Emergency is over, but no rate rise for Christmas

Extreme monetary ease also has to be removed (as private economic activity recovers) to head off the threat of inflation that all serious analysts forsee.

In fact, if one thinks sufficiently hard and long about the re-entry (to normal fiscal and monetary policies) problem, one is liable to question whether this can be achieved without a burst of damaging inflation or a relapse in real economic activity.

Do not get too rattled, gentle readers, there's more.

Global imbalances are the third major uncertainty.

Put simply, Asia has to spend more while the US and Europe needs to spend less - and required adjustments are large. All this is supposed to happen while the world adjusts to a greenhouse-gas-emission-free future.

It is worth noting that Europe generally is in roughly the same situation as the US economy, with high and still rising unemployment, budget deficits that are far too big and "emergency" low interest rates that need to be raised substantially to reduce the threat of inflation without (in their dreams) stifling economic recovery.

Against this generally gloomy background, Dubai Inc has requested a six-month debt repayment standstill, sending tremors through the world's equity markets and raising market rates of interest. The big fear, of course, is that there are far bigger embattled debtors yet to fall out of the trees, raising renewed fears about global financial system stability.

Compared with the diabolical global dilemmas, Australia's situation is almost heavenly. It is possible that official unemployment has already peaked, although hours worked are down and many full-time jobs have been replaced by part-time jobs.

There are two explanations for the relatively buoyant state of Australian labour markets, including remarkably subdued wage inflation.

First, actual unemployment and underemployment is far larger than estimated in the official statistics.

Second, firms have held on to valued workers, in some cases obtaining a quid pro quo by cutting hours of work and/or pay without an industrial relations backlash.

Australia's prospective budget deficits are more manageable than those of other developed nations. And economic recovery faster than now expected may reduce the need for the government spending cuts and/or tax hikes that will bedevil other developed nations.