Yabby,an inflation rate of 3.5% is nothing compared to the Hawke/Keating era of almost 10%.The share market went up today but if you study the past declines,it goes down in the shape of a sine curve.It declnes but never fully regains the losses.In 1988 after that collapse,money went into property and after that boom we went into recession.It may take 12 mnths or two yrs before a recession bites,but all the signs are there to correct the deviant behaviour of the money markets.

The domestic housing market is over valued,so money may now go into the commercial market which gives better rental returns than housing.We are in a bit of a bind here.We don't need more shops to encourage more spending,and it is pointless building more factories since we have decided others will make our consumerables.What do Australians actually do?

Arjay, the price of shares in the end has to be related to the
profitability of companies. In the end those values are always
restored over time. Those people who have bought after previous
crashes have done pretty well over time.

The present problem simply relates back to the cowboy US financial
markets. People who lend on the basis of AAA rating in good faith,
won't do it again when they lose bigtime and thats what is happening
in both the subprime and bond markets. The US borrows heavily from
Arabs and Asians, its not their money that they lend to countries
like Australia. So NY as a trustworthy financial centre is now
in question, thus the turmoil.

If we have a recession, it will be in relation to what happens
in China and other parts of Asia. Personally I don't think that
will be such a bad thing, as money has lost its value here, with
so much too easy credit around for too long.

Australia still manufactures, just not cheap consumer goods. There
is no point making say leather shoes, when they can be imported for
5$. Best to do what smart economies do, manufacture specialised
equipment, niche products, brand products etc. We already do
a bit of that and could do alot more. Mining equipment, farming
equipment etc. I bought a mig welder the other day and I wanted
quality. So I bought WIA, locally made, rather then chance a cheap
import.

Remember that manufacture is only a small part of the consumer chain.
That 5$ pair of shoes might cost the consumer 40$, by the time its
gone through the marketing and distribution chain. So most employment
and money is generated after manufacture.

Actually, I'm rather curious as to the effects that increased oil costs will have on globalised trade.

Presumably, the cost savings obtained via cheap imports will have to be weighed up against the vastly inflated transport costs.

I think Yabby's point about quality, local made niche products needs to be evaluated in this context - sourcing product locally is going to look more and more attractive.
Already, I suspect supermarkets are reconsidering the benefits not only to their profit margins, but their image as well, in using local produce.
At present, that issue is largely related to consumables with a short shelf life, which already have a limited import potential - though I can see that changing as the oil prices bite.

So for all the problems that peak oil will bring about, I can see it providing at least one boon to smaller producers.
Of course, this will hit exporters hard as the transport companies seek to reduce costs by passing them on.

It will be interesting to see how these costs are spread and how they're balanced.

It will inevitably mean the larger producers will suffer.

Ultimately, I can see this leading to a reversal of the large scale production models - instead of large exporters, we may be seeing better quality from boutique producers, as the more efficient nearby outlets will seek their product.

As the share market starts a recovery, as heat goes out of the fear of the last few days the wise among us will know it is not yet over.
Housing is over priced and far too many are over committed, the money still to be made in housing may be made by others after some default here in Australia.
Our personal debt will not go away, our country's foreign debt must be paid.
Outside the Sydney stock exchange on the worse day of this week mum and dad investors spoke on TV we never thought this would happen they said, we thought it would grow forever.
It will not only the time of a true crash is unsure.

12 months ago we did not know about the sub prime issue, the thought that Labor would win the election so convincingly would have seen your sanity questioned.
Yet share prices do not rise forever, yes they will return to the heights but how many will be cast aside on the way?
Personal debt will be repaid ,must be repaid or true trouble awaits.
Our country's debt still exists and just maybe in 12 months we will return to threads like this and ask why did we ever think prosperity is forever?