The big problem with all the world economies is that they are based on the idea of being able to borrow against tomorrow's growth.

Given that the human race has bred past the point of being able to feed itself in a sustainable way that does not destroy the environment we are heading towards an inevitable crisis.

Greenhouse or simple overpopulation the point is that the planet needs to be able to devote a sizeabel protion of its total biosynthetic product to maintaining the systems that sustain us all.

When the pay for everything on debt model runs up against this hard reality we will be in deep trouble unless we have already planned for the transition to the new reality.

All the clever economics and differences between household and national economies are just ways for us to hide our heads in the sand and professors of economics to get paid.

Chris,

Then consider today's debt levels.

If nothing else our comparative position puts us way ahead of comparable countries.

I suppose it depends on what the debt is being used to finance.

Spending on infrastructure will pay dividends later on - distributing it on "sandwich and a milkshake" tax cuts won't. Also, much of the money being spent now will eventually find it's way back into government coffers as it moves through the economy and is taxed.

Also I was incorrect about the post WW2 levels. The correct debt figures are - increasing from 2.2% of GDP to 50% during WW1 and later from 40% in 1939 to 120% in 1945.

Fozz and Rache

I agree there are very important differences today when compared to the past whe we talks about debt and other eco data.

I also agree that Aust is in a much better position than other Western democracies. It does have low debt levels. And spending is needed to help our future needs.

However, main point of article was to indicate that still many things can go wrong, especially given plight of US, EU, and Japan.

We can not go on forever based on recent trends. And there are political considerations to be made.

As I have stated before, I am a supporter of freer trade, but I think we are facing immense problems ahead. I hope I am wrong, but that is my call based on my assessemnt of trends.

Barliman

You are right on most counts with your argument.

Unfortunately, the mjaority of people still look to those you critise for their material well being.

Good luck to you. Your type of argument needs to be listended to so keep arguing it.

Wobbles, the real reason for the stimulus was to buy time for a possible early election before the worst of it really hits us.

To have done nothing would not necessarily have been worse, the economy is going down, no matter what. There is that little matter of market forces, what goes up, too far, must come down, what goes down, too far, must come back up again.

There is no cure, other than market forces. If the yanks had done nothing about bailouts/stimulus then their economy would have gone down a bit further, but, be less burdened with debt, than it is now, and be able to bounce back more quickly. Ditto for us, without the bank guarantee/stimulus our economy, would be worse off now, but better able to bounce back again with more carefully targeted infrastructure spending.

Fozz, Rache & all other optimists/labour supporters, need to remember that in the post war boom period, the entire world economy was booming/growing along with the yanks. More important however is that those deficits, went into real infrastructure, like the "snowy mountains scheme" not into either left wing handouts or right wing tax cuts.

Chris is correct, "Rudd our savior" can go down to the beach and throw as many $1400/$900 cheques into the ocean as he likes. He will not succeed at either holding back the tide or walking on water.

The Chinese economic strength is based on savings, until we in the west, start saving more, and spending less, then our short term, gain will bring medium/long term pain. The only matter up for debate, is how long, before the chinese, who work and save harder than we do, take over.

Chris,

I agree with your assessment that many things can still go wrong, that we cannot go on forever down the current private debt (it is CRITICAL that we distinguish between private sector debt and sovereign government debt if we are to properly understand what we are debating and reach conclusions consistent with modern economic reality) growth fuelled path. Indeed, with private debt having hit 300% of GDP just before the meltdown – and the only other time in modern history to even approach that was just prior to the great depression, at around 246% - the US may well have reached the limits of growth through private debt expansion.

I further agree that political considerations will continue to hamper progress. After all, they have prevented our government from ever using it’s full fiscal capacity since we became a modern fiat monetary economy.

For a thorough explanation of how our modern fiat monetary economies function, versus the once accurate but now outdated versions still being presented as current reality, Professor Bill Mitchell is a good Australian source. In the US, Professor Randy Wray and Warren Mosler (a financial market player) are also worth reading/listening to.

I am certain that as a serious academic researcher, driven to always uncover and understand the truth, you will investigate this.

Formersnag,

Without the huge government spending packages, the US economy would almost certainly have collapsed.

Post WW2, our economy was tied to the US because currencies were pegged at fixed exchange rates to the US dollar, which was in turn pegged to gold. None of this applies any more. Our government is free to spend whatever it sees fit without needing to acquire gold or defend an exchange rate parity.

I agree that we should all save more but it must be understood that if everyone desires to save more, our government MUST run deficits – government net spending is the source of private savings.