Australian mining boom the real "bubble threat": Morgan Stanley

Soaring commodity prices has lifted the economy but for how much longer?

"The risk of precipitous decline in mining-related investment" is now becoming a real threat to the Australian economy, according to the research firm, more so than what the housing bubble did to the US economy. 

Here's more from Morgan Stanley Research:

Over the years, we have been too pessimistic on Australian housing. But it increasingly seems to us that mining presents a bubble threat to the Australian economy. The increase in commodity prices has far outstripped house price increases over a similar period. The income effect of the commodity boom has been more direct and powerful than the wealth effects of rising house prices. Now we are seeing a supply response that seems set to dwarf the supply boom seen in the US housing bubble.

Put another way, the risk of a precipitous decline in mining-related investment is shaping up as a key economic threat on a 2-3 year horizon.

To be fair, it remains an open issue how quickly commodity prices return to a ‘normal’ range. Moreover, this note is not designed to address that issue. However, it seems to us that several arguments commonly put forward when the outlook for the boom is discussed – that real GDP will be solid, that commodity prices are high, that China will stay strong – are irrelevant to what are the key issues and the real risk that the current boom ends in a nasty bust.