I think probably it's fair to say, isn't it, that in the book, the biggest shock that could overcome the Australian economy would be large-scale war between the United States and China.

Yes, I think a possibility you have to consider is that China and the US go to war over Taiwan.

I personally think that's very unlikely.

And even if it occurred, it may not have quite as much impact on the trajectory of the global economy as we, as many people, fear.

I think that's a risk we've got to think about.

But we shouldn't regard it at all as inevitable.

And I would say my personal opinion is we should make sure we're not involved.

That is,

I think probably it's fair to say, isn't it, that in the book, the biggest shock that could overcome the Australian economy would be large-scale war between the United States and China.

Yes, I think a possibility you have to consider is that China and the US go to war over Taiwan.

I personally think that's very unlikely.

And even if it occurred, it may not have quite as much impact on the trajectory of the global economy as we, as many people, fear.

I think that's a risk we've got to think about.

But we shouldn't regard it at all as inevitable.

And I would say my personal opinion is we should make sure we're not involved.

That is,

Is it the trading that frightens governments and how does it work?

Well, the fact that the trading is so huge is really important, but it's also important that bond markets can react very abruptly to perceived changes in government policy or in central bank policy.

For example, in 1994, there was a huge increase in bond rates globally, which was, uh, touched off by an indication that the US Federal Reserve might have to begin tightening its interest rates, and that was felt, you know, in Australia, uh, the next day.

This is a real cut really in what the government can do, unless, of course, it borrows to pay the interest, which I suppose it's effectively doing, um, which, uh, I suppose just makes the interest bill grow [laughs] and grow.

Yes, that's right.

It is effectively borrowing to pay interest and, well, there's a little formula that so long as you can keep the growth of debt less than the growth of the economy as a whole, you'll be okay in the long run.

You could raise taxes by 1% of GDP.

That would take care of it, or you cut spending by 1% of GDP.