Former chairman of the Future Fund, David Murray, ruffled lots of establishment feathers during his tenure, particularly for his scathing criticism of the Warmageddonist movement.
Now, he has shown up the Greens – and, the entire lamestream economics and political media contingent – with his astute comments about the real reason why the government must balance the nation’s books.
From the Australian (emphasis added):
FORMER Future Fund chairman David Murray has accused the Greens of making “ill-advised” demands on the federal budget, declaring the priority should be to protect the government’s credit rating as the global financial system remains under strain…
Mr Murray, former chairman of the nation’s $73 billion sovereign wealth fund and a former Commonwealth Bank chief executive, said he was concerned about the Greens’ suggestions that curbing government spending was not important, given the woes in the global economy and the size of the blow-out in the budget at the peak of the global financial crisis.
“What’s at risk here is that with very significant offshore borrowings and a shaky world for raising capital, if the commonwealth in particular can’t hold its ratings, that will affect the ratings of the banks, that will affect the cost of debt, and it also means that the commonwealth is not there in the same measure as a backstop if things go wrong again and the banking system can’t fund itself offshore,” Mr Murray told The Australian.
“That’s the higher risk that has to be managed at the moment. We don’t control what happens in the rest of the world. You need the commonwealth rating as a backstop because of what’s going on elsewhere in the world. You can’t put that at risk. To do that you have to achieve a budget that is cash-neutral at least, so that the debt stabilises and within that cash neutral position you can pay interest.”
Exactly right.
As we have seen here at barnabyisright.com for many months now, the government (and the economy) are now trapped by the errors and abject stupidity of the past.
The credit ratings agencies have put our government on notice that the credit rating of the government – and more importantly, of the banking system – is contingent on the government showing a credible path back to balanced budgets. Why? Because in the GFC, the government explicitly and implicitly guaranteed our hugely overleveraged, foreign-debt dependent, housing market exposed banking system, using the sovereign balance sheet. If the government can not promptly curb its ever-rising debt and deficits, then the government guarantee propping up the banks will lose credibility.
On the other hand, if the government does attempt to achieve an actual surplus in 2012-13, and not just a forecast for one on May 8th, that spells disaster for the economy too.
How so?
See for yourself – Labor’s Inbred, Debt-Fed Chickens Coming Home To Roost.
We are Ireland Mk 2.
Barnaby Is Right 
Except if David Murray was being truly honest he would admit that the credit rating of the government is junk.
I suspect that everyone will wake up to that reality soon enough JMD. When the SHTF. Just a matter of time.
Don’t be so sure TBI. The bubble that is the faith & credit of the government has outlasted just about everything, except the cosmos itself.