The Aussie Crisis That’s Bigger Than Greece…

As we expected, Greece and Europe look set in order to strike a deal.

The troubles are more than.

You can go about your business with no care in the world.

But wait. Not too fast.

Greece and Europe may have stitched up a deal for the time being, but it won’t last.

And besides, the goings on within Greece should be the last associated with any Aussie investor’s worries. Because at home, things look established to get a whole lot worse…

For years, we’ve written about the actual precarious nature of the Australian economy.

Most within the mainstream insisted that Sydney had a miracle economy.

In reality, it was nothing of the sort. The actual Aussie economy thrived on one thing — resources.

Now that the resources boom is over, the fortunes from the Aussie economy are over too.

No brains required for this boom

Let’s get one thing straight: there is nothing wise about having a resources-led economy.

It doesn’t take even one jot of innovation or brains to have an abundance of sources.

It’s pure luck. It’utes the result of millions and vast amounts of years of geological change.

The fact that you will find recoverable resources in Western Sydney, Queensland, South Australia, and elsewhere is purely a matter of geology rather than anything any Australian has been able to achieve.

Granted, the ability to dig these resources from the ground does take skill…a lot of skill. So the Aussie economy may thank the likes of Caterpillar [NYSE:CAT] and Komatsu [TYO:6301] for making it possible.

OK, we’re being a little flippant. We’re not saying that Aussie businesses and individuals haven’t been involved in the success of the resources sector.

What we are stating is that it doesn’t look as if the skills developed for the mining boom are easily transferrable to other sectors of the economy.

And that’s the issue.

‘The biggest housing bubble in the nation’s history’

But don’t just take the word for it. Two tales jumped out at us last night. First, this one from the Brisbane Times:

‘The Australian real estate market is in the grip of the biggest housing bubble in the nation’s history and Melbourne will be at the epicentre of the historic "bloodbath" when it bursts, according to two housing economists.

‘Lindsay David as well as Philip Soos, who have authored books around the overheated housing market, have berated the housing industry and politicians who refuse to acknowledge the existence of a bubble as a result of perceived shortage of housing within the major capitals.’

In their statement, Messrs David and Soos write:

‘This calamitous result’s especially likely in Melbourne where rents have not elevated in real terms since 2010. Melbourne is primed to become the epicentre of a legendary housing market crash due to the combination of the staggering boom in real housing prices (178 per cent). Perth is also inside a serious predicament.’

Zoiks! If you’ve study Money Morning for some years, you’ll know that we’ve long warned about the Aussie housing bubble. We warned about it for so long, that we gave up warning about it when the bubble didn’t burst.

We thought there wasn’t any stage repeating the same message. Those who didn’t believe us would never believe us, so what had been the point?

For everyone else, be warned. If David and Soos are right (and we have no doubt they’re right), an epic house cost crash is coming.

But that wasn’capital t the only story to stick out. Take this from the Australian Monetary Review:

‘More than one-third of Australia is in recession, with a shrinking handful of locations generating most of its wealth, according to research that highlights the need for businesses and governments to make tough investment as well as spending decisions.

‘The groundbreaking work by accounting giant PwC implies that close to one in every $ 5 of national income is produced by just 10 locations out of 2214 nationally, led by the central business districts of Melbourne and Sydney as well as the iron-ore-rich Pilbara in the north-west.’

But even there, the definition of ‘locations generating the majority of its wealth’ needs to be qualified.

Are they really generating wealth, or are they generating more debt? Most in the mainstream consider rising house prices to be a manifestation of increased wealth.

But that increased wealth is only possible with increased financial debt. If the increase in debt halts (as it surely will), you may expect the increase in wealth to prevent too.

For many, it’s too late

There’s no doubt that it’utes a worrying time for the actual Aussie economy.

But for most people it’utes too late to do anything about it.

They’ve already mortgaged themselves up to the eyeballs, believing that home prices only ever go up.

Now they’lso are in too deep. Even if they realise it can’t last, pride will stop them through getting out. After all, even if they just bought a reasonably priced house four years ago, they’ll have forked out around $100,000 in stamp duty and interest charges.

If they offered today, their total costs would far exceed any kind of capital gains. And as we all know from investing in the stock market, no-one actually likes taking a loss…they always would rather hang in there, believing their investment will come good in the end.

But don’t be so sure of that. The Aussie economy has gone 24 years without a recession. So the first is long overdue. And when it comes down, it will be painful.

Don’t say we didn’t warn a person.

Cheers,
Kris

PS. It’s not just Australia that’s at risk of trouble. The whole world is dealing with a deep economic and monetary turmoil. If you haven’t prepared for this, you’re putting your prosperity in grave danger. To find out how you can prepare for this crisis, go here.