Could this cause Australia's economic apocalypse? US analyst warns of the triple threat that could plunge the nation into a depression

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A prominent American geo-political analyst has warned Australia has a housing debt bubble 'four to five times worse' than the US one that triggered the Global Financial Crisis,

Peter Zeihan, who has written four books on geopolitics, made the dire prediction in a newsletter released last week where he argued Australia faced three major challenges that could culminate in a harsh economic reality check.

The three hurdles are Australia's export dependence on China, its failure to develop value-added industries and allowing a 'subprime bubble' of bad housing debt to accumulate.

US geo-political analyst Peter Zeihan has predicted Australia faces some harsh economic reality

Subprime lending, meaning loans where mortgage holders are at high risk of defaulting, triggered the Global Financial Crisis from 2007 to 2008 that saw credit seize up in the US, leading to bank collapses and deep recession.

Mr Zeihan said that unlike America, where bad debt was at least partially cleared out during the GFC, Australia had not addressed the mounting issue.

'The problem is they never fixed it, just guaranteed everyone's loans, and so everything has just gotten deeper and has festered for the last 15 years,' he said.

'So when that finally cracks ... they're going to have something that's at least a factor of five worse than what the United States went through with subprime.'

What might trigger this is Australia's reliance upon the Chinese market for its exports, which Mr Zeihan predicted was headed for a rocky end.

'Of all the Western nations, Australia is absolutely the one that has gotten into bed the deepest with the Chinese economically primarily as a raw commodities producer,' he said.

Mr Zeihan has argued that Australia has racked up massive amounts of risky housing loans (pictured Sydney's Rose Bay and Point Piper)

Mr Zeihan said when China's insatiable appetite for Australia's mineral and agricultural goods dries up it will be a 'harsh adjustment'.  

'It's not like the market's going to collapse completely but this balls-to-the-wall price insensitive expansion that they've seen in most of their spaces for the last few decades that's just not going to carry on,' he said.

This was a particular problem for Australia that had little in the way of secondary industry, according to Mr Zeihan. 

'Australians never moved up the value-added scale in the raw materials industry they've always been a raw commodities provider,' he said. 

Unfortunately, Australia should have been developing its industry and processing capacity 'decades ago', Mr Zeihan believed. 

So that left Australia burdened with risky housing debt and having little in the way of industrial capacity to take up the slack  if China begins to falter. 

'These things unfortunately are probably going to hit them all at the same time, so it's not that Australia is looking at a recession,' Mr Zeihan said.

Analysts have predicted that Australian house prices are likely to dip this year (pictured a house auction sign in Sydney's Beacon Hill)

'It's that they're looking at a depression that's probably going to last half a decade, and that's going to be horrible.'

However, it was not all doom and gloom because Australia's longtime commitment to the US alliance would be rewarded, according to Mr Zeihan.

Even though Mr Zeihan believed the US was retreating from its role as protector of the global 'rules-based order' it would still be closely allied to those countries that served its interests and 'had its back'.

'At the very very very very top of that list is Australia, above Japan, above Singapore, above Canada, above Great Britain.

'Australia is first, and so no matter what shape the world takes as globalization ends, the Aussies know that we will have their backs because we know that they have ours.'

He also predicted Australia's natural resource riches would come to the rescue along with some Aussie ingenuity.

'They have stuff that the world needs, they have stuff that we need, and I have no doubt that an ally as creative and capable as Australia is going to be able to apply that capability and that creativity to their own economic restructuring.

Reserve Bank governor Michele Bullock believes good lending standards have keep household balances sheets in a 'pretty good position"

'The question is is whether they will start that process before the bottom falls out.'

Mr Zeihan's view of Australia piling up risky housing credit is not shared by Reserve Bank governor Michele Bullock.

Ms Bullock told a high level conference of central bankers late last year that despite interest rates being at 12-year high after 13 hikes over a 19-month period the balance sheet of business and households was in a 'pretty good position'. 

 'Through the pandemic they built up large buffers, large savings buffers, and they're largely still intact,' Ms Bullock said.

'There were also very prudent lending standards through this period so high debt-to-income loans are a really small proportion of lending, as are high loan-to-value ratio lending.

'There was an interest rate buffer imposed of around about 3 per cent, so a debt serviceability buffer, if you like, of 3 per cent. 

'So, there's been some good prudent lending going on here and that's evidenced by low arrear rates so far. 

'And those who are coming off very low fixed rate mortgages, they're managing quite well and all the indications from the banks, and all we hear from the banks, is these households are doing fine.'