pretence of perpetual growth going ..... When Bin Laden later boasted that his actions would bring down the Great Satan just as effectively as he had destroyed the Soviet Union, he had something of a point".]
Martin Farrer (14 September 2021) "China property giant Evergrande admits debt crisis as protesters besiege HQ". Asia Times @ https://www.theguardian.com/world/2021/sep/14/china-property-giant-evergrande-admits-debt-crisis-as-protesters-besiege-hq [Quote: "Property giant China Evergrande Group has said that it cannot sell properties and other assets fast enough to service its massive $300bn debts, and that its cashflow was under “tremendous pressure”... Evergrande is one of the world’s most indebted companies, and has seen its shares tumble 75% this year, sparking fears among analysts of “a risk of contagion” spreading through China’s overheated property sector and also its banking system".]
Eryk Bagshaw (September 23, 2021) "Running on empty: how Evergrande became the world’s most indebted property company". Brisbane Times @ https://www.brisbanetimes.com.au/world/asia/what-caused-the-evergrande-crisis-20210922-p58tru.html [Quote: "It had a liability‑to‑asset ratio of more than 70 per cent; net debt‑to‑equity ratio of more than 100 per cent; and cash holdings to short‑term debt ratio of less than 100 per cent. It had to sell properties quickly and cheaply but in a market filled with investors nervous about a property downturn, it has not been able to find enough buyers. More than 800 projects are now floundering, crippled by cash shortages and construction delays. Chinese media outlet Caixin reported on Monday Evergrande needed $21 billion to complete apartment blocks already underway... The company owes $171 billion to its suppliers, employees and investors – loans due within the next year – but it only has 10 per cent available in cash. Its debt sheet is more than $400 billion overall, making it the most indebted property company in the world. ... The Chinese government has been quiet. The purpose of its “three red lines” was to rein in unsustainable debt, the consensus is it does not want to now be seen to be engineering a restructure ... "]
[=> Thor, comment: The first reader comment on this article was "What has this got to do with us?". Like most media readers, this reader has no clue. After all China is a foreign country, and also most people cannot emotionally understand the size of a number like $400 billion. Unfortunately, Evergrande has a lot to do with us : a) Worldwide, when people & companies become nervous about their local economies, they rush to buy American dollars; b) when there is high demand for American dollars, the US$ appreciates (i.e. local currencies lose value); c) a very high proportion of the world's debt is ultimately written in US$. America is the world's banker. You borrow money from your (Australian, Chinese ...) bank to buy a house or business. Your bank borrows much of its money from America. Also, national governments buy US government bonds to fund their debts. d) when the US$ appreciates, other countries, companies & individuals suddenly have to pay more each month to service their loans. This can quickly lead to worldwide economic crisis. e) In Australia's case, a large part of our foreign income comes from selling iron ore. The Chinese construction industry is a huge consumer of steel. When it sneezes we catch cold. The price of iron ore has already plunged 60% since the beginning of 2021.]
Finder.com (18 December 2017) "Australians’ household debt nears highest worldwide". Finder.com @ https://www.finder.com.au/australias-personal-debt-reported-as-highest-in-the-world [Quote: "Australia’s personal debt is some of the "highest in the world", but what does this really mean? Australian household debt has steadily risen over the past three decades as more of us aim to own homes and continue to rely on products such as car loans and credit cards. In fact, the ratio of household debt to income has more than doubled between 1995 and 2015, going from 104% to 212%, according to the OECD Data released in 2015. This means if the average person earns $80,000 net, they are spending $169,600 per year. While many other developed countries have seen a decline or “levelling out” of personal debt since the 2008 global financial crisis, Australia’s debt levels have continued to increase. - As of 2016, Australia’s total personal debt is around $2 trillion and the average Australian household owes $250,000. This debt can be broken down into the following categories.
- Mortgages. Australian Bureau of Statistics (ABS) data analysed in the AMP.NATSEM report showed that mortgages for owner-occupier housing makes up 56.3% of all personal debt in Australia.
- Investor debt. Debt associated with investments such as rental properties or shares makes up 36.5% of our household debt.
- Personal debt. Personal loans make up 3.1% of Australian household debt and are commonly used to buy cars, other consumer items or to pay for holidays.
