Nice piece in the Sydney Morning Herald which hits all the major factors. No one cause and no simple solution. In particular with he banking system - as elsewhere private sector risk is now sovereign risk.
...On one half of the pincer, government does not have any choice but to aim for surpluses. This is because the federal budget guarantees Australian banks’ offshore debts, which funds much of the service sector’s growth.....The other half of the pincer inhibits monetary policy. The lower interest rates get, the greater the likelihood that the banks will need to resume borrowing offshore to fund renewed credit expansion as deposit growth falters and credit demand climbs (here)
...On one half of the pincer, government does not have any choice but to aim for surpluses. This is because the federal budget guarantees Australian banks’ offshore debts, which funds much of the service sector’s growth.....The other half of the pincer inhibits monetary policy. The lower interest rates get, the greater the likelihood that the banks will need to resume borrowing offshore to fund renewed credit expansion as deposit growth falters and credit demand climbs (here)
...In short, whatever mix of monetary and fiscal policies Australia chooses, growth will be squeezed by the legacy of yesteryear’s offshore bank borrowing binge....The only way to grow out of this in the long run is via productivity gains and/or external demand. So far that has been gifted to us by China. But to keep growing as the mining boom ends we will need to be competitive at both the fundamental and currency levels....
....Basically, Australia’s entire macroeconomic structure is geared towards a dated growth model of borrowing offshore to fund excessive and unearned income inflation. The astute might also observe that this set-up is entrenched also in both political parties....
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