Bad news, Good news …

“The strong monetary intervention of central banks, especially the Federal Reserve, may help restore confidence. But many economists doubt it will be sufficient to prevent a serious economic slowdown in North America and Europe and perhaps later in Asia. There is usually a lag of 12 months or so before interest rate changes have a significant impact on the economy, but the more fundamental concern is that monetary policy may not have its usual punch. This is because the paralysis in credit markets is not due to the high cost of money or the incapacity of banks to lend. It stems from the lack of trust in capital markets and intense risk aversion...” government might need to throw the switch to deficits

Federal Reserve chairman Ben Bernanke says ''fiscal and monetary stimulus together may provide broader support for the economy than monetary policy actions alone''.
He also hinted at the kinds of stimuli that might be most appropriate. Money, he said, should be put in the hands of ''low and middle-income households that would spend it in the near term''. He is not worried about a temporary blow-out in the fiscal deficit and is hopeful that inflationary pressures will soon ease.

A worldwide economic slowdown is predicted for later this year, though is already biting in the US. Australia is actually tweaking monetarist and fiscal controls to cool an overheating economy, so an imposed slowdown would be helpful here.

Promised tax cuts should be ditched, as they will simply feed inflation, negating any real benefit. A more effective approach would be to impose, through the Reserve Bank, regulatory controls over bank rates and fees. That would be an immediate benefit where tax cuts would simply be mopped up by increased bank rates.

A slow down would then allow our surplus to be put directly into much needed infrastructure development - education, health, low-cost housing, urban roads and freeways, public transport, ports, energy, rivers and water.

Okay, I’m in danger of being labelled a lefty here, but the fact is a government should be managing the economy for all – and for long term. But a US recession can only be good for Australia, so long as the situation is fully utilised.