- Student debt. Debt from student loans, particularly Higher Education Loan Program (HELP) loans (formerly known as HECS), makes up 2.1% of Australian household debt. The AMP.NATSEM report says this figure reflects the time it takes to pay off these loans, with repayments typically deducted from your salary when you reach the threshold ($54,869 for the 2016-17 tax year).
- Credit card debt. While there are often reports on the sheer volume of credit card debt in Australia, it only makes up 1.9% of all household debt."]
Larry Elliott (Fri 30 Jul 2021) "During the pandemic, a new variant of capitalism has emerged - Spending is up. The world has been fighting a war against Covid, and in wartime the power of the state always increases". The Guardian @ https://www.theguardian.com/commentisfree/2021/jul/30/pandemic-new-variant-of-capitalism-spending-covid-state [Quote: "For decades the Austrian variant of political economy – the small state, non-interventionist, trickle-down, free-trade, low-tax model based around the ideas of Friedrich von Hayek – was dominant ... Not even the biggest fan of capitalism would say it is a perfect system, merely that – so far at least – it has proved more durable than its rivals. And the flexibility to adapt to changing circumstances is a big part of that. The state is now a much more powerful economic actor than it was before the pandemic, much to the disappointment of the free-market thinktanks which are home to Hayek’s disciples. ... Governments will borrow money to invest in infrastructure projects and to increase the budget for science. Industrial and regional policies will be back in vogue. The idea is to harness the power of the state with the dynamism of the private sector and, as was the case with Keynes, to save capitalism from itself."]
Ross Gittins [Economics Editor] (June 14, 2021) "Economists are slowly revealing the weaknesses of their ‘rational’ theories" Brisbane Times @ https://www.brisbanetimes.com.au/business/the-economy/economists-are-slowly-revealing-the-weaknesses-of-their-rational-theories-20210613-p580m5.html [Quote: "Economics is changing. It’s relying less on theorising about how the economy works, and more on testing to see whether there’s hard empirical (observable) evidence to support those theories. Advances in digitisation and the information revolution have made much more statistical information about aspects of economic activity available, and made it easier to analyse these new “data sets” using improved statistical tests of, for instance, whether the correlation between A and B is causal – whether A is causing B, or B is causing A, or whether they’re both being caused by C".]
Tracy McNaughton (2019) "What if monetary policy fails?". Live Wire Markets @ https://www.livewiremarkets.com/wires/straight-talk-what-if-monetary-policy-fails [Quote: "Monetary policy has been a cornerstone tool of economic management ever since the Bank of England was created in 1694. Back then the central banks’ role was to print notes and back them with gold. ... The switch to a fiat system changed all of this. Suddenly, the amount of money that could be printed was not limited by any physical commodity. The move to fiat currency meant that we now had to trust governments. Fiat money was legal tender by way of government decree. ... Enter Modern Monetary Theory (MMT) ... The deeper down the road of unconventional monetary policy we progress, the more the line between fiscal and monetary policy becomes blurred. On the one hand, MMT says if an economy prints its own currency, why can’t its government increase debt? It can never run out of the currency it prints and it can use this debt to more directly boost growth through targeted fiscal measures. It was these targeted fiscal measures that was missing from the (US and EU) policy tool kit post the GFC [Great Financial Crash 2008]. The level of bond issuance can be controlled with the central bank purchasing the bonds directly from the government – à la QE [Quantitative Easing). Opponents of MMT would argue that this weakens the independence of the central bank and increases the risk of inflation by granting unfettered access to the printing press by imperfect governments. A long list of well-respected economists both in academia and in financial markets are behind the idea of MMT as a way or re-dressing the shortcomings of monetary policy operating at or close to 0% interest rates. It is building on the ideas of pre-eminent economists such as Hyman Minsky who believed that prolonged periods of economic stability breeds complacency, and complacency leads to excessive risk taking which ultimately leads to vulnerability. Sound familiar?"]
