WEBVTT - Is another GFC brewing?

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<v Speaker 1>I'm Ruby Jones, and you're listening to 7am. The numbers

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<v Speaker 1>are almost incomprehensible. Last month, US debt hit $ 40 trillion,

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<v Speaker 1>with an interest bill of more than $ 3 billion a day.

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<v Speaker 1>And that's before Donald Trump's trillion-dollar promise to hand every

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<v Speaker 1>adult in America a cheque for $ 5, 000. Now, as global

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<v Speaker 1>debt levels rise to record highs... and the cost of

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<v Speaker 1>paying that debt rises too, experts are sounding the alarm,

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<v Speaker 1>warning the economic storm that's brewing is starting to look

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<v Speaker 1>an awful lot like the 2007 global financial crisis. Today,

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<v Speaker 1>senior economics correspondent at The Age and Sydney Morning Herald,

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<v Speaker 1>Shane Wright, on the chance of another GFC and what

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<v Speaker 1>it means for Australia. It's Tuesday, September 15th. So, Shane,

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<v Speaker 1>you've been speaking to people in business and in finance

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<v Speaker 1>who are starting to describe the current outlook globally as GFC-like.

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<v Speaker 1>So tell me what they're seeing that has them so worried.

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<v Speaker 2>Well, at the heart of the matter is the cost

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<v Speaker 2>of money. So the cost of debt is just going

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<v Speaker 2>up very, very quickly.

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<v Speaker 3>Mean the federal government is paying more to borrow. And

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<v Speaker 3>the ripple effects through the economy are driving up borrowing

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<v Speaker 3>costs on everything from mortgages to car loans.

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<v Speaker 2>And we have governments all over the world, particularly the

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<v Speaker 2>United States, that have to, they operate on debt. And

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<v Speaker 2>the cost of that debt is just signaling bright red,

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<v Speaker 2>oh my God, we've got problems that need to be addressed.

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<v Speaker 2>So you can think of the debt issue as the

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<v Speaker 2>key one, but it ties into what central banks are doing.

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<v Speaker 2>which they're worried about inflation, that's going up. And part

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<v Speaker 2>of that issue, of course, is what's going on in

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<v Speaker 2>the Middle East. The cost of oil is going up.

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<v Speaker 2>It's climbed again. All of that is coming together. And

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<v Speaker 2>that's why so many people are starting to really, they're

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<v Speaker 2>tightening sphincters around the world at the moment.

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<v Speaker 1>And in the middle of all of this, we've heard

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<v Speaker 1>Donald Trump talking about the possibility of handing Americans $ 5, 000

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<v Speaker 1>each for which would add up to more than $ 1

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<v Speaker 1>trillion in all.

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<v Speaker 4>If the Republicans win the House of Representatives and the

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<v Speaker 4>United States Senate, both of them, because of our economic,

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<v Speaker 4>tremendous economic success, like in history we've never had anything

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<v Speaker 4>like what's happening, but because of our tremendous strength and

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<v Speaker 4>success economically... I will issue a dividend to every adult

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<v Speaker 4>citizen in the United States of America for $ 5, 000.

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<v Speaker 1>What impact would that have on what seems like an.

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<v Speaker 2>Already precarious situation? Well, it's like turning up to a

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<v Speaker 2>house fire and throwing a jerry can of petrol on

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<v Speaker 2>top of it. That's what worries a lot of people. Like,

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<v Speaker 2>there is a discount in that, thinking amongst investors, thinking, oh, well,

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<v Speaker 2>He won't win both the House and the Senate, which

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<v Speaker 2>is one key proviso. And two, he has promised handing

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<v Speaker 2>out checks to people, well, for the last 18 months,

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<v Speaker 2>and none of those checks have arrived. So there is

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<v Speaker 2>a little bit of proviso, but it's the fact that

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<v Speaker 2>he had the gumption to say, I'll hand out what is,

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<v Speaker 2>it works out about 1.3 trillion US or almost 2

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<v Speaker 2>trillion Australian to try and stay in power Again, that

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<v Speaker 2>adds to the worry. Also this week, we've got, say,

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<v Speaker 2>the Federal Reserve. They're likely to increase interest rates. It's

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<v Speaker 2>a real test for the new head of the Federal Reserve,

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<v Speaker 2>who was appointed by Trump, of course. Trump has been

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<v Speaker 2>saying interest rates need to go lower.

