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:
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
Australia: Boom to Bust by Lindsay David
Also, check out my links section to find out about some of the many tireless economists, researchers and writers that have been warning us for many years.