There is a harsh piece in the Australian Financial Review today on last night's Federal budget.
Christopher Joye's main points:
- The country is suffering from a toxic combination of unprecedented public and private debt
- This budget deficit is worse than even the most sophisticated investors realise
- Australia faces its biggest fiscal challenge in 60 years and does not deserve an AAA credit rating
- Australia's gross Commonwealth government debt-to-GDP ratio is now at the highest level since the ABS's quarterly records began 27 years ago and exceeds the 22.9 per cent record set in December 1995 after the 1991 contraction
There are two critical differences in 2015 that make Australia's current debt burden much more troubling than that serviced by previous generations:
- Back in the 1977 and 1983 recessions, the household debt-to-income ratio was only 34 per cent and 37 per cent, respectively
- Even in the 1991 recession, it was just 48 per cent, which is one reason why home loan arrears were so benign
- Yet by 2015, the household debt-to-income ratio had jumped 3.2 times to an incredible 154 per cent, which is above its pre-GFC climax because families haven't deleveraged
There is more at the article, which is gated at the Australian Financial Review: Federal budget 2015: worst cumulative deficits in 60 years
While the Australian Financial Review is often gated, MacroBusiness have managed to get permission to reproduce a good bit more of the article and have made it available here: Joye: Rating agencies smoking AAA dope
Kudos to MacroBusiness!
