Thursday, August 24, 2006

Warning

This makes a lot of sense and the conditions he describes apply here;

Outgoing Reserve Bank governor Ian Macfarlane has warned that Australia likely faces a recession within the next seven years — one that could be made far worse by the heavy debts of Australian households.

Mr Macfarlane said that the biggest risk was that if an outside shock made the economy slow down or start to contract, the debt-heavy household sector, instead of continuing to spend and stabilising the economy as in the past, would cut its spending, making the downturn worse.

In the 1990-91 recession, he said, "the boom and bust was in the corporate sector. Companies were going broke, banks failing, people selling stuff at distress prices. The household sector was a stabilising force.

"What I fear is that next time there's a negative shock to the economy, the household sector won't be the same source of stability. It might be the source of instability."

No comments: