Through the GFC Labor while was spending like a drunken sailor, the coalition was warning that deficits increased the cost of borrowing money, which was ridiculed by Labor.

Now Swan has has had to eat crow, and has endorsed the longstanding Coalition line on the link between fiscal policy and interest rates. Having made great play of the role of pump-priming during the global financial crisis he has belatedly conceded that large deficits put upward pressure on interest rates and, in effect, the exchange rate by reducing national savings relative to investment and increasing our reliance on foreign capital inflow.

The $100m that Labor is borrowing every day is adding to the $6bn required to service the federal debt annually, and pushing up the rate at which the banks pay to borrow money from overseas and forcing the ANz and other banks to raise rates to their customers. Swan's tirade against the big banks is simply to cover a problem of his own making.

Well SM, how do we get out of the present situation ?
We have a large debt which requires servicing and paying out but that
requires surplus income, which it is my understanding has to come from GDP.
However, high and rising energy costs will keep reducing GDP until
it reaches zero. When that happens how do we pay anything off ?

Many countries have negative GDP, a better word contraction, and must
face bankruptcy.
This is the problem which Hockey refered to on Lateline a couple of nights back.

I now suspect that if the price of minerals falls we will join that club.

What no one acknowledges is that this zero growth economy is permanent !

Swan is a lifetime member of my union.
Yet he is showing he is becoming a grumpy old man, did his reputation no good in the Rudd thing.
Good job he has and is doing it very well.
Stay on track bloke SM like the party he serves will complain about any action you take.
Even if it is the one they would take.
And even if it is washing your hands after going to the toilet!

Belly,

Either there is a link between interest rates and debt or there isn't. Swan could have spent far less for the same benefit, and not have to now try and dig Australia out of the hole he created.

The $6bn p.a. interest that Australia pays for Swan's debt could have paid for the disability insurance scheme.

I think there is two different equations here, one is debt and the other is a surplus, Julia says a surplus will aid the treasury, but the banks can only shift interest rates if their borrowings from overseas decline in rates.

Joe Hockey is doing a good impression of a swan song himself of late. Talking about how Aussies have to be weaned of a sense of entitlement regarding welfare but seems quite happy to dole out taxpayer dollars willy nilly in middle class pork barrelling and to his big end of town mates.

Don't think the libs really know what they are doing. One minute they are opposing means testing of programs like the private health insurance rebate and opposing billionaire mining taxes, then lamenting the 'largesse' of the poor. Yet again more reasons to stay away from the Coalition who want, according to Hockey, reduce us to the standards of Asia as thought that is some admirable norm.

Gawd help us if the win the next election. Can Gillard turn it around? The ALP have made some faux pas for sure but the alternative is even scarier.