We have previously discussed the Australian economy here, many times actually… be it how dependent the country is on China, its real estate bubble (here), how its boom might be closer to a bust, and the guru warnings of the likes of Marc Faber and Richard Koo.

But here we are again, after reading a couple of very thorough “Seeking Alpha” articles (by Igor Novgorodtsev and Paulo Santos), and some interesting points were made, despite the fact that they are both short the Australian market (NYSE: EWA) and currency (AUD/USD)… highlights below:

The reality…

“Australia has a very vulnerable economy where upcoming bad news has not been “priced in” at all. The country suffers from an epic real estate bubble that greatly exceeds those of US, Ireland, and Spain. The average Australian consumer is completely tapped out. Take out a “consumer credit” punchbowl and reduce the Chinese voracious appetite for iron ore and coal, and the Australian economy will collapse like a house of cards.”

Dependence on china…

“Australia today suffers from a classic case of “Dutch Disease.” Its reliance on natural resource exports for its GDP growth stunts the rest of the economic development… 

Housing Bubble…

“It’s always instructive to take a look at historical trends and plot a “mean-reversion” graph before concluding that something is significantly overpriced…. The fact that the Australian real estate bubble is probably 30 years old is missed by many observers who plot data from the year 2000.

Australia 2012 = US circa 2007…

“… it’s very similar to the US economy in 2007 where much of the economic “wealth” was created by real estate boom and over-leveraged banks. Australia is likely to face its own “Great Recession” in the upcoming years, perhaps when commodity exports slow down. In many ways, this recession may be worse than the American one of 2008, as Australia neither enjoys the benefit of “reserve currency” that would allow it to easily “print” money nor a strong manufacturing base that would benefit from a currency devaluation.”

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