According to the RBA statistics, Australia is saving like never before. This is as it should be though, since in a closed eco-system called the Australian economy, Government Deficit spending has to be reflected in Private savings (to the Penny).
Even with this massive increase in savings, income to debt ratios since March 2004 continue to worsen. Private Debt (Housing debt, credit cards, and personal loans) totaled $497m in 2004. As at September 2010 the total is $1,083 million, an increase of 117%. Total Household Income (RBA release G12) has only increased 55% in the same period.
The private savings have caused the Banks' balance sheet to flat-line over the last 2 years, with the Federal and State Governments filling the debt gap.
Deficits are a good thing, and the last thing you want to see from a social and investment point of view is the Government try and run a surplus and pull back on spending. Well may the export sector be leading us into a boom, but many sectors of the economy will suffer if financial chemotherapy is applied across the whole country.
As data from Government is somewhat delayed, the best indicator of a continued deficit spending is being aware of outstanding Government Debt Issuance. Since the beginning of November until today the Government has issued $10.5 Billion of net new debt, equating to the maintenance of a $60 Billion annual deficit. Maturities between now and the end of January are $9.1 Billion of short term Treasury Notes, but to date, tender details of new issues over the period are not complete. As a clear picture comes to hand, I will publish the details.
In short, although the consensus expectation appears to be for a buoyant new year, a pull back in deficit spending and a lift in interest rates will undoubtedly dampen the enthusiasm.