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The Forum > Article Comments > It doesn’t have to be a circus > Comments

It doesn’t have to be a circus : Comments

By Don Aitkin, published 8/7/2016

If Malcolm Turnbull cannot bring himself to negotiate he needs to find colleagues who can, and who can deliver afterwards.

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Words of wisdom! Politicians will now need to start earning what they are more than well paid to do.
Posted by ttbn, Friday, 8 July 2016 10:55:09 AM
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The ending of the article is a non sequiter. Australia is financially sovereign. No matter how deep it gets into debt, it will always be able to borrow more just as easily as if it had no debt at all. We will never be like Greece.
Posted by Aidan, Friday, 8 July 2016 11:04:17 AM
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Aidan,

Enough of this "financial sovereignty" business! Think of the massive interest payments the big borrowers have lumered us with.
Posted by ttbn, Friday, 8 July 2016 11:24:49 AM
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ttbn,

Enough? How can it be enough when the lack of understanding of our true financial position and fear of impossible outcomes is pushing people like you to support policies that harm the Australian economy?

We have not been lumbered with massive interest payments. The interest payments are very small compared to the size of the economy, and with interest rates at record lows it makes sense to take on debt to invest rather than try to pay off debt. But the case for taking on more debt is a lot stronger than that, because the private sector is currently weak. Taking more money out of the economy would weaken it further, which would shrink the economy and reduce tax revenue, so there would still be a deficit but with fewer jobs and less growth.

If the economic cycle proceeds as it normally does, the private sector will we will reach the point where paying off debt becomes the better option. Indeed during the boom it makes sense for Australia to run surpluses and bank them even if we have no debt at all (because doing so would keep interest rates down). But the deciding factor should be the effect on the economy, not the desire to reach some arbitrary financial outcome at some point in the future.
Posted by Aidan, Friday, 8 July 2016 2:12:21 PM
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Don while I agree anything is better than having Turnbull with his kooky brand of Chardonnay socialism gaining more authority over any government, hung parliaments are a disaster.

They lead to massive pork barrelling of a few in the electorate of swing members, to the determent of all others. At the same time, they allow the tail to wag the dog.

We saw this dramatically with ridiculous green policies getting the nod from Gillard, just to keep her in the lodge.

Here we now have the worst possible of all results. A kook likely to be PM, with not only his misguided ideas involved, but possibly the ideas of special interest candidates having far more control than their support entitles them to.

In this particular instance we are likely to see even more torrents of other people's money pouring into South Australia, to keep that failed state afloat, despite the dreadful management of it's state government. This unearned support will lead to even more bad government of the state in the future.

In a perfect world your principal may work, but in this very flawed world, I don't believe it does.
Posted by Hasbeen, Friday, 8 July 2016 3:17:21 PM
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Angela Merkel has been Chancellor of Germany since 2005 and never enjoyed a majority.
Posted by Cobber the hound, Friday, 8 July 2016 3:19:10 PM
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Aiden you do not have a clue:

If we are seeing falling world energy consumption per capita, which all of the energy statistics indicate, it should not be surprising if world GDP growth per capita is falling as well. The recent sharp drop of world oil prices corresponds with the decrease in world per capita energy consumption. World per capita energy consumption hit a peak in 2013. Additionally the drop in coal consumption may be resulting in low world economic growth.

The apparent coincidence in timing may simply reflect the fact that the same forces that cause falling commodity prices are also causing low economic growth. Growing wage disparity and lack of growth in debt seem to be factors in causing both. If workers at the bottom of the hierarchy could better afford the output of the world economy, with or without additional debt, the world economy would have a better chance of growing.
I don’t see much hope for fixing a world whose economy is moving in the direction of shrinkage. Instead, the situation is likely to get worse, until the financial system collapses.

A major impediment to getting a rational discussion of the issues is the inability of a large share of the population to deal with what appears to be a potentially dire outcome.

Until you grasp this Aiden, you will continue to rant on about debt being virtually meaningless when in fact it is part of the reason the global economy is so fragile and heading toward collapse.

Forget Malcolm or Bill, our future fate was baked into the cake long ago.
Posted by Geoff of Perth, Friday, 8 July 2016 4:49:30 PM
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I don't see Malcolm having much difficulty in negotiating a workable majority with other small L liberals? And using that working majority to get some contentious issues resolved? Via a binding plebiscite!

That said, the real difficulty has been a backbench that simply rejects the will of the people and in favour of autocratic conservative policy?

And a trend that goes as far back as John Howard, our most autocratic Leader? And a raft of non core promises inclusive of his GST! Forced through against the expressed will of around 87% of the polled electorate.

The real circus began with the Tampa incident that allowed the soft underbelly of fully imported xenophobia to flourish? And he holds one nation in contempt?

If there are difficulties ahead, it will be found inside the party and on the backbenches and in the moral blackmail some folks think is the way honorable men (conservatives) conduct themselves?
Alan B.
Posted by Alan B., Friday, 8 July 2016 5:16:31 PM
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Hi Hasbeen

Two things bother me mate:

1. The "massive pork barrelling" in the swing electorate I'm in won't be payed now, because the dill who drew the pork has been voted out.There should be pork barrel contracts!

2. Like when Turnbull was Opposition Leader he'll get so stressed out, managing a situation he can't control, that he will be party-room ejected this year - with some nasty, like Abbott, replacing him.

Not Abbott? Reckon:

- Julie won't want it.

- Dutton and Morrison not yet ready.

- Andrews, very ordinary.

- Pyne! Flapping Diddums.

The outsiders, Cormann or Sussan Ley, might be the LNP best?

Planters
http://www.aph.gov.au/about_parliament/parliamentary_departments/parliamentary_library/parliamentary_handbook/current_ministry_list
Posted by plantagenet, Friday, 8 July 2016 6:09:40 PM
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Aidan,

You must be the only person in Australia not concerned about the interest accrued by politicians' borrowing.

If big borrowing and high interest is OK, why are politicians, but more importantly respected economists, worried about our current credit rating.

Why are ratings agencies, now looking very hard at Australia - even suggesting they might lower our rating - not saying, "But we are not too worried because Australia is financially sovereign."? I have only ever heard that phrase from you - certainly not from any well-credentialled, professional finanance experts. It sounds like money printing to me.

What are the policies you say that "people like (me)" support that are harming the economy? Do they have any policies except borrow big and spend big, and to hell with future.

I do not have any formal qualifications in economics. Do you? Because, without any malice felt by me, I have to say that you are not very convincing. If you were convincing, surely somebody in authority would listen to you? Finally, is it logical that Australia and the rest of the Western is going down the gurgler when, if you are right, you have the solutions?
Posted by ttbn, Friday, 8 July 2016 6:13:56 PM
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The idea of a hung parliament is not the problem - the problem is with the duopoly which passes for major parties which believe that the public must chose one or other of them to govern.
To use the oft-quoted comparison, it's like Woolworths competing with Coles to sew up the food retail market... except that Aldi has moved in!

Both major parties are unresponsive to what the bulk of our population want, and don't respect their wishes - they tend to be authoritarian in outlook rather than collegiate.

A parliament where neither has a large lead means that more influence on policy formulation can be made by independent members or groups of them, and could spell the end of ritualistic habitual party allegiance by uncaring or uninformed voters.
Posted by Ponder, Friday, 8 July 2016 6:28:57 PM
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Aidan

Yep Australia needs to keep borrowing, borrowing and borrowing - no worries mate.

Debt and consequences of? - no worries mate.

Interest repayments continuing to grow with no reduction to principal - no worries mate.

When Australia's credit rating drops - no worries mate.

Basic maths knowledge - priceless!
Posted by SAINTS, Friday, 8 July 2016 7:13:04 PM
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There is something wrong with your last sentence, Don.

"Why can't we be like Greece?"

OR

"We can't be like Greece"

might make sentence- sense, though I puzzle over what each might mean.

West's verdict on the election makes some sense. Though nobody knows the result yet, especially in the Senate. Hanson may yet win three seats, or maybe one. And so on.
Posted by Waverley, Friday, 8 July 2016 11:57:47 PM
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Hi Aidan,

No country in the world is 'financially sovereign', not the US, China, Greece or Australia. Every government either has to borrow, at international rates based in part on their credit rating, like us (or Greece), or park surplus funds in the most reliable and best-paying bond markets, as China does in the US.

If a country's credit rating declines, its borrowing costs - interest - are likely to go up. Also, as its total public debt rises as a proportion of the GDP, international lenders would be likely to increase interest rates.

And, since a country has to borrow if it doesn't have sufficient short-term funds for its budgetary commitments, the larger the shortfall in revenue, the more it has to borrow, for longer terms, and the larger the interest rates are likely to be. The relatively harder it would be to pay back both the interest and the principal. The interest bill would have to be added to the budget deficit, compounding the problem in future years. Hence the Grecian spiral.

