Bernanke's taper tantrum is good news even, eventually, for us Federal Reserve Chairman Ben Bernanke's temper tantrum is good news, even eventually for us, writes John Beveridge.Picture: AP Source: AP HE might live 16,400km away but US Federal Reserve chairman Ben Bernanke has just outlined a road map for Australia's future which won't please everyone - particularly fans of jelly doughnuts. eIt is a future which involves a falling Australian dollar, rising unemployment, falling commodity prices and probably lower interest rates. Plus a nasty short-term fall on the Australian share market, which on Thursday shed a whopping 103 points or 2.1 per cent. That taper tantrum was given an extra push by further confirmation from China, 9000km in the other direction, that its manufacturing sector appears to be slowing down. Now Dr Bernanke didn't exactly spell all of this out in his press conference after a two-day meeting of the Federal Open Market Committee. What he did instead was outline his road map for the US economy over the coming year and his plans to taper down the $US85 billion of bonds the Fed is buying each month until it finally stops buying them altogether in the middle of 2014. All of that depends on the US unemployment rate continuing its steady fall until it reaches 7 per cent and below. That road map led to two fairly sudden reactions - a strengthening of the US dollar, which is what sent our dollar into a freefall, and a plunge in the US share market, which was significantly amplified in Australia once the news that lower Chinese manufacturing intentions added to the gloom. What seems to have escaped most of the participants in this taper tantrum is that Dr Bernanke was actually delivering some very good news, in that he is convinced that the US economy is now firmly on a path to improvement. The financial markets might want to eat a three-course meal provided by a healthy economy plus the big box of jelly doughnuts Dr Bernanke has been handing out each month but they are going to have to be content to gradually cut out the snacks. And in the longer term it will be much better for everyone concerned, given that a market addicted to sugar can start to bulge out in some very unattractive and dangerous places. The extraordinary bond-buying represented by the third round of quantitative easing has also left the Fed balance sheet with its trillions of dollars in mortgages and bonds looking more stretched than a singlet on The Biggest Loser. What Dr Bernanke and his colleagues have been very anxious to achieve is a lasting resumption of economic growth to the now forecast levels of between 3 and 3.5 per cent while keeping inflation in check and unemployment falling. With the Fed then standing in the background ready to keep up the bond purchases if the figures don't go the way they are expecting and also prepared to keep interest rates near zero well into the future. The fact that the Fed is happy to taper its bond purchases from later this year is confirmation it believes this swing to organic rather than sugar-fed growth is well on the way to being achieved and that the world's largest and arguably most innovative and flexible economy is getting its mojo back. That is unvarnished good news for the world economy which has been relying for far too long on continued fast growth in China and the broader Asian region to make up for the spluttering level of US growth. There is plenty of evidence that the US economy is now entering a sustainable growth pattern as well, with its consumers now finally beginning to start spending again after slowly and painfully paying down their debt levels. The US housing sector is also now finally in a good place with prices rising, banks lending again, builders returning to work and a growing population gaining confidence that their jobs are more secure and that it could be time to buy rather than rent. The US share market is also buoyant even with recent falls, adding to the wealth effect. Add in the shale oil and gas revolution which will see the US become largely energy self-sufficient with cheap and plentiful supplies and able to bring back onshore a lot of manufacturing jobs and Dr Bernanke's decision to start weaning the market off sugar is understandable. The ramifications of Dr Bernanke's road map on Australia are less attractive, particularly because a lot of the excess cash being pumped out in the US has found its way to our share and bond markets and is now rapidly being repatriated, as the falling Aussie dollar and share market are pushing all but the most committed foreign investors back through the exits. Allied to the unwinding of the carry trade that came as foreign investors sought the high bond and share yields in Australia is the fact that we are quite heavily exposed to China, which saved our bacon after the GFC but could become a bit of a headwind now as China's growth pains curtail the US dollar prices of our main exports of coal and iron ore. Most analysts have now downgraded their assumptions for Chinese growth this year to as low as 7.4 per cent - fast by most measures but approaching a dawdle compared to recent Chinese history. China's leaders are happy to have a period of slower growth so they can rein in the amount of official and unofficial loans and credit in China, which ratings agency Fitch this week estimated had reached a scary total of 198 per cent of GDP. It may turn out to be just a few coughs and splutters from the Chinese growth engine that has kept Australia firing when the rest of the developed world was hurting but we are exposed to China which ever way it heads from here. One of the most noticeable ways that will play out is in the Australian dollar, which is now one of the world's worst performing major currencies against the US dollar over the past few months and could well slide through the US90c barrier sooner rather than later. The dollar effect was particularly marked on the share market Thursday, with stocks that have large offshore earnings such as Cochlear, CSL, News and QBE actually rising in a market that was busily smashing the domestic mainstay banks and resources. As a sign of being in lock-step with China, Australia's economic growth now appears to be in the early stages of slowing and unemployment rising which is why the Reserve Bank has been busily cutting interest rates and may send them even lower still. That falling dollar will help to insulate Australia from the worst effects of our fall from grace from miracle economy to something less than that and will stimulate domestic tourism, exports and local activity by companies that compete with imports. But it will also drive up the cost of imports such as petrol that is embedded in many goods and push up inflation. In the longer term though, if Dr Bernanke is right and the US is about to enter a self-sustaining growth phase, that should be good news for the overall world economy and would even help to reignite some growth in China and its Down Under raw materials supplier.