"Australia is a tiny country by population, and relatively young. To say we can't have an independent, isolated catastrophe here is naive IMO."
I probably shouldn't say it can't happen but IMO it's highly unlikely given it hasn't happened in more than 100 years. With markets and economies significantly more interlinked than they were 100 years ago, I would suggest the likelihood is remote i.e if the major economies around the world continue their current bull runs, Australia will benefit and our economy will be dragged along with them, raising inflation, wages, rents etc etc. What will the current debt levels look like if the XAO hits 10,000 over the next 5 - 10 years?
I acknowledge the issue around the construction sector and that does concern me but history says something will pick up the slack. Did you predict the China mining boom before it happened? Maybe it will be another mining boom, maybe it will be something else.
If you go back the whole way on that XAO chart, the longest sideways period is about 10 years so we're due to be above 6800 by something this year or next I think - it's only 100 years of data though
What we seem to be debating here is whether the economy will shrink because of the current debt levels or whether it will expand, in the process bringing those debt levels back to normal? History says the latter.