An economist known for predicting the Global Financial Crisis has raised concerns regarding Australia’s escalating household debt. Steve Keen, an honorary professor at University College London, has historically critiqued high private debt levels in Western economies. He indicates that the current landscape of large Australian mortgages could precipitate an economic downturn.
Concerns Over Household Debt
Keen has focused on the new 5 percent deposit scheme aimed at first-time home buyers. According to him, this government initiative, which eliminates the need for Lenders Mortgage Insurance, serves primarily to sustain the inflated housing market. He argues that such home-buying incentives have become a simplistic method to stimulate the economy, but the effectiveness of these strategies is waning.
Cyclical Patterns in Housing Market
- Keen describes a feedback loop he terms a “conjob,” where banks promote extensive mortgage credit.
- This practice boosts consumer confidence and consumption but exacerbates household debt and home prices.
He believes the latest initiatives encourage young people to incur larger debts, ultimately benefiting older Australians, including Prime Minister Anthony Albanese, whom he refers to as the country’s “prime real estate agent.” Keen points out that while the government does not print money for home buyers, its guarantees effectively introduce more money into the economy.
Rising Debt Levels
The economist highlights that Australian governments have historically utilized their monetary capacity to maintain inflated housing prices. Despite stagnant wages and incomes, this prolonged strategy has led to a situation where young borrowers are increasingly unable to participate in the economy.
Current Situation
As debt levels reach unprecedented heights, Keen warns that potential borrowers may be unable to spend beyond the essentials, such as commuting costs. This trend could signal an impending economic slowdown, as Australia’s household debt stands among the highest worldwide, trailing only Switzerland.
The Future of Australian Economy
Keen emphasizes the importance of maintaining manageable debt levels in a well-functioning economy. He suggests that current high debt levels deter banks from lending and make individuals wary of accumulating additional debt.
He speculates that substantial political change is necessary to address these issues, noting that major political parties are closely tied to lending institutions. Without a significant shift in policy, the risk of an economic collapse remains imminent.