Tag Archives: private debt

The Clinching Argument In The “Private vs Public Debt” Debate

5 Jul

“He’s pretending that he’s elected by the people, and he’s actually elected by the banks”

In the following interview, Professor Steve Keen discusses how government “stimulus” or “help” programs that hand out borrowed (by the government) money to entice prospective house buyers, are actually Ponzi schemes.

But the most important truth of all is revealed from 10:14sec onwards:

INTERVIEWER: The Chancellor of the Exchequer, George Osborne, says he wants to reduce debt in Britain, while simultaneously launching the “Help To Buy” scheme which is an increase in debt. So my simple question is, Is the Chancellor lying?

KEEN: I think the Chancellor, like most politicians, is focussing on the level of government debt, not on the level of household and private debt, and they think that’s the real problem. The cause of this crisis was an out of control private banking sector lending to the private sector to encourage it to speculate on assets….

INTERVIEWER: (interrupts) Let me, let me, let me jump in for a second, because what we have found out in 2008 and going forward is that there really is no such thing as private debt, because when these private debts become unsustainable the private sector simply gives them to the government. So ultimately taxpayers always end up footing the bill for this debt, all the combined debt of household debt, bank debt, government debt, it’s all the same debt, that’s all underwritten by the same abused taxpayers, and the Chancellor — by ignoring this — is pretending that the UK people are brain dead!

KEEN: Well, what he’s pretending is that he is elected by the English people and he’s actually elected by the English banks. All this happens because the banks have got the politicians by the intellectual balls. They believe that the economy has to have a growing banking sector to be healthy, and that’s just like believing that you have to have a growing cancer to be a healthy human being. Past a certain stage the financial sector becomes a parasite. But it becomes such a strong and powerful parasite that the politicians think that if they let it die the economy will die. That’s precisely the opposite of the case — you’ve got to get the financial sector to shrink, you’ve got to cut it down, say in England, by a factor of at least 2 — and then in terms of abolishing debt, writing it off, not honouring the stuff, and standing up for the debtors, rather than standing up and voting for the creditors which, unfortunately, is what the politicians around the world have been doing this time around…

Unfortunately, Steve sidestepped the critical observation made by the interviewer — that because banksters simply palm off their out-of-control debt problems to the government, aided and abetted by compliant politicians, what this means is that, in the end, private debt and public debt must be considered in sum, not separately.

This is why Barnaby is right.

Although relatively “low” compared to that of “other advanced economies”, nevertheless Australia’s ever-rising public debt trajectory does matter a helluva lot.

Why?

Because — even though (sadly) Barnaby never points this out — Australia’s private debt levels are the highest in the world.

Our Household Debt sits around 150% of household disposable income.

6tl-hhfin

Our government-guaranteed banking sector is massively leveraged to Australia’s world-leading house price Ponzi.

So, simply stated, because of our massive private debt problem, our nation absolutely cannot afford the added risk of an ever-rising public debt level too.

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How Malcolm Turnbull Helped Pump Howard’s House Price Bubble

23 May

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“…it makes no sense whatsoever for the average Australian family to have to tie up over two-thirds of all their wealth in the world in one highly illiquid and very risky asset: viz., the owner-occupied residence.

…we find that one in four families lose money (in real terms) when they come to sell the roof over their heads. For roughly one in ten dwellers, the situation is even more dire – these poor souls are subject to real price declines in excess of 13.4 percent.”

– Summary of Findings for The Prime Ministerial Task Force on Home Ownership, 2003

Australian economics and political forums are full of good-hearted, well-meaning types, who argue passionately, and often cogently, for the need for policy changes to enable lower house prices. Criticism of the Howard Government’s economic policies that encouraged rampant housing speculation and private debt growth is common with these folks.

Something I find particularly interesting to observe, is just how many of them are also given to lauding the Member for Wentworth — otherwise known as the “Member for Goldman Sachs” — as somehow representing all they aspire for in a national leader.

Apparently, the Australian economy would be magically transformed, our society would heal and “progress”, the national average IQ would rise, reality TV audience share would fall, spelling errors in news captions would cease, and childrens’ severed limbs would grow back, if only the brilliant, eloquent, self-made millionaire, and socially “progressive” Malcolm Turnbull were our PM. Or at the very least, the Treasurer.

These folks need to do their homework.

Let us take a journey ten years back in time, to the year 2003, and the Menzies Research Centre’s “Summary of Findings for The Prime Ministerial Task Force on Home Ownership” (pdf here).

It was chaired by Malcolm Turnbull – the former chairman, managing director, and partner of Goldman Sachs Australia, and co-owner (with Neville Wran and Nicholas Whitlam) of merchant bank, Turnbull & Partners. Which he sold to … Goldman Sachs.

Reading this summary report should, all by itself, be enough to convince any honest, open-minded person who (a) remembers the GFC, and (b) wants to see lower Australian house prices, that Malcolm Turnbull is hardly the wonderful, objective, unbiased, clear-thinking, far-sighted, vested-interest-free political saviour that so many gullibles imagine him to be.

First, let us consider the identity of the principal author of the report for the Howard government’s Home Ownership Task Force.

Christopher Joye. Arguably Australia’s most prominent housing “investment” spruiker.

Next, let us take a look at the list of “Institutional” professionals who are acknowledged on page 7-8 of the report (my bold added):

We would to like to recognize a number of individuals, categorized according to profession: –

…

Institutional: Rob Adams (First State Investments), Dan Andrews (RBA), Andrew Barger (Housing Industry Association), David Bell (Australian Bankers Association), Laura Bennett (Turnbull & Partners), Neil Bird (Urban Pacific), Mark Bouris (Wizard Home Loans), Angus Boyd (Foxtel), Jason Briant (The Menzies Research Centre), Kieran Brush (RAMS), Jasmine Burgess (JP Morgan), Alexander Calvo (RBA), Louis Christopher (Australian Property Monitors), Tim Church (JB Were), Bob Cooper (Tobari Management), Tracy Conlan (CBA), Lorenzo Crepaldi (Ebsworth & Ebsworth), Peter Crone (Prime Minister’s Office), Brendan Crotty (Australand), Margaret Doman (Cambridge Consulting), Tony Davis (Aussie Home Loans), Bob Day (Home Australia), Craig Drummond (JB Were), John Edwards (Residex), Lucy Ellis (RBA), Alex Erskine (Erskinomics), Jason Falinski (IAG), Arash Farhadieh (Phillips Fox), Guy Farrands (Macquarie Bank), Lyndell Fraser (CBA), Wayne Gersbach (Housing Industry Association), Steven Girdis (Macquarie Bank), Adam Gordon (Baltimore Partnership), Samuel Gullotta (Goldstream Capital), Michael Gurney (ABS), Jason Falinski (IAG), Martin Harris (First State Investments), Nick Hossack (Australian Bankers Association), Chris Johnson (NSW Government Architect), Alan Jones (2GB), Sally Jope (Brotherhood of St Laurence), PD Jonson (HenryThornton.com), Anatoly Kirievsky (RBA), Caroline Lemezina (Housing Industry Association), Steven Mackay (Ebsworth & Ebsworth), Angelo Malizis (Wizard Home Loans), Patrick Mangan (HomeStart Finance), Geordie Manolas (Goldman Sachs), Ramin Marzbani (ACNielsen.consult), Patrick McClure (Mission Australia), Gina McColl (BRW), Bill McConnell (AFR), Robert McCormack (Allens Arthur Robinson), John McFarlane (ANZ), Bruce McWilliam (Channel Seven), Robert McCuaig (Colliers Jardine), Peter McMahon (Clayton Utz), Alison Miller (Urban Development Institute of Australia), David Moloney (Booz Allen & Hamilton), Ruth Morschel (Housing Industry Association), Paul Murnane (JB Were), Darren Olney Fraser (Australian Public Trustees), Rod Owen (ABS), John Perrin (Prime Minister’s Office), Daniel Pillemer (Goldman Sachs), Dr Michael Plumb (RBA), Dr Steven Posner (Goldman Sachs), Brian Salter (Clayton Utz), Eloise Scotford (High Court of Australia), Tony Scotford (Ebsworth & Ebsworth), Nick Selvaratnam (Goldman Sachs), Tony Shannon (Australian Property Monitors), Matthew Sherwood (ING), Tim Sims (Pacific Equity Partners), Dr Tom Skinner (Redbrick Partners), Arthur Sinodinos (Prime Minister’s Office), Orysia Spinner (RAMS), Bryan Stevens (Real Estate Institute of Australia), Gary Storkey (HomeStart Finance), Arvid Streimann (UBS), Louise Sylvan (Australian Consumers Association), John Symond (Aussie Home Loans), Scott Taylor (ACNielsen.consult), Simon Tennent (Housing Industry Association), Lucy Turnbull (City of Sydney), Nicholas van der Ploeg (Turnbull & Partners), Peter Verwer (Property Council of Australia), Nick Vrondas (JB Were), Colin Whybourne (Resimac), Charles Weiser (RAMS), and Simon Winston Smith (JP Morgan).

Finally, let us consider carefully just a few pages of this Summary report. Doing so should enable thoughtful readers to gain a very clear insight into the kind of Orwellian doublespeak, the guile and cunning, the all-pervasive casuistry, that was and is employed by the Merchants of Debt and their cronies, in seeking to rationalise financial innovation, supposedly as a means to help would-be homeowners “benefit from a lower cost of home ownership”.

How? By making it easier for them to get into debt, via financing a portion of the total cost of their home through “equity investment”. In other words, a “financial innovation” enabling a transfer of some of the “equity” (ownership) in even more Australian homes, to speculators, through the genius of “investment” bankers.

Hopefully, a careful examination of this report may also enlighten some readers as to where our politico-bankster-housing nexus has its roots.

To set the tone of all that is to come, here is a snippet from chairman Turnbull’s preface to the 2003 Home Ownership Task Force summary report (my bold added):

No part of the Australian dream is more instinctively human than the desire to own our own home. In recent years, however, that worthy ambition has become harder for many Australians to attain. This is not a function of high interest rates; they are at record lows, but rather is due to a combination of other factors including escalating property prices and, so we contend, inflexibilities in housing finance which limit its availability.

So, the basic premise of this report, according to Malcolm himself, was this: Difficulties in obtaining the dream of home ownership are due to limited availability of housing finance + escalating property prices. Ergo, removing the “inflexibilities” in housing finance will take away those limits to its availability, and make the dream more attainable. Riiiiiiiiight.

And now, to the Summary report itself (my bold added):

Page 12

For centuries now, businesses in need of funds have been able to avail themselves of both debt and equity. Yet for households who aspire to expand, mortgage finance has been their one and only option. And so, despite the ever-growing sophistication of corporate capital markets, consumers around the world are forced to use only the crudest of financial instruments.3

3 This begs the question as to the absence of equity finance in the first instance. One answer instantly offers itself: securitisation. In the past, it was not practicable for a single unsponsored entity to go around gobbling up interests in individual properties in the vain hope that they could bundle these contracts into something that would look like a regulated holding. Fortunately, there has been spectacular progress of late in terms of the ability of private sector participants to package otherwise illiquid instruments into marketable securities.

Do you see what they did there? “Sophistication” = good. “Crude” = bad.

Oh dear, those poor, poor consumers; “forced” to use “only the crudest of financial instruments”. Despite “spectacular progress” in “securitisation”. Oh the humanity!!

Apparently the author — like all Merchants of Debt — does not ascribe to Leonardo Da Vinci’s maxim: “Simplicity is the ultimate sophistication.”

Page 13

Spurred on by economic and social ructions of this kind, the State and Federal Governments sought to actively expand the supply of housing finance, and by the mid 1930s mortgage markets had arrived in Australia. Without widespread support for these changes, it is doubtful whether they would have materialized at such great pace. Ironically enough, it was bureaucratic inertia of precisely the opposite ilk that was to stifle the growth of trading in mortgage-backed securities some fifty years later. Thankfully, reason prevailed, and today it is hard to imagine what life would be like without alternative lenders and the pressures they exert on the banks.

