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The Forum > Article Comments > Business hypocritical on government debt > Comments

Business hypocritical on government debt : Comments

By David Richardson, published 29/5/2013

The Chicken Littles are at it again - scaring us about the level of government debt and the deficits that bring about debt.

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"She [Rinehart] is busily trying to raise $7 billion in debt finance for the Roy Hill project."

I think there's a fundamental difference between going into debt to finance productive activity, which is what Rinehart, BHP et al are doing; versus going into debt to finance consumption, which is what Labor has been doing, for example blowing billions on expensive useless green toys, and schemes to make everyone's electricity more expensive, and all the rest of the current government's catalogue of utter foolery and wasteful consumption.

Also, private debt is a charge on those who voluntarily undertake it. Government debt is a charge on unborn generations of taxpayers to pay for the consumption whims of Labor-voters now.
Posted by Jardine K. Jardine, Wednesday, 29 May 2013 8:33:53 AM
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Sorry Mate, the sky is Falling. My children and grand-children will be paying for your Vanity expenditure, all of these "Projects" are pathetic wastes. Investment requires return on money paid for by the project, otherwise it is merely expense and a loss. I know Greece is a lovely place to see but I don't want it in Australia.
Posted by McCackie, Wednesday, 29 May 2013 8:40:25 AM
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While I wouldn't have put it quite that way, I basically agree with JKJ.
The banks borrow to re-lend at a profit.
And the world's richest woman is borrowing to open up another iron ore project.
However, the world is already oversupplied with iron ore!
Overproduction will simply drive prices down even lower!
One doesn't need much business acumen to dig a hole in the ground!
One can only hope she isn't successful as this juncture and has to shelf the project.
The mining boom needs to slow down.
It has by and large been killing other parts of the economy.
Other parts, which we will still need once the mining boom has run it's course.
If Gina could raise 7 billions, she would be well advised to spend it opening up a rare earth mine, and developing a companion thorium power project.
Thorium being a virtual waste product of rare earth processing.
She would do well to read, thorium cheaper than coal.
Thorium is also a waste product of mineral sands extraction and processing.
We have a lot of mineral sands still in the ground, and a salt dependant, light metals smelting industry, (Titanium, Magnesium) would work well in our arid inland.
And cheap energy, would enable enough automation to eliminate the cost of labour, as a limiting factor.
At the end of the day, Govt. doesn't need to borrow!
Just usher in long overdue sensible reform, that 1, eliminates tax avoidance; and 2, collects enough revenue, for govts to fund all necessary expenditure, without ever borrowing; and 3, enables business to eliminate often onerous compliance costs; and 4, allow Govt to seriously downsize.
We need to increase defence spending and infrastructure roll out, not an already massively oversized bureaucracy.
Rhrosty.
Posted by Rhrosty, Wednesday, 29 May 2013 11:33:28 AM
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The problem with any government debt, particularly beyond a certain ratio against GDP is the fact it becomes harder and harder to repay and money printing inevitably results.

Take the US as an example:
US public debt has more than doubled since 2009. Current US fiscal policy is based on the insane assumption that a country can solve its debt problem by printing cheap money, with interest rates in the US now between 0% and 0.25%.

I would challenge anyone to show me in history where a country has successfully solved a debt problem by creating more debt.

It certainly did not work for Zimbabwe, the UK, Japan or Argentina.

Current US policy will see it eventually (and perhaps soon) lose its reserve currency status, it's already occurring, China has a number international financial agreements, including with Australia, circumventing the need to trade between nations using the US dollar.

The primary outcome of every attempt at money printing in the past has been a massive wealth transfer from a very large proportion of the afflicted society to a much smaller one.

Reckless spending by the current Labor government is imprudent and the lessons of other nations should be heeded.

Unfortunately our politicians, on both sides of the fence, have very little business experience and therefore fail to grasp the serious implication debt can play on a nations well being, both now and into the future.
Posted by Geoff of Perth, Wednesday, 29 May 2013 11:47:07 AM
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I agree that itís ok for governments to go into cyclical deficit in bad years, but they should run small structural surpluses (averaged over the course of the business cycle). If they donít, as Geoff says, eventually weíll get to a position where interest levels are so high they cut into our capacity to finance government services, our credit rating is downgraded, and we will be unable to borrow more except at ever-increasing interest premiums.

This government is running a record structural deficit.

The comparison with business borrowing is utterly spurious. What matters in a business context is net debt, not gross debt, and NAB has assets that more than match its liabilities (unlike the Government). Gina may be borrowing billions, but the people lending to her are willing business partners who agree to share the risks with her in the hope of a reward. Money coerced from taxpayers is different and should be treated more cautiously. And, as JKJ points out, Gina is borrowing to finance productive investment, which is expected to generate income in future to more than cover its borrowing costs. Borrowing to finance current spending, as our government is doing, leaves future taxpayers to pay for services we enjoy. Than breaches intergenerational equity.
Posted by Rhian, Wednesday, 29 May 2013 2:40:10 PM
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