Research from the Melbourne Institute finds that a growing number of Australians are running into debt, growth up 4.3% in the past 12 months from 10.8% to 15.1%. The key contributing factors for the jump are the interest rate hikes in the second half of last year and the drought, one of the longest of record.

Rural Australians have been hit particularly hard, with 20.8% (up 10.9% from 9.9%) now running into debt or eating into their hard earned.

Like their country counterparts, those in the big smoke have not escaped the financial stress, albeit to a lesser extent. Now 50.7% of Australians located in metropolitan areas are saving some of their income, down 7%.

(But some of the story is wealthy Aussies borrowing to top up their super in June. Hard to feel sorry for them — even if their shares in Macbank fell 10% yesterday!)

The research also finds a growing proportion of Australians devoting more than half of their salary to debt service is up 1.6% from 5.9% to 7.5%.

Although these figures are stark, they come as no surprise with private debt growing faster than at any time since the heady days of the 1980s property boom. You know, Alan Bond, Christopher Skase, other apparent financial titans.

David Uren wrote on the subject in The Oz yesterday:

The $27.4 billion lift in debt in June was shared among businesses, homebuyers and high earners pumping the maximum $1 million into superannuation ahead of the June 30 deadline.

The increase in debt last month, reported yesterday by the Reserve Bank, was the fastest since November 1989, when home loan interest rates hit 17% under the Hawke Labor government.

The money the big end of town pumped into tax-effective super schemes to beat the financial year cut-off will likely mean a reduced July figure, yet it reaffirms Henry’s theory that those who earn more generally have a higher debt level.

Retail trade strong

Following successive falls in April and May, June retail sales exceeded expectations, up 1.4% for the month and up 6.7% for the year. Most experts apparently predicted an increase of 1%.

Retailers can thank the cold weather considering clothing sales were up 5.9% in June. All categories except for “recreational goods” (which remained steady) experienced an increase in retail sales.

Maybe we can blame the cold weather for the record levels of debt and the likely interest rate hike … due to global warming, almost certainly.

Market turmoil

Yesterday was one of the bloodiest on record, with every top 200 stock falling, some (like Macbank) by 10%, apparently on rumours of involvement in the US sub-prime lending imbroglio.

Wall Street overnight staged a late rally, so things might be less bloody yesterday. But Henry’s Lex repeats his warnings…

“Global Market action indicates more volatility in equity and credit markets which are on the precipice of reaching a stage where dangerous, self-reinforcing actions explode and markets devolve into panic and carnage.”

Read more at Henry Thornton.