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The Forum > General Discussion > A Socialist Budget.

A Socialist Budget.

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Aidan: "Government borrowing is no more inflationary than private sector borrowing."

That's certainly not the case for private sector borrowing for business. Because the reason why a business borrows money is make more money from the loan than its cost- ie., it wants to make a positive return on on the borrowed money. If it doesn't make a profit on the loan then the business's owner(s) will be usually personally suffer- in the worst case if the business fails completely commonly they lose years of effort and savings. The threat of you suffering personal loss due to your business failing is a fantastic incentive to produce a profit. In fact the business won't even be approved for the loan unless the bank/finance company thinks that the likelihood of business success and thus its ability to pay back the loan + interest has a positive expected return when accounting for the likelihood of losses to the bank if the business fails.

Now the most import consequence, for this discussion, of a business making a profit on borrowed money is that it directly produces more value in the economy than the effects of the inflation caused by the loan's money creation.

However, the government doesn't have the same motivators to try and make an overall positive return to the economy when it borrows money- because they don't personally suffer any detrimental consequences of a bad investment decision. Indeed, they can just keep borrowing more money regardless of how the last investment panned out. So they spend money on any damn folly that takes their fancy regardless of its effects on the economy.

-- continued below --
Posted by thinkabit, Thursday, 13 May 2021 9:45:44 PM
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-- from above --

A perfect example of wasted government spending is the Olympic games. For its 2032 bid the Queensland government is talking about on opening up the cheque book and spending big. eg. it recently announced the Gabba stadium upgrade which is some billion+ dollars for what amounts to just an extra 8000 seats for the Olympics. There is no-way on earth those extra seats at will ever generate enough money in the future to cover the overall cost of the upgrade (the gabba is hardly ever full to its current capacity when it holds events, like the AFL and cricket, so those extra seats will rarely be producing any any extra return in the future but will add to the overall ongoing maintensnce costs of the stadium).
Posted by thinkabit, Thursday, 13 May 2021 9:51:50 PM
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Aidan,

"there'd be a severe lack of money had not the government stepped up to mitigate the private sector shortfall."

That's rubbish. Here is the chart of the M3 showing (1) no decline prior to the government profligacy and (2) a massive increase in money supply after said spending. The spending was about mitigating the economic disaster that the lockdown became. If there was a decline in private sector spending it was entirely due to the lockdown which should have been obvious to anyone with two economic brain cells to rub together.

"the pandemic itself did far more to cause that shortage than the lockdowns did."

I don't know where to start with that level of misunderstanding. Viruses don't cause economic collapse. The reaction to the virus was what caused that collapse. The authorities chose to close down much economic activity and then looked askance as economic activity declined.

"The USA's growth looks set to recover quickly..."

Well we'll see. But I think your claims are looking pretty sick already. Trust that I will remind you of them down the track.
Posted by mhaze, Friday, 14 May 2021 10:54:17 AM
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Dear mhaze,

You opined:

"Viruses don't cause economic collapse. The reaction to the virus was what caused that collapse."

Are you really still banging on with that line? It is absolutely crap. An example is the Brazilian Iron ore production so dramatically impacted by Covid.

http://www.abc.net.au/news/2020-06-08/economy-miners-benefit-vale-coronavirus-iron-ore/12332164

Even just two months ago further closures were being called for.

“Really the situation here is one of collapse."

Give it a rest.

http://www.reuters.com/article/us-health-coronavirus-vale-sa-idUSKBN2BH2OA
Posted by SteeleRedux, Friday, 14 May 2021 11:25:55 AM
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Typical SR there....find one small corner of the world where things are happening that supports whatever cockamamie theory he has, and then pretend that that is the whole world. One mine in Brazil has zero relevance to the reaction to the virus in Australia.

Additionally, the story SR reprises involves a judge ordering the lockdown of the mine ie the virus didn't do it, the reaction to the virus did it. I'm guessing that logic will zoom over SR's head.
Posted by mhaze, Friday, 14 May 2021 2:13:53 PM
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Dear mhaze,

You simper,

"find one small corner of the world where things are happening that supports whatever cockamamie theory he has"

I chose this one because Brazil's vastly incompetent handling of its Covid response by a far right leader has resulted in record iron ore prices which have directly impacted this country significantly. Why are you being so churlish about it?
Posted by SteeleRedux, Friday, 14 May 2021 4:02:19 PM
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