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Remember When …

28 Jul

From the Australian, 27 July 2011:

Fitch Ratings today revised to negative the outlook for Queensland and warned a potential downgrade was likely if it didn’t limit the growth of its debt.

Remember when Senator Barnaby Joyce dared to suggest that not only was there a “distant but real” risk that the US could default on its debts, but that some Australian states were over-indebted too?

From the Sydney Morning Herald, 11 December 2009:

The Opposition finance spokesman, Barnaby Joyce, believes the United States government could default on its debt, triggering an ”economic Armageddon” which will make the recent global financial crisis pale into insignificance.

Senator Joyce told the Herald yesterday he did not mean to alarm the public but there needed to be a debate about Australia’s ”contingency plan” for a sovereign debt default by the US or even by a local state government.

Senator Joyce said the chances of a US debt default were distant but real and politicians were not doing the electorate a favour by refusing to acknowledge the risk.

He said the Federal Government’s debt would push up interest rates and predicted that some state Labor governments would not be able to repay their borrowings.

”The Federal Government has $115.7 billion in debt, Australian government securities, notes and bonds on issue, and the states have another $170 billion in debt.

”We have to ask whether the states have the capacity to repay that. I would say in some instances they do not, particularly Queensland.”

Remember when, a couple of months prior to those statements, Barnaby raised his concerns in Senate Estimates hearings with former Treasury secretary Ken Henry?

From The Age, 23 October 2009:

The Nationals Senate leader Barnaby Joyce is openly canvassing an economic upheaval that would dwarf the current global financial crisis, triggered by the US defaulting on its sovereign debt within the next few years.

In unusually pessimistic comments for a senior political figure, Senator Joyce said the US Government was running such large deficits and building up so much debt that it was in a similar position to Iceland or Germany before World War II.

In a Senate estimates hearing on Wednesday night, he asked Treasury secretary Ken Henry what would be the implications of an American debt default for the Australian economy.

Dr Henry warned that canvassing extreme scenarios could alarm the community.

”I don’t mind discussing hypotheticals in general … [but] one has to be careful not to discuss publicly hypotheticals that are that extreme,” Dr Henry said.

”I don’t, myself, consider that outcome to be a high probability outcome, certainly not one that I would want to say much about in a public forum.”

But Senator Joyce insisted yesterday that the dangers to the global economy from the run-up in US private and public sector debt were real and should be debated.

”It is the elephant in the room,” Senator Joyce said. ”This is a huge risk that Australia faces. What is the game plan, what happens if it comes unstuck?

Remember when former PM KRudd joined Ken Henry, Wayne Swan, and then Finance spokesman Chris Bowen, in ridiculing Barnaby day in day out for his concerns about debt, until he lost his job as Opposition Finance spokesman?

From The Age, 11 December 2009:

Joyce blasted for ‘extremist’ views on debt

Senior government figures have taken aim at Barnaby Joyce’s dire warning about a global financial meltdown if the United States government defaults on its debt. Mr Joyce also came under fire for comments about the financial health of Australian states.

”That’s shooting from the lip, making it up on the run,” Prime Minister Kevin Rudd said of the new opposition finance spokesman’s comments.

Senator Joyce is concerned that demand for Australia’s resources would ”go through the floor” if the US was not able to pay off its burgeoning foreign debt.

Senator Joyce told Fairfax Media he did not mean to alarm the public but there needed to be a debate about Australia’s ”contingency plan” for a sovereign debt default by the US or even by a local state government.

”How would Australia go forward in a position where the dynamics of the global economy are all changed,” he said on ABC Radio today.

Mr Rudd dismissed the senator’s comments, describing them as ”not responsible economic policy”.

Assistant Treasurer Chris Bowen went further saying Senator Joyce’s comments were extremist.

”His comments on the United States need to be taken with a grain of salt,” he said, adding the vast majority of economists believed US debt levels were manageable.

He accused Senator Joyce of engaging in a series of thought bubbles that were unbecoming of a senior economics spokesman from either government or opposition.

