From Citi legend Willem Buiter in Sydney yesterday:
You have to recover from a quite spectacular housing bubble. You share this happy position with the two other countries that did not get particularly hard hit during the financial crisis — Canada and New Zealand. That mess was never cleaned up. It has to be addressed…immediately to try to have a soft housing slowdown, a soft residential mortgage landing, because clearly, if these things are not managed well, they can be a trigger for a cyclical downturn.
[China is a] “cyclical accident waiting to happen”.
[China’s debt problem is] completely out of control and is being addressed by adding to it, which works for a while, but is a losing game.
Buiter reckons it will struggle to rebalance without slowing to 4% or less:
In principle it can be done, but it has never been done, so I believe there is going to be a downturn, which will of course impact all advanced economies, most significantly Australia, which has this commodity dependence.
The good news for Australia is that your performance — while people are complaining, of course — is the best of any advanced economy. You also have a little bit of monetary policy elbow room left, and as far I can tell, you have a lot of fiscal elbow room left.
Time to dial the Spruikbot Telephunken U-47 all the way up:
