Up ? or down ?

The building blocks for a world economic recovery are in place. The United States government has saddled American taxpayers with a huge debt to take on board those dud sub-prime housing loans, and the Reserve Bank of Australia has dropped interest rates one whole percent - something other world Reserve banks are sure to follow - and there is the prospect of further interest falls to come.

The interest rate cut will put money in the pockets of those who have mortgages and the rate of foreclosures should now drop sharply. What happens next will be the decider between returning to near normal - and falling into the abyss of depression.

The worst thing that could happen would be for people to finally follow the urgings of the economists who for years have demanded that they cut up their credit cards, stop spending - and squirrel money away for their retirement years.

If people do that we will see a surge in bankruptcies as shops close, massive layoffs in the manufacturing sector and all the classical signals of an economy that ran out of confidence.

There is nothing wrong with the economy that a cool head and judicious spending will not fix.

Those people who find that the value of their home is less than the amount owing on the mortgage would be well advised to wait out this panic. Inflation is still running about five percent and hence the cost of building new homes is steadily increasing.

We may not be heading into another housing price boom, but there are indications that prices will creep up steadily as the economy recovers.

There have been - and will be - casualties on the share market, but once again the wise will wait out the present panic. It may take time for share prices to edge up but those firms which make a profit will still declare dividends - and those that fail were probably due for a cull anyway.

The biggest priority should be to put in place a sane regulatory system to ensure good ethics in both the banking and trading sections of the economy - and to generate confidence that greed will never again rampage out of control.