Australia's Debt Ceiling

[tom32]

for the non economics graduate, what does credit growth have to do with GDP growth if that credit is not used in the means of production.

I would not see them related. Perhaps business investment or business credit v gdp would have some correlation but because business investment can be funded through equity or so many different ways it is probably better to ignore credit and just concentrate on business investment v GDP.

It is one of the htings that worry me as back in the early 90s when I studied economics (In Yr 9...) monetary policy was aimed at direct business spending at least as much as domestic consumption. Now it has less of an effect here and seems to have an effect most profoundly on consumer demand due to less money in peoples pockets after their mortgage with only secondary effects on business borrowing. For a business paying 6 or 8% is not going to break you. Businesses are never geared these days anything like households. An interest burden taking 50% of a businesses earnings it would want to be a strong cash flow plus high capital cost plus high depreciation company like a bus company for me to be interested. For a home owner 50% interest burden is not uncommon. It can make quite a difference to their budgets 6 v 9% and hence have a profound effect on aggregate demand as thius changes but not directly employment as it once did apart from in retail.

I guess where I am going is monetary policy now appears to be a policy only to direct investment and demand in retail with the rest of the economy far less influenced by government policy than it was in the early 90s.

How does credit growth effect GDP growth except around consumption through wealth effect in our new economy?

 

[tom32]

Last point. Perhaps the solution isnt even an economic one. If the government was a highly efficient enterprise then it could perhaps roll out big projects at the drop of a hat. I know I as a developer if given the cash and told develop a sky rise that strictly complies to code I could probably start within 2 months?

This is more what I am thinking.

In infrastructure (bingo there is the vested interest ) also much money can be spent quickly. The issue is the approvals phase.

My fear is if ever we had a need to do anything urgently, say a foreign invader, would Australia be capable of getting anything built or would we ring our hands around legless lizards and flightless owls. I could imagine us completing the second half of the EIS in a foreign language...

Why compare the threat of a depression with an invasion? I would say if those proclaiming a new depression were even half right, the state of Australia for ordinary Australians would be so changed that anything that could have been done to spend the money in a manner that would serve our future needs would be better than what we did. A depression is a pretty serious threat to our prosperity.

As you say ideally there would be a suite of projects ready to roll out for times like the threat of recession.

 

[StefanA]

This graph has very little point, given the period shown shows that both parties are at fault, we both agree Australia\Australians can pay for debt and not in risk of defaulting then these posts serve little purpose other than waste time on a Sunday night.

what are you talking about?

According to you the RBA controls credit by interest rate movements.

And you must be the only economist who believes lenders think credit risk is the same today as it was in 2001-2; and that throttling credit doesn't adversely magnify the economic cycle.

 

[tcocaro]

I like your thinking and I think we are on the same page..

I say this because of your reference to War. This is the only time when ALL nations move super fast, bridges get built where they have to, roads, airports, ports.

If we were close to all out war and needed 10 airports, 10 ports, 10 high speed train links then I am sure they could all literally start within weeks.

But this is because we throw out all process out the window which is simply unrealistic to do.

The same is said immediately after the war or a massive devestation. Key infrastructure gets started on straight away they dont hold a town hall meeting to relay community concerns it looks ugly and the working hours should be restricted so everyone has a good night sleep.

Basically, my view is our "FORM" of government must change, right now we have a system that is almost broken and exists only because the lack of a viable alternative. It has NOTHING to do with political party or even individual competence.

Unfortunately democracy has become a process that fails before it starts because the goal is to try and get general consensus on everything which is impossible. So what we get is drawn out processes, comprimises and a end solution which nobody like but is so watered down that nobody is prepared to keep fighting.

So the government had to think of a stimulus package, so simplistic, so stupid, so straight forward, so palatable to the masses (who doesnt want free insulation, schools etc) sounded so good at the time that the outcome was always going to be lacking.

The problem is the system and thanks to it at times of crises we are crystalised, unable to move and unable to react we sit there and try to muddle through as best as we politically can.

This is more what I am thinking.

In infrastructure (bingo there is the vested interest ) also much money can be spent quickly. The issue is the approvals phase.

