Australian banks apparently learnt nothing from the U.S. bank bust that followed the bursting of the housing bubble there.

Everyone caught up in the frenzy of a bubble is so sure that “this time it’s different”. If their own bubble is different, why does it have everything in common with every other bubble that has ever burst? Such as, in Australia’s case, banks offering housing loans at 92%, 97% or 105% loan to value ratios, which unsurprisingly results in “strong” demand for loans? Or the fact that Australia’s housing stock has been valued at $4 trillion, which is a quarter of the US housing stock valuation pre-crash, even though Australia is twelve times smaller in both population and GDP?

In China, widespread ponzi loan sharking schemes had been fuelling a monster expansion of fractional reserve lending, resulting in an uncontrolled expansion of the money supply and in a bubble that shows all the classic signs of starting to burst (stalled or falling prices, empty apartment blocks, a collapse in the volume of sales and the resultant rise in inventories).

In Canada, household debt is at record levels, as is the proportion of income spent on housing; price to rent ratios are far above their mean long term values, the Bank of Canada is trying to raise interest rates, and the inventory of homes and apartments for sale has been piling up at an accelerating pace since the start of this year. The pool of greater fools is running dangerously close to empty.

Australia and Canada export commodities, China exports its cheap labour and all three pile up gigantic amounts of cash (that for the most part originates from Western Ponzi finance), which is used to seed and nurture their own home grown ponzi finance. It is not at all surprising that these economies continued to inflate a property bubble well after the implosion of the property bubbles in the consumer economies of the West, nor is it surprising that predictions of the bubbles’ collapse have proved premature in the past. The cash flooding into their economies has to go somewhere – and much of it, amplified by fractional reserve lending, went into the non-tradable assets sector, such as housing.

The constant influx of new cash permits the governments of these three countries to continue supporting their banking systems through this madness, postponing the day of reckoning and making the bubbles bigger and bigger. The more housing prices are disconnected from reality (price to income, price to rent), the bigger the household debt levels and servicing burden as a fraction of income, and the more brittle household budgets and with them, consumer sentiment, will become. Eventually, the pool of greater fools always runs out. It will not be at all surprising if or when psychological contagion from Chinese to Australian to Canadian home owners and banks causes their property bubbles to burst more or less in domino fashion.