Thursday 16 Aug 2018 | 08:12 | SYDNEY
Thursday 16 Aug 2018 | 08:12 | SYDNEY

US sneezes, but we're not catching cold...yet


Stephen Grenville

22 September 2008 10:40

We can argue about whether or not the Australian financial system is 'light years' away from the US problems (is the relevant issue distance or dollars?), but it is certainly very different. If the key real-sector problem in the USA was home-loans to NINJAs (No Income, No Job or Assets), then that is a rare event in Australia. Here in Australia, no one was enticed to borrow by Greenspan’s unsustainably low interest rate. Nor has there been over-building in real estate. We don’t have a Fanny or Freddy here. Nor has our biggest insurance company been providing credit guarantees to anyone who asked for it.

Our mainstream banks fund a good part of their lending by borrowing overseas but, so far, the banks have had no trouble rolling over their funding and getting more, even if it is dearer: they borrowed twice as much in the early part of this year as they did in the same period last year. Other than the provision of extra liquidity through routine daily market operations, the authorities here have not had to lift a finger and, with interest rates still quite high and the federal budget in surplus, there would be plenty of room for policy maneuver if needed. Our macro problem is not (as in the US) a lackluster economy which has to go through a bleak period of adjustment. Instead, it is an economy where unemployment is the lowest in living memory and the terms of trade the most favourable for half a century.

All that said, we’re firmly linked into the world not just on trade, but in finance. And it’s not just America that has caught a cold: Continental Europe, UK and Japan all look pretty rheumy. The export-driven countries of Asia will have to adjust to this world (Singapore is showing the effects already), and there will be a knock-on effect for us. But China can slow a fair bit without causing a collapse in commodity prices.