The Recession We Didn’t Have Not Quite Over

Property prices and the ASX might be soaring again, and Wayne Swan and Glenn Stevens might be patting each other on the back for a job well done, but the impact of the recession is still to be fully realised. Benjamin Paris, Senior Debt Consultant for Debt Mediators Australia, one of Australia’s largest debt agreement administrators, believes that the record insolvency rates seen during the worst of the GFC (global financial crisis) are just the tip of the iceberg. Mr Paris notes that insolvency activity historically lags years behind economic crises.

Benjamin Paris said:

“Many people are going to end up bankrupt and right now they don’t realise it.”

“The damage done to them during the GFC has made bankruptcy inevitable. They are just managing to juggle their debts but sooner or later it’s all going to come crashing down.”

“It will take years for the damage that’s been done to work its way through the system. Bad and doubtful debt will continue to rise and affect banks and lending institutions for years to come.”

The lag in consumer bankruptcies is due to multiple factors. Consumers have been unable to refinance credit, removing liquidity. Many have lived on credit during short-term unemployment, and upon returning to work, will be unable to service the extra debt long term. Some have been left with large shortfalls after assets have been foreclosed on during price lows.

During the early 1990′s recession, there was an increase in total insolvency activity, but insolvency activity didn’t peak until 1999, despite 7 years of continuous economic growth. During the recent GFC, total insolvency activity increased by 11% from 2008 to 2009. In line with other economic downturns, we would expect the previous trend of rising insolvency activity will continue in coming years.