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<v Speaker 4>Rates should be lowered. We have other countries that are

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<v Speaker 4>paying less interest rates.

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<v Speaker 2>So many real key economic fundamentals are all just falling

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<v Speaker 2>on the wrong side right at the moment.

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<v Speaker 1>And of course, when we talk about spending, we should

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<v Speaker 1>talk about AI as well, right? Tech companies are looking

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<v Speaker 1>at spending billions of dollars on data centres at the moment.

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<v Speaker 1>What impact is that having?

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<v Speaker 2>Yeah, this is the other thing. Governments, particularly through COVID,

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<v Speaker 2>were able to get away with taking on a lot

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<v Speaker 2>of debt because the private sector just wasn't doing a

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<v Speaker 2>great deal. It's actually been the story since about the

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<v Speaker 2>GFC back in 2008 to 2010, business investment globally had

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<v Speaker 2>really slowed. There's a handful of tech companies who are

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<v Speaker 2>going through what is the biggest expanse of spending on infrastructure,

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<v Speaker 2>let's say, since the dot-com boom of the late 1990s,

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<v Speaker 2>which turned into a bust. And the amount of money

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<v Speaker 2>that the AI companies is spending means, if I'm an investor,

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<v Speaker 2>I'm thinking, who am I going to send my money to?

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<v Speaker 2>You normally would have gone to, say, bought bonds in

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<v Speaker 2>the United States government. They don't look as attractive compared

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<v Speaker 2>to what, say, an IAI company is offering right now.

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<v Speaker 2>So you actually have that squeeze between private and public

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<v Speaker 2>on a limited amount of cash. And that's why ultimately

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<v Speaker 2>interest rates go up on all of those, both the

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<v Speaker 2>private and the public debt.

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<v Speaker 1>Mm-hmm. Okay, well, let's go back to the driving issue,

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<v Speaker 1>the cost of debt here. Tell me a bit about

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<v Speaker 1>why it is that investors and governments and institutions around

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<v Speaker 1>the world have traditionally been so willing to lend the

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<v Speaker 1>US money and why that's now changing.

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<v Speaker 2>Well, the United States has always been considered the safest

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<v Speaker 2>bet in the world. There's about three countries, four countries

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<v Speaker 2>in the world that have never defaulted on their debt.

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<v Speaker 2>Australia is one, New Zealand is another. And Washington is

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<v Speaker 2>the third. The Confederacy during the Civil War did default,

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<v Speaker 2>but look, we push that to one side. But that's

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<v Speaker 2>how safe an investment the United States has always been considered,

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<v Speaker 2>that they will always honour their debts. The issue partly

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<v Speaker 2>is the fact that there is so much debt being

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<v Speaker 2>created by the United States. The budget deficit this year

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<v Speaker 2>will be about US $ 2 trillion or about $ 3 trillion Australian.

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<v Speaker 2>On top of that is the fact that their total

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<v Speaker 2>debt went through 40 trillion US about six weeks ago.

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<v Speaker 2>By the end of the year, it'll go through US

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<v Speaker 2>$ 41 trillion because they're just running such a big deficit.

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<v Speaker 2>All that means, okay, if you're an investor saying, right,

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<v Speaker 2>do I trust Donald Trump's United States to honor its debts?

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<v Speaker 2>You go, well, maybe, maybe not. And again, you end up,

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<v Speaker 2>do I put my money somewhere else? We're actually seeing

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<v Speaker 2>other central banks going, hold on, I'm not so convinced

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<v Speaker 2>about where the United States is headed. That's the sign that, yep,

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<v Speaker 2>we still think the US is pretty good investment, just

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<v Speaker 2>not as good an investment as it was like a

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<v Speaker 2>year ago, five years ago, 10, 20, 30 years ago. Okay.

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<v Speaker 1>So if the US isn't able to borrow as cheaply

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<v Speaker 1>as it used to be, if people aren't seeing it

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<v Speaker 1>as as safe an investment under Trump as they did previously,

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<v Speaker 1>what are the impacts of that?

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<v Speaker 2>Well, the interest bill that the United States is paying

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<v Speaker 2>now every year is more than they spend on defence.

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<v Speaker 2>It's about 15% of the entire budget is now on interest.

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<v Speaker 2>And this is the flow and effect of what the

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<v Speaker 2>US is doing. If everybody else's debt is effectively priced

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<v Speaker 2>relative to what US debt costs, then everybody else's debt

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<v Speaker 2>costs go up as well. So we've seen it on

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<v Speaker 2>Australian government debt. The interest rates on that are going up.