'Sovereign' ? Like a sieve, maybe.

Cheers,

Joe
Posted by Loudmouth, Saturday, 9 July 2016 12:38:24 PM
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Cobber the hound said, "Angela Merkel has been Chancellor of Germany since 2005 and never enjoyed a majority", yes & just look at the mess they are in. They are running like the devil was after them, & he is. They sure as hell wish they had never heard of off shore wind parks, & more of their states are effectively banning windmills with proximity restrictions.

Billions of dollars worth of windmills doing nothing useful, like supplying power, & industry heading for anywhere with sensible power prices.

Give us a hung parliament, & senate, & we will have ratbag greenie tail wagging our dog, just when we need some rational cost cutting.

God help us.
Posted by Hasbeen, Saturday, 9 July 2016 3:00:39 PM
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With Malcolm at the helm, it will be a real circus!

He couldn't run a flea circus let alone a divided nation like Australia and its craven oligarchs of which he is one.

Malcolm will take us to war soon enough, make a lot of money from selling arms and giving out country to the 'exceptional ones's who war and whore and destroy all over the world.
Posted by David G, Saturday, 9 July 2016 3:23:02 PM
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I give an increasingly tired, disorientated, Turnbull till February (if not before) when he will be "Party Roomed" (new verb, you saw it first on OLO). He may be replaced by an unready compromise candidate (like Morrison) or a rightwinger (like Dutton) or non-entity (like Andrews).

Turnbull gets stressed out when he can't control a situation.* And a near hung Lower House and Hung Senate is such a situation.

* Who can forget Turnbull's dysfunctional performance as Opposition Leader (2008-09). Turnbull's support for Rudd's Carbon Pollution Reduction Scheme and opportunism over Utegate-Gretch rightly did him in. https://en.wikipedia.org/wiki/Malcolm_Turnbull#Leader_of_the_Opposition .

We are now embarking on Lord Turnbull's typical pattern - unprincipled risks with other people's interests.
Posted by plantagenet, Sunday, 10 July 2016 12:08:43 PM
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For Waverley: My 'Why can't we be like Greece...' was meant to be ironic. Plainly I should have found a better way to express my concern that people would think the fact that others were in trouble was no reason to stop our also being in trouble.

And, for Aiden, I am not opposed to borrowing to invest in infrastructure that will yield a real bonus to the society. But that is not what we are doing. We are borrowing to pay the bills for our weekly shopping: there is a deficit in the current account, and it is growing.
Posted by Don Aitkin, Sunday, 10 July 2016 1:54:15 PM
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Geoff of Perth,

I think you misunderstand what I'm saying. Debt is indeed of great significance, but its effects, particularly in sovereign currency issuing nations, aren't what most people think they are. A shortage of debt is holding the economy back. Companies are unwilling to take it on because it's not sufficiently profitable to do so. Individuals are unwilling to take it on because they're uncertain of their future income (and hence their ability to repay it). Governments are unwilling to take it on because although doing so would be good for the economy, people believe it would be bad for the economy. So instead they try to cut spending, which further weakens the economy.

_______________________________________________________________________________________

SAINTS,

You may regard basic maths knowledge as priceless, but I suggest you look beyond that; you'll find more advanced maths knowledge to be even more valuable. In particular, you should try to understand infinity, because that's what the nation's credit limit is (providing we stick to borrowing only in our own currency).

Once you understand that, you'll see that the debt problem is imaginary. Instead you should look at the deficit, which has real effects which vary enormously according to where we are in the economic cycle.

_______________________________________________________________________________________

Loudmouth,

Greece is not financially sovereign. Nor is any other Eurozone country, as they've all surrendered their sovereignty to the ECB.
China is technically not financially sovereign, as it has a fixed exchange rate. However it could float its currency at any time, after which it would be financially sovereign.

Australia is financially sovereign. Although we choose to issue bonds for reasons of bank liquidity (and historical reasons) we don't actually need to. We could instead borrow directly from the RBA with no ill effects. Because of this, it is IMPOSSIBLE for us to be in a position where we have to default on the bonds.

