There seems to finally be an emerging awareness amongst traditional media in Australia of the intractable problem caused by our epic housing bubble coinciding with the end of the commodities and mining investment boom. In the words of certain pundits “our economic leaders have been managing a bubble, not an economy”. An increasing chorus of recent warnings from the Murray financial inquiry, our top regulators, bankers, international ratings agencies, prominent business leaders and lobby groups, and swelling ranks of previously bullish economists are calling time on our dream run. Some very notable examples in the past few weeks alone:
Ross Garnaut urges Reserve Bank to end its housing market fixation and drop interest rates RBA governor Glenn Stevens warns of housing bubble risk AFR: Economy Enters Danger Zone RBA governor Stevens: ‘Unwise’ to further boost ‘elevated housing prices’ House price correction inevitable, warns David Gonski UN report warns of asset bubble in housing Moody’s issues Aust bank warning Australia ‘at the front’ of growing subprime mortgage market David Murray warns Australia’s financial risks concentrated in real estate
It has become increasingly hard to ignore the self-evident truth that the powers that be are finally running out of levers to pull. Our national income and standards of living are falling thanks to the unwinding commodity price boom, China is going pear shaped quickly, unemployment is rising with the mining investment phase over and the slow death of manufacturing, business investment, productivity and competitiveness are near record lows, confidence is in the gutter, and the only thing left that was meant to save us – housing construction, is completely hamstrung by the dangers of our record asset prices. The puzzle no longer fits together, and our regulators and leaders know it.
The chronic imbalances are beginning to come out of the wash for real. Why did we choose to ignore a decade or more of very serious warnings? The dangers of our credit fuelled speculative housing bubble and the re-structure of our entire economy towards “houses and holes” at the expense of productive enterprise have been clear for at least that long, and there have been warnings to match. Why did we refuse to listen? Because like all people faced with spectacular emergent wealth (in our case mineral resources), we chose the path of immediate gratification and greed, and unserviceable debts later. And it is these staggering private debts that form the giant millstone around our necks as we enter the largest terms of trade and business investment downturn in a very long time.
There were chances to pursue genuine reforms to seek a rebalancing. But thanks to our exceptionalism, a seemingly ingrained culture of indifference to risk, political and regulatory corruption at nearly all levels, a circle-jerk of mainstream economists and journalists content to pat themselves on the back at any opportunity, open hostility towards and patronisation of “doom-sayers” for pointing out obvious risks, and worst of all a general discarding of egalitarian values in favour of mythological housing wealth and the evolution of our disturbingly inequitable tax transfer system that is the blood in the veins of the Frankenstein; we have failed every single opportunity to avert disaster.
And just like every other moment in Australian history where a private debt bubble crippled our financial system and brought our economy to it’s knees (the worst being the 1840s, 1890s and1930s), and recent examples from all over the developed world, our leaders and regulators have set themselves up to be immune from blame and prosecution. The have given us countless dog-whistle warnings about the problems they created, while simultaneously working to keep the illusion alive a little longer, simply so that they can inevitably give us the utterly contradictory and false chastisement that “No one could have seen this coming, but we warned you not to get carried away. This is your fault.”.
Worst of all, unless we educate ourselves as a population now, and push hard for necessary reforms now, nothing will change. Years after the bust, we will be sitting around trying to figure how to unlock the next speculative land cycle, a cycle that in this modern age of neo-liberal deregulation, is the primary driver of the business cycle and the entire basis for economic fortunes and failures. The recent failures of political and economic leadership elsewhere in the world is proof that this cycle just gets repeated.
These countries have learnt nothing from the GFC because they don’t know how else to run a modern economy. And while we lecture other developed countries for failing to learn the lessons that were thrust into their laps, here in Australia we have elevated our collective economic egos so far into the stratosphere the we have effectively taken a giant insulting urination on the whole textbook of economic history. And nothing is more painful and humiliating than being caught with your pants down when the bully of private debt finally comes to collect our lunch money.
Let history record that we were warned. Over and over again. I’ll leave you with this frightening chart from AFR’s Chris Joye:
Australia, the largest housing bubble in the Western world.
