Financial crisis or correction?

4. Meanwhile there are major disruptions in the global economy and no-one knows how they will play out. The oil price is a great example, with universal expectations of steady increases dashed as the Saudis for their own reasons have forced the price down to very low levels. The price could jump suddenly and by a huge margin for reasons that are beyond economic rationality. This makes all forms of economic planning extremely difficult.

5. In most wealthy countries the population is stable so the economic stimulus of simple expansion has disappeared. Population growth is very high in the poorest countries where it serves to limit economic development and create civil wars and other crises.

6. Meanwhile globalisation has reached a critical turning point. For at least two decades developing nations have been growing strongly (on average) and creating demand for the products of wealthy nations. Plus, the boom in resources has been driven by the developing nations requiring rapid upgrades of infrastructure and housing.

But jobs have been transferred from rich to developing nations resulting in lower prices but also in the expectations of steady improvements in living standards in those wealthy nations not being met. The gap was filled by governments borrowing or just creating money. But cash flowed to the owners of the resource and high level manufacturers, who lived in rich nations. Thus workers got poorer and the rich got richer.

Now the resources boom is over. China for example has more highways that the US and a vast array of new airports, power stations, apartment blocks and everything else it needs. Demand will continue but it will not grow. The capitalists have met demand for resources by expanding production so the price falls.

As stock markets fall the wealthy share the fate of the workers in getting poorer.

Economists love to talk about 'equilibrium' but they have assumed that developing nations will adjust upwards to rich nation levels. The idea that we will go down as they go up is bit unpopular so they dismiss it, for no rational reason.

For these six reasons, and many others, the growing crisis is dissolving vast financial assets.

Australia is better placed than most nations but national strategies have limited value in the highly globalised world. What we need most is a government ready to move beyond the small picture to deal with the unexpected and make some very tough decisions.