Thursday, 1 August 2013

Debt junkies

An excellent analysis by Leith van Onselen on the reported comments by NAB head Cameron Clyne as to the need for more debt.  While it is true Australia's public debt markets are small (and this is a product of the history of Australian government funding), it is spot on of Leith to point out the hypocrisy of a state guaranteed bank sitting on a private debt book which Moody's and other rating agencies have expressed concern to shout for more.  As Leith notes private debt in countries like US and UK can be a big risk:

That said, there remains a vulnerability that virtually nobody on either side of politics, the mainstream media, or the mainstream economics profession will acknowledge – one that is far more pervasive than concerns about public debt: Australia’s heavy private debt load. As shown by the below chart from McKinsey Global, while Australia’s public debt levels are low, our household debt is amongst the highest in the developed world, with most of that invested in pre-existing housing (here)
If Australian banks are anything like their international peers then they gorge on cheap government funding and speculate while holding out little to their depositors (and to become less when they price in the cost of the levy).  But still they ask for more...

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