Global debt bomb fallout threatens Australian economy

Excessive debt was a key cause of the global financial crisis, but 11 years on world debt is much higher, leading many analysts to warn another crisis is on the way and Australia is far more vulnerable. Key points: Global corporate and government debts now total almost $200 trillion Corporate debt backed collateralised loan obligations have replaced sub-prime mortgage backed collateralised debt obligations as a key financial risk Australia's record levels of household debt around 120 per cent of GDP make the economy vulnerable to global financial turmoil In 2008, the collapse of Lehman Brothers was the catalyst that froze global capital markets and caused the world's biggest financial catastrophe since the Great Depression. "That would certainly be a problem because a huge sell down by a big owner of US Government bonds would put upwards pressure on US bond yields, making it more expensive for the US Government to service its debt," warned AMP Capital's Shane Oliver. "We could just go straight to the very fast phase with corporate debt, given that we have so few conditions placed on most corporate debt instruments these days." Australia vulnerable due to high household debts In Australia the big concern is household debt, which now stands around 120 per cent of GDP and nearly 200 per cent of household incomes, and as the housing market has bounced back in the last few months, individual loans have become even bigger.