Son of gloin,
Your response is why I don't participate in these columns much any more.
You didn't really read my comment and you replied with abuse.
I'm a fiscal illiterate?
Your response is about the fact that a Billion dollars is a lot of money.
Well, I didn't say it wasn't.
What I said was that how the debt is used is more important than it size per se.
Some incredibly wealthy companies have huge debt but as that debt is earning more than it is costing it doesn't matter.
I personally used leveraged investment instruments such that at any point in time my personal liability is in the millions.
However, that money earns me much more than it costs me, so the net effect is that I'm let's say, rather well off.
My average borrowing costs this past year has been around 7.3%, while the average income,(total of dividends plus capital gains) has been in excess of 12%.
In short, I don't care how much I owe when the money is earning me more that it's costing.
But then, I'm a fiscal illiterate.
Anthony
http://www.observationpoint.com.au

579 has it exactly right.
The size of debt on it's own is irrelevant.
It's how wisely the money is used that matters.
Anthony
http://www.observationpoint.com.au

Anthonyve,
I share your frustration with the level of discussion here at times. I too come from a business background and feel you have hit the nail right on the head.
Like you, I have no problem borrowing money, provided it can generate a return. For this reason, projects like NBN may be good investments. But would you not agree that social reforms should not be funded out of debt. Funding social reforms should only be done out of cash flow. If we fail to do this, we seriously threaten the productivity and future sustainability of the nation. For example, I would be crazy to buy all my staff flash new cars to drive around in if it was clear that my business was not competitive in the market I am in. Surely I would have to address things like cost of production, markets, product quality etc. first.

There are some quite worrying signs that we have not done this as a nation. Our productivity relative to the rest of the world is declining. The amount of directly productive people relative to administrative people has become out of kilter. I'm not at all convinced that our total debt has all been used for future profit generating investments.

By the way, 579 does not have it "exactly right". He is merely parroting back some labour spin he heard somewhere. It is just a coincidence that it happens to be a valid point.

Hi ManOfTheLan,
I do agree that funding social programs via debt is usually a bad mistake.
My thought is that the only time it can be justified is when an investment in a social program can show in clear financial benefit in the future.
For this reason, I'm would sympathetic to, for example, funding cheaper education via debt, if the government could show a clear chain from making the investment to having lower unemployment and higher average wages in the future.
Likewise, I think some health programs can be justified on the grounds that a sensible investment now might save us billions in the future.
But I think the we as tax payers should insist that the clear link between current investment and future return is spelled out.
I remember in my corporate days, when I asked boards for money to say, make an acquisition, I had to have pages and pages of spreadsheets, and other detail to convince my board that the risk/return and ROE were satisfactory.
In a way I think that we taxpayers are like shareholders in the economy and we elect politicians to be our 'Board of Directors'. We need to hold our Board to account and insist on clear return on investment calculations before we take on debt.
Of course we should do purely social spending, but, like you, I think this kind of spending, e.g. arts grants, must come from revenue we already have in the bag.
Anthony
http://www.observationpoint.com.au

Ant,

Most economists would differ with you on "The size of debt on it's own is irrelevant." as the larger the debt, the higher the cost of borrowing, and the cost of financing debt at a certain point will choke off the ability to spend money elsewhere.

The premise that debt is worthwhile if it provides income generating assets is a greater problem for labor, as its $260bn over expenditure has left this country with almost no revenue generating assets. Even the NBN is not included in this cash splurge, as its financing was done in ENRON fashion off the balance sheet, and is extremely unlikely to be able to pay for itself.

Juliar's crime is not that she helped some union officials commit fraud, but that her government's wasteful spending will have to be paid for by our grand children.

Anthony, I agree with many of your thoughts, but I can't agree with all of them. So if I seemed a bit direct it is because I started my bleating about a current monthly interest debt of $1 BILLION.

When you opened with "Paying a million dollars a month as a number tells us practically nothing," I quite rightly thought you didn't know the difference between a million and a BILLION, no offense sport.