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 8/7/2016If Malcolm Turnbull cannot bring himself to negotiate he needs to find colleagues who can, and who can deliver afterwards.
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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.
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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.
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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.