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<v Speaker 2>the interest rates on every European nation are going up.

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<v Speaker 2>They're going up on Japanese debt. When you've got so

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<v Speaker 2>much debt in the world and the price of that

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<v Speaker 2>debt is going up, then you end up in that

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<v Speaker 2>situation where the entire global economy gets squeezed because so

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<v Speaker 2>much money is just being paid back on interest rather

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<v Speaker 2>than on goods and services for people or private sector.

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<v Speaker 1>So is there a risk then that the US might

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<v Speaker 1>default on that debt?

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<v Speaker 2>At the end of the day, the Federal Reserve of

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<v Speaker 2>the United States could actually just start printing cash, which

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<v Speaker 2>has got a whole 1920s Germany, Weimar Republic sort of

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<v Speaker 2>vibe to it. I think if we got to that point, well,

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<v Speaker 2>the cats and dogs would be living together. We'd be

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<v Speaker 2>in caves eating tin food. I don't think we're quite

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<v Speaker 2>into that spot where the United States defaults. But if

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<v Speaker 2>you start not forcing US consumers either to go without

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<v Speaker 2>or actually to pay more tax in a large amount

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<v Speaker 2>just to stabilise the US budget, then you have a

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<v Speaker 2>broader economic flow on effect, which no AI tech giant

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<v Speaker 2>would be able to overcome.

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<v Speaker 1>Still to come, what does this economic storm mean for Australia?

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<v Speaker 1>Can we talk a bit more about the potential comparison

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<v Speaker 1>with the global financial crisis, the conditions that led up

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<v Speaker 1>to that in 2007, 2008? Tell me about what happened

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<v Speaker 1>then and any kind of comparisons to the situation now.

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<v Speaker 2>You're going to give me the chills there, because I

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<v Speaker 2>lived through that period.

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<v Speaker 5>The stock market suffered one of its worst days in

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<v Speaker 5>years Monday. Investors reacted to a stunning reshaping of the

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<v Speaker 5>landscape of Wall Street that took out two storied names.

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<v Speaker 5>Lehman Brothers and Merrill Lynch.

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<v Speaker 6>As a result, our entire economy is endangered. So I

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<v Speaker 6>propose that the federal government reduce the risk posed by

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<v Speaker 6>these troubled assets and supply urgently needed money.

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<v Speaker 5>Governments have injected trillions of dollars.

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<v Speaker 1>The world's central banks have made unprecedented coordinated interest rate cuts.

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<v Speaker 1>And still, the global economy is plunging further into crisis.

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<v Speaker 2>Think of the financial system being the oil that greases

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<v Speaker 2>the entire world economy. And that effectively came to a halt.

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<v Speaker 2>Businesses and governments stopped trusting each other because no one

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<v Speaker 2>actually knew where all this debt, which had come out

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<v Speaker 2>of the US property market, who was owed what. So

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<v Speaker 2>when we come to this point, it's, right, we know

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<v Speaker 2>who has the debt. The problem is knowing, one, who's

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<v Speaker 2>going to pay that debt and whether they can continue

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<v Speaker 2>to pay as much debt and the interest on that debt.

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<v Speaker 2>I don't want to get too technical, but there's really

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<v Speaker 2>two types of recessions. There's a business cycle one where

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<v Speaker 2>supply and demand get out of whack and there's pain,

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<v Speaker 2>but they come and go relatively easily. Financial crises-induced recessions

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<v Speaker 2>like the GFC are very different because they take so

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<v Speaker 2>long for an economy or economies to get out of.

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<v Speaker 2>There is a reason that global interest rates fell post-GFC.

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<v Speaker 2>It was the GFC just had this long, long impact

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<v Speaker 2>all the way effectively up until the COVID pandemic. And

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<v Speaker 2>then we ran into a pandemic. Everyone's creating money. Everyone's

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<v Speaker 2>creating huge debts. And so the reckoning has now come along.

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<v Speaker 2>So that's how you end up in a GFC type situation.

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<v Speaker 1>So what are the risks then of a shock like

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<v Speaker 1>that now?

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<v Speaker 2>They are higher than they were even five or six

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<v Speaker 2>weeks ago. They are just continuing to mount because, one,

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<v Speaker 2>we can hear Donald Trump say, I'll give everybody $ 5, 000.

