KEY POINTS:
Often I marvel on how well we are governed now. On TVNZ's Agenda programme last Sunday, Helen Clark was asked a question that measured in my mind her capacity to face whatever comes our way from the financial catharsis in the United States.
The question was phrased clumsily but she got the gist: if the economy turns really sour this winter, to the point that employers start laying people off, will the tax cuts be larger or less?
The temptation to stimulate activity with tax cuts must be in Labour's thoughts. Any chance it has of winning a fourth election this year disappears in a recession.
And haven't we been bleating for tax cuts? Isn't National promising to trump whatever concessions Michael Cullen may announce in the Budget next month? Who could blame him if he blew the surplus?
So when it was put to the Prime Minister that this might be an option, I expected she would at least semi-agree.
She didn't. She said: "I'm very conscious that not long before the Australian election (in October) their Reserve Bank put interest rates up, which was clearly very difficult for the incumbent Government."
She added: "Our bank still does have a lot of options with monetary policy."
In other words, the Government is not going to try to stimulate the economy with tax cuts on a scale the Reserve Bank would consider inflationary. Rather, she wants to give the bank no reason not to lower its base rate if the condition of the economy recommends that.
I marvel that even our left-leaning leaders now recognise the value of non-political monetary management and at how well our central bank continues to do it.
Ours, like Australia's and Europe's, has resisted the panic that appears to have seized the US Federal Reserve since the turn of the year. The Fed has slashed interest rates three times, injected extra liquidity into the system, rescued one of Wall St's big investment banks by subsidising its takeover and scared the world witless.
Markets, as everyone knows, operate on psychology as much as money, effective economic management is as much about appearances as decisions. The best central bankers have been predictable and boring. Whatever Paul Volcker or Alan Greenspan did at the Fed, it was never exciting.
Ben Bernanke, appointed by George W Bush two years ago, looked capable until January 22 this year. Out of the blue that morning, he announced an interest rate cut of 75 basis points, unprecedented in 20 years.
The previous day, a US holiday, world stockmarkets had slumped a bit and Bernanke wanted to restore confidence. His regular monetary policy review was due a week later, and a week is nothing in the lag between monetary decision and effect, but he felt a need to respond quickly. He panicked.
He seemed to think an alarmed response would calm the market. Stock exchanges can trade on any monetary re-setting but underlying their temporary boost was a terrible conclusion: "If the Fed is this scared, things must really be bad."
After that, things in the US got worse. The day after his Bear Stearns rescue last month, Bernanke cut rates by 75 basis points again. The US base rate is now below inflation.
Even in this country, many are expecting recession. But how bad is it really? I've been listening to some well-placed people in the New Zealand economy this week.
They say the term "correction", much jeered in journalism, is exactly what has happened and had to happen.
Finance markets constantly generate new forms of investment which sometimes rest on nothing more substantial than confidence in everybody else's confidence in them.
The market temporarily ceases to believe loans need security. In recent years, credit became a commodity that could be broken up, recombined, packaged, sold like sausage meat, then swapped, hedged and traded in the form of bets on its future value.
Reality returned when the first property price bubble burst. US investors remembered that a lot of the sausage meat securities they were holding probably contained those "sub-prime" mortgages issued to folk who were never likely to be able to pay them back.
A financial reality check does not spell a recession. Central banks need to lubricate the crisis with liquidity but not lose their grip on consumer price inflation.
Right now, with food and fuel prices rampant worldwide and plenty of growth in China and other developing economies, central banks like ours see more risk of inflation than recession.
It is 35 years since the US was previously mired in a costly war with oil prices rocketing and the governing party faced an election with a discredited President. Richard Nixon's appointee at the Fed loosened too much then and the world paid with a decade of "stagflation". That's what makes me nervous.
