The RBA has released its submission to David Murray’s Financial System Inquiry.
At 251 pages it is a monumental effort, and you’d expect nothing else from Australia’s central bank. But if there is one chart in there which highlights fundamental, structural change that the near-death experience of the GFC wrought on the Australian economy and Australian households, it’s this one.
Focus on the left hand quarter of the chart – that’s the household saving ratio, since 1973.
While banks have taken a lot of flack over the years for their borrowing offshore one of the primary reasons they did that was to satisfy the needs of the Australian economy. Specifically, while our parents and their parents largely were net savers, the RBA says in the period after the Wallis inquiry (1997) saving was “unusually low as households increased their indebtedness”.
You’ll notice that this is largely when the property market started to accelerate.
Since the GFC though, the RBA says “the household sector saving ratio has risen, partly because of the more prudent behaviour adopted following the global financial crisis.”
Basically, the GFC forced a dramatic shift in behaviour, flipping the switch in the behaviour of Australian families from “borrow” to “save”.
But the kicker – and the point that shows in saving themselves Australian Households helped save the economy is the RBA comment which highlights that:
Following the crisis, some commentators questioned whether enough capital would be available to meet the needs of Australians, given reduced foreign demand for bank debt globally. In the event, the capital account adjusted, with the price and composition of funding shifting accordingly.
In short, we didn’t need to dip into the void that existed in foreign debt markets because we had the money back here at home.
Take a bow, Australian households: you helped the Australian financial system get through the GFC.