International uncertainties and domestic risks suggest a need to cut by 25 basis points

A zero cash rate in the US is simply unsustainable.

Meanwhile, the eurozone crisis stumbles on.

Germany is trying to force all eurozone countries to embrace German work habits and industrial success, while benefiting from a low euro, precisely because of the reluctance of the Club Med nations to come in from the beach and start working like joyless Germans.

The Dutch government failed to implement a Germanic austerity plan and was forced to resign, France is busy electing a socialist president.

Meanwhile, Spain is struggling to meet its debt repayments and its bond yields hit the recognised danger point of 6 per cent, and Greece and other weaker nations have defaulted or soon will, entering into schemes of arrangement to pay only small proportions of debts, like land-booming tycoons after the bubble burst in Marvellous Melbourne in the 1890s.

The overall global view is little changed, but the potential for fresh drama is clearly present.

The RBA has probably no choice but to cut rates and in doing so accept some criticism for having misread the economy.

Such criticism is unfair, but even the flinty eyed Glenn Stevens will feel he has to give some ground to his critics.

But it would be wise to keep some powder dry in case the international situation deteriorates markedly.

Conversely, maintaining a firm grip on the economy provides some insurance against the possibility that a demoralised labour movement decides to grab what it can before the change of government that looks increasingly certain.

Both the international uncertainties and the domestic risks suggest the need to cut by 25 basis points rather than 50 at this time.

The general outlook is for a long period of slow growth as nations, firms and households reduce leverage, cut debts, save more and consume less.

Ideally, as well as fighting fires, political and official leaders would be rethinking ways in which growth became unsustainable in the past 30 years and how to encourage more sensible, less resource-intensive growth.

Sadly, there is little sign this is happening, and the prevailing ethos seems to be restoring the Club Med culture as quickly and as thoroughly as possible.

Nations that maintain a firm monetary policy and restore a sound fiscal policy will do better in this time of relative austerity.