Analyse the causes of the recent rise of household debt in advanced economies in the context of the profound changes of government role in society (e.g., welfare, education, health etc...).
-Household debt has increased considerably across developed nations
-In 1990’s Australia housing debt equalled .5 of a years disposable income, in 2006 it was equivalent to 1.5 years disposable income
-Increases in debt have largely been put towards housing in Australia including increased purchase in investment property
-Key factors:
-Financial deregulation- Households were able to obtain credit more easily, additionally with the development of this market segment came a range of financial products catering to their needs -Structural decline in interest …show more content…
Following significant financial deregulation and reduced debt servicing costs. With the increase debt there has also been a significant increase in assets held by households. Further, debt has been largely taken on by households in the best financial position to service the debt with little movement in the level of consumption. Further, despite the large influx of foreign debt since deregulation Australia remains in a strong financial position with funds largely denoted in foreign currency and used for …show more content…
The policy of deregulation created a competitive market with a broad range of financial products created particularly geared to the middle class and housing loan markets. This came along with a decline interest rates, as competition forced lenders to reduce margins.
-Reduced Interest Rates- Interest rates post 2000 have been close to half the rates previously seen in the decade pre 1995. This level of low rates has contributed to increased household debts as households are now able to service greater quantities of debt.
-Debt substituting wages- In the US it can be argued that the rise in household debt is the result of low and middle class households attempting to preserve their current consumption levels, in the presence of income redistribution towards the upper class. The sustainability of this substitution in the long run will be a key issue.
Keynesian Economic Theory: Largely focused on influencing aggregate demand to achieve economics outcomes. Advocating counter cyclical policies Keynesian theory holds that during periods of recession the public sector should increase fiscal spending and decrease interest rates through monetary policy. Conversely, during boom decreased fiscal spending and higher interest rates should be utilized to slow the
-Household debt has increased considerably across developed nations
-In 1990’s Australia housing debt equalled .5 of a years disposable income, in 2006 it was equivalent to 1.5 years disposable income
-Increases in debt have largely been put towards housing in Australia including increased purchase in investment property
-Key factors:
-Financial deregulation- Households were able to obtain credit more easily, additionally with the development of this market segment came a range of financial products catering to their needs -Structural decline in interest …show more content…
Following significant financial deregulation and reduced debt servicing costs. With the increase debt there has also been a significant increase in assets held by households. Further, debt has been largely taken on by households in the best financial position to service the debt with little movement in the level of consumption. Further, despite the large influx of foreign debt since deregulation Australia remains in a strong financial position with funds largely denoted in foreign currency and used for …show more content…
The policy of deregulation created a competitive market with a broad range of financial products created particularly geared to the middle class and housing loan markets. This came along with a decline interest rates, as competition forced lenders to reduce margins.
-Reduced Interest Rates- Interest rates post 2000 have been close to half the rates previously seen in the decade pre 1995. This level of low rates has contributed to increased household debts as households are now able to service greater quantities of debt.
-Debt substituting wages- In the US it can be argued that the rise in household debt is the result of low and middle class households attempting to preserve their current consumption levels, in the presence of income redistribution towards the upper class. The sustainability of this substitution in the long run will be a key issue.
Keynesian Economic Theory: Largely focused on influencing aggregate demand to achieve economics outcomes. Advocating counter cyclical policies Keynesian theory holds that during periods of recession the public sector should increase fiscal spending and decrease interest rates through monetary policy. Conversely, during boom decreased fiscal spending and higher interest rates should be utilized to slow the