Last week, Reserve Bank governor Michele Bullock batted away the idea that a recession was inevitable but finally conceded that unless inflation was brought to heel in a timely manner, it was a possibility.
"If we don't address this, inflation will get worse, and interest rates will have to be higher, and the economy in a worse position in order to address that,"she said.
asserted
economy → bat → position
"So, it's not our base case, I don't want it, but if inflation expectations get away, that's the sort of scenario you might be looking at."
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you → want → scenario
Defining a 'recession'
Pandemic aside, we haven't experienced a recession — one where the catalyst was rising interest rates — since the early 1990s.
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catalyst → define → 1990s
It's a word that strikes fear into many in the community and for good reason.
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that → strike → reason
For those who've lived through one, including economists and policymakers, it can be a life-altering experience, one permanently seared into the memory.
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it → live → memory
Like most economic phenomena, the pain is not evenly shared across the community.
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pain → share → community
It might be an obvious observation but it's worth noting that those most acutely impacted are those who lose their jobs.
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who → note → jobs
Officially, a recession occurs when the economy contracts for two or more consecutive quarters.
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economy → occur → quarters
But that is a deeply flawed construct.
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that → flaw → ?
Rather than economic growth, recessions are best measured through unemployment statistics, and the uneven burden of a downturn inflicts upon society.
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burden → measure → society
If you don't have a job, you'll struggle to put a roof over your head and, if you have dependents, you'll face a series of heartbreaking decisions that will permanently alter their lives.
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that → have → lives
If past experience is any guide, serious economic downturns usually result in mass job lay-offs.
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downturns → result → offs
We've been here before
The 1980s was a fascinating time to be covering business and finance.
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1980s → cover → business
Paul Keating floated the currency in 1983 and deregulated the banking system, paving the way for a wave of brash and aggressive entrepreneurs to take on the business establishment.
But as the 1980s drew to a close, the writing was on the wall.
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writing → float → wall
A massive build-up of debt and a corporate sector unrestrained by any sense of propriety culminated in what became known as the Decade of Greed.
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what → culminate → Greed
It all came to a shuddering halt on October 19, 1987, otherwise known as Black Monday, when Wall Street was shaken to the core.
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Street → come → core
The market shed almost a quarter of its value in a single session, 22.6 per cent, taking markets with it and cratering confidence amongst investors and consumers.
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market → shed → investors
Central banks and governments initially flooded the system with money to ease the pain.
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banks → flood → pain
But that only served to exacerbate an inflation problem that had been raging throughout 1987 with Australian inflation stubbornly sitting above 9 per cent.
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inflation → serve → cent
Then they switched course.
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they → switch → course
Like central banks everywhere, the Reserve Bank of Australia sent official cash rates into the stratosphere.
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Bank → send → stratosphere
The official cash rate was jacked up to a punishing 17.5 per cent, sending the economy into a spiral.
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rate → jack → spiral
Jobs the biggest casualty
Economic growth collapsed.
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growth → collapse → Jobs
According to then prime minister, it was "the recession we had to have".
uncertain
we → accord → minister
But it was the jobs market that reacted first, long before any official declaration of a recession.
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that → react → recession
And it was the jobs market that took the longest to recover.
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that → take → longest
Almost every day, as conditions tightened, major corporations announced staff lay-offs by the thousands as they desperately tried to slash costs in a bid to stave off the impact of reduced consumer spending.
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they → tighten → spending
As unemployment soared, economists wedded to economic theory and definitions, many of whom had been briefed by Treasury, vehemently argued with media commentators and anyone else raising the alarm about the state of the economy.
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many → soar → economy
It wasn't a recession, they smugly argued, because we hadn't yet had two consecutive quarters of a contracting economy.
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we → argue → economy
By the time the GDP figures officially registered the obvious, it was too late.
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it → register → obvious
The RBA spent much of 1990 dialling back on interest rates which helped pull the economy out of its nosedive.
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which → spend → nosedive
Rather than "sticky inflation", we were stuck with a much bigger social problem.
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we → stick → problem
Unemployment soared to more than 11 per cent.
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Unemployment → soar → cent
But the 1990 recession was a catalyst to change much of that.
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recession → change → that
Have we learnt anything?
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we → learn → anything
According to the official growth figures, measured by Gross Domestic Product, Australia's recession lasted one full year, from the September quarter of 1990 through to the corresponding quarter in 1991.
uncertain
recession → accord → 1991
By mid-1991, the inflation genie had been firmly put back in the bottle, dropping from almost 9 per cent to just above 3 per cent.
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genie → put → cent
But that doesn't tell the full story.
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that → tell → story
As the graph above illustrates, it took a full decade, until almost the turn of the century, for the unemployment rate to drop back to pre-recession levels.
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rate → illustrate → levels
For anyone who left school or university, it was a lost decade.
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it → leave → school
…and 14 more, not listed.
The Aporia