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Soc Gen’s Dylan Grice is worried about Australia. “Popular Delusions: Australians be worried: someone is calling your country a miracle!” Reply

What do you call a credit bubble built on a commodity bull market built on a much bigger
Chinese credit bubble? Leveraged leverage? A CDO squared? No, it’s Australia. Someone has
just written a book about how it’s all a miracle too. I’m worried.
– During a recent trip to Australia at the kind invitation of my friends at the Daily Reckoning,
I found myself browsing one afternoon in a Sydney bookshop. It’s always a pleasant way to
spend half an hour, but doubly so on this particular occasion as I was trying to keep the late
summer Sydney sun away from my delicate Scottish skin. My perusal took on more focus
though, when I stumbled across a book called “The Australian Moment” by George
Megalogenis, a highly regarded journalist in the lucky country.
 The book’s subtitle was “How we were made for these times” and its introduction
contained the following passage: “Australia, uniquely, has avoided the first three super
crashes of the digital age – the Asian financial meltdown, the tech wreck, and the big one,
the Great Recession, which we branded the ‘global financial crisis’. A single escape might
be put down to luck, two to good management. But a third is the stuff of legend.”
 Legend … This was most impressive bluster. So with my interest well and truly piqued I
read on. “This book will argue on behalf of the Australian miracle through our response to
external events.” I stopped and checked what I’d just read. Then I double checked. I’d read
it correctly. Someone was calling Australia a “miracle.” By now I was engrossed.
 As far as I’ve ever been able to tell, miracle economies don’t live up to their billing. Japan
didn’t, Thailand didn’t, Ireland didn’t … my reading pace quickened. I think my heart rate
might have too, it was such heady stuff. The last four decades had apparently made
Australia “more versatile today than any other First World nation.” Much was made of the
“unique elements of the Australian project.” But the author saved his triumphant best for
last: “The days of us looking to the British and Americans for inspiration and comfort have
passed” he proclaimed, “Now its our turn to tell them how the world works.”
 Now I know what you’re thinking. You’re thinking, why on earth would anyone look to the
British for inspiration and comfort? Me too. But that’s not what I was interested in. I was
thinking more of Edward Chancellor’s classic history of financial speculation “Devil Take the
Hindmost” and one of its key themes: the role hubris plays in financial calamity. Australia
has five of the world’s 15 most expensive cities (on a median price to median income ratio),
has seen household debt levels explode in recent decades, and even has a current account
deficit despite the windfall terms of trade improvement caused by the commodity bull
market. This is not a robust base from which to weather a Chinese hard landing, if and when
it comes. I had a great time in Oz: fantastic people, wonderful atmosphere, and a truly
beautiful country. But I felt more relaxed when Australians called themselves the “lucky
country” with their typical honesty, realism and humility. Now that it’s been upgraded to the
status of “miracle” I’m worried.

Source: Societe Generale