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The Forum > General Discussion > If we don't act, we are going to go broke.

If we don't act, we are going to go broke.

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ttbn,
The Australian government does not borrow in foreign currencies. It hasn't to any large extent since our dollar was floated, and it hasn't at all since the 1990s.

Therefore, even if our debt were the biggest in the world, we could still borrow more just as easiily as if we had no debt at all. The BRA would never refuse to lend us money if we needed it, and because of that, bondholders can also be 100% sure of getting their money back.

This doesn't mean we should always run deficits. There are often good reasons to run surpluses. But fear of going broke isn't one of them.

And there are ALWAYS good reasons not to waste money. But again, fear of going broke isn't one of them.

Governments often do make money on their borrowings, as the money can be spent on things that make the economy more productive.

"Living within your means" is an INCREDIBLY STUPID policy for a government, as it not only prevents that government from investing in the future, but also forces the economy to shrink. This in turn reduces tax revenue, so more likely than not, the government would fail to achieve that dumb accounting objective anyway.

Cooperation, family and self help are good things, but they're not a cure for the problem of a stagnating economy. More government spending is.

And the worst thing now is the people like you: whinging about the gounger generations' failure to take the opportunities that aren't there any more. Tertiary education is not an alternative to life experience, but a way of enabling life experience!

Governments are best placed to solve the problems because they have the resources that ordinary people don't have (and often don't even have access to). But we do need capable government. When the most able are the least qualified, it's likely to lead to a lot of waste.
Posted by Aidan, Monday, 26 October 2015 4:39:56 PM
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Aidan,

Thank you for our response.

Debt is debt, whether in A$ or roubles. Where does Australia borrow, by the way?

What is the BRA?

How does "the government often make money on their borrowings, as the money can be spent on things that make the economy more productive." ? I have never heard them bragging about this.

Why is " " "Living within your means" an INCREDIBLY STUPID policy for a government, as it not only prevents that government from investing in the future, but also forces the economy to shrink." ?

What investment for the future is involved, and how does living within your (the governments) means force the "economy to shrink".
You obviously know something that I don't, and I would appreciate enlightenment.

How is "more government spending" going to cure the "stagnating econommy.? How much and for what target?

People like me: "whinging about the gounger (sic) generations' failure to take the opportunities that aren't there any more. Tertiary education is not an alternative to life experience, but a way of enabling life experience!

I'm not "whinging"; I reckon on about 5 more years, going on my health and and family history. And, sitting on your butt in a university is not, in any way, "enabling life experience!"

Governments are "best placed" to regulate and attend to defence: that's it. The rest should be left to private enterprise.

Always happy to benefit from your vast experience and knowledge.
Posted by ttbn, Monday, 26 October 2015 7:19:31 PM
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Adian's first comment made a lot of sense. The Federal Government, as the issuer of the Australian dollar, can always pay for anything it can purchase in exchange for an appropriate amount of that currency.

The Australian Commonwealth Government (a name I prefer) can buy all the underemployed labour and domestic resources available and put them to work provided it can keep inflation under control.

Australia only needs to borrow foreign currency to purchase goods that are not available in exchange for $A. To help with internal unemployment problems some foreign governments will accept $a as settlement. In that case the $A balances become part of the reserves of such country and that government issues their own currency to cover the internal wages and all the other costs.

Some of our bankers prior to the GFC thought it was sensible to borrow foreign currencies short to back long (mortgage) loans. The Commonwealth Government used its high quality ranking around the world to roll over those bank borrowings as they became due, in effect bailing the banking incompetents out.

Within Australia a credit rating for the Commonwealth Government for Australian dollars makes no sense whatever.

Too many people on this site write nonsense about a subject that they understand little about.
Posted by Foyle, Monday, 26 October 2015 7:36:37 PM
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ttbn,

Sorry, the BRA is a typo. I meant the RBA.

