When $5.3 Million of New Debt Per Hour Isn’t Enough for Australia…

I don’t have to tell you it’s never been cheaper to borrow money than it is today. Low interest loans. No money down. No repayments for 12 months. And a free toaster?

It’s no wonder Australians are among the most indebted people on the planet. According to a new report by the RBA, Australian household debt is now over 180% of GDP. That’s up from roughly 75% in 1993.

Let’s be clear on what this means. It would take every dollar of economic output Australia produces…and every minute we’re engaged in paid work…for 1.8 years before Aussie households could dig themselves out from under this mountain of debt. Only to emerge…flat broke.

During these 21 arduous months we wouldn’t be able to spend a single dollar on anything else. No food. No electricity. No interest payments (sorry banks). Nothing.

Does this give you a better idea of just how far up the proverbial creek we are, without a paddle between us?

Of course, it’s not just us lowly citizens racking up the debt. Our esteemed leaders have no problem spending more of your tax dollars than they collect. The federal debt now exceeds $474 billion.

And the debt binge shows no sign of slowing down. According to The Sydney Morning Herald:

Total government debt is now rising by $5.3 million an hour — or $126m a day — according to calculations performed by David Lawson, a commentator who runs the Australian Debt Clock website.’

I check the Australian Debt Clock periodically. It’s fascinating — and frightening — to see how fast those numbers tick up. Here’s the figure it gives at the time of writing for total household, corporate, and government borrowing combined: $6,186,675,849,001.

Yep. We’re over six trillion dollars in the hole. And digging deeper.

‘Borrow to build, says RBA’.

So reads the front page headline of yesterday’s Age. That’s right, apparently tacking on an extra $5.3 million in debt every hour isn’t sufficient. At least not according to RBA governor Philip Lowe who, ‘…implored Prime Minister Malcolm Turnbull to borrow more to spend on roads, railways and other infrastructure.’

Not that Australia has a monopoly on debt. As Vern explained to you on Monday, the Chinese know a thing or two about living beyond their means as well.

Let’s have a look at that, and the rest of the top stories from Markets and Money this week, now.

There’s no new way to go broke

There’s no doubt China’s enjoyed a spectacular 30-year economic boom. But at what cost? In Monday’s Markets and Money Vern shines the spotlight on China’s debt-fuelled growth model. The numbers speak for themselves. China’s debt increased by US$21 trillion between 2007 and 2014.

Little wonder Australia enjoyed a mining boom. That money had to go somewhere.

Yet China’s economic growth hasn’t kept pace with the expansion of credit.

As Vern sees it, there’s no new way to go broke…it is always too much debt. The collapse may be inevitable, but, as Vern says, the solution is to take profits while you can. How? Find out here.

Casting our eyes to global stock markets, while computer algorithms have transformed the system over the past 10 years, most investors plod along as if nothing has changed. They jump on bullish bandwagons near the top of the media hype, and sell at the first sign of weakness…usually for a loss.

As Jason explained in Tuesday’s Markets and Money, buying stocks based on emotions in today’s bull market could prove a grave mistake. He believes the market will undergo a significant correction in the short term.

And as stocks start rolling back, gold should rally.

The Power of Gold

Gold has surged since Trump’s comments about China’s supposed currency manipulation.

Trump’s determination to keep the greenback from creeping higher has failed up to now. But as the looming stock-market correction unfolds, it’s likely to force a pullback in the US dollar.

Get ready to see a short-term surge in the gold price. How high could gold go? Find out here.

Moving from gold to the energy markets, Jason looked at oil’s spectacular run over the past year. In Wednesday’s Markets and Money he points out that Brent crude is up more than 100% since its low in January 2016. But where to from here?

OPEC’s recent output cut agreements and Trump’s sabre rattling toward oil-rich Iran should support oil prices in the months ahead. But there are countless variables at play. If OPEC members are caught cheating, oil prices could tumble. On the flip side, if Trump reintroduces oil sanctions on Iran, prices will head north.

You’ll see some of the best gains — or biggest losses — in crude oil producers if the oil price makes another big move.

Closer to home, there could be another supply shock on the way in an often neglected market — Aussie natural gas. Gas that was formerly sold domestically is now heading to international markets to take advantage of the higher prices. That’s not good news for your electricity bill, but it opens the door to a great investment play. Get all the details here.

Speaking of great investment plays, in Thursday’s Markets and Money Callum writes, ‘You need to be able to see where value is genuinely being created by the market or protected by the government.’

It sounds simple. Yet so many investors are blind to government’s massive impact on the ‘free market’.

Take the taxi medallion, for example. That’s the government license to operate a cab in the US. The value of a taxi medallion has collapsed from $1 million in 2014 to just half that today. The only reason the medallions ever fetched such lofty sums to begin with is due to the government’s artificial restrictions on the number of authorised cabs. Then along comes Uber…

Meanwhile, in Australia, the government is doing everything in its power to prop up our inflated property market. With Australians having taken on over $1 trillion in mortgage debt, you can understand why. And like the US taxi medallions, prices could keep going up for some time yet. Until they don’t…

Check out Callum’s analysis here.

Vern picked up the ball on the Australian property markets on Friday. He points out that many Aussies — especially home owners — tend to be defensive about our overpriced market. ‘Our market is different,’ they claim. Most international observers, however, have a very different take. They ‘see a massive bubble in search of a pin’.

Vern notes that household debt is at record levels. And Australian wage growth is stagnating. With that in mind, he’s not too optimistic about the growth prospects for Australian property. For all his analysis — and a timeline to the inevitable ‘pop’ — go here.


Bernd Struben

Bernd Struben is a contribution Editor of Markets & Money. He holds a degree in Economics and is a published novelist. Bernd’s career spans multiple countries on four continents. With his diverse background, he brings unique business insight and a libertarian twist to his columns and analysis in Markets & Money.

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