It's OK to go into red, says RBA boss Glenn Stevens THE Reserve Bank has given the green light for federal and state governments to go into deficit to support economic growth in the face of the global downturn. Reserve Bank governor Glenn Stevens said lowering interest rates alone might not be enough to rekindle consumer demand and business confidence, The Australian reports. Addressing a business dinner in Melbourne last night, Mr Stevens said there was a case for government going into debt to support public projects that boost demand. If governments are able to so order their affairs as to continue supporting worthwhile - and I emphasise worthwhile - public investment (even if that involves some prudent borrowing), then Australia will come through the present period. While the Government has indicated it would be prepared to produce further economic stimulus packages if required to keep the economy growing, senior ministers have consistently refused to speculate on whether the budget might go into deficit. Speaking at the weekend, Finance Minister Lindsay Tanner defended the Government's refusal to use the word "deficit," despite the fact it would have to go into the red if it were to spend significantly more to stimulate the economy. "The last thing we want is to have the Government speculating about some of these comparisons with recessions and depressions, speculating about deficits," he said. All they do, if we fuel that speculation, is stream into lower confidence, which becomes a key part of the problem. Last night, Mr Stevens said it was possible that lowering interest rates would not result in either increased demand for credit or increasing willingness of banks to supply it. He said that falling wealth and weakening incomes were encouraging households to save more. The problem is that, for the economy as a whole, if everyone attempts this change simultaneously, the 'paradox of thrift' says that the economy will contract. He said the solution was for the Government to reduce its level of savings, by increasing public spending, to offset the rise in savings by the household sector.