Economist Steve Keen has warned for years of an Australian housing crash comparable to the U.S. subprime crisis.
Today Keen published a must-read essay full of charts on the housing bubble and how it propped up bank stocks.
He concludes: “It’s great fun while it lasts, but all Ponzi Schemes end for the simple reason that they must: they aren’t ‘making money’, but simply shuffling it—and growing debt. When new entrants can’t be enticed to join the game, the shuffling stops and the Scheme collapses under the weight of accumulated debt. There are very good odds that, when this Ponzi Scheme collapses and house prices fall, bank shares will go down with them.“
Real house prices have more than doubled since 1997. Bank shares have doubled too, beating the rest of the market
Compared to America, real estate loans are a higher share of bank assets, and they increased in significance more quickly
THE BUST BEGINS: Impaired assets have surged to 25% of Tier 1 capital, even while home prices increase
Real estate loans are worth 700% of Tier 1 capital. An increase in non-performing loans would cause grave damage
HISTORY: High debt to GDP led to a deleverage-driven slump in the 1890s, 1930s and briefly in the 70s and 80s
WARNING: This time the housing crash is oc curing in a period of low inflation, which resembles the severe pre-WW2 crashes
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