The Ponzi mania: free markets, free trade, free ride?

The carry trade which has presumably provided funds for mortgages and other financial services in Australia has been volatile for some time. If it unwinds completely, that could not only intensify mortgage problems but also impact on Australia’s external balances. Our deficits have so far tended to persist at a less healthy level than the commodity boom might have encouraged us to hope. Our aggregate private overseas debt is said to amount to half a trillion dollars. Against that background, the current depreciation of the United States dollar might foreshadow what awaits our own currency.

Economic and financial change in the United States tends to have a lagging impact on Australia. An acute awareness of the severity of our crisis may consequently not emerge before the second half of 2008.

When it does, what will the Rudd Government do? Currently, it seems as unaware of the magnitude of the challenge it faces as the Scullin Government was in 1929. So the present government might become just as bewildered as Scullin and stagger just as blindly and ineffectually when they are called upon to act.

In the 1930s, we listened to the likes of Otto Niemeyer of the British Treasury who was also a director of the Bank of England. Will the Rudd Government this time listen to the Americans and the likes of Bernanke? If they do, catastrophic outcomes might not be in short supply.

Our only real hope lies in clear, independent thinking by those not too steeped in the flawed policies responsible for our current crisis. We must see clearly that fundamental, comprehensive financial and economic reform is imperative. We must adapt that fundamental reform to our own needs, as the Curtin and Chifley Governments did between 1941 and 1949. As we did then, we must simultaneously try to guide the international community out of the calamitous course which has evolved since 1969, and return it to the goal of stable, peaceful, global change which, as a primary objective, we pursued between 1945 and 1969.

While we embark on this journey, a high level of political volatility in Canberra is inevitable. Rudd might succeed; but the Labor Party and Government might split two or three ways as they did between 1929 and 1932. Another Joe Lyons might emerge. Whoever he might be, the odds are that he will be even less likely to find quick or easy solutions than Lyons was during the long and bitter years of depression. Those years ended only in the even deeper tragedy of world war.