An economy in recession means reduced revenue for the federal Government and that means budget deficits.

its simple--- the financial sector has wreaked havoc on the economy----Rising rates of unemployment and foreclosure, a crippled financial system, and huge numbers of baby boomers who have seen their home equity and savings vanish.

Japan — still our biggest market despite the talk about China — cut its industrial production by 10 per cent in December. China's economic growth has halved. The November forecasts had economic growth slipping from 2.75 per cent to 2 per cent. The International Monetary Fund now has it sliding to minus 0.2 per cent.

In China around 20 million migrant workers have returned to the Chinese countryside after failing to find work in the cities because of the economic downturn,

Peter,
yes, they forcasted that the economic crisis would result in about $40 billion in lost tax revenue. The new estimate is $115 billion stripped from government receipts over the next four years. That includes company and capital gains tax revenues and a $13 billion collapse in income tax takings in coming years — an indication of big job losses.

Nan, yes indeed, And some commentators are saying that we consumers should spend to save our jobs!. Why spend when your job may be lost?

Some sense.at last . The mini-budget will include free insulation for 2.7 million homes will be included in the Government's second economic stimulus package to be announced this week.The free insulation will fund work on 2.5 million owner-occupied homes and 500,000 rental properties. It will be available to anyone who needs it

About time.

Nan
Paul Krugman says that the Obama's Administration's plans for a banking system rescue

are shaping up as a classic exercise in "lemon socialism": taxpayers bear the cost if things go wrong, but stockholders and executives get the benefits if things go right.

It is not clear that the Obama administration plans to rein in the financial sector to keep it from growing to the point where it can again wreak havoc on the economy.

The Chinese Government has asked the State –owned corporation not to lay-off employees which seems to be a fantastic policy. But millions of poorest people were sacked by the small private firms and bear the consequence of the downturn in China; they have to go back to the countryside and struggle in their farmland.

I think we should not lose sight of the fairness aspect of the Government policy.

The question being asked by the Republicans (who object to Obama’s rescue package) and Paul Krugman is precisely this question of fairness. They are not just concerned about “Will it work?” but also “How will it work.”

simon,
the countryside in China seems to act like a safety vale or safety net for unemployed urban workers. Didn't they leave the country side for the cities because there were no jobs?

Nan,

They left the "countryside" because there is no job and they found it difficult to survive the hardship there, which I believe is not a safety net (insufficient water, no electricity, limited medical services and transporattion, some even without TV or communication facilities etc.) Their "countryside" is not a tourist attraction with winery, rivers for fishing in our sense. Life could be extremely difficult and corruption of local government official is severe. Forcing them back to their farmland is not the solution unless the Chinese Government is generous in raising the purchase price of farm product (yes, some of the price of the farm products are set by the Government), provide basic utilities for their survival etc.

The numbers have been revised to a $42b stimulus packages. $22.5b deficit this year and over $35b in 2009-10. 7% unemployment. 1% growth. The stimulus packages include another round of handouts and a construction-led jobs package centred on schools.

Another 1% interest rate cut by the Reserve Bank of Australia

simon,
it looks as if China cannot continue to count on 30% pa export growth and it cannot realistically count on adding $250b plus to its exports a year either. China is too big for its exports to consistently grow faster than world trade at this stage.Nor can China always be reliant on the US consumer. But they are now and have depended on the vast and almost never-ending pool of cheap labor to do so. That--- the competitive advantage of their labor intensive industries----is the way to describ China’s inclusion into the global economy. Has this trajectory reached its peak?

China's only realistic future growth strategy is to increase domestic consumption through massive increase spending on infrastructure and governmental provided public goods since China is still far less underdeveloped than most other countries.

A good way to gauge things is to walk from one end of your shopping mall and count the non food shopping bags that people are carrying and then divide that by the number of shops in the mall.
Usually the walk around shopper is spent out in the first hour and then just looking so you can then times the figure by the number of hours that the shopping center trades.

The equation goes much deeper but the result is obvious.

Anon,

I have a sister who owns a factory in Southern China and a Hong Kong office that manages the factory. Two months ago, she sacked half of the workers of the factory and cut the salary of the office workers. This is not uncommon in China.

China continues to rely on export to maintain its growth. It is extremely difficult to boost the economy by increasing domestic consumption because either the average people are still poor or, for those who have the money, they hesitate to spend big. It may not be a good idea for the Chinese Government to invest in infrastructure alone (which the previous China Premier Zhu Rongji did to combat the previous financial crises in Asia) for the reason that the infrastructure projects tend to disadvantage the poor (because of land dispute and compensation problems) and benefit the rich which will further polarize the already unstable social situation. I have posted a note on this point and I just copy it at the end of this paragraph for reference. I note that the Chief of Fortescue said today that he has continued faith in the urbanisation and industrialisation of China to once again fuel good times. He also said that while it might take a few more fiscal stimulus packages to get things moving — Fortescue reckons China has another six in the pipeline if needed — the "fundamental factors of the boom have not changed". To him, China continues to be a fairy tale.

(…….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 domestic 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……..)