Australia has had 15 years of economic growth. How come?

Was it:

  1. superb economic management by JH?
  2. hard work and greater productivity?
  3. free trade?
  4. China and the commodity boom?
  5. none of the above?

And of course the answer is (5). We have just been through the longest, uninterrupted period of debt-funded economic expansion of all time. The entire boom is built on a mountain of debt — the biggest ever.

The previous similar periods ended in 1891 (crash), 1931 (crash), 1974 (Whitlam) and 1990 (the recession we had to have). In the last 2 cases inflation saved us from something worse.

For the gory details, see:
http://www.debtdeflation.com/blogs/2008/03/29/debtwatch-no-21-april-2008/

Steve Keen provides the best explanation for where we are and what the outcome is likely to be of any writer I’ve found so far. It’s not a comforting read.

In his view, the preferred outcome is the RBA drops interest rates, the AUD goes down and inflation goes up. Debts shrink as they are paid off in inflated dollars. After a year or two of recession, the worst is over.

The feared outcome is a repeat of the Great Depression: incomes and prices go down but debts grow as they have to be paid off in deflated dollars. This situation could last many years.

While we are not directly exposed to the US economy, we are absolutely exposed to the world credit crunch. Our banks are already finding it very difficult to refinance their debt facilities.