In this interview, Keating gave a periodisation of economic history that shares something of the durations that Russian economic historian Nikolai Kondratiev's long waves of boom-depression have. Clearly we are in a conjuncture where the credit-fuelled boom in assett prices, which has been driving high consumption, is being deflated: a long inbreath which has to be exhaled in order for new air to enter. Keating situates this outbreath alongside the geoeconomic, and geopolitical, shift of power to China.
I want to do a rhythmanalysis of these conjunctural conditions soon when I have more time. I'd like to extend these previous reflections on political-economic rhythms, based on Henri Lefebrve's practices, into ecological temporalities. Maybe such analysis is only able to be produced musically? Brian Holmes has other ideas, as does Ross Gibson. But in the meantime, here's Keating:
LEIGH SALES: Alright, let's look a bit more broadly. In July 2003 you delivered a speech in New Zealand and you spoke there about there being three economic long waves over the last century, one from 1904 to 1929, a second from 1947 to 1974 and a third which began in 1982 and you predicted in that speech that this wave should run until about 2007, 2008, which is now being born out. But how does this wave end for Australia? Well or poorly?
PAUL KEATING: Well, there's a new wave beginning. You see, in the 20th century, the first half dominated by the United States, the second half was dominated by Japan. And the first half of the 21st century will be dominated by China. The new long wave has already begun, it begun about 2000, in my opinion. Now, but what we have, we've got transitions, and in the last long wave which went for 25 years, 1982 to 2007, what happens is that in a period of long growth two relatively modest business cycle recessions, but a period of long growth, low inflation and low interest rates, you end up with complacency and coupled with financial innovation, money gets put to points in the economy, every crack and crevice in the economy gets pasted with some money.
And we saw the risk premium come right down. So what we used to call junk bonds, used to have an enormous premium over gilt treasury bonds. We saw that premium come down. When you see that risk premium come down to virtually nothing, you know we're in trouble, you know. And this is what happened in the United States. You know, Greenspan had rates at 1 and 2 per cent, less than the inflation rate. So the big investment banks geared themselves up and all the housing lenders went out and lent this money. People then got out of their fixed-rate mortgages and refinanced at much lower rates and spent the money.
The biggest problem we're facing the world today is that in the United States asset values are way too high and leverage debt is way too high. And as people are walking away from the assets, the losses are impacting on the balance sheets of Banks and the banks have to be recapitalised. So what we're facing in the world is not a liquidity crisis, it's a solvency crisis. That's why the interbank rate is 2.5 per cent. Do you understand the point? A bank won't lend to another bank because they're not sure the other bank is solvent. It's not a matter of money in the system that week. It's not liquidity, it's solvency.
And here's a slice of Keating's 2003 prophetic analysis:
The world is about to enter the final phase of the third long economic wave of the 20th century.
The first wave began in 1904 and lasted until 1929, ending with the Depression; the second ran from 1947 to 1974 ending with the OPEC oil shocks of that year. The wave we are now in, the one that began in 1982 has been overlayed by two business cycles, one from 1982 to 1990 the other from 1992 to 2000. We are about to go into the third leg which should last until around 2007 or with some luck, a bit later.
The good news is that this cycle should see synchronised global growth in 2004 with the United States, Europe and Asia all growing together for first time since 1999.
The not so good news is that this third cycle will be less wealthy than the second one, the one which lasted from 1992 until 2000 and which brought with it huge lifts in stock market value.
Over the next half a dozen years, we are going to see people of my age fall out of the labour market in their droves. This will produce a profound tightening in the labour market. And will probably lead to strong increases in real wages. Unless productivity is there to pay for those increases, it will otherwise be paid for from profits. And if it is paid from profits, profits will be smashed, investment will fall. And a recession will ensue.
The moment central banks around the world get a whiff of wage inflation, they will lift interest rates and the party will end as wage inflation bites into economic activity.
The only caveat I can see to this analysis is China.
Before the rise of China, what happened in the industrial world was fundamentally the result of what happened in North America and Western Europe.
What is happening in China today is without precedence in world history. Never before have we seen a billion-and-a-quarter people lifting themselves from poverty at such a pace.
The US will continue to be the world economic driver, but China will be a completely new factor -- and there is just a chance that China will actually be a big enough influence to extend this third long economic wave.
The more likely outcome, however, is that China will be the epicentre of the fourth long wave, the one after this.
While the 20th century was the century of the Americas, the chances are the 21st century will be the century of Asia and we may see, for the first time, a real eclipse of American economic power.
China's economy will have eclipsed Japan's in the next half-dozen years and it is going to demand a huge volume of resources -- our Australian resource industries will be a clear beneficiary.
[Link here - from 'Australia's Geopolitical and Economic Positioning (extract) - 15 October 2003' in the category "Australian Society and Economy" NB: Sales referred to another speech given in New Zealand: "The New Global Mosaic" - go to same Keating website and scroll down 'World Outlook' category. Both speeches, however, are repetitions on the same themes]