Household debt has gone from 40% of GDP to 120% of GDP!

More proof the RBA is captured by foreign banks.

In Estimates I asked the RBA if the financial deregulation of the 1980’s was a good thing.

Just to be clear, this a question of degree. Overregulation is always a bad thing but at the same time no regulation can be exploited as well.

This is exactly what’s happened with the banks who have overlent on housing whilst under lending to actual businesses.

If the RBA thinks having the highest Household debt in the world is a good thing she is dreaming.

It’s driven the household price to income ratio from around 4/5 times in the 1980’s to 10/12 times today.

This has meant that two parents now have to service a mortgage not one, putting young children into childcare to be indoctrinated from an early age.

It’s also meant that in order to keep the Ponzi scheme going the immigration rate has to be in overdrive so that new immigrants can buy the houses that are sold by Australians as they go bankrupt.

It’s no coincidence that immigration was increased at the same time as financial deregulation. It was very deliberate.

The increasing immigration rate has propped up our GDP via higher consumption masking the decline in productivity from our manufacturing sector.

The only winners out of this are the banks, both domestic and foreign.

The RBA if they were doing their job properly would be concerned about this. Instead they continue to peddle the lies that unrestrained credit lending is a good thing.

Economics Legislation Committee
Reserve Bank of Australia

Senator RENNICK:   Are you aware of the 1937 royal commission into banking that basically said the central bank should be responsible for the control of the volume of credit in a system? Are you familiar with that recommendation?

Ms Bullock: I’m familiar with the royal commission—I haven’t read it recently; I will confess—but not specifically with that particular recommendation.

Senator RENNICK: The second part was that it said that the distribution of credit should be the responsibility of private banks. I’m not for a minute suggesting that the RBA take over all private banking facilities. With regard to the control of the volume of credit in the system, I want to refer to 1985 when Paul Keating lifted all capital controls and allowed foreign banks to come in and lend to our private banks. Household debt had gone from 40 per cent of GDP to 120 per cent of GDP. Do you think it was reckless of the government at the time to completely lift capital controls and have no control over the type of capital that comes into the country and how it’s used?

Ms Bullock: No. I think that Australia has done very well in the recent years since we floated the exchange rate and eliminated capital controls. It has allowed foreign investment to flow. I think that generally most people think that the deregulatory period, including the deregulation of the banks, allowed people who were previously credit constrained to access credit I think generally people would say deregulation has been a good thing.

Senator RENNICK: Even though we’ve got 120 per cent household debt and people are now struggling to make repayments.

Ms Bullock: We can get into debates about that and there’s at least one good RDP which explains that particular issue, but back in the heavily regulated days people were credit constrained. The minute you allow people to borrow, including good credit risks who couldn’t get credit before, then of course the debt to income ratio is going to rise. It also rises because, as inflation has come down and interest rates have come down, the debt service ratio has come down, so that allows people to take on a bit more debt.

The other point I would make is that in Australia, unlike many other countries, the rental housing stock is owned by households. Overseas it’s owned by corporations and governments, so the higher household debt is partly a result of the fact that we have the housing rental stock owned by households. That’s the other part. There are a number of factors.

Senator RENNICK: I accept that.





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