Back in January it was obvious the global credit crisis posed real threats to our economy.

A credit crisis is a crisis of confidence. Interest rates are higher because investors are less certain about the prospects and security of those to whom they are lending.

In response, our Government should have pursued at least two clear economic objectives.

First, we had to be careful to ensure that economic policy reacted prudently to higher levels of inflation. It was almost inevitable that the United States credit crisis would result in a global credit squeeze. In other words, higher interest rates and tighter credit were coming our way, anyhow.

Second, we had to do everything we could to differentiate our financial system, our banks and our mortgage markets from the wreckage in the US.

Australia had a much more prudent lending culture than the US. Subprime loans amount to less than 1 per cent of mortgages outstanding. In the US, the number of foreclosures was rocketing but in Australia they remained at historically low levels. Banks were well capitalised and profitable.

We did not deserve to be tarred with the same brush as the US mortgage markets. The securitisation markets, closed to US mortgages, should not, by rights, be closed to ours. That closure has made our mortgage market less competitive and raised the cost of finance for all Australians. We had a vital national interest in differentiating our market from that of the US.

That is why in January I spoke about the underlying strength of the Australian financial system and encouraged the Reserve Bank not to raise interest rates but to stay its hand and watch international developments. There was likely to be, I said at the time, more than enough monetary tightening coming through the global system.

To my horror, the federal Treasurer, Wayne Swan, took the opposite approach. Again and again, and most notoriously on February 4 - the day before the Reserve Bank met - Swan repeated what became his own Swan song: "The inflation genie is out of the bottle."

This was not just egging the Reserve Bank to put up rates; it was begging the bank to do so.

Swan and Kevin Rudd then continued all year to talk up inflation and talk down the economy which, despite evidence to the contrary, they contended had been left in a smoking wreck by 11½ years of mismanagement by John Howard. Rudd developed his own theme. Not content with an "inflation genie," he talked of an "inflation monster".

So intent were Swan and Rudd on their political strategy of fingering the Howard government for economic mismanagement, they forgot that every time they undermined confidence in our economy they increased inflationary expectations and added to the cost of money for Australian households and businesses.

Swan is the only Treasurer in the world who has spent this year talking down his own economy. The US Secretary of the Treasury, Hank Paulson, with a much worse economy and graver challenges, consistently showed leadership and confidence. While Swan was shrieking about genies escaping from bottles, Paulson said on February 5: "The US economy is diverse and resilient, and our long-term fundamentals are healthy … While we are in a difficult transition period as markets reassess and reprice risk, I have great confidence in our markets. They have recovered from similar stressful periods in the past, and they will again."

When Australia desperately needed leaders who would proclaim that we were different, that our economy was stronger, our mortgages more secure, our banks better capitalised - that we should not be tarred with the subprime brush - they instead made headlines with their repeated claim that inflation was out of control. Instead of trying to blacken the reputation of the Howard government, they should have been burnishing Australia's financial and economic reputation. They should have been using the bully pulpit of high office to pry open the securitisation window for Australian mortgages and restore international confidence in our financial markets.

Australia is a much safer place to invest than many other countries and markets. But we need leaders who will shout that from the rooftops, who will look beyond the confines of party politics and recognise that the heavy price of trashing the economic reputation of John Howard in 2007 is undermining confidence in Australia's economy in 2008.

Malcolm Turnbull is the shadow treasurer.