All signs point to a 25 basis-point rate cut by RBA

"In total, the assets of these four central banks have already increased by the equivalent of around $US5 trillion, or 15 per cent of the combined GDP of the relevant economies. We have not seen this type of planned simultaneous very large expansion of central bank balance sheets before. So in that sense it is very unusual, and its implications are not yet fully understood."

Lowe discusses two implications of this "highly unusual" development.

The first is that it increases the prices of assets that the central bank is buying, thus lowering the yields on those assets. Thus bond yields in the US, Britain and Japan are all very low, and in the eurozone nations, whose bonds have been purchased by the European Central Bank, yields have retreated from the clearly unsustainable levels they had reached before the ECB began buying.

The second implication is that cashed-up institutions, including banks, at some stage will seek out higher-yielding assets, and their acquisition of those assets will drive up their price.

Expansionary monetary policy creates inflation but, with markets for goods and service depressed, it will be asset inflation that is the main immediate effect. Eventually, however, unless there is very deft and timely reversal of "quantitative easing", there will be a large burst of goods and services inflation.

This is not a conclusion drawn by Lowe but it is an issue we shall all be grappling with eventually. If it is commodity prices that are inflated most, Australia may even be a net beneficiary of what could a very dangerous risk to the stability of the global financial system.

The Australian economy is in a deeply uncomfortable state. According to the Roy Morgan survey of the labour market, the actual rate of unemployment is almost twice the official (Australian Bureau of Statistics) rate of 5.4 per cent. Small business everywhere is struggling, and the vital mining industry is facing strong cost-based headwinds.

Structural reform to boost productivity and reduce red tape and other impediments to doing business is desperately needed. But with goods and services inflation, including wage inflation, under control, the RBA should be keen to make its contribution to alleviating distress. A rate cut is all but certain today.