The main determinant of bond rates is the official interest rate. The risk factor's added to that where applicable. But the ratings agencies are becoming less relevant. When they cut the USA's credit rating, the market didn't believe them.
Posted by Aidan, Sunday, 10 July 2016 7:26:38 PM
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Why can't posters such as Aidan realise that the level of our foreign debt is of overriding importance? The fact is that as far as foreign debt is concerned, Australia is in exactly the same position as a household. This is because the Federal Government cannot print foreign exchange, and neither can it make a foreigner lend Australia foreign exchange,

An additional problem is that most of our debt is in another currency, so if the $A collapses the local value of the debt and interest payments goes through the roof. In addition, if our level of debt becomes such that overseas lenders will only continue to lend if their interest rate is substantially increased, there is absolutely nothing that anyone here can do except grin and bear it. If we were to default on our overseas debt (which we did in 1932), the result would be that no-one would export to us unless they were paid cash on delivery, as our credit rating would have been devastated.

The economic action that is needed includes a substantial reduction in the living standard of ordinary people (with no reduction for the rich), and massive incentives for people to save money. Every dollar saved is dollar less that has to be borrowed, and unless we experience another boom period such as the late 1940's, it would have to last for some years.
Posted by plerdsus, Sunday, 10 July 2016 9:08:52 PM
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Aidan, there is no magic pudding.

Printing money has its downsides. One is to increase inflation making investors wary of further lending to us at low rates. Another is our downgrading by ratings agencies with consequent higher interest rates on our borrowings.

If want to argue that a path can be taken by the Reserve Bank which alleviates us from the austerity measures that our newly elected gov't policy intends, fine, but do point out its downsides and don't talk them down with the blithe argument that they may not happen.

Also, it would be ethical and prudent to advise lenders that we intend to repay massive infrastructure loans with printed money, rather than give them a nasty surprise, don't you think?
Posted by Luciferase, Sunday, 10 July 2016 9:46:15 PM
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Luciferase,

Right now the inflation rate's below the RBA's target rate. That's mainly because the private sector's currently reluctant to borrow money. Under these circumstances it makes sense for the government to run a bigger deficit.

The inflationary impact of borrowing money directly from the RBA would not be significantly different from borrowing it on the bond market, as the processes are functionally equivalent. The RBA still controls inflation by adjusting the interest rates it charges/pays commercial banks, which indirectly controls the amount of money in the economy.

I'm not blithely talking down anything that merely may not happen. But nor am I willing to pretend impossible outcomes are possible.

FWIW if our government debt were in a foreign currency, your concerns would be valid.

_______________________________________________________________________________________

Don Aitkin,

The line between what constitutes investment in our future and what constitutes "weekly shopping" is very blurred - it's not just infrastructure but also education and science, and even some of our health spending that gives positive future returns. I'm certainly not advocating wasting money, but a lot of cuts do turn out to be false economies.

And if a person knew they'd soon be getting a pay rise, it may well make sense for them to spend more than they were earning. And if the size of the pay rise depended on how much they were spending, that would certainly be the case.

More government deficit spending grows the economy and results in more tax revenue. Less government deficit spending shrinks the economy and results in less tax revenue, unless and until the private sector is strong enough to drive growth.
Posted by Aidan, Monday, 11 July 2016 12:58:00 AM
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plerdsus,

It doesn't matter that the Federal government can't print foreign exchange, as 100% of its debt is in Australian dollars. So is most of the state government debt, and the small proportion that isn't is hedged against currency movements. Most of the foreign currency debt of the commercial banks is also hedged.

The Aussie dollar is not at risk of collapsing, as its level is self correcting. When it goes down we export more and import less; when it goes up we import more and export less.

We should stop needlessly worrying about the impact of impossible events, and instead try to maximize its long term value.

_______________________________________________________________________________________

ttbn,
"You must be the only person in Australia not concerned about the interest accrued by politicians' borrowing."
No, not all the population is under the same illusion as you are.

"If big borrowing and high interest is OK, why are politicians, but more importantly respected economists, worried about our current credit rating."
Because they still don't understand the implications of financial sovereignty. They think of economies the way they used to be when exchange rates were centrally planned. Indeed many countries do still have centrally planned exchange rates despite the severe dangers these cause.

I should make it clear that this is far from universal. Some economists do understand, but the press tends no to discuss their position in detail (though it has been mentioned in the SMH).

"Why are ratings agencies, now looking very hard at Australia - even suggesting they might lower our rating - not saying, 'But we are not too worried because Australia is financially sovereign.'?"
Because they are incompetent. We saw that in the GFC.

(TBC)
Posted by Aidan, Monday, 11 July 2016 1:01:00 AM
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ttbn(continued),

"I have only ever heard that phrase from you - certainly not from any well-credentialled, professional finanance experts. It sounds like money printing to me."
It is effectively the ability to print money. But the implications of that are very different to what you might think. Increasing the money supply is an everyday occurrence, not something that collapses an economy. And whether the government borrows from the RBA or on the bond market, the result is the same: government debt increases, the total gross debt in the economy increases, and the total net debt in the economy stays the same.