Thank God! “Reason prevailed”, and we finally got … “trading in mortgage-backed securities”. Hallelujah and praise the Lord!

In this report, we renew our call for constituents to take the next brave step along the evolutionary housing finance path. It is our belief that there is no longer any need for the household sector to be the poorer cousin of financial markets. That is to say, aspirants should be able to access a suite of debt and equity instruments that is no less rich than that which corporations avail themselves of every day.

Wow! “The next brave step along the evolutionary housing finance path”. How could any responsible, modern politician even think of resisting this natural, evolutionary progression? How awful, how immoral would it be, to deny the household sector the opportunity to no longer be “the poorer cousin of financial markets”?

In what follows, we undertake four main tasks. First, we offer evidence that irresistible economic logic motivates the introduction of ‘equity finance’. Second, we tender a vast array of new information, drawn from, among other things, survey and focus group data, on the profound socio-economic benefits that these markets could deliver. Third, we demonstrate the proposal’s institutional viability, and pinpoint relatively minor adjustments to the legal, fiscal and regulatory structures that would be required in order to guarantee its success. In the fourth and final section of the report, we embark on a detailed appraisal of the ‘supply-side’ in the context of the debate about the rising costs of housing in this country. Just as we contend that it is vital to extend ownership opportunities to as many Australian families as possible, we also think it is critical to remove artificial constraints on the supply of low-cost properties.

All hail, ladies and gentlemen! We have our first oxymoron of the Summary report.

“Irresistable economic logic”.

Snigger.

Oh yes, about that “institutional viability”. That would be Newspeak for, “All the institutional Merchants of Debt featured in the acknowledgements list love my proposed financial innovation … so it’s clearly viable”.

Page 14

The report itself consists of four distinct ‘parts’. Parts One and Two take up the challenge of introducing the economic rationale underpinning our desire to eliminate the ‘indivisibility’ of the housing asset (which, in layperson’s terms, simply means allowing individuals to hold less than 100 percent of the equity in their home).

…

On the demand side, we conclude that there should be immense interest in securitized pools of enhanced home equity contracts, so much so that it is unlikely that there will be sufficient funds to sate institutional requirements. In fact, our tests indicate that this new asset-category could come to dominate the ‘optimal’ investor portfolio, with conservative participants dedicating at least 20 percent of all their capital to ‘augmented’ housing.

Page 15

Finally, might a liquid secondary market enable other forms of risk sharing and spawn the development of derivative and futures contracts on residential real estate?

Of course! “Other forms of risk sharing”, the development of “derivatives and futures contracts on residential real estate”, that’s sure to be a win-win for everyone, right?

Oh, wait … remind me again, what happened in 2008?

Page 21

It would appear that the prevailing legal and regulatory framework can flex to accommodate the introduction of equity finance. Most exciting though is the revelation that we can fashion these arrangements as either equity or hybrid debt instruments. The latter is an especially attractive alternative since it enables one to circumvent all of the legal and psychological complications implicit in ‘co-ownership’. In particular, under the debt option, occupiers always own 100 percent of the home in which they live. Furthermore, the costs borne by the institution are noticeably reduced (to take but one example, stamp duty is no longer relevant). In this sense, we can have our economic cake, and eat it too!

Yes, sure, just a little bit of “flex” in the legal and regulatory framework. That’s all. Just enough to “circumvent all of the legal and psychological complications”, and so “accommodate the introduction” of my financial innovation.

So where are the much mooted impediments to progress? In the immortal words of George Harrison, “Let me tell you how it will be, there’s one for you, nineteen for me.” Our study of the proposal’s institutional feasibility suggests that over-zealous regulatory authorities have the capacity to tax away the gains from trade. Here it is not so much the imposition of new levies, but rather the rigid interpretation of existing ones.8 This was certainly the case with several small-scale efforts to launch equity-based products overseas. Yet what would make these actions especially perverse is that markets of this type present the Federal Government with unprecedented revenue raising possibilities. That is to say, the advent of equity finance would permit the Commonwealth to tax owner-occupied housing for the very first time. Naturally, these charges would only apply to the investor’s holding. In this vein, we would submit that even the most ruthless of bureaucrats should be incentivized to encourage the promulgation of these products.

