"BUSINESS as usual" is over. What we have taken as normal times - the ups and downs of Western economies since the 1960s, and the "financial engineering" of the past two decades - have been underwritten by the greatest debt bubble in human history. The meltdown on global financial markets is merely a reflection of the fact that, one day, this bubble had to end.
In 1945, the US economy had a private (business and household) debt-to-GDP ratio of 38%. It is now 283%.
Australia took longer to get into the borrowing habit: our ratio was roughly constant at 25% from 1945 until 1964. But since 1964, it has increased almost sevenfold, and as Australia congratulated itself on the long boom from 1994, the debt ratio more than doubled to its current 165%.
The rest of the OECD - bar France - was also caught up in this debt folly, with the result that the global economy is now carrying roughly twice the level of debt that precipitated the Great Depression in 1930.
The collapse of AIG raised a spectre that even the Great Depression didn't have - the collapse of the derivatives market, something Warren Buffett once described as "financial weapons of mass destruction". These are highly leveraged bets between financial players on movements in economic variables such as interest rates, commodity prices, and so on. The sheer volume of these is both unknown and staggering - anywhere from $US60 trillion to $US180 trillion ($A72 trillion to $A216 trillion) - and they were only invented in the past 20 years.
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link to www.theage.com.au]
Last Edited by theDtrain on 10/13/2011 04:21 PMSunny shit starter & stirrer, I shit the shit, My shit is stirred not shaken, Winner of the golden shit-stirrer award, Calling someone "a bit of a shit stirrer" in Ireland is usually a term of endearment rather than an insult.
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