finding things very tough indeed. coming after a period in which real consumption had risen by 2. 8 per cent a year for a decade, and had outpaced income growth for two decades, no net growth in consumption for three years is quite a big change. but these figures suggest that lack of income growth is not the reason for lack of consumption growth. it ’ s not that the income is not there, it ’ s that people are choosing, for whatever reason, not to spend it in the same way as they might have a few years ago. why is that? to find an answer we need to look to the financial accounts of the household sector. it is now time to introduce the second chart ( graph 2 ). it shows gross household assets, also measured per capita, in real terms ( i. e. deflated by the consumption deflator ). the two components are financial assets ( including superannuation assets ) and nonfinancial assets, the bulk of which is dwellings. these data say that gross assets across australian households presently average about $ 800, 000 per household, or about $ 300, 000 per capita. the measure here differs from the commonly cited net saving rate, which deducts an estimate of depreciation of the stock of fixed assets ( such as dwellings ) owned by households. bis central bankers ’ speeches graph 2 between 1995 and 2005, assets rose at an average annual pace of 6. 7 per cent in real, per capita terms. completely comparable figures for earlier periods are hard to come by. but it ’ s pretty clear that this increase stood out. using the treasury ’ s series for private wealth, from 1960 to 1995 the annual average per capita rate of increase in total wealth, in real terms, was 2. 6 per cent. that is, it was broadly similar to the per capita growth rate of real gdp, which is what one would expect. so the growth from 1995 to 2005 was at a pace well over double the average of the preceding three or four decades. a large part of the additional growth was in the value of dwellings. the extent of leverage against the dwelling stock also tended to increase, with the ratio of debt to total assets rising from 11 per cent at the start of 1995 to around 17½ per cent by the end of 2005. it has tended to rise a little further since then. had we really found a powerful, hitherto unknown route to genuine wealth? or was this period unusual? looking

a once - in - a - century event in our terms of trade. i won ’ t recite the facts yet again. suffice to say that this is, at least potentially, the biggest gift the global economy has handed australia since the gold rush of the 1850s. yet it seems we are, at the moment, mostly unhappy. measures of confidence are down and there is an evident sense of caution among households and firms. it seems to have intensified over the past few months. there are a number of potential factors to which we can appeal for an explanation of these recent trends. the natural disasters in the summer clearly had an effect on confidence, for example. interest rates, or intense speculation about how they might change, are said to have had an impact on confidence – even after a period of more than a year in which the cash rate has changed only once, the most stable outcome for five years. increasingly bitter the anika foundation supports < http : / / www. anikafoundation. com / >. bis central bankers ’ speeches research into adolescent depression and suicide. see : political debates over various issues are said by some to have played a role as well. the global outlook does seem more clouded due to the events in europe and the united states. we could note, on the other hand, that the chinese slowdown we have all been anticipating seems to be relatively mild so far – that country has continued to expand at a pretty solid pace as measured by the most recent data. but these days, mention of the chinese expansion reminds people that the emergence of china is changing the shape of the global economy and of the australian economy. and structural change is something people rarely find comfortable in the short term, even though a capacity to adapt is a characteristic displayed by the most successful economies. so the description of consumers as “ cautious ” has become commonplace. it is not one i disagree with. indeed the rba has made such references on numerous occasions over the past couple of years. nor do i wish to dismiss any of the concerns that people have. people want to make sense of the disparate information that is coming at them. i want to suggest that to do that – to make sense of it all – it is worth trying to develop a longer - run perspective, particularly in the area of household income, spending, and saving. that is my task today. i have two charts that i think help us to understand the story. graph 1 these figures are from the