Yesterday’s domestic economic news included a sharp fall in the Melbourne Institute index of consumer confidence. Debate on the causes identified fear of terror attacks in the wake of the London bombing, the high price of oil and the government’s planned industrial relations reform. Only the last factor is unique to Australia. There are two excellent articles from the wider world on the effects on financial markets of oil and terror.

The Economist’s Buttonwood says: ” …while investors may be able to throw off risks that they have no way of quantifying (ie that of terrorist attack), they are, in fact, reasonably clear-eyed about the likely impact of tangible things like sharply dearer oil. Where oil spikes and repeated acts of terrorism coincide, however – other than in the Middle East – is in tending to produce slower economic growth. And that is one thing that even brave London’s spirit of endurance can do nothing to fix.”

The palm for today, however, goes to Kenneth Rogoff, former IMF Chief Economist. Rogoff tackles Alan Greenspan’s conundrum – the conjunction of strong growth and low bond rates. “The global economy seems to be walking on water, shrugging off soaring oil prices, policy paralysis in Europe, unsustainable borrowing by the United States and record housing prices.”

Rogoff’s analysis focuses on investor uncertainty – even “a small chance of catastrophe over the next five to ten years.” As in the immediate post-war years, geopolitical concerns may be keeping the whole show on the road.

See Henry Thornton’s Blog here.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey