KEVIN RUDD is right when he says that people are sick of Howard's mantra, "Working families have never had it so good". But he has also made it clear that he agrees with his core economic argument-that the neo-liberal reforms begun 20 years ago under Labor and radically extended under Howard have fire-walled the Australian economy from external shocks and crises.Incredibly, for all the talk of economic prosperity, the election campaign has barely raised the very serious crisis confronting the world economy. August saw the collapse of a speculative boom in the US subprime mortgage market, caused by years of cheap credit.

Around half of all American home loans were signed with subprime lenders-non-bank financial institutions that lent to working class people with poor credit ratings at higher-than-average interest rates.

Now hundreds of thousands of people have defaulted on their loans.Not only this, brokers "securitised" billions of dollars, possibly trillions, of mortgage debt and sold it on to speculators who hoped to make a quick dollar.

Conventional economic theory says that this spreads the risk throughout the market.

But the reality is that once a speculative market receives a shock, it can plunge the financial system into chaos.

This is something that Karl Marx pointed out 150 years ago. Finance, Marx argued, was necessary to circulate value throughout the capitalist system-but its very existence could also lead to speculative bubbles that could burst and expose crises in "real" production.

The last two months has seen the crisis spread. Now even the big American banks are frightened of lending to each other. The US Federal Reserve panicked in September and October, injecting cash into money markets and cutting interest rates.

Its actions-reminiscent of old-style Keynesian pump-priming-demonstrate a belief that a credit drought will drive the US economy into recession. Its intervention, like the reaction to the Wall Street crash of 1987, prevented an immediate collapse.

But the Fed is not out of the woods yet. Now Fed chief Ben Bernanke has admitted that we are at the beginning of a period of "noticeably" lower economic growth.

The debt crisis is real and likely to get worse. A recent housing industry survey found that over 70,000 Australian households are under severe mortgage stress.

In other words, they have difficulty making payments, their mortgage is at risk, defaulting or their home being repossessed.

A further 171,000 households are suffering "mild stress". In other words, they have to cut "discretionary spending" in order to finance repayments.

And this was before the latest interest rate rises. And more rises, which the Reserve Bank has foreshadowed, will make life even harder.

It is important to clarify what these figures represent. We are not talking about mass impoverishment. For example, according to investment firm Deloitte, 12,000 households are currently over 90 days in arrears in loan repayments out of a total of five million making repayments. That's just 0.25 per cent.

But a recession would cause a great deal of suffering. Right now, most people feel that they can hang on-but they expect government to protect them from the ravages of the market.

Nobody can predict with any certainty whether a recession will occur sooner or later. But, either way, any incoming federal government is a hostage to fortune. Despite all the talk of economic management, no "fiscally responsible" government can control what the free market does.

Kevin Rudd has made it clear that he will back conservative economic policies and the power of the bosses to hire, fire and restructure at will.

If he is allowed to get his way, then his economic policies could be disastrous for working families across Australia.

By Tom Barnes