The 275 Billion figure to be written off is, in my opinion grossly understated. There are many reasons to believe this but the fact that this is what the ratings agencies are owning up to is pretty well proof enough.

There was a story on Bloomberg today about the EU investigating the dumping of below cost chinese steel being dumped on the EU market and thus affecting the profitability of EU steel makers. Is it possible that the production over capacity that has been created in China is actually already starting to show. Or is it possible that the only way some Chinese companies can actually make a profit is to sell overseas thereby getting around the price controls put in place by the government - time will tell. I realsise that there is a lot more to the China story than this but I am damn sure that China/India is not going to save Australia. As an economy Australia is one of the many US clones - the story in the US is relevant to us as we can see in advance how things will unfold here. I know of at least 30 local governments in Aus that purchased CDO's etc from Grange Securities (now (always?) Lehman Bros) - on their old Web Site Grange stated that State and Federal Government agencies were also customers so that will be interesting. Never forget that "Motor Finance Wizard says yes!!"

Even basic logic contradicts that claim. Unless wages have appreciated in line with home prices (clue: they haven't), then the only way Australians could "afford" current home prices are through the use of low-doc loans. IOW, easy credit to mask the low earning power of their wages.

Your post points out the precarious state of Australia's "credit economy" - good catch. But in the context of home prices - the housing bubble alone can sink this economy, in a similar way it is sinking the US and England.

The housing bubble is not so much about "subprime" or any other buzz-word - but simply, how much house can a citizen's wages buy?

A look at wage levels shows: the citizens here can't afford their homes any more than the citizen of the U.S. and England can.

There is not REALLY such a thing as "credit wealth", regardless of what the RBA would have us believe. (Just as the central banks in the US and England once claimed too, BTW.) Nor is there any reason to expect housing to perform any differently here.

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Low-doc market booms
By Stephen Blaxhall
Tuesday 31 July 2007

Fears of a sub-prime like meltdown seem far from lenders minds as Australia's low-documentation (low-doc) home loan market flourishes.

The low-doc market, which has doubled in the past four years, now makes up 16 per cent or $37.9 billion of total housing lending commitments.

There are now 385 loans offered by major banks, regional banks, credit unions and building societies, as well as the traditional non-bank lenders.

Stephen Blaxhall, http://www.investordaily.com/archive/2620.xml