debtwatch may 2007.

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Government should focus on personal debt, not inflation, says UWS economist.

As the Reserve Bank meets this week, a University of Western Sydney economist is warning that the increase in the number of homes being repossessed should be the focus of government action, rather than inflation.

“The number of homes being repossessed – particularly in Greater Western Sydney – is an indicator of what’s really happening to the Australian economy. The burden is falling mainly on households. Maybe the economists and policy advisors should focus on the real problem, which is private debt,” says Associate Professor, Steve Keen.

Even though inflation has fallen sharply, the level of private debt is showing no signs of slowing down, Professor Keen says. He notes that government figures released for April show that inflation grew by a modest 0.1 per cent, not the 0.7 per cent economists had originally predicted.

Servicing the mortgage has become a serious problem for a large number of Australian households, he says.

“What costs five cents in the household dollar in 1990 now costs almost eleven cents – and almost 15 cents in the dollar when you add credit card debt.”

Moreover, private debt is now 153.5 per cent of GDP – an increase of more than 1.25 per cent in the last month alone.

“If the current rate of growth keeps up, then by next year, the interest repayment burden on the economy will exceed the level that brought the economy to a standstill in 1990,” he says.