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The Forum > Article Comments > El Modelo > Comments

El Modelo : Comments

By Kellie Tranter, published 16/3/2015

The three pillars of the notorious Washington Consensus were fiscal austerity, privatisation and liberalisation. They are precisely the principles that the Abbott government espouses, and implements when it can.

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When there is substantial unemployment and underemployment, austerity is known to be a stupid policy, particularly when a country has a fiat currency and a floating exchange rate.

With the destruction of the manufacturing industry in Australia this country is heading for an atrocious Current Account situation. Stiff-necked state politicians hate being subservient to a Commonwealth Government managed Loans Council. The Commonwealth though its Reserve Bank could provide the money for the public works and manufacturing industries that would return each state to full employment and at the same time, largely overcome the looming CA disaster. The Reserve Bank money would be much cheaper that any private bank loans that a particular state could organise as the interest charges only have to cover the cost of the Reserve Bank and does not contribute to the obscene profits of the private banks.

If anyone doesn't understand where Australia is heading they need to learn about the fiscal space available to the currency issuing (the sovereign) government.

While there is a persistent CA deficit any move towards a lower SG deficit will increase the indebtedness of the Private Sector. In other words, in that situation the private sector loses financial health. Anyone who has paying attention to economics over the last twenty or so years knows this.

The USA is only a source of what is called capital because the $US is the trading and reserve currency. That is why the possible development of another dominant trading currency (the Chinese currency?) is causing such angst in the USA.
Posted by Foyle, Monday, 16 March 2015 8:56:59 AM
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When I read articles like this I have to wonder if the author actually studied any math in high school, or if it is just primary school arithmetic backing the ideas.

Tell us Kellie, in your private life, how much more than your gross income do you spend on restaurants & entertainment, or is it just countries you believe should spend more than they earn?
Posted by Hasbeen, Monday, 16 March 2015 9:20:03 AM
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Reading the views of someone else on any subject has never hurt anyone. I recently read a book by an American law professor detailing natural laws that, in a democracy, have often been found to over-rule statute law. These natural laws are even found in Roman Law. They certainly were clearly in the minds of the US Founding Fathers.

The laws clearly restrict this generation from taking actions that could be to seriously thought to bring disadvantages to future generations.

A few particular restrictions stand out. This generation must not adversely affect air and water supply and quality, nor inhibit coming generations' ability to produce the needs of life, nor over-fish, nor be deprived of access to common property such as beaches, shoreline, ports or navigable waters such as harbours, rivers and the oceans. The book I enjoyed was Nature's Trust by Mary Christina Wood, from the University of Oregon.

I am sure that the author of this article would benefit from reading it.
Posted by Foyle, Monday, 16 March 2015 9:29:52 AM
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Hasbeen,
You do not understand the role of the currency issuing government. A growing economy needs new money. The only way that permanent money can come into existence is for the currency issuing government to spend more than it removes from circulation through taxes and charges.
When a country imports more than it earns from exports the country becomes indebted to foreigners, usually through the purchases of private citizens.

If more taxes are paid than the sovereign government spends the private sector becomes more in debt two ways. So while there is a CA deficit it never makes sense to have the sovereign government spent less than it obtains through taxes. Too many so called think tanks use propaganda with the aim of protecting the well-being of the already wealthy.

Spending to increase employment increases private incomes , business profits and overall tax collections and reduces support payments so a large proportion of the spending to increase employment is returned to the government.

The point is a sovereign (currency issuing) government is not constrained in the same was as private citizens or local and state governments. Such governments are in reality, or should be, limited to administrative roles. That argument shows that regional administrations with no state governments would make more sense.
Posted by Foyle, Monday, 16 March 2015 10:25:23 AM
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Kellie and Has been,
You seem to think that, as long as a State has a fiat currency, the State can always spend more than it raises in taxes. If that is true why have taxes at all ?
Argentina (and Germany in the 1920s)made that mistake and their people have suffered severely for that folly.
A currency has value only when the State's people have faith in it. That faith was lost in Germany and Argentina.
I am the proud owner of bank note, validly issued by the Reserve Bank of Zimbabwe, for ONE HUNDRED TRILLION DOLLARS- I understand some time after it was issued it would have bought about one loaf of bread, now not even that. Zimbabwe junked its currency and started a new one treated as a joke and almost dealings of any substance in the country are made in foreign currency.
If Greece is kicked out of the Eurozone and reverts to a fiat currency it will be Zimbabwe all over again.
Are you sure you know what you a saying. DO you think there are no lessons in history? No consequences of spending more than is raised?
The establishment of the Eurozone brought reality of government finances to the surface. Your views lead me to believe we need a world or regional currency here to keep us in touch with reality.
Posted by Old Man, Monday, 16 March 2015 12:13:45 PM
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I find myself mostly agreeing with Foyle and Kellie.

However, we have other options, which include massive streamlining of our tax collection system; so that around 100% of the money collected finds its way into government coffers, instead of the alleged 60%, that is what is apparently left after all the "collection costs" have been met.

And without question official double dipping, also allows us to live beyond our means or spend more than we collect; sorry, allow to find its way to intended/deserving recipients.

You could do worse than read Graham's current blog on super and the comments on tax and one explanation of official double dipping, contributed by one A.B. Goulding.

And germane to the thread, given you can't have one (affordable super) without the other. (Vastly overdue, real tax reform and massive simplification!)
Rhrosty.
Posted by Rhrosty, Monday, 16 March 2015 12:53:24 PM
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