Sofie Wainwright and Emma Simkin (27 September 2021) "A public inquiry will begin today, looking at how Central Coast Council accumulated more than half a billion dollars in debt". ABC News @ https://www.abc.net.au/news/2021-09-27/public-inquiry-into-central-coast-council-begins/100489444
Ian Verrender (27 September 2021) "China's Great Wall of Debt: can it afford a default?" ABC News @ https://www.abc.net.au/news/2021-09-27/china-great-wall-of-debt-can-it-afford-default-verrender/100493096
The Guardian (27 September 2021) Housing Revolt @ https://www.theguardian.com/world/live/2021/sep/26/germany-election-2021-results-reaction-angela-merkel-era-ends-baerbock-scholz-laschet-spd-greens-cdu-live-latest-updates [ Quote: "In a referendum run parallel to the [German] election, initial results show Berliners have voted resoundingly in favour of a plan to take thousands of housing units from large-scale landlords in a bid to preserve affordable housing in the city, where rents have shot up in recent years. The vote is non-binding, Deutsche Welle reports, but it could force the city-state’s government to debate the proposal. ... [Tweet] "Christian Odendahl @COdendahl - In case you were wondering: the people of #Berlin have voted Yes to expropriating large housing firms in the city. 56% | 38% is the current split. Unlikely to change. https://wahlen-berlin.de/abstimmungen/v ]
Anthony Keane (19 August 2021) "How to beat Covid bankruptcy blues as personal debts rise". The Australian @ https://www.theaustralian.com.au/business/wealth/how-to-beat-covid-bankruptcy-blues-as-personal-debts-rise/news-story/bd0c58f766736b4e151c48bb85359305
-----------
--------------------
Any replies to the organizer - thormay@yahoo.com
Venue: Cafe Brunelli, 187 Rundle St · Adelaide (You must buy a drink or something. We are 'renting' the space for 2 hours)
About Focus Questions: a) Please read them before you come to the meetup. Think about them so you have more than "instant opinions" to offer. b) Feel free to add more focus questions. c) THE FOCUS QUESTIONS ARE JUST A MENU TO CHOOSE FROM. From this menu we can discuss whatever seems interesting. d) Focus questions are not intended to push one viewpoint! You can adopt any position you wish. We actually like friendly disagreement - it can lead to deeper understanding
Focus Questions
1, Does it bother you to owe money? Why? How much personal debt is troublesome? What kind of debt (if any) do you find OK? For example, some people don't ever save, but have every luxury (cars, phones etc) which they pay week to week at high interest, then lose if they happen to lose a job etc. ... next job and the cycle repeats.
2. Is it worth taking on large, long term debt (a mortgage) to buy a house? What about paying rent and investing in shares instead?
3. What part does "the bank of mum and dad", or an extended family, play in setting up young adults in a home, or even in business? How does this vary amongst different ethnic groups? Is this kind of financing considered a debt by those who benefit?
4. How many people actually borrow money (or something else) for a short time from friends or other people? What is your feeling about this kind of borrowing? What are the dangers of having personal debts like this?
5. How should people who can't or won't repay debts be treated? In 19th Century England, people would even die in debtors' prisons. We don't have debtors' prisons now. Magistrates generally order unemployed or poor debtors (for example) to repay a few dollars a week, but many don't.
6. What are some reasons that so many small businesses fail? Estimates are that one in three new small businesses in Australia fail in their first year of operation, two out of four by the end of the second year, and three out of four by the fifth year.
7. How exactly is government debt different to personal debt? Does the word "debt" even mean the same in these different contexts? (hint: google "Modern monetary theory Vs monetarist economics")
8. Why does the United States Federal Government debt have a different importance to the debt of any other country? How stable is this situation?
9. Does deficit or surplus matter in the Federal budget? Since federation in 1901, the Australian budget has been in deficit at least half the time (https://www.newealth.com.au/wp-content/uploads/2019/04/2019-04-12-JBWere-Federal-Goverment-Budget-Deficits.pdf )
10. Governments around the world have had to borrow or create enormous amounts of money to keep countries afloat during the Covid crisis (e.g. Jobkeeper in Australia). What will be the consequences of this huge new debt overhang?
Extra Reading
Clancy Yeates (September 6, 2021) "Suncorp joins the rush into buy now, pay later". Brisbane Times @ https://www.brisbanetimes.com.au/business/banking-and-finance/suncorp-joins-the-rush-into-buy-now-pay-later-20210906-p58p40.html [Quote: " it would offer customers short-term interest-free loans of up to $1000, which would be quickly approved through an app and must be paid back over four fortnightly instalments. ... The move comes as a growing number of banks and payments businesses including Commonwealth Bank, Citi and PayPal all enter the BNPL stampede. The trend points to growing competition in booming BNPL sector, which includes specialist players such as Afterpay, Zip Co, Sezzle and a range of smaller specialist players. ... The Reserve Bank has also signalled it is inching towards tighter regulation of BNPL firms, as they become more popular and major financial institutions enter the fray." ]
Philip Cogan (3 May 2021) "Does government debt matter any more? - Running up debt used to prefigure political ruin, but in the 2020s nothing seems to stop governments living in the red". Prospect Magazine @ https://www.prospectmagazine.co.uk/magazine/does-government-debt-matter-any-more-austerity-deficit-spending-borrowing [Quote: "Provided there are no signs of inflation, a government deficit doesn't matter. There is no need to worry about the government defaulting on its debt, since the government can create new money to pay its creditors. ... It makes little difference whether the government is on the left or on the right".]
