More debt than you can shake a stick at

Despite the supposed good times we're all experiencing at the moment and the idea that the recession has well and truly gone away, the one thing that hasn't gone away is the high level of debt in the Australian economy.

The financial crisis provided a slight set back to the increase in credit (debt) but growth resumed in the June quarter.

An article in the RBA's September Bulletin on Measuring Credit. See also RBA Statistical tables B21 shows just how much debt exists in Australia. A total of $1.914 trillion (about 175 per cent of GDP)   (156.1 per cent of disposable income).

The article also shows just how dominant the Big Four banks have become as a result of the financial crisis, with securitisation of home loans going into free fall. The Residential Mortgage-backed Securities (RMBS) market has hitherto provided decent competition to the banks and despite the general quality of the securities in Australia, the market suffered because of the crisis.

The Rudd govt has attempted to bolster the RMBS market by buying $8 billion of them. This is a good move. These are high quality home loans and so the risk is not great.

Less competition in the banking sector, will be a negative for Australians.  It also makes the economy more vulnerable to poor decisions amongst the big four.

For a summary of the RBA article and an analysis of the state of play see Michael Janda Banks dominate Australia's housing debt overhang.

My recent book The Vulnerable Country also contains a chapter on the financial vulnerabilities of the Australian economy.

For some suggestions on what could be done to bolster securitisation (RMBS) even further see Christopher Joye.