Why are Australians feeling so depressed?

Alan Kohler is chief executive and a major shareholder of Australian Independent Business Media Pty Ltd, which publishes the online investment newsletter Eureka Report and the free, 24-hour business news and commentary website Business Spectator since 2007. He wrote an important article today about why Australians are feeling less optimistic about life. They keep telling us that unemployment is low, the currency is strong, interest rates are going down, national savings are up, economic growth is solid and there’s a mining boom, so why is it so?



I can think of plenty of reasons to feel miserable – we’ve discovered that our politicians lack vision and foresight - our Parliament is in turmoil - there’s a depressingly long time to wait before the next election so the Labor government will continue to borrow more and more billions, putting us even further into debt - more asylum seekers arrive every day with no solution in sight - people are joining the dole queue in droves with more job losses predicted - Greeks are threatening to jump off tall buildings - Israel wants to bomb Iran and the global outlook for the rest of 2012 is positively bleak.



Our high exchange rate is putting pressure on manufacturing, tourism and retail but Alan Kohler thinks the main problem is that we are up to our eyeballs in personal debt.


Australia's household debt as a percentage of disposable income has been stuck at 150 per cent – the highest in the world – for about five years. Twenty years ago it was 50 per cent. In other countries it has come down, albeit painfully. Interest paid as a percentage of income has doubled in 20 years.


And the underlying cause of this is the high price of land in Australia. It is one of the mostly sparsely populated nations on earth, yet the cost of land is among the highest in the world, crippling the citizens with massive debts and leading to hugely profitable banks. The combination of rising population, a lack of arable land and artificial restrictions on residential development in cities has led to a six-fold rise in the median house price since 1986, from $93,000 to $550,000 now. Over the same period, average household incomes have risen 3.5 times. And now there is widespread terror that house prices will eventually collapse and leave millions with no equity, as happened in the United States. As a result the savings rate has skyrocketed and consumers are on strike, putting money aside for Armageddon.



Not a very optimistic view but it proves we’re not stupid. Even though we don’t really understand economics, we somehow knew that bad times were coming and acting accordingly, hence our good savings result. It's a weird feeling, watching the world falling apart from afar and hoping it won't affect us, I guess we just have to keep plugging away and hope for the best.