Revealed: The terrifying secret document showing how Australia’s record-high debt levels could spark an economic catastrophe

  • The Reserve Bank of Australia has issued a warning about high household debt
  • It warned future rate cuts would be ineffectual to cope with economic shock 
  • Australia’s household debt to income ratio of 190 per cent is at a record high
  • Economist Martin North said RBA had shown the need for government spending
  • He predicted Australia would fall into a recession unless surplus pledge ditched 

By Stephen Johnson For Daily Mail Australia

Published: 04:43 BST, 2 September 2019 | Updated: 04:54 BST, 2 September 2019

Australia’s record-high debt levels could spark an economic catastrophe with the Reserve Bank issuing a warning in an obscure document.

During the past three decades, the national household debt to income ratio has more than tripled from 60 per cent in 1988 to a 190 per cent now. 

Mortgage, credit card and personal loan debt levels together are the highest in the world after Switzerland, as house prices in Sydney and Melbourne have skyrocketed.

One economist is warning record debt levels were likely to spark an economic catastrophe with a recession likely for the first time since 1991. 

Australia's record-high debt levels could spark an economic catastrophe with the Reserve Bank issuing a warning in an obscure document. During the past three decades, the national household debt to income ratio has more than tripled from 60 per cent in 1988 to a 190 per cent now

Australia’s record-high debt levels could spark an economic catastrophe with the Reserve Bank issuing a warning in an obscure document. During the past three decades, the national household debt to income ratio has more than tripled from 60 per cent in 1988 to a 190 per cent now

While interest rates are now at a record-low of one per cent, the Reserve Bank of Australia warned further rate cuts would be ineffectual because debt levels were too high. 

The central bank said financial markets were likely to be unstable between now and 2023.

‘The structure of the Australian economy will continue to evolve and economic shocks – which, by definition, are not forecastable – will occur,’ it said in its corporate plan for the next four years.

The Reserve Bank said high debt levels meant Australians were more likely to be badly affected by falling share and property prices, as wages continued to grow at weak levels.

‘Movements in asset values and leverage may be more important for economic developments than in the past given the already high levels of debt on household balance sheets,’ it said.

‘Especially in the context of weak growth in household income, high debt levels could complicate future monetary policy decisions by making the economy less resilient to shocks.’

The Reserve Bank said high debt levels meant Australians were more likely to be badly affected by falling share and property prices, as wages continued to grow at weak levels

The Reserve Bank said high debt levels meant Australians were more likely to be badly affected by falling share and property prices, as wages continued to grow at weak levels

The Reserve Bank said high debt levels meant Australians were more likely to be badly affected by falling share and property prices, as wages continued to grow at weak levels

Digital Finance Analytics founder Martin North said the Reserve Bank had highlighted the need for the federal government to spend more money to stimulate the economy rather than rely on lower interest rates.

‘Unless they pick up the pace, we are going to fall into recession,’ he told Daily Mail Australia on Monday.

Mr North said record-high Australian household debt levels meant the economy would struggle as unemployment rose.

‘That’s a big deal. As soon as unemployment starts to rise, that is enough to tip more households into delinquency on their mortgages,’ he said.

‘We’ve already got a record number of households in mortgage stress, a lot of those are struggling simply because they don’t have the cash flow to deal with the mortgages with their current jobs.’

Economist Martin North said record-high Australian household debt levels meant the economy would particularly struggle as unemployment rose

Economist Martin North said record-high Australian household debt levels meant the economy would particularly struggle as unemployment rose

Economist Martin North said record-high Australian household debt levels meant the economy would particularly struggle as unemployment rose

Treasurer Josh Frydenberg in April promised a Coalition government would deliver a budget surplus in 2019, the first in 12 years.

‘Short-term-ism and politics have overridden the right strategies for the country,’ Mr North said.

Since the budget was unveiled prices for iron ore, Australia’s biggest export to China, have plunged by 31.6 per cent from $US124.20 a tonne to $US85. 

The building sector is also weak, with the value of residential construction plummeting by 9.6 per cent in the year to July. 

Property prices are recovering from a slump, with Sydney’s median house price of $877,220 more than 10 times an average, full-time salary of $85,000.

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