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‘Are we really prepared for the next big financial whack?’ Marking ten years since the GFC

It has been a decade since the Global Financial Crisis hit.

Ten years have come and gone since the day Lehman Brothers were forced to file for bankruptcy, catalysing a month of collapses, bankruptcies and insolvencies right around the world. But the advent of this anniversary has many asking whether we’ve really learnt enough from the GFC to be prepared for another potential downturn, should it materialise soon.

“If it happens again, then we simply don’t have the same ammunition to bring to bear on it as before,” says Chris Richardson from Deloitte Access Economics.

“We’d be hamstrung compared to what happened last time.”

The reason for our inferior position when up against another potential downturn comes courtesy of our inferior financial situation. Australia’s current household debt to GDP ratio sits at 123%, the second highest in the world. Meanwhile government debt has surged from 16.7% at the start of the GFC to over 41% today.

“Interest rates were also riding high back then. The Reserve Bank had them at 7.5% when the crisis hit. Currently, they’re just 1.5%.”

Chris Richardson says this harps back to the government’s continued reluctance to engage in genuine budget repair.

“It’d mean cutting spending and raising taxes and people don’t like it. But one of the hidden advantages of budget repair means that if trouble does hit, then the budget is better placed to rescue the economy.”

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