(a) The cool aid test for debt vs asset value is that in a serious recession asset value drops but the debt doesn't. Take for example the plight of Ireland, Greece, Spain & Portugal during the GFC and the ensuing decade.
(b) While house prices are appreciating at present, it does not mean that that trend will continue. Take for example what happened here between 1989 & 1997. House prices crashed in 1989 almost bankrupting our big 4 banks and gutting their mortgage/finance arms (remember Esanda, Comm Development Bank etc)
At present we are facing a double whammy: Covid & China Trade War . We have averted 2 consecutive quarters of negative growth by the Government pumping an extra $200 billion into the economy (10% extra of GDP) and without that we'd be in severe recession/depression now. Similarly for 2021-2022 the Government plans to pump in $166 billion extra into the economy (over 8% of the GDP). We all know that this is unsustainable ; just kicking the can down the road.
The Comm Bank last week signalled an increase in mortgage interest rates which, IMO, is the first sign of our likely Japan disease (stagflation) of low growth and increasing interest rates. Stagflation has stunned the Japanese economy for over two two decades and even now Japan is carrying one of the highest sovereign debt/gdp ratio; a hangover from the early 1990s.
While the USA can rely on massive money printing because its dollar is the reserve currency, we simply can't assume that our peso will behave in a similar way in response to our money printing (euphemistically spun as QE). All we need is a downgrade from AAA credit rating and IMO, we'll be off to the AUD devaluation stakes and with it the loss of our short term asset appreciation.
At present the Comm Government is paying interest on gross debt , not net debt, and as our sovereign risk increases so will our bond interest, IMO.
