Source: US Federal Reserve, RBA

Australia's interest rates are predominantly based on variable rates, as opposed to the US which is mainly based on the 30 year fixed rates. At the peak of the recent crisis, rates were brought down quickly, feeding into Australian disposable income, and helping to avoid a deeper recession.

The RBA turnaround in interest rate policy has quickly drained the households of income. Even though the current 30 year fixed rate is about 4.80%, Americans still have a larger debt servicing burden that Australians with average mortgage rates of 7.00%. The US housing market is clearly not recovering, despite the tax breaks, mortgage modifications and record low rates. Hence the fear of a double dip recession.

The current G20 meeting similarly highlights the disparity between countries on how to handle the ongoing crisis. President Obama is promoting further deficit spending to prod the consumer into more spending, whilst the Europeans and the UK seem to set on a course of deficit reduction. Overall the pressures in the World Economy seem to favour deflation (at least in the short term). This is why the US 10 year bond closed last night at 3.02%, well down on their recent high of 4.00%. This is also why that it is unlikely that you will see an interest rate rise from the RBA any time soon.

And I will continue to point out that any slow down of credit growth in Australia impacts Gross Domestic Product and future Government tax revenues, and the hoped for budget surplus by 2013/14. The Government may say that the budget is not dependent on the mining tax, but a further $9Billion hole will not help. The mining industry has announced that it seeks a tax resolution within a few weeks, rather than lose their political advantage and allow the Government to "consult" until after the election.