Regard Lagarde

There’s no doubt about it.

These are unsettling times.

Australians had sensed that long before the stock market shocks of recent weeks.

That’s why we stopped shopping – and started saving.

Austerity might be good – for families.

It’s not enough, though, for national or global economies.

Scrimping might seem wise, in times like these.

That’s why the experts have been prescribing austerity programs for sick economies, like Greece and Ireland.

Only a few scattered voices, like that of the Nobel Prize winning economist, Paul Krugman, have challenged this view.

That is until the former French Finance Minister,Christine Lagarde, spoke at the weekend.

The new IMF chief told central bankers, at a conference in Jackson Hole, Wyoming, that firm action is needed to tackle the grave financial risks the world is facing.

Measures like:-

-Stimulating domestic demand in developing countries, which have big export surpluses

-More aggressive mortgage relief in the United States and

-Giving job creation priority over deficit reduction, in the immediate future.

Ms Lagarde also proposed substantial injections of both public and private capital into frail European banks, stimulating demand and renewing economic growth.

Austerity programs carry hidden risks.

They cut cash flows and jobs.

Back in the 1930s, the world discovered – at the cost of more than 50 million lives – just what can happen when unemployment gets out of hand.

Unemployment rates of 20-30 per cent, back then, quickly led to political extremism and, ultimately, world war.

Australia’s unemployment rate, of 5.1 per cent, is now enviable, by world standards.

The US rate is still above 9 per cent, while Greece has 16.6 per cent unemployment and Ireland 14 per cent.

There are tipping points, in world affairs.

The situation now is not as bad as it was back then.

However those points might be dangerously close, if things are allowed to get worse.

Austerity is not the way back from these cliffs.

The paths away may not seem obvious.

And they do require courage.

But Christine Lagarde is pointing the way.

She must be heard.