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Leverage in the economy has been turned up to 11.

The Australian Bureau of Statistics (ABS) published the National Accounts: Finance and Wealth on the 23rd of September 2021, for the June 30 quarter ending 2021.

The figures show that we are a highly indebted economy and growing at a frantic pace. Of course, to be fair, debt is only one side of the equation, with the ABS saying that household wealth rose to $13,433 Billion.

The Federal Government has printed $200 billion into existence since the beginning of the Covid crisis in March 2020. State and Local Governments have added about $82 billion in debt. The household sector borrowed an extra $94 Billion (all home loans), and the Private non-financial sector increased its liabilities by $454 Billion. These figures don’t include the bank balance sheets.

With the annual Gross Domestic Product running at $1,976 Billion up until June 30, 2021, the total liabilities below represent 395% of GDP. The annual increase in the total below of $556 billion represents 28% of GDP.

What do we get for all these liabilities? Not much apparently.

Below is the change in GDP compared to the change in total liabilities. Debt increased $1,434 Billion and GDP increased $80 billion. Over the period, every $1 increase in debt results in a $0.06c increase in GDP.

We also can compare the change in liabilities to the change in money supply (M3). The money supply is created by Federal Government deficit spending and by the increase in bank credit. M3 increased by $457 Billion, but debt increased by $1,434 Billion.

Overall, large increases in debts and money supply do not contribute much to the Australian economy. What the debt has contributed to is our massive increases in asset prices, and more importantly for the consumer, into the price of housing. But homeownership is not evenly distributed, leaving a large and growing wealth imbalance. It also leaves our economy open to a large and unexpected credit shock. The next downturn will be caused by a pullback in credit caused by much higher interest rates and/or credit default contagion caused by something like, for example, the Chinese property sector (Evergrande).