The State of Australian Economy According to John Adams
Some senior financial analysts are concerned about the precarious nature of Australia’s economy due to record levels of household debt, a housing bubble and high foreign debt that can derail the economy. They predict that in the event of another economic crisis, millions of families could be facing hardship, unless the government cuts tax incentives designed to encourage borrowing, and the Reserve Bank of Australia (RBA) increases interest rates to curb any path towards a depression.
Why the Economy Could Crash
John Adams, a corporate governance specialist who has spoken out about the financial risks Australia faces, points out that high levels of household debt have Australia in a position that they haven’t been in since the 1920’s. Tax incentives favor negative gearing, and low interest rates promote borrowing large sums of money, thus creating serious debt, especially in the form of mortgages. Record levels of personal debt along with a run-up in housing prices have Australia in a precarious position. According to Adams, a new global financial crisis would create an economic storm that would be hard to come back from. He believes that in order to stabilize Australian economy the RBA needs to take immediate action by raising interest rates and reining in tax breaks that encourage negative gearing.
Adams has highlighted a number of indicators that point to worrying times ahead and asset bubbles are one such area. In addition to house prices, prices are incessantly rising in stocks and bonds. Global debt levels have increased by 63% in the last 16 years in the US, the UK and Australia and 85% in emerging economies.
High levels of debt leave much less room for movement in the future when big challenges arise and need to be faced. Australia is not alone in adopting debt, however it may be prudent to curb the access and levels of living through debt if the country wants to insulate itself from potential shocks in the future.