The capital flight train has left the station

“The government has to try and talk it down and say it’s inflated, but at the same time all they can try and do is control the ongoing growth as best they can,” Mr Van-Petersen said. “If they wanted to prick it, they could, but Australia simply cannot afford to.”

Source: Australia can’t afford to burst housing bubble as wave of Chinese money looms

The IMF report referred to in the SMH article is worth a skim read.

There is a strong trend for economists to ignore that there are costs to open capital flows and high levels of immigration. The specific impact on house prices in Australia and New Zealand needs a lot more attention. Michael Reddell’s work in this space has been excellent.

It isn’t really possible to take models that try and explore the implications of “hot money” that seriously. The lessons of the Global Financial Crisis have led to significant reforms of banks but for shadow banks, not so much. To the regulator with a hammer, everything looks like a nail. And there has been a lot of financial innovation – particularly on the part of the Federal Reserve in the mechanics of QE – that hasn’t experienced a sudden collapse in confidence like that experienced in late 2008.