Bubble in land prices, some may ask? Yes, take a look at this biggie. Some mistakenly say it's caused by population growth and a concomitant shortage of land, but as I've divided the total land prices of Australia by our GDP that takes care of such overly-simplistic excuses.
You'll see land prices got as high as three time our GDP because the tax system favours rent-seekers and fines creators of real wealth. This only assists the 1% and is quite wrong: full stop.
So, in the early 1990s I thought I'd create an index that would hit people between the eyes to make my point. What if I was to gather all Australia's real estate sales, residential, commercial, industrial and rural, and divide their prices by our GDP for each year? Would the index confirm my analysis, I asked myself?
Advertisement
It does. You'll note the current massive bubble from 1996 is well into its final deflation. Australian governments will usually change hands at the end of each real estate bubble as the change in the index closely approaches, or crosses below, the -25% mark. This one looks headed below the -50%!
Some people hold that the share market is the best economic indicator, but it's not. You won't have a recession or depression if the real estate market hasn't burst first. It had in the mid-1920s: it hadn't in October 1987.
Initially dubbed the "Barometer of the Economy" in a number of public addresses I'd given, my index morphed into the "Kavanagh-Putland Index" (or KPI) more recently, after I had secured the estimable mathematical assistance of Prosper Australia's Dr Gavin Putland.
Don't let Australia's politicians know (because they won't listen anyway) but there's $1 trillion to be written off in the current real estate debt bubble before Australia can hope to emerge from the upcoming disastrous price-drop. It's not at all shaping up well for Australian society. Unless, that is, as Professor Irving Fisher said before the US stock market collapse of 1929, we have reached "a permanently high plateau."
If neither political party has the fortitude to press for the Henry Review panel's recipe for reform of Australia's terminally ill revenue regime, politicians of all stripes are likely to prove to be as delusional as Irving Fisher when he was faced with a real depression. This one's as real as they get, so it's not time for the political process to freeze!
As the parties remain in denial, this bodes to be a "nothing" election for the Australian ship of state. Watch out as they start moving those chairs about your feet and around the deck, folks!
Discuss in our Forums
See what other readers are saying about this article!
Click here to read & post comments.
2 posts so far.