Aidan,

You have been wrong so far on every front, so much so that I am beginning to doubt whether you have any education in economics whatsoever, other than conversational discussions with other liberal arts greenies with similar deficiencies.

You clearly have no concept of what a Reserve Bank is and its function. "the RBA is not a great lender, and this IMO is a policy flaw that should be rectified" No, it is not a policy flaw, it is fundamental to what the RBA is.

The cost to banks of borrowing from overseas was considerably more expensive than the money raised from internal deposits, and the reason I know this is that every Bank CEO said it, it was in their general reports, and Whine Swan conceded that it was a problem.

And while as you claim, we can continue rolling over our debt, each year we pay $14bn interest on labor's debt. To give some perspective, the tax revenue to the federal government is about $400bn which makes this 3.5% of federal expenditure. If Labor had not been so incompetent, we could have already paid for the NDIS.

Shadow,

Rather than doubting my education, I suggest you reexamine your own assumptions. You haven't posted any evidence that contradicts my claims. And not only is it unsupported, the false assumption on which your argument hinges is entirely illogical. If there was no difference between the way commercial banks and central banks of financially sovereign nations can lend money, Greece's current situation wouldn't be any different to in decades past (when it escaped the problem by metaphorically printing money). And hypothetically, if a country's central bank had a restriction that it could only lend what it borrowed, why wouldn't that country abolish the restriction?

I suggest you read http://blog.libertarian.org.au/2011/06/29/printing-money-out-of-thin-air/ if you still doubt it, and http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf to get a better idea of how central banks and commercial banks are completely different.

Australia doesn't pay interest on its cumulative deficits; we pay interest on the money that we borrow from overseas instead of creating ourselves.

Aidan,

You will be pleased to know that I no longer have any doubts as to your level of education wrt economics.

Your link to BOE publications does not in any way contradict what I have said, in fact it is an extension of what I posted earlier, and is covered albeit in less detail in first year economics.

Your link to libertarian.org has a single unsupported line essentially claiming that all government debt is unnecessary and by extension the GFC and subsequent debt crisis was an elaborate con job.

I would suggest that you read:
http://www.rba.gov.au/qa/role.html#own
http://www.rba.gov.au/monetary-policy/index.html
http://www.rba.gov.au/fin-services/index.html
http://www.rossgittins.com/2009/03/global-financial-crisis-and-its-effect.html

"debt markets. Developments in US and other debt markets (markets for the borrowing and lending of money) have raised the interest rates our banks must pay to continue borrowing from overseas and made it much harder for non-bank borrowers to raise any more funds from overseas. Remember that almost all of Australia’s considerable net foreign debt has been borrowed by our banks. Our banks have passed their higher borrowing costs on to their business and household customers."

The Abbott govt is spending $325 million a year in interest on the $8.8 billion it gave to the RBA unnecessarily.

How's that for fiscal integrity?

Here you go, SM

The Australian Editorial re the Abbott govt.

http://www.theaustralian.com.au/opinion/editorials/the-abbott-government-is-doomed-without-narrative/story-e6frg71x-1227131169889

Here's a sample or two..

"While Mr Abbott is just as intelligent as his predecessors, he is languishing and looks flaky..." (my personal fave)

"No successful modern leader can be aloof from the requirements of communications and storytelling. It’s a simple lesson that Mr Abbott has failed to grasp: talking points and three-word slogans can never suffice. “Australia is open for business” does not constitute a narrative or provide inspiration. “Team Australia” has hokey appeal, but it, too, does not work as an explanation for complex national security issues."

"Limply, the Prime Minister is losing the battle to define core issues and to explain to voters what he is doing and why. At stake is his political credibility, no less...."

"...Mr Abbott’s approach to messaging is a shambles of conception, strategy and execution. This deficiency can no longer be masked or ignored."

"The Prime Minister’s Office is too dominated by Peta Credlin, his chief of staff, including on media strategy..."

Well, you get the idea, In a week where the Abbott govt has been broadsided by Bolt and Jones - now the Australian steps up for a biff.

They're worried - with good reason.

Shadow,

Firstly, I think I misunderstood one of your claims: when you said...
"and the reason that interest rates in the banks dropped slower than the RBA lending rate is that the banks had to borrow from overseas at rates higher than the RBA rate"
...I thought you were referring to the latest round of domestic rate cuts. But if you meant during the GFC, then I concur.

I'm pleased you accept that BOE document, as it contradicts a lot of the misinformation commonly taught in economics courses. AFAICT the RBA pages you linked to don't, so I'm puzzled as to why you posted those links.

"Your link to libertarian.org has a single unsupported line essentially claiming that all government debt is unnecessary and by extension the GFC and subsequent debt crisis was an elaborate con job."
It does at least reference a book, whereas your claim about central banks needing to borrow money before issuing it is still entirely unsupported.

The GFC was real: a crisis of private sector debt.
The subsequent public debt crisis was real in the Eurozone (where the countries didn't have central banks that could lend what they had not borrowed) but for countries with their own floating currencies, yes, it was a con job.

Although government debt is not without function, it is indeed technically unnecessary.