been carefully monitoring access to funding, including offshore funding. we judge it to have been more than adequate, even if more expensive, though, of course, we will continue to watch the situation closely. but the centre of recent developments has been offshore, so my remarks today are about the global scene, not the australian one, unless specifically noted. background to the present international situation : how did we get here? although the headlines of the past year have been dominated by stories about the sub prime loans in the us mortgage market, in fact the genesis of the problems was much earlier. for this observation has been made by many in the past year, including the bank of england governor, mervyn king ( http : / / www. bankofengland. co. uk / publications / speeches / 2008 / speech333. pdf and http : / / www. bankofengland. co. uk / publications / speeches / 2007 / speech324. pdf ) and federal reserve chairman, ben bernanke ( http : / / www. federalreserve. gov / newsevents / speech / bernanke20070515a. htm ). much of the preceding decade, international capital markets were characterised by the search for yield. an excess of saving over investment in asia was a feature, resulting partly from the reaction to the late 1990s crisis and the determination to avoid a repeat of it. the rapid growth of chinese incomes and the lag between that trend and a corresponding rise in consumption was also a factor. these trends, associated as they were with a surplus of internationally tradeable goods and services, carried a degree of disinflationary impact for the rest of the world, which made strong growth in demand and low inflation easier to combine. they also lowered the marginal cost of financial capital in global markets. somewhat later, oil rich nations also provided funds to the global economy and spurred on this search for yield, since mounting revenues from higher oil prices were invested rather than spent by governments that were now more fiscally conservative. in the major developed countries, interest rates at the short end were also lower than normal for a long period after the mild 2001 recession in some of the g7 countries, as monetary policies sought to manage the particular circumstances each country faced. this was associated with an unusually stable period for macroeconomic conditions. the “ great moderation ” in volatility of output and prices had been under way in the united states since the mid 1980s but

been considerable speculation about the impact that this may have had, and prospectively might have, on asset market prices and returns. some commentators have attributed the share market boom in many countries in the late 1990s to the efforts of'boomers'to accumulate assets in their high - income, immediate pre - retirement working years. 3 there is a corresponding concern in some quarters that, as boomers move through their older years, they will sell assets to facilitate consumption, leading to a slump in asset values. there are a few problems with that story, not least of which is that saving rates have tended to fall, rather than rise, in the past decade at the time when boomers were supposed to be seeking rapidly to build their net worth. 4 but there is no doubt that the baby boom is an important demographic phenomenon. it was the result of a surge in fertility rates during and after the second world war, after un population division, world population http : / / esa. un. org / unpp / index. asp? panel = 1 ). abs cat. 3222. 0, population projections, australia 2002 to 2101. see discussion in j. poterba ( 2004 ), ‘ the impact of population aging on financial markets ', in global demographic change : economic impacts and policy challenges, a symposium sponsored by the federal reserve bank of kansas city, federal reserve bank of kansas city, kansas city, pp. 163 – 216 http : / / www. kc. frb. org / publicat / sympos / 2004 / pdf / poterba2004. pdf ). another is that, in cases where we have information on asset decumulation in old age, it has historically been much smaller than would be consistent with the basic life - cycle saving view of the world. if that continues to be true, the mooted slump in asset values as the baby boomers run down their savings might be a more modest, drawn - out affair than sometimes feared. prospects : 1 / 6 the revision population database a slump which had started in the early 1920s and extended until the mid 1930s. baby boomer women themselves, on the other hand, had lower fertility rates than their mothers, so that the succeeding generation, the children of the boomers, is relatively smaller. thus the boomers are disproportionately large in the age distribution compared with both the previous and succeeding generations, and as they age, all other things equal, the median age