why are we in a recession, page-48

Answer:
1) An unprecedented contraction in asset prices due to years of careless overleveraging by (mostly) US & European banks begins in 2007.

2) In response, banks worldwide call in loans and reduce further lending to minimise risk.

3) Australian banks - while conservatively run - tap the international credit markets to supplement existing funds for australian businesses and individuals. This credit has now become harder to find, and, more expensive.

4) With money getting harder to find, businesses find it harder to finance their operations. Layoffs begin.

5) Meanwhile, australian workers whose livelihoods are dependant on exports start losing their jobs (miners, manufacturers). WE ARE HERE

6) Unemployment starts to rise. With personal debt now higher than its ever been in Australia's history, income reductions hit those with home loans hard. Twenty years ago a single income would be enough to service a loan, today its not unusual to need two incomes to service a home loan.

7) Forced home sales begin. Property prices fall. The 'wealth effect' disappears. The engine of australian economic growth - consumption - falters.

8) Recession. The End.