We already have a national reform summit – it meets in Canberra for about 20 weeks of the year at taxpayers' expense. It's called parliament. But without leaders, parliament is just an expensive public stage for the parading of vanities and vendettas. Australia is in trouble, the summiteers concurred, and is in urgent need of repair. On cue, international financial markets issued a reminder that the world economy is exceptionally fragile. This is no time for complacency. Here's a bracing fact. Global interest rates are lower than at any time in the 5000 years for which there is any type of record, according to the Bank of England. Mind-bendingly, rates are so low that the interest rate on a German or Japanese government bond is actually negative in real terms.

"Investors are prepared to actually pay governments to look after their money", as the Australian Reserve Bank's Philip Lowe put it. The central banks have force-fed so much money into the global banking system, about $US8 trillion of it, that money is not just free. It's cheaper than free. About $US2.4 trillion worth of government bonds is trading at negative interest rates, according to the Bank for International Settlements (BIS), the central bank of central banks. We already have a national reform summit – it meets in Canberra for about 20 weeks of the year at taxpayers' expense. It's called parliament. This is unthinkable, yet it has become a daily reality.

Hiding this policy behind a technocratic term, "quantitative easing," cannot disguise the fact that the world's central banks are lost. Or, as the Financial Times' Martin Wolf puts it, they are not the masters of the universe, merely "apes on a treadmill". In spite of this unprecedented orgy of money printing, incomes in the big, rich countries are stagnant and falling. Americans, Japanese and people in the European Union have lower average incomes per head today than in 2007 before the onset of the US-led global crisis, as the international economist Ken Courtis points out. Living standards are falling; the system isn't working. "If this unprecedented journey continues, technical, economic, legal and even political boundaries may well be tested," says an expert at the BIS, Claudio Borio, said in a March speech. This is extraordinary stuff for a central bank technocrat. The Western world, in a trance of wishful thinking, invested China with magical powers to defy economic gravity. This week, the magic wore off. China is not in the same condition as the exhausted West; it is, however, gasping for breath. This week its share market started to catch up with its underlying economy; the market doubled in the past year even as the economy slowed. The Shanghai share market was merely beginning to move back into some sort of alignment with reality.

Yet that was enough to panic markets around the world as investors were forced to confront the possibility that China might not be the magical solution to all their woes after all. China spent years in a frenzy of investment, including a great deal of malinvestment. Trillions of dollars of new investment is going into writing down, covering up, refinancing and reshuffling dud investments. One sign? Last year China had new fixed investment equal to a stunning 44 per cent of its GDP. Yet all of this produced GDP growth of only about 5 to 7 per cent. China's economic adjustment "is closer to its beginning than its end," as the prescient China-watcher Patrick Chovanec told me. With this as its backdrop, Australia's political leaders addressed the national reform summit this week. Tony Abbott sent a video recording of himself giving a stump speech bragging of his government's achievements. It was an insult to the intelligence of the 90 or so chief executives, union leaders, economists and policy experts in the room.

For instance: "A lot has happened in the past two years. We've undertaken budget repair with over $50 billion in savings over the forward estimates. Every year the budget deficit will come down by about a half a percentage point of GDP." The summit communique pointedly rejected Abbott's accounting fantasies. It urged the government to make "real progress in fiscal reform, not paper progress through unrealistic budget assumptions". The summit existed because everyone in the room knew exactly what the Abbott government was doing, and knew it was woefully inadequate. Joe Hockey spoke to the group next. He encouraged it to be "expansive and daring". Yet the substance of his speech was on how the "sovereign consumer" was doing most of the reform of modern economies, implicitly excusing the sovereign government from having to do the work. Bill Shorten spoke, too. He did, at least, hint at the prospect that Labor was considering reform of workplace practices. But he also repudiated a central tenet of the summit's demand for a tax reform debate "that does not rule out options for reasons of political expediency."

Shorten did exactly that, emphatically ruling out any consideration of increasing the GST rate as part of tax reform. To sum up, the prime minister tells us he's already fixed the problem, the treasurer tells us that the market will fix any remaining problems, and the opposition leader can't see the problem. In other words, the politicians who addressed the summit vividly illustrated the problem rather than providing any solution. They are so preoccupied with the contest for political advantage that they have lost sight of their responsibility to the national interest. It fell to real experts to address reality. The previous Treasury Secretary, Martin Parkinson, drew attention to the fact that, with the end of the mining boom, Australia had entered a new era of poor economic growth.

The latest federal budget is built on Treasury forecasts for growth to accelerate from the 2 per cent range into the 3 per cent range. But Parkinson said that Australia was likely stuck with growth of 2.5 per cent instead of 3 over the next decade, a cumulative loss of 5 per cent in economic growth. Without remedial action, "it means willingly accepting the impact of a recession," he said. "The loss of GDP from a recession is about 5 or 6 percentage points." Without concrete action, Australia was "sleepwalking into a real mess".

The eminent economist Ross Garnaut pointed out that the Abbott government's projected return to budget surplus was based on unrealistic assumptions about productivity growth. He drew on the productivity estimates of Janine Dixon from the Centre for Policy Studies, who found that the more plausible rate of growth was half that assumed by the Treasury. "A weak budget," pointed out Garnaut, "makes us vulnerable to external shocks. The problem is more urgent and severe" than the country realised. And the shocks are coming. Total private and government debt in the major developed countries has ballooned from $US142 trillion to $US199 trillion since 2007, according to McKinsey consulting, an increase of $US57 trillion. This is debt that will never be paid back, says Ken Courtis: "You can imagine what would happen to interest rates and the currency of a country if the government said 'Sorry folks, we won't be paying back the money'.

So there is a lot of thinking which we still need to do about the 'end game'." Australia needs to embrace national reform program that lifts growth, creates jobs, generates revenue and pays down the national debt before the next great global crisis strikes. There is a grim irony in the fact that the Australian institutions that came together to form the summit are themselves not blameless. The Business Council and mining industry assaulted Labor over the Rudd government's planned mining tax so forcefully that Labor is still traumatised over tax reform. The ACTU campaigned so powerfully against the Howard government's WorkChoices policy that the Liberals are still traumatised over workplace reform. These vociferous single-interest campaigns helped turn Australian democracy into what Francis Fukuyama, in another context, calls a "vetocracy" in another context. That is, a system where powerful interests veto government reform.

The BCA and the ACTU got their way. But in the process they created a system that they do not like. They trained the political parties out of attempting meaningful reform. The summit seems to indicate that they are now willing to take part in more constructive problem solving. But the evidence is that neither the Abbott government nor the Shorten opposition is ready for that. Abbott's alternative is to promise tax cuts which are based, like its budget forecasts, on compounding fantasies. Peter Hartcher is the political editor