ARTICLE · 09 JULY 2014

International economy - a reality check

Moore Australia

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Future economic growth in Europe remains tenuous at best and the risk of another recession cannot be discounted.

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Haris Argeetes

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Overview

Nothing sharpens the mind more than a reality check. The extraordinary period of low volatility on investment markets since July 2012 has created a false dawn. Very low interest rates and unconventional monetary policies such as quantitative easing have created liquidity that has seen asset prices rise. House prices that plummeted in a number of developed countries in the aftermath of the GFC have either largely recovered or are at new highs. Sharemarkets too have enjoyed an inexorable rise as investors seek riskier assets in an attempt to generate a higher return than the pittance offered for cash. Little wonder that investor confidence has returned.

Yet it is not a time to be complacent. Despite what many people think, the GFC was not caused by defaults on subprime loans and associated derivatives. This was merely a symptom of the underlying problem. The root cause of the GFC was an excess accumulation of debt by households and businesses alike. Debt

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