Hedging bets on the future
From Griffith REVIEW Edition 25: After the Crisis
© Copyright Griffith University & the author.
Written by Margot Saville
UNTIL THE 1980S, Wall Street accounted for only about a fifth of all corporate profits in America, but by the peak of the bubble in 2007/2008 it had grown to an astounding 41 per cent. These numbers masked the reality that it was growth based on debt. Larcombe argues: ‘The type of globalisation which emphasises financial globalisation is flawed, as it is associated with growth in activities which were not sustainable in the long term.' He is concerned that household indebtedness as a percentage of Australia's national income had risen from 25 per cent in the 1980s to 160 per cent by 2007. ‘That growth in economic activity and employment is driven by debt. The more the boom went on, the more speculative activities became. The extraordinary thing is that mainstream economic policymakers did not think that instability could occur. They argued that business cycles were a thing of the past.'
Now that credit has dried up and the regulation of global finance is up for grabs, the pain is being felt not only in top-end house prices in global cities. Even in well-regulated and comparatively well-insulated economies like Australia's, there is a lag in what happens to employment, consumption and production. ‘The real impact on Australia is yet to come. The future is more uncertain than it has ever been. We still have not gone through the shock of the impact on the real economy, the effect of unemployment on household incomes.' This time, however, as Larcombe notes, it is ‘not just the westies' who have borne the brunt of it.
John Maynard Keynes has been here before. ‘A "sound" banker, alas! is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him.' ♦