Bank of Van Diemen’s Land

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I was looking at the soaring gold price today – a sign that inflation is on the horizon as a result of the massive money-printing that is going on across the globe to stave off or mitigate the evils of a recession.

Following catastrophic bush fires and flooding (which seem a distant memory now) and the onset of the COVID-19 pandemic, Australia is now in recession for the first time in 29 years. However, with government programmes to offset losses, the impact of recession has really not yet been felt by large swathes of the population – although further pain is certain to be coming down the track.  And some in the international community are even asking whether we will avoid a Depression with protectionism, a pull-back in global trade, sharply reduced industrial production, widespread unemployment.

Recessions and Depressions are, of course not new, it’s just that a whole generation has never seen one on these shores.

In ‘The Helots’ Tale – Redemption’ I write about Robert and Mary Ann celebrating the birth of their first born, James while living in Launceston in 1843.  This was happening during a full-blown Depression with its shuddering halt to economic growth.

There had been a recession in Britain in 1839 which had knock-on effects.  Wool prices fell; there was a collapse in mainland markets for grain and livestock. Goods piled up in shops – there wasn’t the income to buy.  Investment ceased without the prospect of economic growth. Banks restricted credit. A vicious cycle. By 1843, it wasn’t just small retail traders and merchants going bust, bankruptcies extended to the Van Diemen’s Land ‘aristocracy’ (including one of the families to which Mary Ann had been assigned). Two banks had to close their doors for good.  It’s hard to imagine, but in Launceston rows of houses were simply abandoned and left vacant.

The Depression saw the first major crisis in public finance. Reductions in revenue from selling land to settlers combined with increasing penal system costs saw the unprecedented situation of the Governor having to borrow on the money market to pay wages. Policies were applied like sticking plasters and failed as the plasters came unstuck (e.g. free immigration was encouraged to bring in newcomers – and their money – to stimulate consumption and investment but it just added men who now competed with ticketers and ex-convicts for non-existent jobs).  Unemployed workers congregated at hiring depots on an unprecedented scale.  There was now mass unemployment.

Whether we will see similar scenes in the years to come is, of course, pure speculation.  In the mid 19th century, the discovery of gold proved to be a game-changer for Australia and the country has never really looked back.  Is there any other ‘game changer’ on the horizon I wonder?

The November US elections may change the tone of both global trade and that country’s sad attempt to control the pandemic. With a more stable, sensible and outward looking USA the outlook would certainly be more positive.  Time will tell but history teaches two things: we will need to ‘tighten our belts’ in the foreseeable future and eventually things will improve.  With any luck this disruption will be used to make long-needed changes, such as a major boost to green initiatives in Europe as a result of their ¾ trillion euro support programme just announced.  We can only hope.

The post Recession & Depression first appeared on David Cairns of Finavon.

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