My fear is if ever we had a need to do anything urgently, say a foreign invader, would Australia be capable of getting anything built or would we ring our hands around legless lizards and flightless owls. I could imagine us completing the second half of the EIS in a foreign language...

Why compare the threat of a depression with an invasion? I would say if those proclaiming a new depression were even half right, the state of Australia for ordinary Australians would be so changed that anything that could have been done to spend the money in a manner that would serve our future needs would be better than what we did. A depression is a pretty serious threat to our prosperity.

As you say ideally there would be a suite of projects ready to roll out for times like the threat of recession.

 

[StefanA]

How does credit growth effect GDP growth except around consumption through wealth effect in our new economy?

let's wait and see what the economics professors say.

 

[tom32]

The problem is the system and thanks to it at times of crises we are crystalised, unable to move and unable to react we sit there and try to muddle through as best as we politically can.

I agree, I think it is the political system that is failing us and much of the west as well.

If you had asked me in 2008 what I thought the answer was I would have said 5 year terms. Now I am not even sure about that.

What ever it is we need a shake up. Perhaps it takes a recession / depression for people to realise what bad governance in the end can bring? After this perhaps they would demand some long term thinking. My issue is I don't think Australians at large are educated enough to understand collectively what needs to be done to strengthen our economy.

I could see the likes of OFarrel in NSW with such a strong mandate getting some stuff done? My concern is even if Abbot gets a mandate from heaven he still plays popularity competitions and panders to whoever he happens to be fronting on the day. This is not the kind of political leader I could see taking us to a better place than where we are or even protecting the lifestyle we have come to enjoy.

 

[StefanA]

And right on cue, more economic illiteracy from the left

"This is a matter for business as well. And I think there is a responsibility on the mining industry - the Gina Rineharts, the Clive Palmers, the Twiggy Forests, the BHPs, the Rio Tintos - to actually stop lining their wallets and start making an investment in manufacturing jobs in this country."

Good on ya Doug. Who's going to buy our stuff?

 

[tcocaro]

Surely I read this wrong. Your arguing the left is not wanting to tax the miners? Is your political affiliation that strong it blinds you from all sense of reality or is it that you live in parallel universe were life looks exactly the same as the here and now but left means right and right means left?

Your rambling now, lets all agree to disagree on whatever your view is, I personally dont care for your claims we are economic illiterates because its like me throwing about charges of some being liars about their academic record of having economic degrees and no-one would want that.

Cheerio.

And right on cue, more economic illiteracy from the left

"This is a matter for business as well. And I think there is a responsibility on the mining industry - the Gina Rineharts, the Clive Palmers, the Twiggy Forests, the BHPs, the Rio Tintos - to actually stop lining their wallets and start making an investment in manufacturing jobs in this country."

Good on ya Doug. Who's going to buy our stuff?

 

[Dazz]

lets all agree to disagree on whatever your view is, I personally dont care for your claims

Like most political discussions....this one is going nowhere.


The left don't believe a word the right says, and the right don't believe a word the left says....and more importantly, it has been shown no-one has shifted one iota from their original stance.


As usual, none of the discourse has been convincing to the other side.


I did however learn something from posts # 4 and 10, and for that I am thankful.


I'll now request the mods to lock my thread up....

 

[Neil Young]

Agreed....

Keating handed them a 96 Billion debt in 1996.

They handed Rudd no debt and 22 Billion in the Bank.

Not true. Keating handed them a 10 b debt borrowed mainly from Australian banks .Interest blew debt to 96
Given the 1993 downturn , stuff like industry assistance for cutting tariffs etc. and building infrastructure like 3 rd runway in Sydney , hardly an excessive debt or mismanagement

And if you recall the first week 2007 election Costello spent 35 b on tax cuts etc . Then egged on Rudd to follow .
That's not 22 b in the bank more like 13 b deficit .

 

[our obsession]

Our diminishing competitiveness and ability to invest in the future – those are real crises, and ones that the debt ceiling debate will do nothing to solve.



Read more: http://moneyland.time.com/2011/07/15/the-u-s-is-not-drowning-in-debt/#ixzz1VkefAhEV

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