Global Financial Crisis

In 2009, CIS Research Fellows Robert Carling and Dr Oliver Marc Hartwich predicted sovereign debt troubles on both sides of the Atlantic at a CIS event called ‘Trans-Atlantic Fiscal Follies.’ In August 2011, they were joined by CIS Research Fellow Adam Creighton to discuss the future for those countries buckling under their sovereign debt obligations. How much worse is it going to get? And does it have to get worse before it gets better? Will the dollar survive as the lead currency? Will the euro survive at all? Will gold continue to rise? And what’s the endgame of government debt?

Capital markets are not loquacious storytellers. They condense the world into simple numbers. For this reason, the surge in Greek, Italian and Spanish bond yields could be mistaken for a mere technicality, a simple recalibration between the forces of demand and supply that happens in markets every day.

The Occupy Wall Street movement has polarised public opinion: Either you regard the protestors as the new political avant-garde or as just plain silly. Either you believe they have a serious message or you think they are a bunch of nutters. But what if the truth is a bit more nuanced than that? Perhaps the nutters have a point?

There are good reasons to be very concerned about the future of the global economic and monetary order. In Australia and to a lesser degree in New Zealand we are probably in a somewhat better position than most other developed nations. We should use this opportunity to prepare ourselves for the next stages of the Global Financial Crisis.

Domestic debates pale into insignificance in comparison with the financial storm that is brewing on the horizon. Why are we even contemplating new taxes that damage our international competitiveness at a time of the utmost economic uncertainty? Australia may have been an island of tranquillity post Lehman, but for how much longer?

As the whole world worried about a potential Greek collapse, another European country experienced two actual bank failures. And no, they did not happen in Portugal, Spain or Italy. In fact, the failures didn’t even occur in the eurozone. The country in question is Denmark.

The social unrest in the streets of Athens palpably demonstrates the dangers of letting public debt problems come to the boil. The developed world should watch them carefully and wonder what it can do to avoid a replay of such scenes in New York, London or Tokyo. Though there are no pain free solutions to the world’s public debt problems, this should not stop us from creatively exploring the options.

In the beginning of the financial crisis, with all its G8, IMF and G20 meetings, there was a glimmer of hope that it would not lead to a replay of the distortions of the Great Depression. In hindsight, this was too optimistic.