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<v Speaker 2>His Treasury Secretary, who has come up with a plan of,

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<v Speaker 2>I will create money to buy back some American government bonds,

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<v Speaker 2>which will require the creation of more government debt, but

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<v Speaker 2>I'm trying to bring down interest rates because most of

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<v Speaker 2>their American mortgages are priced off a 30-year American debt.

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<v Speaker 3>We routinely do buybacks and we're going to increase the

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<v Speaker 3>size of the buyback. And Sarah, I would note that

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<v Speaker 3>it could be more than the $ 4 billion per issue.

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<v Speaker 2>Yeah, I was going to ask how big this... That

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<v Speaker 2>failed completely just last week. Just think of it. He

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<v Speaker 2>tried to spend $ 6 billion to achieve something and came

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<v Speaker 2>up with nothing. So the risks of a reckoning in

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<v Speaker 2>terms of a real big spike in interest on government,

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<v Speaker 2>like an even larger one, which would force investors to go,

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<v Speaker 2>that's it, we're out of the market. They're just continuing

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<v Speaker 2>to grow and grow and grow. Factor in AI continuing

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<v Speaker 2>to hoover up as much money as possible, and then

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<v Speaker 2>factor in what the hell's going on in the Middle East,

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<v Speaker 2>then that's where you get into a confluence of business-type

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<v Speaker 2>recession and plus a financial crisis-induced recession all at once.

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<v Speaker 1>And you mentioned that Australia is already feeling the effects

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<v Speaker 1>of some of this. Can you talk a bit more

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<v Speaker 1>about the risks here for us?

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<v Speaker 2>Yeah, so if I'm Jim Chalmers, I'm worried because the

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<v Speaker 2>government in the last 10 days has sold $ 2. 4 billion

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<v Speaker 2>in debt. The interest rate on that debt was all

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<v Speaker 2>over 5%. That's the first time that had occurred since 2011.

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<v Speaker 2>So he's looking at his budget and he's going, oh,

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<v Speaker 2>hold on. the cost of interest is going up. If I'm, say,

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<v Speaker 2>the Treasurer of New South Wales, the Treasurer of Victoria,

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<v Speaker 2>the Treasurer of Queensland, where Queensland's credit rating was downgraded

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<v Speaker 2>last week, the interest cost is now going to hit

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<v Speaker 2>the taxpayers of Queensland, it's going to hit the taxpayers

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<v Speaker 2>of New South Wales, it's going to hit the taxpayers

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<v Speaker 2>of Victoria. So that means if you're a Treasurer or

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<v Speaker 2>a Premier, you're going to have to make choices about

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<v Speaker 2>whether we keep spending or whether we're going to have

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<v Speaker 2>to wind back entitlements or spending on a new piece

0:14:02.300 --> 0:14:06.290
<v Speaker 2>of infrastructure. And if I'm a business operator, if I

0:14:06.330 --> 0:14:09.340
<v Speaker 2>need to borrow money, the cost of that money goes up.

0:14:09.830 --> 0:14:13.350
<v Speaker 2>So you can see that all bubbling away. It's not

0:14:13.390 --> 0:14:14.870
<v Speaker 2>a very tasty brew for anybody.

0:14:16.330 --> 0:14:18.620
<v Speaker 1>So, I mean, let's talk about what a prime minister

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<v Speaker 1>or a treasurer should or could be doing right now.

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<v Speaker 2>Look, trying to reduce spending, so you're not actually having

0:14:26.080 --> 0:14:28.940
<v Speaker 2>to go into the debt market as much is something,

0:14:28.980 --> 0:14:31.620
<v Speaker 2>but there's a There is always a trade-off if you

0:14:31.650 --> 0:14:35.520
<v Speaker 2>start cutting expenditure, depending on who you cut from, like

0:14:35.540 --> 0:14:38.520
<v Speaker 2>the debate that's going on at the moment over health

0:14:38.560 --> 0:14:43.220
<v Speaker 2>entitlements for veterans. The NDIS, the huge cut that's taking

0:14:43.260 --> 0:14:46.740
<v Speaker 2>place in the NDIS is another where, yep, both sides

0:14:46.760 --> 0:14:48.960
<v Speaker 2>of politics realise they just can't keep spending on that.