"What are the policies you say that 'people like (me)' support that are harming the economy?"
Trying to cut the government's deficit while the private sector is weak. Keynes proved in the 1930s that we should be doing the opposite.

"Do they have any policies except borrow big and spend big, and to hell with future."
Who do you mean by "they"?
Generally the ones who want to borrow big and spend big want to build a better future, while the ones who oppose it are under the illusion that they can't do anything better for the next generation than pay off government debt, even though that doesn't really benefit the next generation at all.

"I do not have any formal qualifications in economics. Do you?"
Although I did do a bit of economics as part of my Civil Engineering degree, all the stuff about financial sovereignty I've learned since then in an informal setting.

"If you were convincing, surely somebody in authority would listen to you?"
If you know how to convince those in authority, I'm all ears!

What would it take to convince you?

"Finally, is it logical that Australia and the rest of the Western is going down the gurgler when, if you are right, you have the solutions?"
It depends what you mean. It's not logical for them to ignore the solutions, but it is logical to conclude that's what they're doing.
Posted by Aidan, Monday, 11 July 2016 1:02:48 AM
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Aiden,
Public debt is important, particularly in relation to trade, interest rates, etc, etc as others have pointed out to you.

Currently private debt is of far greater concern, it is running at about 120% of GDP and rising fast. Too many people have too much debt, some with repayments exceeding 150% of their annual incomes, this rapidly results in disaster, and one reason so many people are in a debt trap spiral which they cannot resolve, short of selling their assets and having to start again from scratch. In fact, per capita, Australian households have the highest levels of private debt in the world.

Additionally, Australia's economy is turning toward a deflationary death spiral, with the "knowledge and innovation economy" espoused by the coalition government, in my opinion, going to delivery little if any boost to the real economy, just more hot air and dreamt up economic voodoo.

You need to realise that since about 1913 the value of our currency has dropped by about 97%, however the remaining 3% fall to come is still a 100% fall from where we stand today.

Interest rates are headed toward zero (0) and a government hell bent on grabbing our Super by any means and a long term fiscal disaster for all, no matter which party is in power. Hold on tight the ride is about to get very bumpy.
Posted by Geoff of Perth, Monday, 11 July 2016 1:07:38 AM
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Aiden,

Lets say I find a new continent and inhabit it and I want money on my continent.
So I have to borrow it. My new currency is called 'Aiden's'.

So I go to the central bank and they print for me 1 million 'Aidens'.
I've got to give them bonds from my new government on my new continent.
Say the bonds pay 2 percent.

So I've got 1 million 'Aiden's' in the government account.
I also have interest liabilities of 20,000 Aidens p/a.

I CAN NEVER PAY BACK THE DEBT CAN I?

How can I pay back the 1 million and 20,000 'Aiden's'
IF THERE ARE ONLY 1 MILLION AIDENS IN EXISTENCE??

Tell me has anyone EVER paid back the debt?

Now lets look at our economy,
No manufacturing jobs, more welfare, higher food and energy costs and less discretionery income to buy things.
How is the private sector ever going to improve?

And how the hell are we going to pay back a trillion dollars?
Because thats where its headed?

You seem to think that somehow shifting digits to different columns will save us.

But I'll tell you something else.
Not everyone cares about our debt.
Many in fact are sick and tired of hearing about it.
I've heard about the countries debt like a violin my whole entire life.
A cracked bloody record that never stops.

If debt is 'Business as usual' people switch off, people don't care.
If you're so keen to borrow, you can start paying my share of the interest as well.
I'd rather the government just give it to me straight and say we're broke.
Posted by Armchair Critic, Monday, 11 July 2016 3:09:38 AM
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Aidan, you still don't get the point. You keep on mentioning government debt, whereas the major proportion of Australia's debt is private debt, mostly carried by our banks. The main vehicle is 6 month US Dollar certificates of deposit, which are auctioned regularly by the banks as they roll the debt over. Do you remember a mortgage entity called RAMS? They ended up bleating that no-one would bid on their certificates, and that they had a large amount maturing in the New Year. I believe they ended up being purchased by Westpac for $1.

Due to our sainted Johnny Howard, who left office with no government debt, our government debt is still not too high, despite the strenuous efforts of Gillard and Rudd. Not having any government debt is reckoned as the main reason we escaped the 2008 crash so lightly.

