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Another BoomBustBlog reader Op-Ed piece...
Table of Contents
- Conclusions
- General - How much debt did we pile on?
- Household Debt, % of Disposable Income - OECD Nations, 1985-2005
- Private Domestic Debt - All Countries - Current
- Savings Rate Change, 1960-2006 - OECD Nations
- Honing in on Australia - 1985 was the starting point
- Honing in on the USA - 1985 was again when we *really* went out of control
Conclusions
These are the main conclusions:
- Europe really messed up. They on average have household debtloads that are as big or bigger than ours, and they grew their debt a lot more quickly on average.
- Germany was the only conservative OECD member. Sad.
- Japan's having low private debt is a myth. Just check the data. They haven't raised it, for sure, but at the same time they came into their debt deflation with a very high level of debt which has persisted.
- OECD countries have approximately doubled their debt as % of disposable income from 1985 to 2005. This was a global debt bubble!
- 1985 seems like the hinging point where all countries went on a spending bonanza. Check out the savings rates. Also, check out the debt charts for Australia and the US.
- China, S. Korea, Hong Kong are no better than the EU on private domestic debt. Well, that busts that myth.
- Brazil, India, Russia and Saudi Arabia do indeed have very little debt. Brazil is 83%, India is 62%, Russia is 19%, Saudi Arabia is 13% - these guys are very low.
Taken together, this supports the notion that the world as a whole has heavily indebted itself greatly over the past 20 years. It appears the world has doubled its collective debt to spend and speculate on housing, which is about to lose $25-50T on them.
General - How much debt did we pile on?
The next question is, just how much debt did these other countries lump on top of their property bubbles, and how much change did we see in the past 30 years?
Well, we have some data on that. Clear data is available on Australia and the US. There was also a most prescient piece put out by the OECD (again!) in December 2006, titled "Has the Rise in Debt Made Households More Vulnerable?" (source).
Household Debt, % of Disposable Income - OECD Nations, 1985-2005
Consider these graphs of [Household Debt as % of Disposable Income ], and the % change in that figure, from 1995 to 2005 (source):
Observations:
- We know how badly the US screwed up (badly) - it appears that Denmark, the Netherlands, New Zealand, Australia, the UK and Ireland are worse, while Sweden, Japan and Canada are not at all far behind.
- From the prior analysis on global housing bubbles, Denmark, the Netherlands, New Zealand, Australia, the UK and Ireland all had some of the worst housing bubbles of anyone.
- Germany was not affected, and France was affected, but less than average.
- Incomes are probably inflated.
The graph below pulls us 10 years further back, comparing Household Debt / GDP for all OECD nations in 1985, 1995 and 2005 (source):
Observations:
- Over the past 20 years we have nearly doubled our household debt as a % of GDP, from 43% in 1985 to 80% in 2005.
- This just isn't right. This is prima fascie evidence of a debt bubble.
Private Domestic Debt - All Countries - Current
Below is the graph of Domestic Private Debt. This is different from household debt. It is defined by the CIA World Factbook (source) in the following way:
"the total quantity of credit, denominated in the domestic currency, provided by banks to nonbanking institutions. The national currency units have been converted to US dollars at the closing exchange rate on the date of the information."
What this can do for us is "plug in the gaps" to see where the major non-OECD members stand.
Observations:
- China, at 110%, is basically on par with the EU as a whole, as well as Australia, South Korea, and Hong Kong. It appears the major Asian non-OECD nations do *not* have super-low debt.
- Brazil is 83%, India is 62%, Russia is 19%, Saudi Arabia is 13% - these guys are very low.
What this says to me is that most of the world is quite heavily indebted. The only ones who aren't are the non-Asian, non-OECD countries. And Germany.
Savings Rate Change, 1960-2006 - OECD Nations
Below is a graph of the change in the savings rate for the major OECD countries, as well as a graph of the savings rate for many of these countries from 1960-2006 (where available) (source, source, source, source):
Observations:
- 10 of 15 had their savings rate drop by 4% or more.
- Only 1 of 15 actually went up!
- For all countries, there really seemed to be a paradigm shift in 1985 - we all stopped saving as much starting then.
Honing in on Australia - 1985 was the starting point
It was shown above that Australia goofed up big time. They borrowed a ton, they stopped saving, and they had a huge housing bubble. Australia has been shown many times to have had a Private Debt bubble. The graph below shows that mortgage debt as a % of GDP went from ~16% in 1985 to ~85% in 2008 (source):
We really began shooting to the moon in 1985. Again, 1985 seems like the global starting point for the debt and spending craze.
Honing in on the USA - 1985 was again when we *really* went out of control
This is how much debt we lumped onto our housing bubble (source):
Once again we see 1985 as a starting point. Debt was growing - hard - beforehand, but it was in 1985 when we saw homeowners' equity take a concerted leg downwards. And that was off inflated pricing. If we were to adjust pricing to reality, home equity would be even less.
