Fozz you said

"If you check modern history, you will see that for 3 decades, our government was almost permanently in deficit. Are today's generations still paying for this spending? You will also note that this same period was the most prosperous in our history, with unemployment averaging around 2.5% (compared to 7.6% in the period we are in now) and nation building going ahead in leaps and bounds.
The hue and cry that our children will be burdened with debt because of the current deficit is complete nonsense and serves only to confuse and mislead".

Actually, at least in regard to federal govt budgets, 1974-75 to 2007-08, 16 surpluses, 17 deficits. $68 billion deficit from 1991-92 to 1996-97.

Yes, that's what I said Chris. Check modern history.

WW2 to the early 1970's counts as modern history. Now check the unemployment rate over that period and compare it with the periods before and since.

I take it that you understand the functional differences between our economy under the gold standard and the Bretton woods system of days gone by and the modern day fiat monetary system characterised by a non-convertable currency and a flexible exchange rate?

The biggest deficit in Australia's history as a proportion of GDP was run up by Treasurer John Howard.

For comparison, America's net debt is currently 50% of GDP, Germany's is 60% and Japan's is 90%.

In 1945, after the Great Depression and WW2, Australia's net debt was 45% of GDP.

That didn't take generations to pay off.

Menzies won all his elections without ever having a surplus.

Fozz and Rache

True.

But please inform me about how we can go on to counter higher budget levels today? 1950s and 1960s saw a boom in manufacturing in a climate of high tariffs, wages and taxe rates. Are we going to have that now?

And what about Japan? It's reliance upon private savings to counter budget deficits appears over for now.

Comparing the debt levels and budgets of the past to today is ridiculous.

Our time in the sun by historical standards has been brief but bright (or dark depending on your perspective). Normal equilibrium is being restored.
Or is it? Slowly a World Government is coming about, at this stage through ever more integrated regional groups like the EU, AU, NAFTA and ASEAN.
The question is whether this "New World Order" will be benevolent to mankind or to corporations? http://www.openyoureyesnews.com/?tag=new-world-order

Chris,

I share some of the concerns you have raised. But the points raised by Rache and myself are in no way invalid as long as we understand the differences between the economy of the past and the one of today.

You appear to be presenting the argument based on how the economy functioned in times gone by. The constraints on government budgets in the days of the gold standard, the Bretton woods system and before Keating floated the dollar no longer exist because they do not apply to a modern fiat monetary system. But it is broadly conceived that they do and a great many economic arguments are based on assumptions that the economy still functions in ways that it no longer does, leading to erroneous conclusions about what government can and cannot do.

The private sector does not fund federal government spending in Japan, the US or here. When federal (not state) government runs a deficit, it spends first then borrows a $ for $ matching sum in order to drain the excess reserves created in the banking sector by the deficit which would otherwise make it extremely difficult for the central bank to set interest rates. It may give the appearance of borrowing to spend but it is in fact borrowing as a matter of MONETARY policy, not fiscal policy.

If the government found it had no buyers at a bond auction, it would have no impact on their ability to spend whatsoever. They issue the currency that we use. As long as the debt is in their own currency, they cannot “run out of money”. Ever. Government spending is not constrained by any need for prior revenue.

In fact, it is much more accurate to say that deficits fund private savings rather than the reverse.

There is no structural need for them to be a problem and they may continue indefinitely without any possibility of government being unable to fund them.

If our government never ran deficits, we would not be able to acquire Australian dollars.