What interests overseas investors is our total debt, and the likelihood of them being repaid. They are not going to buy $A debt if they think the $A will collapse.

We therefore need to live within our means by cutting the living standard of ordinary people.
Posted by plerdsus, Monday, 11 July 2016 12:24:23 PM
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Far be it from me to correct a political expert I actually respect, Don, but this still reads strangely to my eyes- and I cut and pasted your final words:

. ..After all, as more than one politician pointed out, there are other countries worse off than ourselves. We can’t we be like Greece…

Yes?

Well Malcolm appears to have a slim majority anyway. See how he goes with the Hansons of this world. Hope she doesn't get confused with Hanson-Young! What a pair they will be on the cross, cross benches!
Posted by Waverley, Tuesday, 12 July 2016 9:01:51 AM
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Waverley,

Oh my goodness! A typo, and I didn't see it several times. I meant to write 'Why can't we be like Greece...'

Thank you. I'll correct the error on my website, but I can't do it here.
Posted by Don Aitkin, Tuesday, 12 July 2016 9:13:54 AM
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Aiden -

"The debt problem is imaginary. Instead you should look at the deficit, which has real effects which vary enormously according to where we are in the economic cycle."

Our debt problem is imaginary? Really!

Just where are we in that fictitious economic cycle - with debt approaching $trillion?

50% of Australians currently don't pay tax, with figure growing.

Keep a close watch over the next four years then come back to us with more implausible theories on fiscal policy.
Posted by SAINTS, Tuesday, 12 July 2016 9:31:13 AM
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Don
I find I can't proof-read my own work well, because I am running over what I meant to write, in my head.

I was downcast when a friend found 12 typos in the first 2 pages of one of my books.
Hmmmmm. And I thought was nearly perfect......
Posted by Waverley, Tuesday, 12 July 2016 1:04:56 PM
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Armchair,

Interesting scenario. If it's your own central bank, you don't actually need bonds as the central bank itself can effectively control the money supply by paying/charging the commercial banks interest. And when bonds are issued, selling them to the central bank is unusual, though it's not unknown (they call it QE). So assuming we're doing it your way:

If others are borrowing Aidens then you can pay back the debt.
If you're the only one borrowing Aidens then whether it is theoretically possible to pay back the debt depends on whether the interest you pay is permanently taken out of the economy or put back in afterwards. But even if it's possible, paying back the debt would be incredibly dumb, because it would mean there's no money left in the economy!

So rather than looking at how you could pay back all the debt, it's better to look at why you should. Individual bonds must of course be honoured, but you can always sell more of them. So rather than aiming for a future position of no debt, it's better to increase and reduce debt according to the needs of the economy.

Now lets look at our economy:
Manufacturing's in trouble because our dollar's still higher than our balance of trade justifies. Manufacturers need cheaper credit to invest in new equipment to make them more efficient. They'd also benefit a lot from cheaper electricity, which we could easily get if cheaper credit were given to solar and wind generators.

More welfare? Less would have to be paid if there were more good jobs around.

Higher food costs? The opposite's true in my part of the country, as a new Aldi has opened in my suburb!

Less discretionery income to buy things? That's because neither the government nor the private sector is putting enough money into the economy. The government have been fooled into thinking taking more money out of the economy than they put in (aka running a surplus) is synonymous with economic responsibility.

Why the hell would we want to pay back a trillion dollars?

(tbc)
Posted by Aidan, Tuesday, 12 July 2016 1:15:24 PM
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Armchair (continued)

We're not broke. We have unlimited credit. Stop worrying about the debt and instead look at whether in the current economic circumstances the government should be putting more money into the economy or taking more out.

_________________________________________________________________________________

Geoff of Perth,

Public debt has no direct on trade, and little if any on interest rates.
Who has repayments exceeding 150% of their annual incomes?
The value of our dollar has declined against some things and risen gains others.

Keynes proved in the 1930s that a deflationary death spiral is very easy to get out of – it just requires the government to run a much bigger deficit. The case for doing so is even stronger now as, unlike in his day, it's impossible for the government to run out of money.

_________________________________________________________________________________

SAINTS,

Though our debt is real, the problem with it is imaginary.

We've almost gone back to the start of the economic cycle, as the attempts to rush to surplus weakened the private sector so much that we were unable to reach the situation where it was safe (or even possible) to run a surplus.

If instead of panicking, we'd let the economy run the way it normally does, employment would be much higher and more Aussies would be paying tax.

