"If you accept the notion that government borrowings not only add to interest rates but also to inflation ... well you do the maths."

Federal government borrowing has no direct causal link to interest rate movements. Comparing the historical data between the two, we see that interest rates occasionally rise following a rise in government debt but much of the time they move in opposite directions with no discernable sensible relationship between the two. Under Howard, government net debt fell to practially zero yet interest rates rose year after year to around 7.5%, only being brought down by the RBA's response to the onset of the GFC. This failure of the facts to conform to the theory is repeated down through the history of government debt and interest rates.

Why would they fail so very often to track the level of government debt? One reason would be that interest rate movements can have multiple causes. But I also don't think that government borrowing hoovers up funds necessary for lending, causing a shortage of loanable funds and thus driving up the price. Bank lending is not reserve constrained in the modern economy, they will lend to any credit worthy customer, the loan creating the deposit, not the other way around.

Whatever, the facts simply don't accord with the theory that government borrowing must push up interest rates.

Hi Tristan. I completely agree with your political outlook although I think that I may have a somewhat different understanding of how out modern fiat monetary economy operates.

Keep up the good work.

Tristan
"I accept that investment in infrastructure - in this case fibre-optic broadband - must come from somewhere... On the other hand - it's always best to utilise human resources - rather than accept unemployment."

The question is, how do you know that the expenditure on a given thing, such as broadband, won't cause more unemployment in the field of activity it was taken from, than it creates where it's expended in broadband?

"And investment in broadband..."

This assumes that it would be an investment, rather than a consumption expenditure. If taking the money out of whatever it was doing, and putting it into broadband, were to generate more unemployment, then would you still call it an investment? And if the broadband were to operate at a loss, would you still call that an investment? What if it were to run at a profit, wouldn't that mean that the operators of the broadband network were exploiting the workers?

Fozz
As i recall you never did explain how in your theory, some time in history, the function of taxation changed from revenue raising to currency deflation.

Peter,

theories can be beautiful things but are no substitute for actual observation. Unfortunately, the dominant theory is that the dominant theory is the answer to everything.

Are you suggesting that the stimulus has created unemployment by taking finacial assets from one part of the economy and broadly distributing them throughout? If the big casino players decide to use some of their gambling funds to buy government bonds and the government then creates something of concrete benefit, has that created unemployment in the other section?

By the way, did you go and compare the history of federal government debt with the history of interest rate movements? What are we to make of the fact that the facts are so far out of whack with the theory that government borrowing pushes up interest rates?

We question the established dogma, that's what we (should) do.

This is Voodoo economics.We are borrowing money to pay foor present consumption to keep people in jobs? There is no real productivity connected to it.Kevin Rudd is just putting our children in more debt.

Let the bubble economy collapse.There will be a period of short sharp recession and the good assets like cream will rise,but this counterfeit money created by the World Reserve Banks will replicate a worse scenario of Japanese syndrome of no growth and a country in suspended animation.

Let the free market decide what is of true worth and reduce the power of the Global Central Banks.They are the instigators of this collapse and the sooner we break their cartel powers via the creation of inflationary money,the better for us all.

Arjay,

keeping people in jobs is unproductive? As opposed to letting them join the ranks of both the short and long term unemployed which presumably you must regard as productive. Interesting theory - I expect to find it under the heading "Voodoo".

Putting our children in even more debt? However will they bear the burden? After all, the debt post WW2 was between 500% and 600% larger than this one so presumably we are still paying for that one while lumbering little Johhny with the next. Intergenerational debt is a silly notion that requires a hefty dose of unthinking emotion to believe in.

The reserve banks create counterfeit money? As opposed to the "real" money that comes from where? Are you saying that Australian denominated financial assets - Australian dollars - are counterfeit?

You have just created a new definition of the term "voodoo economics". Your arguments here are ludicrous. Did you derive them from this character whose link you posted?

Tell me you didn't actually PAY this bloke for the privellage of listening to such verbal dysentry.

Arjay, God gave you a brain - I suggest you start using it.

Arjay
You need to understand that in Fozz’s theory, government is not revenue-constrained, since they can print all the money they want for any purpose without at the same time diluting the value of the existing monetary unit, by using taxation to deflate the inflation caused by their monopoly printing presses. For Fozz, money in specie, money certificates, and money substitutes, are all conceptually jumbled in together with no economic significance in the distinction. Hence he falls naturally and easily into the superstitious belief that government can make magic pudding by printing pieces of paper without any net cost to anyone.

Fozz
“theories are no substitute for actual observation.”

True, and as there are no constant relations between human values, actual observation requires theory in order to have explaining power.

“Are you suggesting that the stimulus has created unemployment by taking finacial assets from one part of the economy and broadly distributing them throughout?”

I am asking how one knows whether the taking of funds from person or field A to fund “stimulus” activities by person or in field B has not had the effect of occasioning more unemployment than it relieved.

“If the big casino players decide to use some of their gambling funds to buy government bonds and the government then creates something of concrete benefit, has that created unemployment in the other section?”

It depends what employment it would otherwise have created, doesn’t it? So what was it?

All funds that go to buy government bonds divert capital away from whatever else it would otherwise have been used for.

If those in favour of it, are unable to show that the benefit outweighs the benefit from its original disposition, then they are unable to justify their proposal.

If “employment” by itself is the criterion of social benefit, then digging holes and filling them in again would be good policy, wouldn’t it? In fact, the more wasteful we were, the better it would be. Wouldn’t it?

“did you go and compare the history of federal government debt with the history of interest rate movements?”

No. Got a link