Alan Kohler says in Business Spectator that:

Up until about a week ago Australia was sleepwalking towards recession, in denial that the global recession would affect us....actually most people can see what's going on: it's just the politicians who have been asleep, or perhaps pretending to be..Up until just the past few days the general proposition from politicians and many economists has seemed to be that it hasn't affected us so far, so it won't.

The rationale for this denial Kohler says has been that our banks are in good shape, so we'll be okay; or China will save us; or our house prices are not like those in the UK and the US and won't decline because there is a shortage of them here; or there's nothing we can do anyway.

What is going to happen in Oz fortunately mostly isn't anything new. The stock market has crashed.Thats happened before. The real estate prices have slumped. Thats happened before.We will have large numbers of unemployed. Thats happened before.Commodity prices are low and demand is low and the mining companies choose to slow down and leave it in the ground till prices improve. Thats happened before.

The new thing that could get ugly is the number of homeless. That needs to be a main concern.

We are told that the current credit crunch could be resolved by making the credit flow again. Larry Summers, Barack Obama's chief White House economic adviser, acknowledged today that more funds beyond the $US700 billion ($A1070 billion) committed to the Wall Street bail-out may be needed to shore up US banks so that people can buy cars, so that people can get mortgages.

Clearly this financial crisis was not caused by credit crunch or credit flow problem; it was caused by the over-consumption of everything (including credit) in countries like USA, UK and to a lesser extent, Australia (just look at the huge trade deficit and we know why). The other side of the world is, of course, plagued by over-production (or under-consumption if you would) in countries like China.

Hence the Labor Government’s generosity to hand out money to prolong our spending spree is wrong. In my view, money should have been spent on improving infrastructure (such as public transport) or investing in green energy such as solar energy (e.g see the comment of the Norwegian solar cell manufacturer UMOE) that could increase employment, address environmental problem and enhance productivity.

On the other hand, China is also adopting wrong policy by allowing some construction works that were prohibited (because of lavishness, environmental problem, land disputes etc.) before the financial crisis to proceed. We can imagine how desperate China is to boost the economy. In my view, the correct policy is to give voucher to the poor to spend, and to establish a social security system for the lower/middle class. I say this because people in China in fact increase their savings in the bank. Imagine that you have no Medicare cover; you need to set aside money for educating your kids etc, what would you do in a time like this? Save more! That is why the Chinese people refuse to spend and it is unrealistic to rely on the Chinese to increase internal consumption and save our mining industries. They can’t and they won’t. I am aware that China set aside some money for improving the medical services but we don’t know how long it would take them to set up an effective system. In China, people object to an economist’s sensible suggestion to raise the University fees of the rich in order to subsidize the poor, because the Chinese officials are so corrupted that people consider the increased fee will simply benefit the corrupted officials and the poor won’t be benefited from it.

If both Australia and China are taking the wrong approaches to tackle the current problem, I simply don’t know how long the economic downturn would last. If it last sooner than we anticipate, the politicians simply shouldn’t take the credit.

Simon you say:

Hence the Labor Government’s generosity to hand out money to prolong our spending spree is wrong. In my view, money should have been spent on improving infrastructure (such as public transport) or investing in green energy such as solar energy (e.g see the comment of the Norwegian solar cell manufacturer UMOE) that could increase employment, address environmental problem and enhance productivity.

I couldn't agree more. An example

Ken,
This example from Victoria describes what took place in Victoria re feed in tariffs for solar panels. They backed off the gross feed in in favour of a net one with limit on the size of micro-power at the last minute due to pressure from the resources department.

Resources equals coal + coal fired power stations.