For those that do wish to learn from history, an excellent place to start is one of the recent illuminating texts on the largest bubble in Australia’s history, books that will no doubt take on legendary status post-crash:
Bubble Economics: Australian Land Speculation 1830-2013 by Paul D Egan and Phillip Soos
The notion that history repeats is simplistic at best and can be dangerously misleading.
There is a cabal in Australia that has demonstrated enough sophistication to tackle ANY attempt at allowing "Market Forces" crash Real Estate prices and they hold ALL the levers of power and can continue to indefinitely collude and manipulate markets and demographics to ensure they get what they want.
Isn't it interesting that just as the Mining boom appears to be tapering, that the Gov has just signed a deal to sell Uranium to India.
This cabal has many tricks up its sleeve and will have the Bears screaming Chicken Little for the rest of their natural lives.
The notion that history repeats is simplistic at best and can be dangerously misleading.
You mean like the notion that property always goes up because it always has?
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
So please tell me the date you bears think this bust will happen? I've been sitting on the sidelines for 10 years saving and getting a great interest rate 4% in my term deposit. I don't want to sit around much longer as my friends have all nearly paid off there mortgages...
So please tell me the date you bears think this bust will happen? I've been sitting on the sidelines for 10 years saving and getting a great interest rate 4% in my term deposit. I don't want to sit around much longer as my friends have all nearly paid off there mortgages...
Next Thursday. 4.30pm EST.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
The notion that history repeats is simplistic at best and can be dangerously misleading.
There is a cabal in Australia that has demonstrated enough sophistication to tackle ANY attempt at allowing "Market Forces" crash Real Estate prices and they hold ALL the levers of power and can continue to indefinitely collude and manipulate markets and demographics to ensure they get what they want.
Isn't it interesting that just as the Mining boom appears to be tapering, that the Gov has just signed a deal to sell Uranium to India.
This cabal has many tricks up its sleeve and will have the Bears screaming Chicken Little for the rest of their natural lives.
Yes, I know, its an injustice !
Nice Cartoon.
But, "Its already Monday, its not fair" seems to go against your assertion that history doesn't always repeat itself.
Monday's do in my experience.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
In the words of certain pundits “our economic leaders have been managing a bubble, not an economy”
It always has been a bubble, at least since the 1980's. It simply cycles between a smaller bubble and a larger one. But the great risk of a large fall in property prices was immediately post GFC, in particular 2010. The steady devaluation of fiat currency means in real terms the bubble is not as large as 4 years ago. However the hotter property markets might face a significant contraction.
The next trick of our glorious banks will be to charge us a fee for using net bank!!! You are no longer customer, you are property!!!
So please tell me the date you bears think this bust will happen? I've been sitting on the sidelines for 10 years saving and getting a great interest rate 4% in my term deposit. I don't want to sit around much longer as my friends have all nearly paid off there mortgages...
Now, at this very moment in time. Unless interest rates fall, or China stimulates, the market at Xmas will be lower than it is now. If nothing positive happens, it will continue to fall. But it won't crash as such. Just a slow demise.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
O dear' It's going mainstream isn't it. All the top experts are screaming at the bulls but the bulls have their fingers jammed firmly in their ears. But what else can those who bought at bubble tops do? They sat on their bums for decades watching as other people made 100% and 200% capital gains on their investments, and finally, under the pressure of all those TV shows and pub seminars took the plunge.
At first they were nervous, as anyone would be that had hocked the family home for a quick profit. But prices went up, for a couple of years at least, and then they were hooked. GFC? 20% falls? No worries, property always goes up after a little beating. 7 years of stagnant gains and then falling rents? IT DOESN'T MATTER! THE BOOM WILL COME AGAIN!!!
Yes we have seen it all before haven't we. The suckers caught at the end of the IT boom, the suckers caught in the 1980 gold bubble. And here we see it again, the biggest bubble of all time sucking in millions of average Australians with the promise of a happy wealthy retirement. Not even a collapsing world economy can deter them from believing the dream is still real.
When will the dumb masses ever learn?
Shadow was hopelessly wrong about the Gold Bull Market. What else is he wrong about?
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