Do you see the cunning carrot bribe being offered by the Merchants of Debt here?

“Hey Mr Howard, if you let us have our financial innovations, and clamp down on any ‘over-zealous regulatory authorities’ who might get in the way of our plan, then VOILA! you can introduce more taxes!”

Page 22

Irrespective of what is decided in the post-publication period, we are convinced that the application of both debt and equity finance will eventually become standard industry practice. It is more a matter of whether that day will arrive in the near term or in the far-flung future; and that, truth be known, is a question that only you (i.e., consumers, decision-makers, investors and opinion-shapers) can answer.

Unsurprisingly, it is our belief that Australia is well positioned to push the intellectual envelope and become the very first nation to develop primary and secondary markets in real estate equity. And at $2.5 trillion, that is no small cheese.

You see? It’s that natural, “evolutionary housing finance path”. It is inevitable, like the rising of the sun. So you best get on board now, and give us what we want; we are going to get it anyway, someday, whether you like it or not, so why not enjoy the ego-stroking (and votes) that will come with being a policy leader in “the very first nation” to “push the intellectual envelope”?

Page 24

Readers will become familiar with our argument that it makes no sense whatsoever for the average Australian family to have to tie up over two-thirds of all their wealth in the world in one highly illiquid and very risky asset: viz., the owner-occupied residence. Indeed, in Part Two of the report we find that one in four families lose money (in real terms) when they come to sell the roof over their heads. For roughly one in ten dwellers, the situation is even more dire – these poor souls are subject to real price declines in excess of 13.4 percent! In this context, it is high time that we brought capitalism to the home front and provided all Australians with the option of issuing both debt and equity capital when purchasing their properties.

Bringing “capitalism to the home front”. Now that’s got to be a great idea! Why? Because it makes no sense whatsoever to tie up over two-thirds of all your wealth in one “highly illiquid and very risky asset”.

Er … hang on. If the owner-occupied residence is such a “highly illiquid and very risky asset”, then tell us again why would it would be such a great idea to “securitise” a portion of the “equity” in that “highly illiquid and very risky asset”, and sell it to speculators as an “investment”?

It should be plainly obvious to any thinking reader, that the entire Home Ownership Task Force report in 2003 was little more than sales pitch by the Merchants of Debt –

We have had some expenses for assistance with research, computing services and the like and we have therefore been fortunate in receiving generous and much appreciated support both financial and in kind from a number of organisations, including Wizard Home Loans, the Housing Industry Association, JBWere, Booz Allen & Hamilton, Aussie Home Loans, Resimac, RAMS Home Loans, HomeStart Finance, Clayton Utz, Ebsworth & Ebsworth, Phillips Fox, ACNielsen.consult, and Home Australia.

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A sales pitch to the Howard Government, to allow financial innovation in the Australian housing sector. Innovation of the kind that brought us the Global Financial Crisis.

With folks like Goldman Sachs, the Turnbull & Partners merchant bank, and Malcolm Turnbull’s former Goldman Sachs Australia associate, Christopher Joye, leading the bankster cheer squad.

And with Task Force chair and then head of the Menzies Research Centre, Malcolm Turnbull, endorsing it all with his usual eloquence –

The Menzies Research Centre, while affiliated with the Liberal Party, is neither an echo chamber for Government policies nor a substitute for the public service. Our aim is to promote independent, creative and practical ideas on subjects of public importance. Our political perspective is simply that of a commitment to individualism, enterprise and freedom of choice.

We recognise that the most challenging social issues are not susceptible to quick ideological answers. We need constantly to promote new approaches and new ideas in social policy as much as we do in science or technology. We believe that these reports do deliver a wide range of new ideas, many of them worked out in considerable, groundbreaking analytical detail.

