Global financial markets are settling, but there will very likely be two consequences of the week that was. Volatility, which has been unusually low, will be larger and more troubling. And the upward trend in equity prices will be lower, which is just as well really as until this week there were all the signs of unsustainable growth.

US Fed chief, Ben Bernanke, has calmly pointed out that nothing much has changed in the economic fundamentals, and this should mean room for further rises in asset values once the markets settle. Grizzled veterans warn, however, that further falls are likely before growth of equity prices resumes.

While the markets were in turmoil (As the old story goes, “Term oil?, get me some!) Kevin Rudd’s honeymoon came to a juddering halt. This has been well discussed in all the media outlets, but the bottom line is that Kevin Rudd will now be exposed to scrutiny as never before. Now there is a more level political battlefield, with everyone carrying wounds of one sort or another, we can get back to the elucidation of policies. This is the hard stuff, especially for Labor.

It seems the voters do not like the Government’s new industrial relations (IR) laws, despite Henry’s assertions that they have freed up the labour markets and helped create many more jobs.

A Morgan Poll from April 2006 found that a clear majority of Australians – 57% – disagree with the WorkChoices legislation, while only 20% agreed with the reforms. These results were barely changed in last week’s Crikey/Morgan Poll of John Howard’s seat of Bennelong – 59% of Bennelong residents said that they were opposed to the reforms, while only 26% supported the reforms.

But these reforms hold considerable economic benefits, so here is a thought for Comrade Rudd: Do not engage in Rollback – instead find a way to overlay a mechanism for assessing “fairness”. Allow anyone who has a half-reasonable case of having been unfairly dealt with to appear before a tribunal – perhaps some variant of the Fair Pay Commission – to argue his or her case.

Retired union leaders – bush lawyers to a man – could provide their services free to represent the complainants. Employers could foot their own bills, but could be represented cheaply by retired industry lobbyists. The judges would be required to adjudicate each case, taking into account the circumstances of the employer as well as the aggrieved employee.

Next Tuesday the Reserve Bank board meets for the second time this year. The surprise low CPI result for December Quarter will almost guarantee this is a day when lunch will be the most exciting item on the agenda. But Henry shall have a new angle on the RBA’s approach to the setting of interest rates to share on Tuesday morning, so tune in early. The collection of Henry’s RBA board meeting articles is linked here.

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