Ex Bank of England MPC member, Buiter, and now Citi chief economist, is one of my favourite analysts. In the AFR today he emphasises a line of argument that I have pushed in my columns for years: Australia's outperformance is as much, if not more, to do with luck than skill...
"“I think Australia is, by the standards of advanced economies, doing well but I think the most likely cause of financial instability is a long period of stability, that was [the late economist] Hyman Minsky’s great insight and something Australia should be aware of.
“It should look at corporate leverage and banking sector funding needs and ask itself ‘should we go in for more regulation … such as tighter loan-to-valuation ratios for mortgages’.”
Credit ratings agency Moody’s said before Christmas that house prices in Australia were not sustainable despite recent falls, warning of a potential re-run of the property crashes seen in the US and Europe in recent years.
Mr Buiter warned: “It is clear one has to pay close attention to the sustainability of the Australian housing market and the associated household mortgage debt burden, because there hasn’t been a serious run of house price inflation in any advanced economy in the last 30 years or so that hasn’t ended in tears.
“I’m not as worried about Australia as the Scandinavian economies, but just because Australia was either wise or lucky, or both, in the run-up to the current crises doesn’t mean it’s immune and unique. One has to practise eternal vigilance.”"
