How messy is it going to get?

I read a good book recently called “Panic” by Michael Lewis.  Michael was a former bond trader with Salomon on Wall Street during the 80s and has a great insight to the financial markets.  This book analyses previous recessions from 1987 to 2003 with solid empirical data.


While this particular recession has had wider global impacts than some of the previous, the underlying doom and gloom has always been the same, hence the title of the book. 


I do question why Australia ‘panics’ as much this time round.  When you look at the key economic data from the 90s recession, our banking system was in shambles, interest rates were sky high and unemployment was a big problem.


Looking at the lead indicators in today’s economy, the banking system is fundamentally good, unemployment is on the rise, but 5.2% still means 94.8% employment and there is a fundamental shortage in housing, which will put a floor on decreasing property prices.


I think Australia is a long way in front than where we were in the 90s.  While things may get worse, we had a very very good starting position.  China won’t remain dormant forever, and in three years time we may reflect back upon this time and wonder why we missed so many opportunities because of a sense of panic.


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