The wisest piece of writing I have seen on the economy lately was on a sandwich board outside a Takapuna beauty parlour. It said, "We are not participating in this recession."

New Zealand could hang out that sign. Australasian banks didn't buy Wall St's bogus securities. Nobody here is losing their house. Unemployment has not moved much above the 4 per cent that it was in the boom.

Export markets are down but so is the dollar. The worst the world's financial crisis might do to our economy is lower our imported living standard a bit and redirect our energy and investments to things we can make or do as well as people anywhere.

We have had the recession we needed, a result of years of effort by the Reserve Bank to contain house price inflation. House prices here rose faster than anywhere in the world for a few years, a consequence of glaring gaps in taxation New Zealand governments are peculiarly afraid to close.

We had that recession in the first half of last year and we were probably coming out of it when the Wall St meltdown started in September.

Since then we have been seized with fear, reading the predictions of depression, watching other countries pump vast sums of money into their banks to no avail and wondering how hard the storm is going to hit us.

The answer: as hard as collectively we believe it will. Confidence, or lack of it, is self-fulfilling in economic life. Believe the worst and you make it true.

For a more objective reading of the national condition, watch what the government spends. Not what it says or does, what it spends. Governments are under pressure to say and do something in response to big events. Last week's "jobs summit" was an exercise in appearances.

A better measure of the underlying health of our economy is the fact that this week the Government is preparing us for cuts to accident compensation coverage.

Controlling the public accounts remains more urgent than a desperate Keynesian stimulation that, on the evidence abroad so far, would do nothing to restore confidence and might run up public debt to the levels we suffered 25 years ago.

Cushioning the recession would just reduce the necessary redirection of energy and investment, delay the recovery and leave a debt the country would carry for the next decade.

Meanwhile, the big western economies might fix this financial problem sooner than we think. Right now, they are still in a stage of morbid fascination with how it happened, and the sense a need of repentance for a while.

Osama bin Laden, wherever he is, must be ecstatic at the way his big day continues to change the world. If he had been tuned to Radio New Zealand on Thursday morning he would have heard how the terror he caused the United States in 2001 set off the chain reaction that put global capitalism into this crisis.

Jerry L. Jordan, a former president of the Federal Reserve Bank of Cleveland and a member of the US Federal Reserve's open market committee at the time, explained that after September 11 liquidity was urgently injected into the American financial system in case of a run on the banks. (Why a bank-run should follow was not explained but perhaps doesn't need to be when you recall how the world swayed on its foundations that morning.)

Jordan still believes it was the right thing to do. His regret was that monetary policy was then left too loose for too long afterwards. The Federal Reserve kept its "foot on the accelerator", as he put it, through 2003, 2004, 2005 and did not ease back until 2006, "when we were practically airborne".

Most of that liquidity went into housing, much as it did here in those years. But while our Reserve Bank was worried about property inflation and steadily raised interest rates against it, the US Federal Reserve saw no need. For that former chairman Alan Greenspan repents.

His successor, Ben Bearnanke, must regret letting Wall St's Lehman Brothers bank collapse last September. The worldwide crisis can be dated from that decision, seven years almost to the day since the fall of the twin towers.

The financial district, though, had created its own karma with mortgage-backed investment products that pretended they were secured. Traders knew they were bundles of junk but bubbles are good while they last. In fact, traders who bet against the bubble seldom survive to see it burst.

The financial crisis will probably continue until people are sick of the subject and Wall St's poison is flushed out of the system. Then it will be a matter of banks rediscovering their ancient art of investing in people who work hard and sell things people want.

Meantime, our economy is in fairly good shape.