0:14:49.480 --> 0:14:53.120
<v Speaker 2>So you can make those sorts of decisions, but they

0:14:53.160 --> 0:14:55.750
<v Speaker 2>take a long time. And at the moment, we're in

0:14:55.780 --> 0:14:59.150
<v Speaker 2>a short-term problem. So trying to, say, reduce the amount

0:14:59.170 --> 0:15:02.610
<v Speaker 2>of spending you do in five or six months is

0:15:02.810 --> 0:15:08.290
<v Speaker 2>really painful and also possibly recession-inducing. No one's happy. They

0:15:08.330 --> 0:15:10.750
<v Speaker 2>are terrible decisions, whichever way you look.

0:15:12.790 --> 0:15:15.110
<v Speaker 1>And it also sounds like so much of what happens

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<v Speaker 1>next really hinges on the US, not on us.

0:15:18.110 --> 0:15:20.670
<v Speaker 2>On the Middle East and on the US, it really does.

0:15:20.740 --> 0:15:24.080
<v Speaker 2>And this is it. Donald Trump, he's got the midterm

0:15:24.120 --> 0:15:26.600
<v Speaker 2>elections in November. It's not as if he's going to

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<v Speaker 2>go on the fiscal rampage and start slashing expenditure as

0:15:29.900 --> 0:15:32.260
<v Speaker 2>voters are getting ready to go out and vote on

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<v Speaker 2>his own party. That's unlikely. The Iranian regime and its

0:15:37.250 --> 0:15:41.470
<v Speaker 2>allies throughout the Middle East have got November 3, the midterms.

0:15:41.750 --> 0:15:44.130
<v Speaker 2>They've got that pencilled into the calendar. And no, we

0:15:44.170 --> 0:15:47.590
<v Speaker 2>can really exert a lot of pressure and a lot

0:15:47.630 --> 0:15:50.930
<v Speaker 2>of fiscal and economic pain on the United States, almost

0:15:50.990 --> 0:15:54.080
<v Speaker 2>unimpeded for the next six to eight weeks. So yeah,

0:15:54.140 --> 0:15:55.880
<v Speaker 2>it's not going to be pleasant for anyone on the

0:15:55.920 --> 0:15:57.160
<v Speaker 2>way into November at least.

0:15:59.110 --> 0:16:00.790
<v Speaker 1>Wotain, thank you so much for speaking with me.

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<v Speaker 2>Remy, what a pleasure it's been. Have a good one.

0:16:18.690 --> 0:16:21.700
<v Speaker 1>Also in the news... One Nation has unveiled its plan

0:16:21.740 --> 0:16:26.320
<v Speaker 1>to cut immigration by 750,000 places over three years in

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<v Speaker 1>what would equate to net negative migration. Student visas would

0:16:29.900 --> 0:16:32.060
<v Speaker 1>be capped at around a third of the current intake

0:16:32.480 --> 0:16:35.020
<v Speaker 1>and visas for the families of skilled migrants would be

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<v Speaker 1>scrapped altogether. Labor and the Coalition are sounding the alarm

0:16:39.080 --> 0:16:41.860
<v Speaker 1>over the proposal, which they say would push the country

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<v Speaker 1>into recession. And Australian Olympians are among a huge group

0:16:46.500 --> 0:16:49.090
<v Speaker 1>of female athletes calling out a new betting company ad

0:16:49.600 --> 0:16:52.780
<v Speaker 1>featuring Sydney Sweeney playing sports in little to no clothing.

0:16:53.520 --> 0:16:56.119
<v Speaker 1>Gold medal swimmer Arianne Titmuss says it's a kick in

0:16:56.140 --> 0:16:58.720
<v Speaker 1>the teeth for women who've dedicated their life to sports

0:16:59.230 --> 0:17:02.830
<v Speaker 1>and for female fans, questioning how sexualising women's sport is

0:17:02.930 --> 0:17:06.429
<v Speaker 1>still a thing. Sweeney has responded to the criticism by

0:17:06.530 --> 0:17:10.830
<v Speaker 1>posting magazine covers of semi-nude athletes, including Serena Williams.

0:17:10.510 --> 0:17:11.230
<v Speaker 2>And Ronda Rousey.

0:17:11.250 --> 0:17:13.060
<v Speaker 1>I'm Ruby Jones.

0:17:13.300 --> 0:17:14.000
<v Speaker 3>This is 7am.

0:17:14.300 --> 0:17:14.899
<v Speaker 1>Thanks for listening.

0:17:20.750 --> 0:17:21.050
<v Speaker 2>Thank you.