Here's another post about Australia in the Debunking bubble economies series. I watched a webcast presentation by Steve Keen a well known economist in Australia.
While I can't disagree more on some of his points, especially when it comes to his approval of the government intervention and his solution to the banking crisis — banks should be nationalized — Steve Keen is one of the few economists to forecast a deflation, and he's showing some pretty nice charts.
The 3 most important to me are reproduced below:
This first chart shows that while the household debt to GDP ratio in Australia was far below the one in the US in the 1970, Australia has caught up very nicely. This also shows that the Australian is far more debt-fueled than the American one. Who could have believed that it was possible to be more addicted to credit than the Americans? Well, there you have it, the Australians.
Worse, since Australians are still living in denial of the reality in their bubble economy, their debt to GDP level has been growing while the American one has slightly decreased.
The second chart shows how much the real estate bubble in Australia has been overdone compared the US one. The chart also shows that the bubbles we have in the years 2000 are far bigger than the Japanese one, strangely enough. I'm not sure the comparisons are correct though.
Cameron Murray has also some nice charts on this post titled Living in a bubble:
Price to rent show an overvaluation of 40%
Price to income also show a 35% overvaluation.
Any similarities with the US collapse?
One important thing to keep in mind is that the two ratios above understate the overvalution levels because they assume that income and rent will somehow stay the same if/when asset prices start to decline. The scenario I envision is that house prices will fall, but income and rents too.
This means that the ratio will decline less than expected by a simple drop in house prices.
Am I clear at all?