Share prices, consumer spending and the GFC

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In this issue we look at share markets in Australia and around the world – how they have fared in the GFC and what may lie ahead as the debt problem is tackled, instead of just being shifted sideways, in the coming year or so.

It all hinges on the outlook for consumer spending, and this is heavily dependent on debt levels. Since the post-Second World War boom in consumer goods and consumer finance, especially in the low interest rate environment since the 1980s, consumers in the developed world went on a debt-fuelled spending binge.

Over the course of the GFC, much of the debt burden was shifted from consumers to banks, as borrowers defaulted in their millions. Then it moved from banks to governments, as governments bailed out banks and went on debt-fuelled government spending sprees to keep the spending machine going and to save jobs. Now the burden is being shifted from governments to tax-payers, pensioners and government employees, present and future – as governments now need to cut spending, cut services and raise taxes to repay the debt.

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