Stephen Bartholomeusz (September 9, 2021) "The US is risking financial chaos as it moves closer to defaulting on its debt". Brisbane Times @ https://www.brisbanetimes.com.au/business/banking-and-finance/the-us-is-just-weeks-away-from-defaulting-on-its-debt-and-unleashing-financial-chaos-20210909-p58q6i.html [Quote: "America may be only weeks away from defaulting on its debts, undermining its pivotal position within the global financial system and throwing the US economy and global financial markets into chaos... The Republican position is laden with hypocrisy. .. When [Trump] gained office and the Republicans control of Congress, the debt was just under $US20 billion. By the time he left in January this year it was more than $US27 trillion, with his tax cuts and pandemic-related spending the main factors in the increase.... An actual default would do irreparable damage and, in the process, rob America of one of its most valuable and potent assets. ... The role the Treasury bond markets plays in the global financial markets not only allows the US to borrow more cheaply than other economies but, via its currency and its dominance of the global financial system, provides it with its hegemonic power. ... With the US bond market at the centre of the global financial system – it has been the world’s “safe haven” at any sign of financial stress, provides the benchmarks for global interest rates, the reference rates for almost all financial assets and influences the value of all currencies – the Republicans are risking plunging the US, and the world, into another global financial crisis."]
Jeremy Warner (September 3, 2021) "Little did we know, but 9/11 was the start of the West’s economic crisis." Brisbane Times @ https://www.brisbanetimes.com.au/business/the-economy/little-did-we-know-but-9-11-was-the-start-of-the-west-s-economic-crisis-20210830-p58mzs.html [Quote: "The Dow Jones fell 7.1 per cent on the first day of trading after the [9/11] attacks, the biggest daily decline ever at that time. It was even worse for the S&P 500, which lost 11.6 per cent, while the hi- tech Nasdaq shed a jaw dropping 17 per cent. There was genuine fear on the street. But the dramatic easing in policy that followed, way in excess of anything justified by what had previously been happening to the economy and inflation, lit the fuse on a mindlessly reckless expansion in credit that was eventually to give us the sub-prime meltdown and the virtual collapse of the Western banking system. In the absence of real earnings growth, the politicians fed the masses with a diet of cheap debt instead... The war on terror hardly helped; it was not just the expense of the whole thing, disobeying as it did the old rule already proven by the disaster of Vietnam that you can have either guns or butter, spending on war or the domestic economy, but not both. .. Thus was established a pattern that has ruled ever since; any economic shock is met by another flood of money printing, so as to keep the pretence of perpetual growth going ..... When Bin Laden later boasted that his actions would bring down the Great Satan just as effectively as he had destroyed the Soviet Union, he had something of a point".]
Martin Farrer (14 September 2021) "China property giant Evergrande admits debt crisis as protesters besiege HQ". Asia Times @ https://www.theguardian.com/world/2021/sep/14/china-property-giant-evergrande-admits-debt-crisis-as-protesters-besiege-hq [Quote: "Property giant China Evergrande Group has said that it cannot sell properties and other assets fast enough to service its massive $300bn debts, and that its cashflow was under “tremendous pressure”... Evergrande is one of the world’s most indebted companies, and has seen its shares tumble 75% this year, sparking fears among analysts of “a risk of contagion” spreading through China’s overheated property sector and also its banking system".]
