The bubble’s final MAD defense arrives

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From the AFR:

Australian housing prices keep getting higher and one investment banker has bad news for most aspiring home owners: the government will do nothing to prick the bubble because the country simply can’t afford it.

…”The government has to try and talk it down and say it’s inflated, but at the same time all they can try and do is control the ongoing growth as best they can,” Mr Van-Petersen said. “If they wanted to prick it, they could, but Australia simply cannot afford to.”

…”Australia can’t afford for property to have a hard landing. If housing prices bust, the banks will get hit hard. And then what is there? It’s in everyone’s interests right now.”

Call it what you like. Mutually assured destruction (MAD) or too big to fail. Sadly, yes, the RBA has wedged the entire nation into this bubble now.

But the line about government being able to pop the bubble if they wanted to is all wrong. They don’t want to. They’ve never wanted to. They were never going to.

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As I have argued for many years now, the bubble will not pop until the politicians run out of ways to support it.

The bad news (or good from some perspectives) is that that point is rapidly approaching.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.