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Forgive us our debtors

While interest rates continue to rise, University of Western Sydney economist Steve Keen believes Australia’s growing household debt burden is a much more serous problem than inflation.

Speaking to the ABC’s World Today program in February, Keen warned it’s now only a matter of time before the widespread mortgage defaults seen in the United States are reflected in Australia.

“That explosion in debt has been ignored by economists and policymakers and that’s what’s causing the crisis in the States, and it’s about time that the attention of the economics profession and the political classes changed to that far more serious issue and stopped obsessing about what is still, historically speaking, a fairly low rate of inflation.”

Keen said the ratio of private debt to GDP (gross domestic product), was half of America’s level debt level 20 years ago but is now equal to America’s level. “America’s private debt is 167% of GDP. Ours is 163% of GDP.”

While much of Australia’s private debt is owed on home mortgages it is also boosted by a retail culture of “buy now, pay later”.

Journey spoke with a sales consultant at a major electrical superstore and heard of low income earners racking up substantial debts on luxury electronic items.  “They only earn about $600 per week but are borrowing thousands to purchase wide-screen TVs and home theatre equipment,” she said.

It is little wonder that Australian credit card debt hit $41 billion last year and household interest payments reached a record high of 11.9% of total disposable income.

Reserve Bank figures show that, on average, Australians owe a total of more than 160% of their annual disposable.

After 25 years in the banking industry, General Manager of the Uniting Church Investment Service (U.C.I.S.) Mr Stephen Peake believes most people who enter into a loan know they have to pay it back.

“But I think there is so much temptation out there in our consumerist society and everyday you are bombarded with ‘buy, buy, buy’.

“Consumer lending in this country is dictated by legislation and it is illegal for a lender to knowingly convince someone in to a loan arrangement that they can’t afford,” Mr Peake said. “That doesn’t stop some people from jumping in and telling strange stories about their capacity to support a loan.”

Mr Peake believes responsible borrowing goes with responsible lending. “A responsible lender has legal obligations in terms of how it lends its money, but borrowers also have to take responsibility about what they tell a lender.”

While the Bible does not appear to expressly forbid lending money for interest there does seem to be a prohibition about doing so on loans for the poor.

Former Director of Old Testament Studies at Trinity Theological College and now Synod Secretary Rev Douglas Jones said the Old Testament has some strong statements on usury (charging interest on loans) which presented some real difficulty for Martin Luther and the early church reformers.

“He was wrestling with the prohibitions against usury in the Old Testament but that was a very different economic context where inflation didn’t exist and money retained its value.”

Mr Jones explained that usury could lead to poor people becoming so indebted that they ended up in slavery so the book of Leviticus prescribed a Jubilee to occur every fifty years in which slaves and prisoners would be freed and debts be forgiven.

During the Jubilee year the land was to lie fallow, but there was also a requirement for the compulsory return of all property to its original owners or their heirs, except the houses of laymen within walled cities.

“There is no record of the Jubilee ever happening and scholars have debated whether it was ever put into practice, but it was an idea towards which the society was taught to aspire and it enshrined good principles about giving people a fresh start and the opportunity to wipe the slate clean.”

Mr Jones said the Old Testament convention of not exploiting people and not removing them from their livelihood is still valid.  “The principles are that you don’t rip people off and you don’t exploit people to such an extent that all they have left is to sell themselves into slavery.”

The church could well consider if it may be good theological and commonsense wisdom for Christians to avoid using easy credit for the purchase of luxurious nonessential items, and to discourage retail establishments from making credit too readily available.