if we are not careful, there is a potential for conflict between generations. the young may resent the tax burden imposed on them to pay for pension and health expenditure on the old. this will particularly be the case if they see the old as owning most of the community ’ s assets. housing is the most obvious example, where people of my generation have benefited from 30 years of asset price inflation, while new entrants to the workforce struggle to buy their first home. at the same time, people - retirees in particular - are likely to be feeling less secure as they may be disappointed with the rates of return they are receiving on their savings. it seems to me that the community has not yet come to terms with the fact that nominal rates of return on financial and real assets are likely to be much lower over the coming decade or so than over the previous two decades. returns were held up first by inflation ( although, to some extent, this was illusory ) and then by an asset price boom that lasted from 1983 to 2000 - the final instalment of which reached bubble proportions in many countries. we are presently witnessing the unwinding of this unsustainable situation. a good illustration of the long swings in rates of return is illustrated below by the change over the past 130 years in real equity prices in the united states. graph 6 the potential for intergenerational conflict exists in all countries, and their future economic success depends in some sense on how they handle it. the countries that will do worst are those where the population is aging the fastest, and those where their governments have given the most generous promises. again, we are looking mainly at europe to find this combination of problems. but even in australia, the conflict could become a problem and lead to all sorts of behavioural changes. at the very least, we should question the assumption that age and poverty are positively related and that concessions to alleviate the latter should be directed at the former. in fact, i think we will have to go further and be pre - emptive in conditioning the public, particularly the grey - headed part, to accept that policy must be forward looking and directed to ensuring a vigorous australian economy and society 20 years hence. this will mean giving priority to tomorrow ’ s working - age population, rather than satisfying the demands of yesterday ’ s. last time i spoke at this forum, i ended by making a plea for raising the priority attached to improving the level of excellence in tertiary education.

the australian banks have reduced their funding sourced from offshore. on the other hand, the share of non - residents ’ holdings of australian corporate bonds remains at a historically high level as australian corporates have continued to have good access to international bond markets. for details on the new measures of credit spreads see arsov i, m brooks and m kosev ( 2013 ), “ new measures of australian corporate credit spreads ”, reserve bank of australia bulletin, december, pp 15 – 26. bis central bankers ’ speeches graph 10 conclusions although australia avoided most of the more severe disruptions in financial markets during the global financial crisis, the turmoil has left its mark on the australian bond market landscape. conditions in financial markets have been improving steadily since mid 2012 ; 2013 and the first quarter of this year have resembled what normal bond market conditions may look like in a post crisis world. looking forward, we can expect the australian bond market to solidify this normalisation. credit spreads are likely to remain higher than their precrisis levels, reflecting the repricing of credit and liquidity risk, while yields are likely to remain low for some time as central banks only gradually normalise their monetary policy settings. we are likely to see some further growth in the size of the public sector bond market in australia for a little while longer, but the stock of outstanding bonds is expected to stabilise as a share of gdp by mid 2017. issuance by the australian banks is likely to remain subdued as they continue to favour deposit funding. total corporate bond issuance may remain subdued in the near term as the main potential issuers – the large diversified mining companies – have a focus on increasing production from already developed projects, containing capital expenditure, and, more broadly, large australian companies have accumulated significant cash balances since mid 2007. bis central bankers ’ speeches however, while bank - based finance remains dominant today, in the future we may well see the australian financial system move to more market - based sources of finance, particularly bond issuance. the regulatory changes have increased the relative cost of bank intermediation, as liquidity is now more appropriately priced and the cost of maturity transformation has increased. as a result, market - based sources of finance are now more cost effective for a wider range of companies and one would expect them to respond to this with increased bond issuance. at the moment, parts of the corporate sector can access the bond market at a cheaper price than banks can. as mentioned earlier, there has been