Cruising

The former head of the Commonwealth Bank and current Future Fund chairman, David Murray, recently said bank bashing should cease because it would adversely affect the economy. He was reported as saying, "Attacking their (the banks) returns is the same as attacking credit availability, which would be felt most noticeably in the small to medium enterprise sector."

We live in a democracy; well directed criticism is part of the cement which keeps the social order together. Murray's exceptionalism is indicative of the mindset of Australian bankers who see themselves and their institutions as somehow different to the banks which caused the GFC.

The atmosphere of denial that is stifling enquiry and debate does not allow for planning on how Australia might prepare and respond to a significant world recession. Without substantial receipts from China what are our options?

If China's markets collapse, what would China do to stave off internal unrest? What are its strategies to maintain a measure of growth - enough growth to maintain social cohesion?

At other points in history nations faced with a need to maintain growth in wealth and employment opportunities have resorted to arms manufacture. Worried about protecting trade routes and with only a small navy, perhaps amongst its growth strategies China might seek rapid and significant expansion of its Navy.

America and Japan would be hard pressed to match a naval arms race. Talk of finding improvement in the US economy with a rise in the rate of employment are delusionary; the US debt, at $15 trillion, is too large to pay off, it now stands at 100% of GDP, interest payments alone were $454 billion in 2011. At best America might find relief in defaulting on debt, but at incalculable cost to its own and the world financial system.

To this volatile financial climate add the politics of the Middle East and 2012 starts to look far less certain and stable than the senior cruse officers appear to have grasped and understood.