The principal author of that report, Christopher Joye, has since gone on to introduce his Equity Finance Mortgage product, and the leading housing spruiker / real estate investment / funds management firm, Rismark International.  He is also a director of Yellow Brick Road (YBR) Funds Management, a company founded by another Merchant of Debt who just happened to feature very prominently in the acknowledgements list of the Howard Government report — Mark Bouris, formerly of Wizard Home Loans.

It was Christopher Joye who told readers of his column two years ago, that “The big fella once said to me, You capitalise on chaos.”

He was speaking of his former Goldman Sachs associate, Malcolm Turnbull.

If lower house prices is something that you want to see in this country, then Malcolm Turnbull MP is not your friend and saviour.

* See also Compassion For Malcolm: He Just Wants His Balls Back

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Barnaby: Australia Has Some Of The Highest TOTAL Debt Levels In The World

4 Apr

Senator Joyce writes for the Canberra Times (my emphasis added):

No saving graces as Labor alliance targets our savings

I always believed a net debt figure that assumed using public servants’ superannuation savings to pay off public debt was an absurdity. Well, now the Labor-Green-independent alliance is proposing that super be used to pay off debt.

When you tax more of something you end up with less of it. Why then does the Labor government want to raise taxes on superannuation? Do we really need a lower savings rate, and therefore more consumption in Australia?

Australia has some of the highest total debt levels in the world. In net terms, from the public and private sectors, we owe more than $700 billion to overseas countries. In terms of our GDP this is the eighth highest level of debt in the world, behind countries such as Portugal, Ireland, Greece and Spain.

Our debt is partly a consequence of a mining boom, where billions has been invested in our mining industry. Private companies need to take on debt to build these assets and we can’t fund all of these investments from domestic savings. But that is no reason to unnecessarily reduce domestic savings even further, and increase our reliance on foreign debt even more. We should be doing the opposite. We should be making it easier and more attractive for Australians to save. Our tax system barely does that now, however.

Let’s say you get a $1000 bonus from your boss. You have two basic choices: you can spend the money, or you can save the money. If you spend the money you will pay about 30 per cent in income tax and a 10 per cent GST. This leaves you with around $600 to spend on say a flat-screen TV. You pay no more taxes after that.

If you save the money by, say, putting it into bank account, you will pay the income tax up front, and then get taxed every year on the interest you get paid in that bank account, including on the part of the interest that just compensates you for inflation.

On that basis, the “double taxation” of savings is a raw deal. That’s one of the reasons why we offer a lower tax rate on superannuation: to encourage people to save not spend; to encourage individuals to make provision for their own retirement, rather than all of us having to fund pensions for everyone.

With an ageing population, that problem is only going to become worse and we should be looking to encourage more Australians to save rather than raise yet more taxes on superannuation. That’s exactly what the Coalition has proposed. We have proposed a 10 cents in the dollar tax concession for those that put money into super funds that invest in nation-building infrastructure. It’s a two- birds-with-one-stone approach. We encourage more people to save and have more funds available to invest in the roads, rail and water infrastructure a growing nation desperately needs.

The reality is Labor know all this. They know that we should encourage savings not spending. There is only one reason that they are looking to raise taxes on our savings. They have run out of money and need more of your savings to pay for their debts.

Any government looking to raise taxes on you should be required to get their own spending in order first. Our government is not spending our money wisely enough to be deserving of us giving it more. The Green-Labor-independent alliance spent years promising that our debt is not a problem. If our debt is not a problem, why do they need to raise taxes on our savings?

Cleaning up after this fiasco will be an infuriating task. They create a fiasco selling mining licences without the appropriate oversight and in inappropriate area. Somehow the Coalition is left explaining what we will do to rectify their problem.

They shut down trade with major trading partners in Indonesia and decimated the northern cattle industry and we are asked how we will fix it up.

One of the key reasons that I believe that I have a duty to stand against a key player in this Green-Labor-independent alliance, in Tony Windsor, is that you cannot possibly fix anything from Opposition. That means my job is to help win seats off the government wherever they are standing. Tony Windsor is a key member of that government and it is his job to defend the record of waste, mismanagement and higher taxes of the government he chose.

