Everybody break out the piggy bank, it’s time to save, save, save! Remember that rainy day we all keep talking about? The one where you might need an umbrella made of money stashed away to avoid getting drenched in another global economic storm similar to that of 2008? Well chances are we will all be ducking for cover fairly soon if America’s mounting debt issues are anything to go by.
Admittedly, by the time you read this things may have done a complete 180 and Obama could be on the White House floor, spinning in circles of delight and whooping hysterically (a Homer Simpson reference). Let’s face it, every time we turn on the news or open one of the daily rags, a different song about the global financial markets is being belted out by the media, who are almost peeing their pants with delight at the fodder they have to feed on right now.
There is one consistency however, journalists have broken out the negative terminology thesaurus and are bombarding us with phrases like “economic Armageddon”, “market meltdown” and “catastrophic crisis” to add some spice to the “same old” stories.
Obviously the tumultuous US financial market has the world teetering on the brink of a global recession (again!), but are things really all that bad here in the “Lucky Country”? We still have some very strong fundamentals underpinning our economy (as discussed in my intro) and the Reserve Bank has thankfully left itself plenty of breathing space when it comes to the option of reducing interest rates to help stimulate Australia’s economy; they can slash rates to 1 per cent if need be, unlike those countries in the worst financial position where interest rates are already close to, if not there already.
Apparently some of the majors expect the Central Bank to pull the interest rate lever very soon in order to ensure our economy continues to grow at a steady pace, despite what might happen with the mounting debt and financial troubles faced by the US, Europe and Japan.
Westpac and the CBA have both slashed their fixed rate products to below 7 per cent, making fixed mortgages more appealing than the standard variable rates on offer at present, which is above 7 per cent. This is a good indication that our repayments could be shrinking over the coming months and illustrates just how dead the home loan market has been for the banks this year.
Another silver lining for Australia’s economy is the emerging trend toward conservatism that many of us seem to be on board with. The eighties mentality of “greed is good” saw us turn into a nation of spendthrifts almost overnight. Unlike our parents and their parents before them, we were enjoying some heady times and an overall sense of abundance. Things were good and just kept getting better – our future looked bright and our wallets were fat. Our overall national debt soared as consumerism took hold and we had a love affair with easy credit.
Many of the Gen X-ers and Y’s growing up during those last few decades of the 1900′s had never experienced true hardship and even the baby boomers had seemingly forgotten about the Great Depression that their parents lived through.
Then fortunes turned. America led the world into a global financial crisis and all of a sudden, Australians knew what it meant to be financially vulnerable. Many boomers lost thousands in superannuation and shares and were left with close to nothing. Why? Because saving money had become an obsolete ideal and we were all busy living beyond our means. Great while it lasted wasn’t it?
It seems though, that we took the lesson on board – most of us anyway! More and more Australians have elected to tighten their purse strings this year, spooked into saving by a shaky global economy and uncertainty surrounding interest rates and the local housing market.
This is good news as far as the RBA is concerned, as it means we have a more stable financial foundation and the potential to prop up our economy should things go pear shaped, as many commentators are suggesting they might.
So where to from here?
Well, it would be remiss of me to tell you that I know what tomorrow may bring. In fact I have about as much chance of making an accurate prediction regarding the fate of the global financial markets as the so-called experts do – slim to none! And they’re fibbing if they tell you otherwise!
What I can tell you, is that market sentiment is a very powerful force and right now, the collective market is tearing its hair out, screaming “OMG, OMG, OMG! Too much debt!” and flapping its arms around wildly in a state of unbridled panic! Maybe not literally, but you get the idea.
While I won’t deny that there is definitely a worst case scenario to avoid if at all possible, the concern many people are voicing about a global recession the likes of which could prove dire for the world could become a self fulfilling prophecy.
What do I mean by this? Quite simply, if the panic continues to take hold, businesses and consumers will lose what little confidence they have left and in turn, stop spending and investing altogether. All it will take is another stock exchange scare like the one we had recently and a further dent in the already battered US economy to have people heading for the hills.
I’m not suggesting that we all stick our heads in the sand and deny the current goings on, nor am I saying we should stop saving and go on a shopping spree borne from fear of the future. But I am going to tell you that despite the certainty with which many are predicting the end of the world as we know it, none of us truly know what tomorrow may bring; there are just too many twists and turns in this story to foresee where it’s heading with any accuracy. All I can say is, watch this space!