Australia borrows exclusively on the domestic bond market (though that does depend on what you  regard as borrowing — commercial banks depoosit money with the RBA so that could also be regarded as Australia borrowing).

Contrary to what Foyle said, Australia does not need to borrow foreign currency to purchase goods not available in $A. What we do instead is borrow $A and then sll them to buy the required amount of foreign currency.

The government sometimes brags about some of its infrastructure spending, but because the payback time typically outlasts governments, they're pretty cautious about it. Plus it's something that most people would expect anyway. 

Those who say the government should live within its means" when they really mean it should balance its budget fail lto understand several things abut the economy:
Nearly all  money is debt. Apart form the small fraction that  is physical cash, nobody can save unless someone else borrows.
Having large numbers of people unemployed is bad for the nation. It's bad for social inclusion, it's bad for health, it's bad for skill levels (because most learning is done on the job) and it's bad for business (because when potential customers don't have a reliable income source, they're unlikely to spend much money). But most of all it's bad for the government because they not only have to pay dole, but also forego a lot of tax revenue.
The governments true means are  nothing to do with its budgetary outcome; they're the availability of workers, materials and energy.

(tbc)
Posted by Aidan, Monday, 26 October 2015 11:08:56 PM
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(continued)
When the private sector is weak (as it now is) it needs to be confident of its ability to make money before it takes on any staff. If the govenrment tries to spend less in order to  "live within its means", there's even less money available so the private sector is likely to lay off more staff. Combined with the increase in unemployment from the public sector workers/private contractors who were workng on whatever the government was spending the money on, and thre'll be a lot less tax revenue. So cutting in these conditions is very bad for the economy.

Conversely, in the boom time when there's full employment in some areas, a government spending more (because running a surplus, it thinks it has more means) will exceed its true means. It will either have to compete against the private sector for wages and materials (pushing up costs) or hike interest rates or taxes (to deter private investment).

To get the best value for the money it spends, and keep the economy strong, the government should deliberately run much bigger deficits now, and should run (and bank) surpluses in the boom times. We should not let the amount of debt we have affect the size of the deficit or surplus.

"sitting on your butt in a university is not, in any way, 'enabling life experience!'"
When the alternative is long term unemployment, it certainly is!

(tbc)
Posted by Aidan, Monday, 26 October 2015 11:10:58 PM
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ttbn (continued)
Governments that confine themselves to regulation and defence will  inevitably fail to solve the nation's problems (including the domestic violence issue that sparked this thread). Public benefits, especially long term ones, will be ignored. Some industries will become less efficient (notably health, where it's generally agreed the public hospitals are more efficient than the private ones for most purposes).

But most importantly, a capable public sector is crucial if we want to ensure public money is spent well. Consider the school halls scheme: a triumph in WA where the state government scrutinised every plan to ensure the money was being spent efficiently. OK in SA, Queensland and Tasmania where the state governments oversaw it. But a scandalous waste of money in NSW and Victoria where the private sector were in charge of everything.

_____________________________________________________________________

rehctub,

Not only has our debt not caused us any problems, but there's no credible mechanism by which it could do in future. If how anyone can think we don't have a debt problem is beyond you, I suggest taking some time out to educate yourself rather than continuing to spread your ignorance.

Your recolection of past events is particularly dodgy. 8 years ago the government were achieving surpluses, but doing so by underinvesting in infrastructure, and by selling assets like Sydney Airport at a fraction of their true vaule. But rather than banking the surpluses, the government announced them and then spent them. And going into the 2007 election, both main parties promised irresponsible tax cuts of equal size.

The next year the GFC hit. It was the biggest bust since the Great Depression. Rudd's prompt action meant we got through it almost unscathed, despite a collapse in mining revenue. Afterwards mining revenue recovered, but the economy was weakened by the RBA board's paranoia about an inflation risk that wasn't really there, and by the Gillard and Abbott governments' irrational attempts to rush back to surplus.
Posted by Aidan, Monday, 26 October 2015 11:38:18 PM
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