Entering a parallel universe as world’s economy is rocked to its core

THE All Ordinaries is at levels approaching 3,500 and Colin Barnett is premier of Western Australia.

A time traveller coming from the year 2000 would be scratching his head and checking his machine. Is this really 2008? It sounds more like 2001.

Even oil at below $US50 per barrel would have been a reasonable proposition seven years ago.

Perhaps only the ubiquitous ipods would give the game away.

Of course, it would have been a different story if they'd arrived in July.

Resources were driving the nation, Alan Carpenter's Labor government was mocking the laughable opposition, big new buildings were set to spring up from every corner of the CBD, and even the cleaners were making a fortune.

How quickly the facade of unstoppable growth was torn down.

Our traveller has missed a lot. As people who had come to rely on that good fortune, we will most likely miss it much more.

Andrew Forrest briefly, became Australia's richest man.

As his Fortescue Metals Group shares neared $8 each, he was a paper billionaire eight times over. Against much disbelief, he met his goal of shipping ore to China, and used his new platform to promise 50,000 indigenous jobs.

And why not? With iron ore having hit more than $140 a tonne, up from less than $US40/t in recent years, the Pilbara was buoyed by optimism that only gold rushes had previously created.

China was unstoppable. It would take 20 years of fast-track development for them to outfit 1 billion kitchens with stainless steel fridges.

As we now know, such hubris was a dangerous thing.

Interest rates had climbed above 7 per cent as our house prices continued to fetch record highs, and the CPI was fuelled by oil at dizzying prices that would eventually hit $US147 barrel.

The Chinese were making silly offers to get a hold on our valuables - and we were saying 'no way' as we jetted off for cheap holidays in Japan's ski resorts.

Investors were so cashed up they spent as much as $100 million in a company behind the Firepower fuel-saving miracle, without so much as a prospectus let alone real evidence of success.

In the middle of all this, Kerry Stokes' Channel Seven had made an audacious bid to gain a seat at the table of WA Newspapers Holdings, the dominant local media player. Like the Chinese raiders, he was told 'no thanks'.

But underneath it all, the warning signs were there; the kind that hindsight has thoughtfully illuminated with neon.

The US sub-prime issue had smouldered its way through Wall Street and already started to pull the market back at the very start of 2008. In fact, in late February the All Ordinaries dropped 7 per cent in a prelude of what was to come in October.

Capital was drying up and credit was getting tougher to obtain. Wesfarmers was congratulated for raising funds through convertible bonds to help it digest the increasingly expensive-looking purchase of Coles the year before.

Labor's climate guru and Perth Modern School graduate Ross Garnaut released his draft emissions trading proposal, with the tome making a very loud thud on the desks of LNG producers. Not happy, Jan, was clearly the sentiment. Across industry the cost was being counted. Even the boom-blinded could see this was going to be hard to swallow. Ultimately Prime Minister Kevin Rudd bowed to that pressure with his policy release this week.

There was a string a failures. Michael Kiernan's Monarch Gold Mining was one of the early ones, followed by Matilda Minerals after it revealed financial problems.

The failure of margin lender Opes Prime had opened a window into the trading activity of directors, though it appeared at first to be among the penny dreadful and a few lucky companies that had emerged from such humble beginnings.

Commodity prices had dropped sharply near the middle of the year as hedge funds bailed out (that's a good term, we might use that later). Nickel was among the first bubbles to burst. Many others were to follow as the artificial edifice of debt was dismantled, brick by brick. Citigroup, UBS, and HBOS became engulfed in the dramas that have led to the disappearance of Bear Stearns, Merrill Lynch and, most fatefully, Lehman Brothers.

The latter, on September 15, is seen as the key to fast-paced unravelling of world markets, because the US government did nothing to save it. That created panic among investors, which culminated in a series of devastating falls in October and an amazing run of industry bailouts.

All bank deposits in Australia had to be guaranteed and Commonwealth Bank ended up owing BankWest.

While the Reserve Bank of Australia had already started cutting interest rates in earnest, Perth's business elite remained calm, slung in their Rottnest hammocks as they coasted through the school holidays, comforted by the proximity of relentless China.

Of course, it was not to last.

The owners of those sleek boats moored at Longreach and Geordie were about to be rocked.

Mid West player Mount Gibson Iron Ore was the first to reveal that the Chinese may not be immune from the cold that the rest of the world had caught.

It had problems with its off-take agreement, an issue that cascaded across the industry and, ultimately forced it into an accommodation with its Chinese investors.

Since then the problems have been widespread. Starting with smaller miners either mothballing plants or laying off workers, it quickly escalated to the major league. Rio Tinto quietly put expansion plans on hold and BHP Billiton did likewise - notably in nickel.

The resources boom's end was signalled when BHP pulled its bid for Rio Tinto, sparking a price collapse in its target and putting the spotlight on its huge debt.

Rio Tinto has since gone into cost-cutting mode, aiming to shed 14,000 workers worldwide in a move that has huge ramifications for the world mining industry.

Investors blamed CEOs and want edto dock their pay. Wesfarmers' Richard Goyder was a big target of such angst.

It's the world that Colin Barnett has inherited.

Having sat on the sidelines watching Troy Buswell make a meal of the Liberal leadership, Mr Barnett was given little hope of winning the election after Alan Carpenter called the early poll called in August.

While the Carpenter government was seen as arrogant and wounded by the antics of Brian Burke, the opposition was given little credit after bumbling its way through 2008.

However, Mr Barnett had not been entirely dormant. His frequent outbursts of policy-like statements from the backbenches had clearly left him viewed as a leader.

Leaderships and premierships, though, are two different things and the latter was not automatic. Mr Barnett had to carve out a deal with Nationals WA leader Brendon Grylls and accommodate several independents before claiming victory with the narrowest of possible winning margins - one seat.

Be it the financial crisis or the new government, several pet Labor projects have already been flung out the door. The city foreshore development, the proposed WA Museum at East Perth and the much-hyped sports stadium have all been quietly dropped from weekly front-page coverage and spared talkback radio vitriol.

Another recent winner, though a more expected victory, was Kerry Stokes. Taking his much sought-after board seat at WAN in September, the real victory came this month when the directors who had taken him on, including chairman Peter Mansell, quit. Managing director Ken Steinke joined them on the sidelines, replaced by former Seven Perth chief Chris Wharton.

Even amid the turmoil of the markets and the drama of politics, the changes at WAN have been big news. Is it the media covering the media, or is it the real life drama of the rich magnate trying to breathe life into one of the true victims of 2008 - the hard copy newspaper?

Those ipods that our time traveller saw are not portents of the future. They are suddenly common and reflect the modern consumption of news and information.

As iiNet swallowed local rival Westnet earlier this year it knew the growth in information was on the web, and that those who control access to it will be best placed to capitalise.

The time traveller may not have realised it at first, but he is in a very different world. As cricket matches are cancelled due to terrorism in India, someone from 2000 would realise that he has entered a world far less secure than he left.

For the first time in a generation, community faith in markets has been seriously tested and we go into a new year wondering how things could have changed so much in such a relatively short time.