Listened to a very informative commentary on Radio National this evening from a representative of BIS Shrapnel. They alluded to the prospects of a looming "depression" based on two main factors. Each factor heavily impacted one another and therefore exacerbated the problem. The following is my interpretation of this commentary. Firstly it is the surfacing of rising inflation sparked by what they see as the tail end of the corporate and industrial boom. This inturn fuels the risk of rising interest rates to curb the inflationary threat. Secondly, and most disturbingly, is the immense consumer debt levels which have increased recklessly through the easy availablitiy of "all in one home loans" or equity facilities. This of course has been fuelled by over-inflated real estate prices. What we have is a matrix of looming disaster whereby consumers are so loaded up on credit that the slightest rise in lending rates will be catastrophic. The result is a negative domino effect where consumer spending is halted, unemployment rises and loan defaults run rampant.
