Heavy smoke from bushfires nearby the Bega Valley.

Heavy smoke from bushfires nearby the Bega Valley.Credit:Fairfax

Of course,there’s always something to worry about;that’s the way our human brains are wired. Maybe it’s the thought of themyriad climate-related challenges posed by a warming planet. Maybe it’s the continuing war in Ukraine or the rising tide of nationalism abroad. Or maybe it’s the rising cost of just about bloody everything,from mortgages to power bills to leafy greens.

It’s the job of the media,of course,to keep you abreast of such developments,should either you or one of our elected politicians prove capable of devising solutions to meet these pressing issues of the day. But,as someone who has been watching gyrations in the macroeconomy for nearly two decades now,it’s also part of my job to impart to you an appreciation of the broader backdrop against which all these flashpoints are unfolding.

And I confess I find myself approaching the end of 2022 with a fairly wild and controversial idea:namely,that the backdrop is that we’re actually doing pretty OK.

Flash back just a year ago,and we were all still emerging bleary-eyed from rolling lockdowns,wondering if the extraordinary stimulus unleashed by global treasuries and central banks would be enough to breathe new life into moribund economies after the worst shock to growth since,well,the last pandemic a century ago.

Interest rates had fallen to somewhere near a central banker’s ankle.

Interest rates had fallen to somewhere near a central banker’s ankle.Credit:Simon Letch

Borrowing and lending rates were delicately situated somewhere just north of central banker’s ankles,while Treasury coffers had been drained entirely dry – national credit cards rung up to the tune of trillions of dollars as policymakers hoped for a turning point.

Thankfully,as 2022 progressed,it became clear many governments had effectively “overinsured” against the crisis,boosting national savings rates,lighting a new fire under consumer spending and bringing jobless rates down to what could be described as “full employment”.

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On February 24,of course,Russia invaded Ukraine,sending shockwaves around the globe,including shortages of key commodities like gas and wheat. One by one,central bankers began to wake up to the fact that surging consumer prices were not as “transitory” as initially hoped and would,in fact,require rapid interest rate hikes to bring them to heel.

In Australia,on the eve of a federal election,ourReserve Bank began unleashing its most aggressive campaign of interest rate hikes since the 1990s. As a result,borrowers with a variable rate mortgage of $700,000 now find themselves facing monthly loan repayments this Christmas more than $1000 higher than at Santa’s last visit. Renters,too,are feeling the pinch of a record low vacancy rate.

Christmas could be cancelled for some overextended borrowers.

Christmas could be cancelled for some overextended borrowers.Credit:AP

So,whatever last hurrah households are preparing to engage in this Christmas,our New Year’s collective financial hangover is looking more painful than at any time in recent memory.

But even as we all prepare to batten down the financial hatches in 2023,I think it’s worth taking a moment to see the bigger backdrop that life,as we know it,is simply returning to a more normal state of affairs,and one that is infinitely more desirable than the alterative.

One alternative,of course,could have been that the federal government did not step in during the pandemic with the historic JobKeeper program and subsidies for faltering businesses. Our national unemployment – at about a half century low – would be appreciably higher. The swelling ranks of jobless Aussies would now be suffering not only a devastating loss of income but an atrophying of their skills which could keep them on the sidelines of work for the rest of their working lives.

In such a scenario,of course,interest rates would have remained at historic,near-zero per cent lows,not only continuing to push sharemarkets valuations to dangerous nose-bleed highs,but also pushing home ownership even further beyond reach of younger generations.

RBA Governor Philip Lowe.

RBA Governor Philip Lowe.Credit:Aresna Villanueva

Instead,we close out 2022 with interest rates safely returned to more historically normal levels. A risky build up in property values is being unwound in a relatively orderly fashion (albeit with pain for some). Sharemarket valuations have launched a noisy retreat from frothy highs,albeit financial markets having largely taken the end of easy money in their stride. Crucially,despite higher rates,economies continue to largely chug along and jobless rates remain low.

Life is,indeed,returning to normal.

None of which is to discount the very real challenges confronting households in 2023. Budgets are tight as a drum – and for some more recent borrowers,they may be near breaking point.

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But for most of us,adjusting to this new financial normal will require only a few minor tweaks:be it switching up the AC a few degrees this summer,resolving to holiday domestically in 2023 or learning to prepare fresh meals at home rather than ordering Uber Eats.

It’s looking like all the best bits from lockdown,without the fear of mass joblessness,pestilence and homeschooling (and to be honest,I’m still not sure which was the worst on that list).

Who knows what 2023 will bring? But as we begin to close out 2022,just remember:things could have turned out a lot worse.

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