Another Asset Bubble Blowing Up

The "Free Lunch" of Endless Rising Debt

Behavioural economics is an interesting branch of the "dismal science".  It focuses upon how individual human beings make decisions about money, finance, assets, wealth, and so forth.  Oftentimes decision making is contrary to common sense--even verging on the irrational.

In New Zealand we are heading into a phase when irrational exuberance has taken over the financial decision making of many households.  It centres upon debt, household debt.  People are borrowing irrational amounts of money to fund house purchases and their lifestyles.  Debt can be like an increasing addiction to any recreational drug.  One gets away with it the first time--that is, one enjoys a reasonably pleasant experience with no long lasting damage.  The next time is easier, less resistance.  Before long, one cannot live without it.  Addiction sets in.  Decision making at that point become irrational.

New Zealand households are increasingly sitting on a mountain of debt.