First anniversary of the financial bail-out

On the weekend just gone, one year ago, the Australian government announced that it would guarantee most bank deposits, and also provide guarantees to support the wholesale funding requirements of banks.

Two days later, the government announced its first $10.4 billion fiscal stimulus package. At the time the economic commentators at Goldman Sachs JBWere said this package was too late and predicted Australia was headed for two quarters of negative growth.

Also during that hectic week - a week of multiple bank runs - the RBA cut the official cash rate by a full one percentage point to 6.0 per cent - sending the cash rate on its way to the 3.0 per cent mark by April, this year. The RBA that week also relaxed restrictions on residential mortgage-backed securities acceptable for repo transactions, spurring the volume of internal securitisations that would be undertaken by banks and other ADIs to reach around $150 billion.

Governments worldwide adopted parallel policy interventions at much the same time.

What a difference a year makes. Australia did not technically experience a recession, with only the December 2008 quarter recording negative GDP growth of just 0.1 per cent, and last week the RBA became the first central bank in the developed world to raise interest rates and said that economic growth would return to close to three per cent next year. This sparked a global equity market rally.

Two days later came the news that employment in Australia was growing again. The S&P/ASX 200 went to a one-year high and the Australian dollar passed through US90 cents.
 
What happened to the Australian version of the GFC? Perhaps it was the second stimulus package and the government's willingness to take its budget into deficit for the next however many years that did the trick.