Think depression not recession

Governments and the financial services industry need to look beyond conventional remedies when addressing the global financial crisis because it represents a global depression rather than just a recession, according to Bridgewater Associates director and portfolio strategist Rob Zink.

Zink told the Conference of Major Superannuation Funds on the Gold Coast that the global financial crisis was a reflection of a 30-year accumulation of debt and that, being a depression, people needed to think about strategies to address the problem.

He said while people were talking in terms of a recession, a recession represented a managed contraction of the economy while a depression represented an unmanaged contraction within which the debt load could no longer be adequately serviced.

Zink, whose company was foremost amongst those forecasting the current global economic crisis, said the problem for those believing that the worst of the situation was behind them was that the circumstances today were arguably worse than at the beginning of the crisis.

As well, he said in normal circumstances markets would have begun to exhibit signs of recovery by now.

“But not this time,” he said.

Zink said with a depressionary environment and with interest rates around the world approaching zero, newer policy approaches would be required.

Asked by CMSF delegates whether Australia was better placed than other countries to weather the global financial crisis, Zink said Australia had some advantages, including access to Asian markets, but at the same time had foreign debt exposure.