Paul Krugman - the most recent winner of the Nobel Prize in economics - recently wrote that policy makers need "to get credit flowing again and prop up spending". If we fail in either task, a re-run of the Great Depression of the 1930s is increasingly likely.

Governments have certainly been doing their best to get credit flowing. The BBC reported that by December 2008 some 9,000 billion pounds had been poured in by governments to support their banking systems - this has gone up even further in the past month.

Here the government has supported our financial system through guarantees and revamping the Reserve Bank's market operations. It has also introduced tax cuts, developed a redundancy package for people laid-off as a result of the financial crisis, and is holding a Jobs Summit.

We are likely to need all this, as internationally there's been a stream of bad news in the last few months. The key lesson of Keynesian economics was that you saved in the good times so you could spend in the bad times. As individuals and nations, most of the developed world hasn't been saving during the last boom - and now it needs to keep spending somehow to avert economic catastrophe.

Only governments can provide the spending support we need through tax cuts, and infrastructure projects and investment. Our government debt as a share of GDP is inevitably going to rise. And we will be in this for the long-haul - a recent study of past financial crises suggests they last on average seven years.

The crisis is a timely reminder that the state does remain the banker and insurer of last resort. Internationally, it has been busy in this role rescuing financial institutions that are deemed "too big to fail".

What the government needs to keep clearly in mind as the next stages of this crisis unfold is that ordinary Kiwis are "too many to fail" and it must do its best to shield them from the worst effects of the folly of the last 10 years.

To help you save, this month we've put together some great money-saving tips. Our major appliance articles this year will feature a section on buying second-hand - and dishwashers is the first test that does this. There's also a feature on buying baby goods second-hand.

David Naulls

Editor
Consumer Magazine

More from consumer.org.nz

• Serious savings tips - 39 easy ways to make your money go further
• Dishwashers - tips for buying second-hand
• Second-hand children's products - what to look for in cots, car seats, highchairs and strollers

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