The view looking forward LEVEL 7 Volume 2, Issue 3 December 2008 320 ADELAIDE STREET have continued our theme of BRISBANE 4000 Welcome looking back at the Great Depression and the lessons Phone: 07 3229 7005 Welcome to the summer 2008 that were learned from that Fax: 07 3229 1996 edition of our client newsletter. period. We hope that this information and our update Since our last newsletter invest- on the progress of economic E-mail: ment markets have continued recovery will provide some email@example.com their volatile path as corporate reassurance that economies Web: www.dfm.com.au failures and tight credit markets and governments are working have continued to spook inves- their way through this eco- tors with an increasing number nomic cycle. of investors moving their assets to cash. In recent months I have had the opportunity to speak with Governments and regulators a number of groups on the Our office will be closed for around the world have contin- current state of our invest- Christmas from 17th Decem- ued to act in an attempt to re- ment markets and have found ber 2008 and will re-open 5th store investor confidence by that there is a good deal of January 2009. guaranteeing the deposits of interest in the mechanics of investors, decreasing the cost economic policy. In the inter- I would like to take this op- of borrowing by lowering inter- ests of keeping this newslet- portunity to wish all of our est rates and by providing finan- ter brief I have posted a pa- clients a Merry Christmas, a cial assistance to households. per on our website written safe holiday and a more by Saul Eastlake – Chief prosperous 2009. These actions by governments Economist for ANZ which are designed to keep the eco- looks at the differences be- Kind regards nomic wheels turning and avoid tween a recession and de- the serious consequences of Andrew pression. stalling the economy. http://ww w1.dfm.com.au/ Special Points of In this last edition for 2008, we pages/library/newsletters Interest: Dealing with an Economic Slowdown — Lessons from History Dealing with an Economic 1 Slowdown — “Nothing in life is to be feared, For a time we can cope with USA, who adopted a market Lessons from History it is only to be understood. volatility, but when it contin- approach to managing the Now is the time to understand ues for an extended period of economy otherwise known Looking Forward 2 more so that we can fear less” – time, we start to get doubts. as a Laissez Faire approach. Marie Curie The market was considered In this article as with our an efficient vehicle to deal As human beings we are spring newsletter, we will look with inefficiencies that may “programmed” for survival, at the lessons of the past and appear in the market from which at times is at odds with gain some understanding of time to time. During this investing in shares. Our intellect what is going on around us. time personal tax rates tells us we should invest and we dropped and the gap wid- should remain invested over the The 1920s was a period of ened between the rich and long term. Republican Presidents in the poor. Volume 2, Issue 3 Page 2 called the New Deal. The government is hoping that The period was dominated by The approach being applied in this money will inspire people a stock market boom, which the current crisis was proposed to spend and keep the econ- ultimately ended with a spec- by economist John Maynard omy going. tacular crash and the failure Keynes, who is considered to of many banks. be the “father of modern eco- Where an economy slows or nomics” in his book The Gen- enters recession, Keynesian This is where the similarities eral Theory of Employ- theory would suggest an ex- end between the Great De- ment, Interest and Money pansion of the money supply pression and the current (1936). or relief payments as we are Global Financial Crisis. seeing today in Australia. Keynesian theory provided that In more serious circum- To put into perspective the in response to recessions and stances, such as a depression magnitude of the decline depressions, governments have getting people to spend “Nothing in during the Great Depres- a responsibility to provide eco- money is more difficult so life is sion, between 1930 and nomic stimulus to the economy greater measures are re- 1933 the US economy con- to get things moving once quired. to be tracted by a staggering more. feared, 33.4%. In the current eco- Interestingly Keynesian eco- nomic climate, the Interna- The rationale for this approach nomics supports government it is tional Monetary Fund esti- is that one person’s spending is budgets going into deficit to only mates that the US econ- another person’s income. stimulate economic activity in to be omy will contract by 0.3% Should one person decide not these circumstances. This in 2009 to spend, this would have a point is also relevant in light of understood. detrimental affect on the sec- the current economic debate Now is The President of the day ond person’s income. Or put between the government and Herbert Hoover took three another way when people or the time the opposition. years to put in place any ma- organizations stop spending and to jor economic stimulus, which hoard money, the economy A Depression requires “pump understand allowed fear to reach epi- slows, businesses decline and priming” of the economy demic proportions. Herbert unemployment rises. where the government will more so Hoover was succeeded by look at major public works to that we Democratic President Frank- This approach is relevant in our stimulate economic activity, can fear lin Roosevelt who set about current situation with the gov- that is the government will stimulating activity in the ernment making cash payments spend the money when the less” economy implementing a to parents with young children, consumer will not. series of economic programs carers and pensioners. – Marie Curie guaranteeing the operation of banking Looking Forward institutions has resulted in banks again lend- ing to each other and a reduction in the Here in Australia the current projection for our economy is that it will remain positive through interbank lending rates (LIBOR). this volatile period although growth will be Whilst we still have a way to go things are greatly reduced. The government is providing stimulus to the economy via relief payments starting to head in the right direction as governments follow a program of economic and the reserve bank is lowering interest rates to take pressure off mortgage holders and free stimulation that has smoothed out the up cashflow in Australian households. boom and bust cycles of the past 60 years. Actions by governments around the world in Here’s to a more prosperous 2009. General advice Warning This advice may not be suitable to you because it contains general advice that has not been tai- lored to your personal circumstances. Please seek personal financial advice prior to acting on this We’re on the web information. dfm.com.au Andrew Lyon and Dialogue Financial Management Pty. Ltd. ABN 21 091 114 260 are Authorised Representatives of Godfrey Pembroke Limited ABN 23 002 336 254 Level 1 105-153 Miller Street North Sydney, an Australian Financial Services licensee.
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