As always, all bubbles come back to excessive credit growth. You have to prune away at the flowers these bubbles are decorated with. They make it look pretty, desirable, and natural. But beware!
In a great article we read last weekend by GMO's Edward Chancellor we found this quotation from 19th century economist John Mills: "Panics do not destroy capital; they merely reveal the extent to which it has previously been destroyed by its betrayal in hopelessly unproductive works."
Has Australia over-invested in higher house prices at the expense of other national investment and productive possibilities? Let us know what you think at dr@dailyreckoning.com.au.
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And if you think we're making up the idea that China has exported its property bubble to Australia, well, that's alright. Free thinking is encouraged at the Daily Reckoning. But according to Tuesday's Wall Street Journal, "China's banking regulator banned new property loans to 78 companies owned by the central government in an effort to control risks in property credit and curb asset bubbles, which pose a threat to the country's strong economic recovery".
Urban property prices rose 11 per cent in February compared to the same time last year. In fact, there's a way of seeing the performance of the entire commodity sector - and by extension Australian resource stocks - as a function of China's retreat from the US T-bill market and into tangible asset markets like copper, iron ore, coal, and high-rise flats in Melbourne.
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