_________________________________________________________________________________

plerdsus,

I keep on mentioning government debt because many people still believe the myths about it, and because of that they advocate actions which damage our economy. Private debt is a different issue, though I'm happy to discuss it if you like.

Private firms have limited credit. But when the economy improves (or when interest rates fall) the private sector can afford to borrow more.

Commercial banks are overreliant on foreign capital. The government should IMO make it easier for them to source more of their funds from the RBA.

Rudd's stimulus was the main reason why we escaped the 2008 crash so lightly.

Practically nobody thinks our dollar will collapse.

We need to increase our means, and boost the living standard of ordinary people!
Posted by Aidan, Tuesday, 12 July 2016 1:31:04 PM
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Aidan
So you believe - "Though our debt is real, the problem with it is imaginary. We've almost gone back to the start of the economic cycle, as the attempts to rush to surplus weakened the private sector so much that we were unable to reach the situation where it was safe (or even possible) to run a surplus. If instead of panicking, we'd let the economy run the way it normally does, employment would be much higher and more Aussies would be paying tax."

Is the above what you really believe? Maybe if you watch Senate Budget Estimate Committee Reports and discussions you might be enlightened on "actual" facts regarding our current fiscal status. Figures I have previously reported in various OLO discussions.

Glad to hear a new Aldi is coming to your part of the world, so you can buy cheaper food - that will fix some of our economic problems.
Posted by SAINTS, Wednesday, 13 July 2016 5:59:23 PM
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SAINTS,

I wouldn't've said it if it wasn't what I really believe. I believe it because it's what the evidence shows. A few senators making false assumptions does not disprove it. There is no plausible way we could run out of money.

The opening of Aldi has resulted in other shops lowering their prices to compete. That sort of efficiency improvement is good for the economy. Indeed any sort of efficiency improvement is good for the economy. It's improving efficiency we should be concentrating on, not chasing arbitrary fiscal outcomes.

____________________________________________________________________________________

Don Aitkin,

What would it take to convince you that we could never ever be like Greece?
Posted by Aidan, Thursday, 14 July 2016 5:56:19 PM
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Aidan,

I have enough to do without trying to answer such vague and footling questions.
Posted by Don Aitkin, Saturday, 16 July 2016 7:20:14 PM
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Hi Aidan,

Any country or government could be like Greece, eventually, if it continues with a level of spending commitments that consistently outweigh its revenue stream. After all, no country can get out of dealing with that chronic deficit by just printing money: it has to borrow on international markets at market rates, determined in part by its credit rating, i.e. its ability to pay back loans.

So the question is: how does a government reduce the gap between expenditure and income, not just to zero, but in order to pay back existing foreign debt, ideally to produce a surplus, but at least to bring debt down to a manageable level, and keep it below that level ?

So what spending programs does it reduce, or keep on hold, and how can it generate higher revenues to pay for spending commitments ?

Am I missing something ?

Cheers,

Joe
Posted by Loudmouth, Sunday, 17 July 2016 8:59:14 AM
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Simples, Loudy, when they want their money, with interest, we just print them some. They'll be happy with that.
Posted by Luciferase, Sunday, 17 July 2016 11:27:42 AM
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Hi Joe,

Yes you're missing something. Or rather you're missing several things.

Countries don't have to borrow on international markets. They can instead borrow on domestic markets (as Australia does). Or they can just borrow from their own central bank. And because they can borrow from their own central bank, they can never ever be unable to pay back loans in their own currency.

There is a widespread myth (that I used to believe myself) that a country borrowing from its own central bank causes hyperinflation. But the truth is rather different:
Hyperinflation is caused by holding the currency above the market rate until the government loses the ability to do so. Borrowing from the central bank to fund foreign currency repayments can also cause hyperinflation under some circumstances, but just borrowing from the central bank to fund a domestic budget deficit has NEVER resulted in hyperinflation and it never will.

The above is important, so if you don't believe it then I strongly encourage you to search for a counterexample. You won't find one, because it's functionally equivalent to borrowing on the domestic market.

The more money that goes into the economy, the more the government get out in taxation if the tax rate stays the same. Ensuring enough money goes into the economy is vital if you want to maximise economic growth. But government spending only one way of getting money into the economy; encouraging more private spending is another. And too much spending in one area can cause too much inflation. So it makes sense for the government to spend more when (and where) the private sector's spending less, and less when (and where) the private sector's spending more. Right now private sector spending is well below trend.

