Australian Consumers Continue Credit Binge Despite Interest Rate Rise

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Who isn’t a borrower these days? In the debt-based society we live in, everyone spends and everyone owes.

“Consumers, aided by Federal Government tax cuts and strong employment growth, have continued to open their wallets and splurge at the shops, dismissing the August interest rate rise and turmoil in financial markets,” reports Nassim Khadem in today’s Age. Aussies forked out nearly AU$20 billion in August…for what exactly?

Well hold on a second. At least some of the growth in imports came from business spending. “Imports of capital goods, which include industrial vehicles, telecommunications products, and machinery, surged 14 percent in August to AU$3.6 billion ($3.2 billion),” according to Victoria Batchelor at Bloomberg.  “Exporters such as BHP Billiton Ltd. are importing more equipment as they expand mines and oil fields to meet soaring global demand for commodities.”

Yes, this is the trickle down effect from the Big Dig. Resource producers are digging iron ore in West Australia, coal in Queensland, and gold, uranium and copper in South Australia at a ferocious pace. It’s fuelling the growth in mining services, which works out pretty well if you own mining service shares (we’ve tipped a few in Outstanding Investments.)

“Follow the money,” is perhaps the most useful pithy investment axiom around. But if resource companies want to expand production volumes, they need all sorts of logistical and practical help. Mining services should be a healthy business for as long as the boom shall last.

As for Australian consumers who continue spending on credit in the face of rising interest rates, well there are many words to describe that. Prudent is not one of them. Ignorant, while charitable, is closer to the mark. But oblivious will do just fine as well.

Confidence, when you think about it, is just faith dressed up in well-cut suit. But sometimes the clothes do not make the man, to quote an old song lyric. Spending money might make you feel rich. But spending it after you’ve borrowed it and paying it back at higher interest rates is a one-way ticket to perpetual servitude.

Dan Denning
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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