With warnings suddenly flying thick and fast, the history of bubbles has never seen the likes of what is unfolding in Australian property now.

Some bubbles have sprung from unlikely sources such as tulips. Others have inflated around bright ideas that held little reality such as the South Sea Company. In stock markets bubbles have certainly been destructive but equity can handle that and they have also left historic legacies of technological advancement. The Roaring Twenties was one, built upon expanding railroads. The millennial tech bubble was another, launching the internet.

On the other hand, history’s dumbest bubbles have all been in property prices. Pick your example – US, Ireland, UK, Spain – these leave nothing but economic waste in their wake. Banking systems are wrecked, savings are destroyed, and no lasting legacy is built in the real economy except an overhang of useless debt.

So what makes Australia’s current property bubble so unique? Three reasons.


First, no other property bubble has ever had such a clear warning in advance of its blowoff. Just six years ago, the world writhed as a multitude of property bubbles spectacularly imploded. We saw it and it scared the bejesus out of us. Yet here we are, well short of a half generation later doing exactly the same thing.

Second, we have only just had the same long term property bubble bailed out by the biggest mining boom in history. Post GFC we rebuilt denuded savings and reliquified banks as mining poured billions into projects and jobs, while international markets collapsed all around. The serendipity was gigantic, easily big enough not just to protect us from the GFC but to redefine the basis of the economy towards sustainable prosperity for generations. But instead of being grateful and prudent we succumbed to the hubris of exceptionalism.

Third, the deteriorating economic circumstances of the commodities bust that we currently face have been obvious for three whole years (if not all along). We knew the boom was narrowly based in China. We understood the magnitude of investment. We knew the size of the supply expansion. We knew prices were going to fall a long way. We knew a capex cliff was coming. But authorities did nothing to prepare for the end point except to deliberately reinflate a housing bubble supposedly to float us blithely over the carnage.

Certainly the history of capitalism has seen bigger bubbles than Australian property. There have been stranger bubbles too.


But none is more dumb.

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.