Arjay,

your equating of sovereign government debt with private debt reveals that you share the author's misunderstanding.

Sovereign government deficit funds the private sector surplus. The aggregate private sector cannot reduce it's debt unless the sovereign government is in deficit.

Have a good hard think about the genesis of this thing we call "money".

This article is both luminescent and timely, specially after the Rudd stimulus package.Despite the bland rhetoric of Treasury boffins Steven's and Ken Henry, we are far from the road to recovery, and those seemingly convenient " green shoots " and recession-proof novelties are just disingenuous chicanery. In truth, we are still a long way off.

The Stock Market revival, surge in the Aussie Dollar; the heavily subsidised Housing Market ( Swan's $8 B injection) the orchestrated consumer confidence etc is NO proof-positives there are no more fiscal calamities around the corner. Moody's Economics are urging caution and predicting another collaplse waiting in the wings. The downfall of the US greenback.

Some Foreign Exchange analysts even say we may reach parity with the $US this year ! As if,overnight our currency has become the World's Reserve ! Some of our so called Economic pundits that write for our leading tabloids should do reality checks; take a cold shower, and cease inbibing in ecstasy..smoking pot !

Q. What does Allan Greenspan, Tim Geither, Bernanke, Paulson & Volkers share with citizen Joe Blow ?

A. Duh..they couldn't see the forest-for-the-trees, and didn't predict the collapse of the World's Economic system and a full blown depression.

Intriguingly,these guys are calling the shots now ?

Apart from the salient points Bill Bonner makes, there are parallels we can draw in Aust. The US gargantuan $ 30/50 trillion stimulus achieved pathetically little. Big Business, Bank of America, Auto Industry, AIG, Fannnie & Freddie Mac, Citicorp, TARB, Money Market Fund, Wall St etc mostly benefited. Fed and Treasury spent $ 30 B buying junk mortgages even though 30 % are underwater, and most major Banks are insolvent. Worst unemployment in 25 yrs, with more to follow. Strikingly, CEO's, Directors and Executives continued to draw mammoth salaries and ' proficiency ' bonuses ! The crash wiped out $ 30 trillion in household wealth. Fiscal rectitude ?

Enter the Dragon.

China, the US nemesis. The prolific buyer $ 700 B of US Treasury Bonds, F & F Mac, Resources unlimited. The largest holder, 48 % or $ 1.7 trillion

of Foreign Reserve currency, followed by Japan, Korea. In 2008, $ 411 B in US Reserves and escaling by the second. Secretary Clinton emphatically urged China to keep buying Treasury Bonds to prop up it's US liquidity !

With the Greenback losing parity, and the printing presses working overtime, the inflationary spiral guarantees the loss of liquidity. No wonder the price of Gold has soared, as investors hedge their dwindling confidence in the Reserve.

RBA Steven's recent rise in interest rates, not shared by the Big 4, justified his position by comparing the US and UK, set at zero. Reason being the colossal rise in credit overtaking traditional monetory policy. The G20 are all suffering the same meltdown, with a current account deficit except Germany. A prolificacy for luxary goods, and cheaply made China imports. Woefully, manufacturing Business's have vacated offshore for quick returns, to the detriment of local labour skills. Importantly, these jobs are lost forever, and the reliance of more imported goods exacerbated the demise of countless manufacturers.

No wonder there is a skill shortage here and abroad. For short term expediency, and paltry dime & nickel gains, the outlook is despairingly alarming, unless a true patroit and visionary with Political clout emerges from this diaspora. Often overlooked is China's insatiable appetite for commodities, resources. Long term exploration in minerals and ores. Feb, 2009 buys Oz Minerals $ 1.7 B; Fortesque Mines 16 %. Gorgon $ 50 B gas fields in WA. Petrochina's bid for Gorgon in reality is Exxon Mobile (US) owned. $ 46 B for Aust Terramin Mines in Algeria. Fervid negotiations with Gina Rhinehart for more iron ore in Pilbara.WA. Coal mines in Qld, belonging to Billionaire soccer benefactor and legend, including a rail link, and new Port facilities $40 B. Bidding for a stake in giant Rio Tinto's Holdings $19.5 B, Gloomily, the quest goes on.

Since the end of WWII, the selling off of our National Heritage has progressed unabated, under Govts of both persuasions. Future Generations of Aussie bleeders will inevitably be the poorest losers. You can bet on it.

Fozz,just go to youtube and view "Money as Debt " by Paul Grignon.
Money is just the oil that facilates economic activity.We have turned into a pariah that comsumes the very essence of our traditional values.An economy runs on trust and honesty as well as organised /skilled workers.

How can 30% of an economy be made up of financial BS when it produces nothing? The present system has failed dismally.

Arjay,

going on the title page, it is obvious that Paul makes the same assumption as the author of this article - that sovereign government debt and private sector debt are no different.

This assumption is logical but is also completely wrong.

I have no quibble with his veiw of bankers but the biggest problems arise because we the public do not undertand the fundamental mechanics of the thing we often refer to as money. We virtually never ask ourselves "what IS this stuff? Where does it come from? Where does it go?".

We believe (in more recent times) that federal budget surpluses must be good because they are good for individual households (savings). But it is a fact that if the private sector overall becomes determined to net save, the federal budget must be in deficit to accomodate this.

Surplus and deficit are simply two sides of a coin - you cannot have a surplus without a corresponding deficit and whenever the federal budget is in surplus, the private sector - in aggregate - must be in deficit. Individuals can still save but on average, the private sector must be running down savings, liquidating assets and racking up private debt if growth is to continue. It is an unsustainable situation.

If you check recent history, you will see that the previous governments huge and long running surpluses were mirrored by the biggest private sector debt run up in our history. This is not a coincidence - it is a fact of national accounting.

Federal budget deficits on the other hand, allow the private sector to repair their balance sheets by creating a private sector surplus. The Australian stimulus package has been much more effective than the US one in good part because of the way it was distributed.

Don't fear federal budget deficits. Historically, they are the norm.