Our China-based recovery is a naïve delusion

Even though these are private foreign liabilities they represent a risk to the government. This is because they have to be repaid in hard currency (dollars, sterling or yen) stored by the central bank reserves. If there are insufficient reserves to finance these debt payments, there will be a run on the Australian dollar, which will cause wider economic dislocation ...

Hard currency? At a time when the value of the US dollar is artificially propped up by its reserve currency status, what about something even "harder": what about gold?

Well, the Reserve Bank sold off two thirds of Australia's gold reserves (or 167 tonnes) in 1997. It now holds 79.8 tonnes. Who can forget Treasurer Costello saying "Gold no longer played a significant role in the international financial system ..."

What's gold up to nowadays?

A similar decision made by the now Prime Minister Gordon Brown continues to haunt him.

Returning any budget to surplus on a sustainable basis requires a lot of rethinking, planning and hard work; it requires much more than keeping the economy on a respirator and doing nothing but hope that its heart will begin beating again.

On the level of human economic activity it requires a re-examination of our entire financial and regulatory systems, but more fundamentally it requires a revaluation of the importance of the endowments of mother nature - like water, clean air and climate - and it requires political stability in our trading partners, if not globally. These are things that we mere mortals are prone to forget.

By anyone's measure, artificially replacing investment demand with consumer demand in China in order to maintain global economic growth with the objective in turn of maintaining our current lifestyles is neither "durable" nor sustainable.

When that fails we will all need a back-up plan. What's ours?