As Kris sets off to work on the next issue of Australian Small-Cap Investigator, I’ve got to be honest, I was scratching my head this morning wondering what to write about.

I thought about tackling property (again), but I’ve only just emptied the Money Morning mailbag from yesterday and so didn’t want to create more work for myself by opening that can of worms.

Then I remembered I went out to dinner recently for my birthday [Ed note: That's the seventh time you've mentioned it today and it's not even lunchtime!]. During the course of the evening, work became a brief discussion.

“So Shae, what’s happening in the world of finance?” one of our dinner companions asked.

“It’s pretty interesting at the moment, I mean, the world’s financial system could fall apart if this Greece bailout gets any more out of hand. It’s pretty exciting times.” I said munching on my pad Thai.

“If Australia survived the Asian Financial Crisis, then we’ll survive this. After all, the Asian crisis happened in our back yard. Greece is on the other side of the world,” was the reply.

Er, what? So geography is what will prevent Australia’s financial system from falling apart?

Let’s just say we changed topic. It fell into the ‘too hard to explain’ category of conversation. And besides, it was my birthday. [Ed note: That's the 8th time].

But, I thought I’d use that idea. Now there’s the reader that lived through it, and then there’s the reader that most likely only knows about the Asian Financial Crisis through Wikipedia. You know, as something that happened in the ‘old days’.

What exactly is so different this time?

Firstly, let’s not underestimate it, the Asian Financial Crisis was a huge threat to the Australian economy. Aside from the initial currency devaluation, market confidence was shaken with fear that investors would be stuck holding bad debt.

You see, the high interest rates in countries like Thailand and Indonesia attracted investors from overseas and naturally a large amount of those funds went into the highly speculative property sector. Not long after the financial market collapsed the over inflated property sector blew up too.

As the crisis grew, the IMF decided to step in and offer a USD $40 billion bailout to keep the economies moving along. But the funds came with extremely strict measures. The Asian banking system was torn apart and the new system had to meet the IMF rules in order to obtain the cash hand out.

At the time there was a strong fear of financial contagion, which is much like there is now. However compared to now, you could really only describe the Asian crisis as just upsetting the Australian market. Because right now the market is having an extreme reaction to anything that happens overseas.

So what makes this crisis so much worse for Australia? I mean, after all, didn’t we survive the Lehman brother collapse, the subprime crisis and the worst of the GFC.

Look, Australia did get past all those crises but we did so using borrowed tax payer money. The politicians dragged the country into more debt hoping China and their mineral hungry economy would bring us out the other side. All in the name of ’surviving’ the crisis.

But yet again the over-spending and over-lending have caught up with us again, and we’re facing another financial crisis. And again, the only solution offered is more debt.

Instead of the IMF stepping in to hand out cash to a failing economy, this time it’s the IMF and the European Central Bank.

It’s obvious why the Euro Zone members have stepped in to save their currency. The bailout has nothing to do with saving Greece from government financial mismanagement.

So why when Australia’s and the world’s debt levels are higher than ever before is more money being handed over? More debt surely won’t fix the problem.

While there were many critics of how the IMF ‘fixed’ the Asian Financial Crisis, the IMF congratulated themselves on a job well done. As far as they were concerned, they ’saved’ Asia from its own financial crisis, when really they left a massive whole in Asian economies.

Because of the restrictions that went with the hand out, hundreds of thousands of white collar workers in countries like Thailand literally had to go back to the villages they came from. Massive unemployment swept through the country and many private businesses went under as access to capital became near impossible under the new lending regulations.

But now, unlike then, the entire world is being rattled and at the heart of it is the banking system.

Maybe we’ll finally realise we can’t continue to build a financial system on debt as a way to make money.

As I said last night at dinner, it’s an exciting time to be in finance. The world’s financial system is being shaken at the roots. We’re learning some pretty hard lessons that had to be learned. You can’t keep pumping air in to a balloon without expecting it to pop.

It’s the same thing with a global economy. You can’t keep flooding it with debt and expecting that will save it.

Things look pretty bad now, but the worst could be yet to come.

That’s it for me here, now for a look at yesterday’s market action…

60 Second Market Wrap

It was a pretty flat trading day for the market yesterday. The S&P/ASX 200 closed up 3 points to 4,470.70. The move from Germany to ban naked short selling caught the Aussie market by surprise and has opened in the red this morning.

The Dow Jones Industrial Average dropped 114 points overnight to close at 10,510.95. The US market was shaken when the Euro reached a four year low against the US dollar.

Germany’s temporary ban on naked short and naked credit default swap includes the short selling of 10 banks shares. It was this move that led Michael O’Rourke, a strategist at BTIG LLC, to say, “It makes it look as if the Germans are worried about something behind the scenes that the market’s not aware of. It almost looked panicked, which further undermines confidence in the markets.”

The FTSE was up 44 points to close at 5,307.34. The Consumer Price Index (CPI) came in at 3.7%, which was much higher than anticipated. The high CPI number is treated as a general indicators for inflation, however the Bank of England (BoE) governor Mervyn King said that he expects the inflation to be temporary and return to normal next year.

The Nikkei dropped again overnight, losing 146 points, ending the session at 10,096.25.

The price of spot gold in Australian dollars is trading at $1,433.06 while in US Dollars it is trading at $1,222.33. The price of silver in Aussie dollars is $22.07 and in US Dollars it is $18.80.

The Aussie dollar versus the US dollar is USD$0.8519 and against the Japanese Yen JPY79.04.

Crude Oil closed at USD$68.37.

For the biggest movers on the market yesterday click here…

That’s all I have for you today, see you tomorrow.

Shae.