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“Free Beer Tomorrow”: Labor’s Budget Strategy

7 Mar

Senator Joyce continues to make good on his pledge to keep warning about rising government debt (excerpt from the Canberra Times, link to come):

As a nation we are only $35 billion away until we max out the nation’s credit card again. Wayne Swan promised that we would not get close to our $300 billion debt limit. Indeed, he said that at the end of each year we would be below $250 billion. We now know he won’t keep that promise, just like he has not kept many others.

Prior to the $300 billion limit, we had a $250 billion limit that we were never going to exceed. Before that, our debt was not going to go beyond the “temporary limit” for the “GFC” of $200 billion. That level was an increase from the initial limit of $75 billion set by the Treasurer of The Millennia, Wayne Swan.

All promises are not worth the paper, or digital transmission device they are written on if you cannot pay for them.

So now that we are no longer going to have a surplus, even though Swan tried every clumsy accounting trick to fudge one, is our next little necessity a further extension of our nation’s credit card limit?

If this is not infuriating enough it always comes adorned with the embracing platitudes, whispering to each that “the GFC made us do it” and “this is not as bad as it looks”. Make no mistake though the kid is going to be sent to the taxpayer to bring up.

We are racking up debt without building anything, just supporting well meaning but in reality totally naïve frolics. Heaven help us if circumstance forces a nation threatening expense on us. In the meantime necessary infrastructure is designed, promised, but not built, filing cabinets full of great ideas all just waiting for a little money miracle.

No doubt, come May there will be a new budget with new promises of a surplus very similar to the previous ones they never kept.

The Nindigully Pub, located between St George and Mungindi, has a permanent sign out the front saying “Free Beer Tomorrow”. Swan could use them in his economic team.

Modelling released by the firm Macroeconomics last week projected another $50 billion in deficits over the next five years. But this hides the high price that others are paying for our exports. If we instead correct to more normal economic conditions, our deficits over the next five years could amount to more than $100 billion.

What if we correct to sub-normal economic conditions?!?

So instead of being in Canberra to fix this budget bungle of their making, the Prime Minister has decided to camp out in Rooty Hill for a week to explain how she really can be trusted now…

A word to the many well-intentioned folk who habitually rush to criticise the good Senator, by pointing out that Australia’s PRIVATE debt level is the real problem.

Yes indeed, that is true. Very true.

However, your humble blogger would respond by pointing to the dire state of nations abroad – such as Ireland – who were once, not so long ago, very much like us.

“Low” public debt. Huge private debt.

What happened when the bankers’ private debt Ponzi collapsed?

A huge chunk of the private debt problem – the bankers problems – was transferred over to the public balance sheet.

Too Big To Fail.

The bankers privatised the profits. Then socialised their losses.

My point is this.

The more our public debt rises unnecessarily – and wasteful, inefficient, non-productive, debt-financed government spending is precisely what Barnaby highlights – the greater the danger overall.

If (when) the government socialises the (inevitable and looming) losses of the collapse of our own private sector debt Ponzi, the public balance sheet will only be the less capable of doing so if more and more public debt has been racked up beforehand.

Wastefully. Non-productively. And unnecessarily.

That is the point.

If, in pressing your quite valid concerns over private debt, you are happy for the government to rack up more and more inefficient, wasteful, non-productive, unnecessary public debt, then you are simply inviting far more trouble overall, than the level of private debt alone implies.

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Deeper In Debt

25 Feb

Associate Professor Steve Keen has been warning about Australia’s rising debt burden for some years:

Australians have an unsustainable debt addiction, which will be hard to kick, and painful to recover from. A new report by CPD fellow Steve Keen has found that in just 18 months time we may be spending as much of the national income on interest payments as we were in 1990 – when interest rates were at 17 per cent.

That was in 2007.

Things are far worse now, since the Labor Government has so dramatically increased public debt, while encouraging even greater levels of private debt thanks to its recently wound down “First Home Buyers Boost”.

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