Long-Run Wealth Accumulation and Household Debt

RBA Deputy Governor Ric Battellino tells the public what Steve Keen won’t:

Australian households have much bigger holdings of financial assets than financial liabilities. Financial assets at 30 June averaged around $275 000 per household while liabilities averaged $150 000 per household. Since then, we estimate that average assets have fallen to around $245 000 per household, though this is still quite a strong position.

This balance sheet structure is very favourable in terms of maximising long-run accumulation of wealth, because the return on these assets over long terms exceeds the cost of debt by a substantial margin. The returns do not, however, accumulate evenly from year to year. Some years produce very strong returns while others produce negative returns.