But despite borrowing from the central bank not endangering currencies, Greece can't do so because it's surrendered its financial sovereignty to the European Central Bank, and the ECB's refusing to lend it money.
Posted by Aidan, Monday, 18 July 2016 12:32:55 PM
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Aidan,

Someone up-thread asked you how, in your world, you would find that Yen necessary to buy things in Japan, and the USD to buy things in the US. Are you assuming that the country will always be selling things? It's all very well to borrow from our central bank, but if you need foreign currency the central bank has to have some...

Like Joe, I think I'm missing something. We are spending a lot of money on interest at the moment. That means we have less money to spend on necessary items from overseas. What you have been saying simply doesn't make sense to me.
Posted by Don Aitkin, Monday, 18 July 2016 5:10:53 PM
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Don Aitkin,

Exactly the same way as we currently do! When we need to buy things from Japan, we use Aussie dollars to buy yen. When we need to buy things from the US, we use Aussie dollars to buy US dollars.

It's been that way since Keating floated our dollar. And yes, it does mean our dollar devalues every time we buy something from overseas. But that stimulates exports, which have the opposite effect. And of course I'm assuming we'll always be selling things... just like every other country!

Hypothetically, if we had nothing to sell, it would be irresponsible to buy anything.

The claim that we're spending a lot on interest is a bit dubious, as our debt to GDP ratio is fairly low by historic standards, and interest rates are at an all time low. But even when we do spend a lot on interest, it shouldn't be a problem. You seem to be assuming that we have a fixed amount of money to spend on interest and imports. That's not the case at all. We can spend as much as we like on imports (regardless of the interest we're paying, which is all in Aussie Dollars) but there are consequences for our dollar's value. Not catastrophic consequences, but consequences nonetheless.

I'm of the opinion that we should try to maximise the long term value of our dollar by investing in the infrastructure and education we need to make our economy more competitive, but we shouldn't worry much about its short term value; that's largely self correcting. One small but significant exception to this is when its short term value's unsustainably high and likely to damage our industries; in that situation the best option is for the government to invest in a sovereign wealth fund (regardless of whether there's a deficit or surplus).

Anyway, I'm glad you no longer consider it footling, and I hope it makes sense to you now. Please let me know if there's anything you still don't understand.
Posted by Aidan, Monday, 18 July 2016 6:27:44 PM
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Aidan

You say - "I believe it because it's what the evidence shows. A few senators making false assumptions does not disprove it. There is no plausible way we could run out of money".

So you're basically saying "your" evidence is more credible than government agents - under oath - providing factual evidence to Government in Senate Estimate Committees.

Try viewing a Senate Estimate Committee meeting, or if you're too busy one can obtain a copy of Hansard for perusal and edification.
Posted by SAINTS, Monday, 18 July 2016 6:38:40 PM
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SAINTS,

I can not yet ay that with certainty, as I do not know exactly what it is the government agents told the Senate Estimates Committee, and I don't know on which occasion you're referring to.

But I think it is quite likely that they have inadvertently misled the Senate. Though it's wrong (with a flawed theoretical basis and no empirical evidence to support it) the idea that borrowing from your own central bank would cause hyperinflation is a very widespread myth. It's something I once thought I knew to be true, so would not be surprising if government agents also wrongly believed it to be true.
Posted by Aidan, Monday, 18 July 2016 11:06:14 PM
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Aidan

You say - "I can not yet ay that with certainty, as I do not know exactly what it is the government agents told the Senate Estimates Committee, and I don't know on which occasion you're referring to."

I give up! You don't follow Senate Estimates Committee Reports, (by any Government Committee) you don't chose to read any transcript of Hansard - to review factual evidence, provided to Government.

I have no further time to waste.
Posted by SAINTS, Tuesday, 19 July 2016 8:20:07 AM
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SAINTS,

Yes, like 99.9% of the population I don't follow Senate Estimates Committee Reports. And though I have occasionally referred to Hansard, it's not something that I regularly do.

You clearly do, yet rather than referring me to the report or section of Hansard you think would be relevant, you just give up!

But before you go, there's one more think I want to ask you: if in future I examine a Senate Estimates Committee Report and find that they've been given erroneous information, what should I do about it?
Posted by Aidan, Tuesday, 19 July 2016 3:06:20 PM
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(sorry about the typo; as you've probably guessed, it should say "thing" rather than "think")
Posted by Aidan, Tuesday, 19 July 2016 4:30:52 PM
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Aidan,

Wouldn't they be listed either in the Contents, or in the Index ? Not hard to find if you want to look.

Joe
Posted by Loudmouth, Tuesday, 19 July 2016 4:59:34 PM
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