Eryk Bagshaw (September 23, 2021) "Running on empty: how Evergrande became the world’s most indebted property company". Brisbane Times @ https://www.brisbanetimes.com.au/world/asia/what-caused-the-evergrande-crisis-20210922-p58tru.html [Quote: "It had a liability‑to‑asset ratio of more than 70 per cent; net debt‑to‑equity ratio of more than 100 per cent; and cash holdings to short‑term debt ratio of less than 100 per cent. It had to sell properties quickly and cheaply but in a market filled with investors nervous about a property downturn, it has not been able to find enough buyers. More than 800 projects are now floundering, crippled by cash shortages and construction delays. Chinese media outlet Caixin reported on Monday Evergrande needed $21 billion to complete apartment blocks already underway... The company owes $171 billion to its suppliers, employees and investors – loans due within the next year – but it only has 10 per cent available in cash. Its debt sheet is more than $400 billion overall, making it the most indebted property company in the world. ... The Chinese government has been quiet. The purpose of its “three red lines” was to rein in unsustainable debt, the consensus is it does not want to now be seen to be engineering a restructure ... "]
[=> Thor, comment: The first reader comment on this article was "What has this got to do with us?". Like most media readers, this reader has no clue. After all China is a foreign country, and also most people cannot emotionally understand the size of a number like $400 billion. Unfortunately, Evergrande has a lot to do with us : a) Worldwide, when people & companies become nervous about their local economies, they rush to buy American dollars; b) when there is high demand for American dollars, the US$ appreciates (i.e. local currencies lose value); c) a very high proportion of the world's debt is ultimately written in US$. America is the world's banker. You borrow money from your (Australian, Chinese ...) bank to buy a house or business. Your bank borrows much of its money from America. Also, national governments buy US government bonds to fund their debts. d) when the US$ appreciates, other countries, companies & individuals suddenly have to pay more each month to service their loans. This can quickly lead to worldwide economic crisis. e) In Australia's case, a large part of our foreign income comes from selling iron ore. The Chinese construction industry is a huge consumer of steel. When it sneezes we catch cold. The price of iron ore has already plunged 60% since the beginning of 2021.]
Finder.com (18 December 2017) "Australians’ household debt nears highest worldwide". Finder.com @ https://www.finder.com.au/australias-personal-debt-reported-as-highest-in-the-world [Quote: "Australia’s personal debt is some of the "highest in the world", but what does this really mean? Australian household debt has steadily risen over the past three decades as more of us aim to own homes and continue to rely on products such as car loans and credit cards. In fact, the ratio of household debt to income has more than doubled between 1995 and 2015, going from 104% to 212%, according to the OECD Data released in 2015. This means if the average person earns $80,000 net, they are spending $169,600 per year. While many other developed countries have seen a decline or “levelling out” of personal debt since the 2008 global financial crisis, Australia’s debt levels have continued to increase. - As of 2016, Australia’s total personal debt is around $2 trillion and the average Australian household owes $250,000. This debt can be broken down into the following categories.
- Mortgages. Australian Bureau of Statistics (ABS) data analysed in the AMP.NATSEM report showed that mortgages for owner-occupier housing makes up 56.3% of all personal debt in Australia.
- Investor debt. Debt associated with investments such as rental properties or shares makes up 36.5% of our household debt.
- Personal debt. Personal loans make up 3.1% of Australian household debt and are commonly used to buy cars, other consumer items or to pay for holidays.
- Student debt. Debt from student loans, particularly Higher Education Loan Program (HELP) loans (formerly known as HECS), makes up 2.1% of Australian household debt. The AMP.NATSEM report says this figure reflects the time it takes to pay off these loans, with repayments typically deducted from your salary when you reach the threshold ($54,869 for the 2016-17 tax year).
- Credit card debt. While there are often reports on the sheer volume of credit card debt in Australia, it only makes up 1.9% of all household debt."]
Larry Elliott (Fri 30 Jul 2021) "During the pandemic, a new variant of capitalism has emerged - Spending is up. The world has been fighting a war against Covid, and in wartime the power of the state always increases". The Guardian @ https://www.theguardian.com/commentisfree/2021/jul/30/pandemic-new-variant-of-capitalism-spending-covid-state [Quote: "For decades the Austrian variant of political economy – the small state, non-interventionist, trickle-down, free-trade, low-tax model based around the ideas of Friedrich von Hayek – was dominant ... Not even the biggest fan of capitalism would say it is a perfect system, merely that – so far at least – it has proved more durable than its rivals. And the flexibility to adapt to changing circumstances is a big part of that. The state is now a much more powerful economic actor than it was before the pandemic, much to the disappointment of the free-market thinktanks which are home to Hayek’s disciples. ... Governments will borrow money to invest in infrastructure projects and to increase the budget for science. Industrial and regional policies will be back in vogue. The idea is to harness the power of the state with the dynamism of the private sector and, as was the case with Keynes, to save capitalism from itself."]
