The report finds that emerging markets have considerable scope to increase personal wealth given their much lower ratio of net financial assets to income and a much lower debt-income ratio
than found in mature economies.
The debt-income ratio
rises in the short run but falls in the long run, because of higher output, inflation, and government revenue.
The lower your debt-income ratio
, the more house you can afford.
It is possible to envisage circumstances where interest rates may need to rise considerably, but, in my personal view, the rise in the debt-income ratio
should make us more cautious about doing so.
Between 1984 and 1987 the debt-income ratio increased more than 50 percentage points in Norway.
During this period the debt-income ratio fell by 26 and 3 6.
These periods of low saving were certainly periods when the ratio of debt to income was high, and the rising saving rate after the war did occur when the debt-income ratio was falling.
If the growth rate is g the trade surplus needed to keep the debt-income ratio constant is (r-g)d.
However, due to the "convenience' use of credit cards, the increase in the debt-income ratio
may be overstated as a measure of borrowing capacity.
Although household debt-income ratios
remain high, debt-service burdens have fallen appreciably, partly reflecting the refinancing of mortgages at lower interest rates.
In all leading OECD economies savings ratios were falling and debt-income ratios
rising as people were encouraged to borrow more in order to spend more.