As we know, banks are recapitalising interest for the next 6 months. Debt will increase, household income will decrease. So that blue line will keep climbing.
Then what about 2021? Having experienced the shock of 2020, people will naturally tend to save a bit more and spend less a bit less. So will businesses to some extent. The savings will likely go into paying down debt.
Income grow will remain weak in 2021.
A some point, the ratio must start to decline to a more healthy level.
If house prices decline in the next 6 months, debt levels will still increase.
How will the blue line ever decline? Gradual debt defaults over an extended period will be the only way. After this next 6 months where the government will have exhausted its ability to protect all and sundry, the following 12 to 18 months will be where things start to rebalance.
Anyone hoping for an instant return to the excesses of the boom years in 6 months time, is perhaps wishful thinking.
The government has quickly built a bridge. But what is the gradient of that bridge and what is the drive like at the end of the bridge? Cruising down into the valley and stopping at the servo to pay for fuel? Paying our dues. Or trying to power up through the alps with the tank on empty with no servos in sight.
