A must read article in today’s Sydney Morning Herald:
Why Our Foreign Debt Is A Taboo Subject
It’s become deeply unfashionable to talk about Australia’s foreign debt. Neither the government nor the opposition wants to mention it and the same goes for most economists. In the Reserve Bank’s 60-page quarterly review of the economy it doesn’t crack a mention.
Predictably, however, the subject holds no terror for Barnaby Joyce. As best I can make out, his celebrated mention of ”our net debt gross public and private” was a reference to our foreign debt.
What’s that you say? You thought the pollies had done little else but spar about deficits and debt? Sorry, different debt. They’ve been arguing about the public debt – the amount the federal government owes (mainly to Australians).
On the latest estimates (which are probably too high), the federal budget’s return to deficit is projected to cause the net public debt to peak at $153 billion in June 2014, before falling back.
But as Crocodile Dundee might say, that’s not a debt, this is a debt: according to figures we got from the Bureau of Statistics last week, in December Australia’s net foreign debt reached $648 billion.
And if you enjoy a good worry, as Joyce clearly does, why not quote the gross foreign debt? It stands at a cool $1219 billion.
How on earth did we get to owe all that money? Just who owes it? What’s the difference between gross and net? And why does no one but Bushwhacked Barnaby think there’s much to get excited about?
Perhaps it’s because Barnaby is the only politician in Australia who truly cares about protecting Australians. And not just his own taxpayer-funded lurks and perks.
There is one serious quibble I have with Ross Gittins’ column. He writes:
Since we’ve run a deficit on the current account almost every year since the year dot, and since we also have to borrow to cover the interest we pay on earlier debt, our total debt to foreigners stands at $1219 billion.
Fortunately, it’s not quite that bad. That’s the gross amount we owe. But while some Australians were borrowing from foreigners, others (mainly our super funds) were lending money to foreigners. As at December, foreigners owed us $571 billion.
So that’s why the net amount we owe to foreigners is $648 billion and that’s the more meaningful figure to focus on.
I disagree completely. With so much evidence emerging almost daily about the growing debt crises in countries all over the world – just see the dozens of articles referenced and linked in this blog – why should we sit back comfortably and count our chickens before they’re hatched?
If foreigners owe us $571 billion, what makes us think that they can pay us back? What good reason is there to believe we can count on that $571 billion owed back to us?
I applaud Mr Gittins’ story overall. At least he’s bringing attention to the great taboo subject of foreign debt. But I fear that, like so many mainstream economists, he fails to see these simple, logical flaws in the “popular” wisdom.
The exact same flawed argument is made by the government, Treasury, the RBA, and all their many cheerleaders in the mainstream media, when it comes to Gross vs Net public debt. And, gross vs net Interest on Debt. Again, they always argue that it is only the Net figure that matters. Because they believe that we can count on the amounts owed back to us as a sure thing.
Morons. Blinded by “conventional wisdom”, and too much time staring into the crystal balls of economic “theory”. Even Gittins manages to concede as much, in a butt-covering final paragraph:
Of course, the conventional wisdom among economists could be wrong. It has been known.
Indeed.
Not one “conventional” economist predicted the GFC. Many – like the Rudd Labor team of economic illiterates – were still shrieking about “the inflation genie” in the middle of 2008. Even though the GFC tsunami had already started to wash over the USA back in the middle of 2007!
The “conventional wisdom” is BS.
Barnaby is right.
Barnaby Is Right 
“Not one Conventional economist predicted the GFC”
Not true, Jeff Rubin, late of the CBIC did just that.
He warned that the approach of peak Oil and the approach of the price to eventually US$147 a barrel would cause a recession.
It did, just a month after the spike.
The economy could not stand that sort of price.
The first effect was for house owners to stop paying their mortgages as food and petrol prices took off and the rest you know.
It happens every time there is a spike in oil prices.
Is Barnaby really that worried about all this??? ie “Worrier Joyce Gains Traction”