Part 1 2008 a critical year for Australia

The stormclouds are gathering. Our market has plunged below 5000 for the first time in two years, oil prices are soaring, America is in (unofficial) recession and the Reserve Bank is clearly worried about the home front.After years of partying, many believe it's time for the inevitable hangover when gloom and doom replace the exuberant optimism that just a few months ago seemed as though it would never end.But how much of this is just another cyclical downturn and how much of it is related to a more permanent shift?I'm going to go out on a limb here with a couple of bold predictions. I think we are at a pivotal point in history; that we are witnessing the early stages of a massive shift in the global economy, in the balance of power and in the way we live.Australia has become a barometer for these far-reaching changes. We are being pulled in opposite directions as we send vast quantities of resources off to China while a virus that started on Wall Street and spread across the US and Europe has infected our financial system.In years to come, it's quite probable we will look back at 2008 as the year in which everything changed. And most of the changes being wrought upon us relate to energy, our use of it and its cost.There are several powerful forces at work at the moment; some cyclical and some far more fundamental.Let's look at the cyclical ones first. The worst credit squeeze in history is under way. Give it follows the biggest debt binge the world has ever seen, it's not surprising. On top of that we have a recession under way in the US. On their own, those events are not particularly worrying. Markets and economies go up. And then they go down. What is worrying, however, is that in the early stages of a recession, Wall Street's biggest financial institutions already have been forced to go cap in hand to the Middle East and Asia for emergency funding.And that's where we come to the more fundamental and permanent changes at work on the global economy.What is happening in China and, to a lesser extent, India is akin to what occurred in North America in the 19th century. Back then, the balance of economic power shifted from the Old World to the New World. It's happening again now.There are differences - vast differences - in this new shift. Unlike the rise of North America, China and India already have vast populations. And as these populations move rapidly from Third World to First World, they will demand more resources, to live the lifestyle we enjoy. TBC

story by Ian Verrender from the business section of the Age "The Year everything changed"