”Senator Joyce adopts very extreme positions, he is an extremist.”

States ‘rock solid’

Separately, Mr Rudd criticised comments made by Senator Joyce that some Australian state governments might not be able to repay billions of dollars in debt.

The states were carrying $170 billion in debt and rising interest rates were affecting their capacity to make repayments, Mr Joyce said.

”I would say in some instances they do not, particularly Queensland,” he told Fairfax Media.

The Prime Minister said such ”erratic and ill-considered” comments should not be made by a senior opposition spokesman.

Mr Rudd described as the ”most serious charge” the coalition’s view that state governments could default on their debt.

”It’s got to produce evidence of that,” he told Fairfax Radio Network today, adding Opposition Leader Tony Abbott and his treasury spokesman Joe Hockey needed to confirm or repudiate Senator Joyce’s claim.

Mr Rudd said any message to international financial markets about the ability of state governments to repay debt needed to take into account the national interest.

State and territory governments had some of the strongest credit ratings in the world and Australia had a ”rock-solid and robust” reputation for public finance.

”There are basic interests for Australia at stake here and responsible, calm, considered policy suggests that the sort of remark … should simply not be made,” Mr Rudd said.

”This is gross economic irresponsibility, policy on the run and shooting from the lip.”

Remember when the media pack joined the Rudd Labor government in rounding on Barnaby too?

From Economics Writer Jessica Irvine, for the Sydney Morning Herald, 11 December 2009:

Barnaby, mate, you gotta stop being a boofhead about the economy


What’s that sound?

No, it is not the sound of abject apologies from the Labor party, the Treasury department, the RBA, and the Australian media.

Nor is it the sound of public applause for Australia’s solitary modern-day economic prophet.


It is the sound of deafening silence.

Well … except for this, from the impressive John Roskam at the IPA, 25 March 2011:

We’re in debt to Barnaby

Wayne Swan and Ken Henry owe Barnaby Joyce an apology. A year ago Joyce, then the Coalition’s finance spokesman, warned of “economic Armageddon” if the United States government defaulted on its debt. He said the threat was “distant but real” and politicians should at least acknowledge the possibility of default, however remote it might be.

Treasurer Wayne Swan accused Joyce of coming from the “reactionary fringe of our economic debate”. Ken Henry, then the secretary of the Treasury Department, claimed that Joyce shouldn’t be talking about such things because it would frighten people.

So on that basis Austan Goolsbee must be from the reactionary fringe too. The trouble for Swan is that Goolsbee is a professor of economics at the University of Chicago, the chairman of US President Barack Obama’s council of economic advisers and a member of the US cabinet. Presumably for Swan and Henry it’s OK when Goolsbee speculates on the US going broke, but it’s not OK when Barnaby Joyce does.

In January Goolsbee contemplated the result of the US House of Representatives, controlled by the Republican party, not allowing the US government to increase its debt. “If we hit the debt ceiling, that’s essentially defaulting on our obligations, which is totally unprecedented in American history,” he said.

The context in which Joyce and Goolsbee spoke was different. Joyce was talking generally about the sustainability of US government debt, while Goolsbee was contemplating the unlikely event of the Obama administration being unable to raise its debt ceiling. But in essence Joyce and Goolsbee were talking about the same thing – namely the US government running out of money.

In the US Goolsbee’s remark was taken as a simple statement of fact. In Australia Joyce’s remark provoked outrage from Labor politicians and economics commentators. It was one of the reasons Opposition Leader Tony Abbott subsequently removed Joyce from the fmance portfolio.

The treatment of Joyce reveals just how ignorant Australians are about the financial situation of the United States government.

It’s understandable that Swan and Henry, who presided over the biggest growth in Australian government debt since Gough Whitlam, didn’t like Joyce talking about the consequences of government debt. But it’s Australia’s policymakers – who refuse to face the facts of the long-term consequences of America’s financial situation – who are the ones being irresponsible.

Barnaby Joyce is the only politician in this nation

who was right.

Barnaby mockers? Be damned.

The whole damned lot of you.

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