Ross Gittins [Economics Editor] (June 14, 2021) "Economists are slowly revealing the weaknesses of their ‘rational’ theories" Brisbane Times @ https://www.brisbanetimes.com.au/business/the-economy/economists-are-slowly-revealing-the-weaknesses-of-their-rational-theories-20210613-p580m5.html [Quote: "Economics is changing. It’s relying less on theorising about how the economy works, and more on testing to see whether there’s hard empirical (observable) evidence to support those theories. Advances in digitisation and the information revolution have made much more statistical information about aspects of economic activity available, and made it easier to analyse these new “data sets” using improved statistical tests of, for instance, whether the correlation between A and B is causal – whether A is causing B, or B is causing A, or whether they’re both being caused by C".]
Tracy McNaughton (2019) "What if monetary policy fails?". Live Wire Markets @ https://www.livewiremarkets.com/wires/straight-talk-what-if-monetary-policy-fails [Quote: "Monetary policy has been a cornerstone tool of economic management ever since the Bank of England was created in 1694. Back then the central banks’ role was to print notes and back them with gold. ... The switch to a fiat system changed all of this. Suddenly, the amount of money that could be printed was not limited by any physical commodity. The move to fiat currency meant that we now had to trust governments. Fiat money was legal tender by way of government decree. ... Enter Modern Monetary Theory (MMT) ... The deeper down the road of unconventional monetary policy we progress, the more the line between fiscal and monetary policy becomes blurred. On the one hand, MMT says if an economy prints its own currency, why can’t its government increase debt? It can never run out of the currency it prints and it can use this debt to more directly boost growth through targeted fiscal measures. It was these targeted fiscal measures that was missing from the (US and EU) policy tool kit post the GFC [Great Financial Crash 2008]. The level of bond issuance can be controlled with the central bank purchasing the bonds directly from the government – à la QE [Quantitative Easing). Opponents of MMT would argue that this weakens the independence of the central bank and increases the risk of inflation by granting unfettered access to the printing press by imperfect governments. A long list of well-respected economists both in academia and in financial markets are behind the idea of MMT as a way or re-dressing the shortcomings of monetary policy operating at or close to 0% interest rates. It is building on the ideas of pre-eminent economists such as Hyman Minsky who believed that prolonged periods of economic stability breeds complacency, and complacency leads to excessive risk taking which ultimately leads to vulnerability. Sound familiar?"]
Sofie Wainwright and Emma Simkin (27 September 2021) "A public inquiry will begin today, looking at how Central Coast Council accumulated more than half a billion dollars in debt". ABC News @ https://www.abc.net.au/news/2021-09-27/public-inquiry-into-central-coast-council-begins/100489444
Ian Verrender (27 September 2021) "China's Great Wall of Debt: can it afford a default?" ABC News @ https://www.abc.net.au/news/2021-09-27/china-great-wall-of-debt-can-it-afford-default-verrender/100493096
The Guardian (27 September 2021) Housing Revolt @ https://www.theguardian.com/world/live/2021/sep/26/germany-election-2021-results-reaction-angela-merkel-era-ends-baerbock-scholz-laschet-spd-greens-cdu-live-latest-updates [ Quote: "In a referendum run parallel to the [German] election, initial results show Berliners have voted resoundingly in favour of a plan to take thousands of housing units from large-scale landlords in a bid to preserve affordable housing in the city, where rents have shot up in recent years. The vote is non-binding, Deutsche Welle reports, but it could force the city-state’s government to debate the proposal. ... [Tweet] "Christian Odendahl @COdendahl - In case you were wondering: the people of #Berlin have voted Yes to expropriating large housing firms in the city. 56% | 38% is the current split. Unlikely to change. https://wahlen-berlin.de/abstimmungen/v ]
Anthony Keane (19 August 2021) "How to beat Covid bankruptcy blues as personal debts rise". The Australian @ https://www.theaustralian.com.au/business/wealth/how-to-beat-covid-bankruptcy-blues-as-personal-debts-rise/news-story/bd0c58f766736b4e151c48bb85359305
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