Just imagine a nearly boiling pot of water seconds away from hitting boiling point. The water is still quite calm and not moving much. However within about 30 seconds all hell breaks loose. The water starts moving, bubbling and frothing in an uncontrollable, unpredictable manner.
There is a sense in my bones that this analogy is similar to Australians’ debt issue. Right now all is still calm, however any month now an uncontrollable and unpredictable economy might take shape. With Australians finally hitting breaking point with all the debt we are in. Is there going to be a straw that will break the camel’s back?
And we are in debt, tons of it; right up to our eyeballs. In fact on Dec the 27th Australians now owe 1.2 trillion dollars. Yes that’s right I said trillion with a “t”. This is our debt on credit cards, personal loans and mortgages.
In fact this is on average, $56,000 for every man, woman and child in the country; up 71 percent from just 5 years ago.
Let’s do the sums. So if it is up 71 per cent from 5 years ago what does this mean? Well by my calculations, in Dec 04 as a nation, we owed $33,000 per every man, woman and child. This has climbed by an average of 11.2% each year, every year since then.
On average our debt has gone up by 11.2%. This is not a small percentage; this is a huge percentage. Especially, when you consider most people are only getting a 3 to 4% pay rise each year.
Did you know at 11.2% our debt doubles every 6 years and 3 months. If it keeps going this way we will be at $105,880 by Dec 31st 2015… Only six years away.
In fact Australians’ debt now totals 100.4 percent of our total yearly GDP. In case you don’t know what GDP is: It is all the money spent in the country for the whole year. (Please note this is a basic one sentence explanation of GDP). Plus this 100.4 is one of the highest ratios in the developed world.
Will Australia hit a debt wall? Will people all of a sudden not be able to pay back loans? This figure shows that there is trouble ahead. People are talking as if the GFC is already over. However, these figures in my opinion at least, show that Australia is maybe just getting started.
I’m not 100% sure of all the reasons of how we got to this situation. But we must start changing and quickly.
There seems to be this undercurrent of worry out there. Most people seem to be putting on a brave face, however there are people really struggling.
We can’t as Aussies keep going along as if everything is fine; purchasing overpriced houses, using our credit cards and taking holidays on personal loans. We seem to keep doing these things as a whole because everyone else is doing it. We seem to feel safer in numbers doing stupid things than going it alone. I heard this story many years ago. I’m not sure where it came from, however I will tell it with my best recollection as I believe it describes this debt problem perfectly.
A man walks by a frozen river. He sees a bridge 500 metres into the distance that he must walk over to cross the river. He has no intention of crossing on the ice as he does not know how thin it is. However just in the corner of his eye he notices people; 2 or 3 people walking across the river. Then some children come and start iceskating. He watches further as people start going on the frozen water and having snow ball fights. Soon half the town is on the ice having a good time. As each person steps onto the ice it gives other people the confidence to step on the ice. Each person on the ice reassures the other people that the ice is 100% safe. The man seeing that the ice now looks very safe decides to cross the river. However he gets half way across and he hears a crack. The ice is breaking and everybody is screaming. They all fall into the freezing cold water.
The ice could only take so much weight before it gave way. I wonder what the weight of debt Australians can take before our ice gives way? Are we there now or do we have a few years to go? Who can say? What I do know is that with debt moving up 11.2% a year it can’t be too long before we hit the wall.
Thanks from Adam Goulding (Also known as Mr Home Budget)
For more information go to
