-Will the housing market bubble or will it deflate orderly?
You mean crash or deflate orderly? That largely depends on the will power of the government to "keep" the bubble going. Seeing there is a HUGE APTITUDE for Australian issued public debt from the Chinese or other emerging countries, you can bet KRudd and his government would continue to build up deficit to "stimulate" the market and prolong the deflation as much as possible.
So yes, eventually house prices will revert back to its historic means, whether by massive crash or be "inflated" out over a long period of time.
-Are there more spooky numbers to come out of the market that has not been accounted for?
There are a lot more spooky numbers that the general public are not aware of, especially with the banking system in the US. Karl Denninger from The Market Ticker has been doing a great job in pointing these out, and as well as the massive amount of fraud going on with the US economy/banking system.
He points out a lot of stuff that seem so obvious from a mathematic sense, but has not been picked up by the mainstream news. For example, how the regulators (FDIC) suggested that if lenders have more than 5% of their loan book impaired, it would be considered as a level that could wipe out a bank's equity and threaten its survival. Not so surprise, bloomberg (FINALLY!) have recognised the problem and computed that those banks with nonperformers loan above 5% has a combined deposit of $193 billion, and that's 15 times the size of FDIC's deposit insurance fund.
Not only that, the total nonperformer loans of all banks in the US is like 6.5%+. This effectively means the US banking system is technically INSOLVENT, but have only survived to date largely thanks to the new accounting rules to hide the true values of their loan assets. Of course, not all banks would have such level of nonperforming loans, but I'm talking about on average here.
Most people totally underestimate the serious of their banking system here. It is like living on the edge of a line hanging across two really deep cliff. If all those "rescue" policies were removed and bring everything (including the way how loan assets are valued) back to PRE-BUST era, you can guarantee that most banks in the US would have become instantly bankrupted.
-Will the USA economy drag back the rest of the world markets?
Before the GFC, you had tons of economists saying the world has decoupled from the US economy and that even a severe recession in the US would not adversely affect the rest of the world. (especially BRIC countries)
Of course, we all know this myth has been debunked.
The same goes for today, I still highly doubt the world has restructured itself enough to still be totally decoupled from the SECULAR downturn of the US economy.
The recent boost in China's economy has rise a lot of questions about the true effectiveness of their stimulus package. Their industrial capacity and output has significantly declined since last year (like 25%), however, their money supply and lending growth has grown by at least TRIPLE in merely the last few months. Of course, this naturally built in to their GDP statistic.
So I don't think the Chinese would save the world from going deeper into the hole at least in the short term.
And the secular downturn of the US economy will definitely drag along with everyone else.
-Is there something brewing in Europe that may hit us hard?
thanks
Their banking system is actually in a worser situation than what I have explained for the US. So yes, both consuming orientated economics would put a huge pressure on the existing capacity of the exporting countries (i.e. China, Japan, etc), and that would certainly drag us down as the demand for resources would not return to 2005/2006 level for a while.
However, I agree that Australia IS A LUCKY country because we have a lot of the resources that emerging countries need. I'm permissitic about the US economy but to a degree, more optimistic about Australia. However, the ride would be extremely rough and we still have tons of private debt to deleverage.
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