What DOES it mean if the US 'superbubble' bursts - and how Australia has worse ...

What DOES it mean if the US 'superbubble' bursts - and how Australia has worse ...
What DOES it mean if the US 'superbubble' bursts - and how Australia has worse ...

UK billionaire Jeremy Grantham (pictured with wife Hannelore), the co-founder of asset management group GMO, warned that massive government stimulus spending during the pandemic was creating the conditions for an American 'superbubble'

UK billionaire Jeremy Grantham (pictured with wife Hannelore), the co-founder of asset management group GMO, warned that massive government stimulus spending during the pandemic was creating the conditions for an American 'superbubble'

A bursting of an American 'superbubble' would cause Australia's share market, house prices and super balances to plummet again like they did two years ago - but without a quick recovery.

UK billionaire Jeremy Grantham, the co-founder of asset management group GMO, warned at the weekend that massive 'inept' government stimulus spending during the pandemic was creating the conditions for upheaval in the world's largest economy.

He coined the term 'superbubble' to highlight how an imminent crash would be different to the 1929 Wall Street Crash, the Dot-Com bubble of 2000 and the Global Financial Crisis of 2008.

While those asset bubbles were also based on speculation, Mr Grantham said this pandemic crash would be exacerbated by massive government spending inflating asset prices beyond what would have happened otherwise.

'Today in the U.S. we are in the fourth superbubble of the last hundred years,' he said 

'This checklist for a superbubble running through its phases is now complete and the wild rumpus can begin at any time.' 

Massive government spending isn't unique to the United States, with Australia spending more than $300billion on Covid stimulus measures - driving the share market and house prices to record highs.  

Here, Daily Mail Australia takes a look at what would happen should such a super-bubble burst. 

Stock market plunges

With more money available, investors have recently been piling into shares, with prices regardless of earnings continuing to rise despite US inflation hitting a four-decade high of seven per cent in December 2021.

Mr Grantham said a super-bubble continues to swell 'until, just as you're beginning to think the thing is completely immortal, it finally, and perhaps a little anticlimactically, keels over and dies.'

'This is why at the end of the great bubbles it seems as if the confidence termites attack the most speculative and vulnerable first and work their way up, sometimes quite slowly, to the blue chips.' 

In Australia, pay now, pay later juggernaut Afterpay has seen its share price climb from just $8.90 a share in March 2020, at the start of the pandemic, to peak at $152 in February 2021 to now be worth $66.47. Its share prices has continued to fall since late 2021 (pictured is co-founder Nick Molnar, left, with, actress Naomi Watts, right, and American Democratic Congresswoman Carolyn Maloney)

In Australia, pay now, pay later juggernaut Afterpay has seen its share price climb from just $8.90 a share in March 2020, at the start of the pandemic, to peak at $152 in February 2021 to now be worth $66.47. Its share prices has continued to fall since late 2021 (pictured is co-founder Nick Molnar, left, with, actress Naomi Watts, right, and American Democratic Congresswoman Carolyn Maloney)

Causes and signs of a 'superbubble'

'INEPT' GOVERNMENT STIMULUS: Central bank quantitative easing of buying government bonds

SPECULATIVE SHARE INVESTMENT: Tech stocks have surged but are now plunging as interest rates close to zero encouraged investors to buy speculative shares

SHARE MARKET BUBBLE: Prices of blue chip stocks meanwhile keep rising despite high inflation 

HOUSE PRICE BUBBLE: Prices surge to the point where debt-to-income ratios are unsustainable 

PREVIOUS BUBBLES: 1929 before the Great Depression; 2000 dot-com crash; Global Financial Crisis of 2008 following 2006 US property market crash

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There is a long way to fall for some Australian stocks.  

In Australia, pay now, pay later juggernaut Afterpay has seen its share price climb from just $8.90 a share in March 2020, at the start of the pandemic, to peak at $152 in February 2021 to now be worth $66.47.

At one point a year ago, Afterpay had a bigger market capitalisation than Telstra, an established company with a monopoly on Australia's copper landline phone connections.

The broader Australian share market's S&P/ASX200 is 48 per cent higher than it was in March 2020, following a 33 per cent plunge in only a month as the World Health Organisation declared a Covid pandemic. 

The market peaked in August but is not too far off those record highs. 

In Australia, the Reserve Bank has bought $300billion worth of bonds and government debt and Treasury is expecting federal government debt to surpass the $1trillon mark by June 2023 for the first time ever.

A greater supply of money has meant little return on bank deposits.

This has led to more investment in the share market, with tech stocks in particular surging before plunging.

'The final feature of the great

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