The contrast between Australia and the United States is telling, emphasising what a bunch of moaning ninnies we have become.

There was Reserve Bank Governor, Glenn Stevens telling a Melbourne business dinner last night that while the situation was “serious”, we were in danger of talking ourselves into “into unnecessary economic weakness”.

He had a point about talking our selves into a hole: at times there seems to have been an unholy competition between business economists, politicians and others to outbid each other on gloomy forecasts, with an unseemly rush to be the first to call ‘recession’.

To see what a nasty and developing economic disaster looks like, just look at what happened in the US overnight. Wall Street was down between 5% and 6.5%, the Dow fell under 8,000 points for the first time since March 2003, worries grew that the big three car companies, GM, Ford and Chrysler, would not get Government aid, leading to at least one big collapse.

Record falls in consumer price inflation in October, on top of a record fall in producer prices the day before; and another mesmerising slump in new home starts (to a new low) and the lowest level of permits for new homes issued in October.

According to the Fed, the US’s economic forecasts range from a negative 0.2% to 1% in 2009, after growth of 0% to 0.3% for this year. But the Fed is now on record as warning that the US economy will fall in the first six months of next year, after a contraction in the September and December quarters.

Australian non-farm growth (the RBA forecast) is for 1% through most of the year at the moment. Factor the farm in and it will rise to perhaps 1.5% (the US forecasts include farm output).

There are similarities: our new housing is recessed, but America’s is depressed by a number of factors greater than the pace of activity here. We are yet to record the lowest level of building approvals (permits in the US) or see new home starts at an all time low, as the US did in October.

The US Commerce Department said that US housing starts reached an annual rate of 791,000 last month, the lowest level since the department began tracking starts in 1959. The rate tumbled 4.5% from the revised reading of 828,000 in September.

Building permits fell 12% to an annual rate of 708,000 in October, breaking the previous low of 709,000 in March 1975. The annual rate for September was revised to 805,000.

While our retail sales are static to trending lower, America’s are in free fall and the graphline is pointing downwards, almost vertically: ours is roughly horizontal.

And in the US the minutes of the Fed meeting that chopped its key rate to 1% heard a much gloomier set of forecasts for this year and next, with the startling prediction that US unemployment will rise “significantly through 2010”.

Seeing almost 1.2 million US jobs have been lost so far this year, with half of those coming in the three months to October and pushing the rate to 6.5%, the highest for a decade, the Fed’s forecasts are dramatic. A “significant’ increase in US unemployment is a major statement by a central bank.

Our unemployment rate is 4.3% at the moment and the gloomier folk have it rising above 6% by 2010.

Inflation here is forecast to fall, but it will be slow: in the US it’s rapid as this week’s PPI and CPI numbers have shown (core CPI fell 0.1% in October. The year to rate in the CPI in the US is now 3.7% in the 12 months to October: it peaked at well above 5% in July-August, which was above our peak).

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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