PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS, WASHINGTON DC

I would refer my readers to the Peterson Institute for International Economics in Washington DC. In recent reports, there are some salient insights from that institution for my Australian readers and some very different insights for my thousands of international readers.

To summarise:

• Countries that have reined in public spending are now growing faster whilst the profligate founder;
• Small countries with illiquid bond markets can lose access to international financing at minimal levels of indebtedness;
• Many countries hit their borrowing ceilings suddenly and unexpectedly because of the inherent volatility of credit markets;
• Northern Europe has minimised fiscal stimulus and grown reasonably well;
• Southern Europe, France and the United Kingdom have pursued fiscal stimulus and all suffered from recession;
• The earlier sufficient fiscal adjustment is undertaken, the earlier confidence can be restored amongst citizens, businesses and investors.

In the Australian context, I have pointed out before that Australia is a smallish (albeit worlds' 12th largest) economy but not as developed as other larger economies with which it is often benchmarked. It also has a small and illiquid domestic bond market and is very exposed to the vagaries of international capital and internationally traded commodities.

Hence the recent warnings about Australia from some very eminent opinion makers including Prof. Ross Garnaut and the deflationary warning signals now being commented upon in the mainstream Australian press.

In the European and German context, Northern countries are likely to continue to do reasonably well, especially as the US economy starts to grow again. Had the European institutions imposed their own regulatory standards earlier, then it is likely that the profligate fiscal and tax policies at the national level in the Southern countries would not have been able to inflict such damage on their own citizenry.

Australians take note. Think about getting your assets denominated in USD and Euros, your liabilities in AUD.