1 Jun. 2011


The Australian economy has kept rumbling forward for the last couple of years like a headless chicken. "Look how it runs around! It's not dead!" But, sooner or later, chickens must come home to rot. The key point of vulnerability and volubility in the Australian economy is the house price bubble. This is now deflating everywhere but Sydney. In conjunction, the economy has just nosedived into recession (though not by the strict definition by which only several quarters of recession is counted as recession). The blame for the latter is being placed on the weather, much as it was in the UK earlier this year. But you put these two things together and one may see the crucial puncture. Of course, given a global situation in which capital has nowhere to go, and with Australian interest rates still so high, mass capital flight is not upon us yet. But we may finally see the adjustment to house prices and dollar that we've been waiting for.

Update The chicken is teetering, woohoo.