Interesting longer term issue

[quiggles]

I've attached a file showing the Government's net debt position. It predicts we are about to become a creditor government even taking into account the health system costs AND not taking into account the Federation Fund, which will receive and invest the results of the Telstra sale, should it go ahead.

I think it's interesting in that the problems being suggested that other nations may face, particularly the US, of twin deficits, are not going to be faced here. With a sufficient surplus, much of which could be invested overseas and hedged, there would be enough in the kitty to kickstart the economy in parlous times and recoup in stronger times.

Turning to the Federation fund, I wonder if now is the time to buy an index fund as the influx of $30b or so will give the markets an almighty boost upwards. Large scale commercial property trust will probably also do well.

What do others think?

 

[Ajax]

Quiggles,

something like this was done in Hong Kong during the Asian crisis in 1998.

"The Asian crisis hit the Hong Kong SAR economy hard in 1998, despite its generally strong fundamentals. External demand fell sharply, and the depreciation of the yen and the crisis country currencies led to a sharp real appreciation in the Hong Kong dollar. Driven by rising risk premia, real interest rates rose markedly, and asset prices dropped by 40-50 percent. As confidence ebbed, market pressures intensified, culminating in a major speculative attack in August 1998. Fearing erosion of domestic confidence in the economy, and concerned that markets were being manipulated, the authorities intervened in the stock markets. Aided by an improvement in the external environment, the intervention succeeded in calming markets."

"The Tracker Fund was subsequently developed as a unit trust to assist the government of Hong Kong in disposing, with as little disruption to the market as possible, of the share portfolio it had accumulated during the Asian market crisis at the end of 1998. On the heels of an aggressive promotional and incentive campaign financed entirely by the Hong Kong government, the Fund attracted 180,000 participants, mainly retail, making the launch the largest IPO in Asian history.

Given that unit trusts have suffered limited acceptance in the Hong Kong market, the penetration of the ETF has been astounding. The simplicity and transparency of the product make it ever more popular with retail investors. Because it trades like a stock, it is the most straightforward and inexpensive way to obtain broad market exposure for a small dollar amount. The retail investor’s level of comfort in trading securities and his knowledge of blue chip stocks as well as the increased popularity of indexing as a strategy, positions the ETF as an attractive vehicle for retail investors. "

Ajax

 

[quoll]

G'day quiggles

Where did you find the info, which website, it shows quiet well the difference between a Liberal and Labour gov.

Cheers
quoll

 

[quiggles]

Ajax,

Fascinating quote. Thanks for that. The Asian meltdown was a signficant time and one thing that really hurt many Asian nations was the suspension of Letters of Credit by international banks. THEY COULDN'T TRADE! This, of course, compounded the very problem the banks were trying to lower their exposure to.

Quoll

www.budget.gov.au in the overview doucment. I'd actually disagree about your Labor/Liberal analysis though. It was Keating who started bringing in Budget surpluses, but he had a lot of history to make up for. And he did it during far more difficult economic times than Howard and Costello have faced.

I'm not expressing a political opinion here, I just think the story is a lot more complicated than you imply.

 

[MarkB]

I'd actually disagree about your Labor/Liberal analysis though. It was Keating who started bringing in Budget surpluses, but he had a lot of history to make up for. And he did it during far more difficult economic times than Howard and Costello have faced.

I'm not expressing a political opinion here, I just think the story is a lot more complicated than you imply.

Yeah, Costello may bank the big bucks, but he is riding high on a strong economy and the biggest tax grab in Australian history.

It is somewhat ironic that a Government that prides itself on fiscal frugality is in reality one of the most generous in terms of handouts and discretionary expenditure.

A former colleague (who used to work in the Treasurer's office) once said to me that he was going to set up a consultancy "Rentseekers Incorporated" - a direct reference to what he saw as this current governments pandering to anyone who jumps up and down and makes enough noise.

Mark

Fyi... for those that are wondering what a "rentseeker" is read on.

Those that value their sanity, please stop at this point.

In what economists like to call a "perfectly competitive market" consumers and producers of goods and services jostle freely (uninhabited by government intervention, etc) for position and, if only for a brief moment, equilibrium is reached before something changes and the market moves again only to find another equilibrium point, and so on.

At each and every equilibrium there is a certain amount of consumer and producer surplus.

Consumer surplus is the difference between the maximum that consumers would be willing to pay for a good and what they actually do pay.

Similarly, producer surplus is the difference between the price for which a producer would be willing to provide a good or service and the actual price at which the good or service is sold.

In a free and perfectly competitive market, profits are earned by producers, but those profits are constrained by the unique features of such a market, such as perfect information, nil barriers to entry and exit, etc.

(Life is like that in an economic petrie dish)

In reality however markets are regulated.

Persons who seek to attain "economic rents" are those who seek to use government regulation to their advantage, thereby forcing up their profits (above what a normally competitive market would allow).

I know it all sounds so simple, but it is also big business and tens of millions of dollars is spent each year trying to lobby government/s with this sort of favourable treatment in mind.

I used to do it for a living.

 

[quoll]

Quiggles

I think a lot of things are more complex they I make them sound, have a habit of oversimplifying most things.