I am in Queensland at the 37th Australian Conference of Economists. I learnt early this morning about the House of Representatives rejection of the Bush bailout package with the consequent 7% fall in the Dow Jones and, as I write this, the Australian stock market has fallen by a bit less than 5% in response. The Australian market was a sea of red. What was particularly dramatic in Australia was the fall in resource stocks in response to the apparently induced fall in commodity prices. There is a fair bit of panic in the market but the broad coverage of the price falls suggests that Australian will not be insulated from the effects of this crisis. I remain pessimistic about the prospects of a catastrophic outcome from the current troubles. Even a version of a bailout is approved soon - and the facts today make this more than likely - the market is signalling that do not expect it will work.
One immediate concern for me is that the financial turbulance around the world will make political leaders shift their attention away from urgent climate change concerns. The release today of a more punchy final Garnaut Report advocating a 25% cut in greenhouse gas emissions at least as a negotiating stance in 2009 might well be overshadowed by the financial mess. Unscrupulous politicians will be aware of the implications of the recent Lowy Institute report that Australians want policies to deal with climate change but not if it costs jobs or if it hits them in the back pocket. Increasing economic difficulties will foster these attitudes.