Apparently really big household debt is new phenomena...
read on
And Reserve Bank governor, Ian Macfarlane was instrumental in getting the Australian debate about household debt going, earlier this year. Here he is speaking on the issue in February to a Parliamentary Committee.
Ian Macfarlane: As long as they’ve got a job, most people will continue to service their mortgage whether the house price has fallen or not, or whether the interest rate’s gone up or not. The crucial danger is if they lost their job, then I think the main effect we would see would be consumption spending would fall very, very sharply.
Mr Ciobo : Offsetting confidence measure is the fact that unemployment is now significantly lower than it was when we’ve had similar situations in the past.
Ian Macfarlane: Well we haven’t had a similar situation in the past. I mean the 1980s recession, the household sector didn’t play a very big part in that at all. I mean that was a boom and bust in the corporate sector. Now the household sector did slow down of course, but the triggering event, the debt story, the excessive debt story of the ‘80s was all about the corporate sector, not about the household sector. The household sector had very modest levels of debt at that time. The Australian household sector was a very conservative household sector. This is the first time we’ve faced a situation with a household sector which is pretty heavily geared, and we haven’t had that before.
LOOKS LIKE THE ONLY THING STOPPING THE PROPERTY MARKET FROM CRASHING AT THE MOMENT IS THE LEVEL OF EMPLOYMENT
