According to the Reserve Bank of Australia, the aggregate household debt-to-income ratio has risen from 61per cent a decade ago to 141 per cent today, meaning that for every $100 we earn we are spending $141.
On a personal level, reining-in spending and paying back debt is the logical thing to do. But on a national scale, it's sending the economy into a tailspin.
"Paying back debt means less money for consumption," says Steve Keen, an associate professor of economics at the University of Western Sydney. "And less consumption means a smaller economy, which inevitably means less jobs and more unemployment."
It also means plummeting values in property, shares and other assets. In real terms the wealth held by Australians fell 11.8 per cent over the past year the biggest fall on record according to CommSec. It estimates wealth slumped by over $24,000 to just under $224,000 on average the steepest fall in records going back 48 years. Stockmarkets lost 45 per cent from their peak; super funds were down between 14 per cent and 25per cent and the upper end of the house market fell by up to 20 per cent.
As the deleveraging continues, we can expect more of the same, says Keen, who predicts house prices will fall 20 per cent over the next two years and unemployment will "go through the roof". "If the peak level of unemployment is less than 15 per cent by the end of 2010 it'd be a reason to throw a party."