Budawang

If the Chinese domestic economy slumps because its export sector crashes due to plummeting demand from the US and others then we are all in serious trouble, Australia included. That would almost certainly mean a severe worldwide recession.

However, Australia with its strong fiscal position and diverse range of trading partners will be better placed than many. Australia also has significant trade with other Asian countries, India and the Middle East.

bcworld

One thing that doesn't fit with the Australia being (to a certain extent) insulated from US / European problems argument is the performance of the Aussie stock markets over the past 6 months.

They have fullen much further than their US / Euro counterparts, approx 25% off highs. The global credit crisis is a BIG problem for Australia because many 'ordinary' Australians are very highly leveraged through their investment properties & margin loans....encouraged all the way by the tax system. In this respect I think Australia is more susceptble than other countries to interest rate changes / credit cost changes , either imposed by the RBA or lenders.

Budawang

I agree that Australians are sensitive to interest rate changes and it is possible the RBA has overdone it. On the plus side, I think there is scope for the RBA to cut interest rates should this be required. In any case, it looks increasingly like we've reached the peak in the interest rate cycle. Of course the OZ dollar will fall if interest rates are cut and this will increase inflationary pressures. Personally, I think current monetary policy is about right and has the added benefit of forcing Australian companies to look for efficiency gains. Surprisingly, Australian manufacturing exports have remained strong in the face of the high Oz dollar.

Inflation is a major problem facing most countries and this is where the real threat to the world economy lies. The US is in the unenviable position of facing stagflation - at least Australia's economy is still growing robustly.

Wol

Remind me again - how may elements in the periodic table?

Wol

>>Start at the end. Like Britain and much of Europe, Australia has enjoyed an orgy of private wealth based, in part, on home price values.<<

But this is where a lot of the problems are in the first place: the "Wealth" he refers to is nothing more than collections of electrons in bank accounts - like all money bar a small amount. Economic models that leave out home values are completely different to the ones most governments use: they may not be any more valid but when the chickens come home to roost they show exactly what's going to happen.

Read "The crash of '79" by Paul Erdman. It's fiction - but the scenario ending in economic collapse bears a striking resemblance to what is going on worldwide at present.

Nerine

If the Ozzie economy is so strong why do the high street banks need to put up their loan rates above the level of the Reserve Bank's?

bcworld

Because they are passing on the increased costs of sourcing funds on global credit markets.......Australia doesn't operate in isolation. As I said before, irrespective of what the RBA does, up or down, whether or not people can continue to afford to be as leveraged as they are depends on how much the banks charge them, which in turn depends on what is happening outside of Australia.

Wendy

http://forum.globalhousepricecrash.c...howtopic=28870

Nerine

Well if Australia, with all its mineral wealth and trading partnerships, has that level of exposure to international money markets its hardly likely to be able to withstand a global recession is it? And the more our industry here has to pay to service its loans the more the cost of its exports is going to rise.

As I understand it the only hope of avoiding a worldwide recession lies with America getting itself out of the poo.

NickyC

The 'Planet Wall Street' column is written by David Hirst - who's apparantly a journalist, documentary maker, financial consultant and investor.

You can subscribe to www.newsbites.com.au to get access to it.

NKSK version 2

Not according to some of the reports that I've read, China exports much of its produce to the rich countries of the west - particularly the US. If the US slows, who will China sell to?

Budawang

I think he needs to go back to finish High School because he sure can't write well. Even scarier when you consider he is a journalist.

I_Will_Freckle

Lots of journalists can't write well nor spell.

Amazulu

Mmmm, not exactly the Wall Street Journal/BBC/CNN/ABC is it?

renth

I don't agree with the article for 2 reasons.

Firstly China is not dependent on the US buying their products, in fact the portion of their economy based on exports to the west is quite small (according to the ABC finance guy on the news).

Secondly Aussies won't just walk from their houses if they can't afford the payments because unlike the US when you walk the debt follows you. Also they're not likely to be able to walk straight into a rental either, there just aren't enough around.