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Virginia Trioli talks to economics correspond -

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VIRGINIA TRIOLI: Ben Bernanke has had a big week with the US Federal reserve cutting rates by half
a per cent amid fears of recession.

With his analysis, I'm join by economics correspondent Stephen Long.

Investors were cheering but not everyone thought the Fed did the right thing.

STEPHEN LONG: Indeed not. One critic said the cut was socialism for Wall Street.

VIRGINIA TRIOLI: Nice phrase.

STEPHEN LONG: It is. It was Lenin who said to destroy capitalism you had to debauch the currency
and the Fed was going down that path. Marc Faber from the Boom, Doom and Gloom report said the Fed
should be putting rates up rather than cutting them.

At the heart of the problems in the US is excessive credit driving irrational behaviour in the
credit markets and what are they doing some they're loosening money, making money cheaper, making
more credit so you've got that criticism coming through quite strongly of the Fed decision.

VIRGINIA TRIOLI: Was it just those local criticisms or did they come from overseas too?

STEPHEN LONG: Around the globe. If you went to some of the key websites with key financial and
economic commentators, there was an argument this involved moral hazard and was as much a bail out
for bankers and hedge funds as it was to do with anything real happening in the economy is. Is that
the case?

Look, I'm not sure that I agree, Virginia. I'm uncomfortably straddling the fence on this one
because I think they had an economic case for cutting rates if you think the job of a Reserve Bank
and Central Bank is to avoid a recession because there is a real risk of recession in the United
States, but those issues are there. It's as if the world has been addicted to debt and you've got a
situation now where basically the withdrawal has been painful and cold turkey could kill the
patient. But sticking the needle in the arm again, well, that might keep it running along but it
doesn't cure the addiction so I can see both sides. There's a strong economic argument, they had to
cut to avoid a recession but the underlying problem won't go away.

VIRGINIA TRIOLI: With oil prices soaring, is inflation still a threat?

STEPHEN LONG: The big fear a remote fear, but the thing that really worries me is that there is a
possible threat of stagflation.

Tonight, west Texas intermediate crude has hit a new record high. We've got wheat prices and key
food commodities at record highs. We've got the US dollar at its lowest point ever against the
Euro, low points many currencies which will make imports more expensive to the US so there is a
remote, but real threat of stagflation, I think.

VIRGINIA TRIOLI: Has the cut worked to unlock credit markets if that's the intention?

STEPHEN LONG: The squeeze has eased a little. Some of the risk premiere in the rates banks lend to
other banks has eased. What's underpinning the problem was fear about toxic debt. Now, if more US
mortgages are going to go under, and we know they are, well, that fear won't necessarily go away so
I think it's a wait and see on that. I think that the fat lady hasn't sung yet on the credit
crunch.

VIRGINIA TRIOLI: I look forward to the aria. Thanks, Stephen Long.

STEPHEN LONG: You're welcome.