Have you watched Debtland in 4 Corners yesterday night at ABC?

It’s really scary and I was expecting you to appear in the Debtland documentary.

I remembered that you mentioned about Australia’s lax (or rather, sub-prime-ish) lending practice in one of your podcasts and that documentary shows the human faces and agony behind the statistics.

In any case, I’ve written up a summary of the Debtland documentary at my site, Australia has no sub-prime debt? Think again!, which has a link to the ABC 4 Corners site for Debtland.

It’s not just BIS, it’s the banks, the realtors and even state governments that continue to harp on about a shortage. I just do not see one, in a country of 20 million people we would expect a growth rate of 2% of which approximately half would need some where to live. These are not significant numbers and anywhere else the building industry could easily cover them.

We’re as one on this issue mate. Frank has really blown it with this prediction, I expect. He’s completely ignored the issue of debt financing for housing, and the sheer scale of debt this time round.

I agree with you on that. In fact, I felt incensed enough with this kind of questionable ‘analysis’ by BIS that I’ve written a rebuttal against it: Another faulty analysis: BIS Shrapnel on house prices. Let me know what you think of it.

That BIS Schrapnel piece was based on research by Frank Gerber, from memory. While I like Frank, he tends to reduce everything to supply and demand, in an Austrian sort of way, and hence since “demand exceeds supply, prices must rise.”

That analysis is moderately realistic for commodity markets, but misplaced in asset markets where what determines effective demand is people’s willingness to go into debt to acquire an asset. That has driven prices well above what basic supply and demand for the product called housing–as opposed to the speculative asset called a house.

The bursting of that bubble, when it occurs (and it’s already afoot in Western Sydney) will drive prices down even if the demand for housing exceeds supply. It’s almost fantasy land to imagine that house prices could rise 40% above current levels.

I don’t analyse CADs all that much; clearly though those deficits involve substantial debt financing. One thing I will say is that these sustained and huge deficits make a mockery of the theory of international trade–comparative advantage–which still dominates economic thinking and policy setting. According to this theory, freely floating exchange rates should have eliminated such imbalances, and transferred all the action over to floating exchange rates.

BIS Shrapnelat the afforability conf. is saying today that prices will continue to grow 30%-40% over next 4 years due to stock shortage. I think thats a major difference between Aus and the US ie they had overstocked.

How do you think the under supply of new stock versus the big affirdability issue will play out? They are conflicting….

Article here http://www.brisbanetimes.com.au/articles/2008/03/27/1206207339307.html

I know your focus is on the debt deflation of Australia and the US, but have you seen the numbers from Latvia, Iceland, Greece? Their current account deficit as % of GDP are all more than twice as high as the US!

What do you make of that?

Henry