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The Forum > Article Comments > We must borrow and build infrastructure > Comments

We must borrow and build infrastructure : Comments

By Ian Spring, published 19/6/2012

There is widespread fear of using federal debt to fund infrastructure.

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There is major misunderstanding of sovereign government debt in the community and that misunderstanding is deliberately fostered by Tony Abbott, Joe Hockey and Andrew Robb and was fostered, before them, by John Howard and Peter Costello.

While ever there are under employed resources in the community, usually unemployed or underemployed citizens, the supply of worthwhile goods and infrastructure can be increased by government activities. I doesn't need to borrow the money. The government need only owe the money used to pay for school building type programs by owing the money to the Reserve Bank.

A sovereign government (the creator of the currency) just advises the Reserve Bank to honour the key stroke balances the government creates or cheques it writes whenever it pays its bills. The Reserve always meets the demands on it by the private banks when the government increases in bank balances are in place. The sovereign government then owes the new money to the Reserve Bank which it owns and controls. The only real cost is the cost of operating the RB as if it was another normal government department. The Reserve Bank was already running before the GFC so the real cost of the rescue packages (which helped Australia avoid most of the effects of the problems caused by USA financial shenanigans) was close to zilch.

Until the world finds a way to pay for international trade in real goods and services, without allowing the USA a free ride, the prospect of another GFC will remain with us.

There is a limit. Once previously underemployed resources are being fully utilized the sovereign government has to back off and it can do that in two ways. It can reduce its own demand or it can reduce the demand by the private sector by increasing taxation slightly. The decision between the two depends on what society really values. That might mean a choice between better infrastructure or more Beemers for the already wealthy.

Of course all of this needs to take account of the fact that we live on a closed and resource limited planet.
Posted by Foyle, Tuesday, 19 June 2012 10:26:10 AM
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Ian, I detect a couple of fundamental flaws in your line of reasoning:

1. The demand for infrastructure is forever rapidly increasing due to our absurdly high immigration rate. So this compels us to pour zillions of dollars into it in order to just try and stand still. That is: to build basic infrastructure for ever-more people instead of concentrating on building improvements for the existing population.
2. Under your scheme this would tie us into borrowing ever-more with no end in sight. Not only would we never pay the debt off, but it would be forever bigger, with an ever-bigger rate of payments and an ever-bigger stranglehold on our future.

It doesn’t make sense to me. Surely we need to aim at a debt-free economic regime.

If we need to borrow in order to achieve short-term goals and we are sure that we will have the wherewithal to pay it off later, then ok. But as far as national infrastructure is concerned, that is surely far from the case.

Or am I missing something fundamental here?

I would love to hear from you regarding this query. Cheers.
Posted by Ludwig, Tuesday, 19 June 2012 11:04:26 AM
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Humans are really stupid.There is no need to borrow from Gobal Central Banks who just create money from nothing with the click of a computer mouse.

We once had a Commonwealth Bank in 1911 that for the first decade produce money from nothing to equal some of our increases in productivity.In the current system the private banking system owns our productivity by creating from nothing the money to equal it.There is no need to go into debt. This is the story behind 'The Wizard of Oz' based on the Depression of the 1890's.

The Wicked Witches of the East and West were JP Morgan and JD Rockefeller.We were lost in the story but missed the symbolism.
Posted by Arjay, Tuesday, 19 June 2012 8:12:45 PM
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