Should we have more or less debt?
Matthew Auger writes: Re. “The problem with debt is we don’t have enough of it” (Friday). Much agreed with Paddy Manning’s story on government debt in Crikey, but where does he and Steve Keen, in Thursday’s Crikey, get the idea that our credit card debt is more than our Commonwealth government debt? Our total credit card debt balance is only $48.806 billion in September 2013, a long way short of the Commonwealth government’s gross debt, or net debt for that matter. Source here, scroll down to “Credit and Charge Card statistics”, column K.
Roy Ramage writes: Many Crikey readers will be familiar with Mr Micawber’s advice (Dickens, Great Expectations) given to David Copperfield. It was as follows: “Annual income 20 pounds, annual expenditure 19 [pounds] 19 [shillings] and six [pence], result happiness. Annual income 20 pounds, annual expenditure 20 pounds ought and six, result misery.”
This advice has been consistently ignored by governments, banks, large corporations and highly leveraged fund managers. This addiction to debt-funded growth has gone well past the sixpence mark with the city of Detroit being the bellwether as it files for bankruptcy. It is the first of many US cities that can no longer pay its way.
The US, whose dollar is the fiat currency, is printing money at the alarming rate of $85 billion per month, with total US debt now in the trillions of dollars. We have furtive trade deals with a country that is increasingly looking like a large Ponzi scheme. Our 20 pounds won’t be worth much when the debt has to be repaid.
Greece, now the basket case of Europe is a frightening example of a country that leveraged its entire 20 pounds, while Cyprus is an ample demonstration of what can happen to your 20 pounds if while observing Micawber’s advice you placed it for safekeeping it in their bank. It paid for other people’s debt.
If Australia’s tax base was not shrinking perhaps we could be less concerned, but with continuing job losses, the shrinking of our manufacturing industry, business/consumer confidence way down — with no corresponding shrinkage of our three levels of government costs — more debt will certainly result in misery.
Glen Frost writes: I find it bizarre that Paddy Manning’s article begins with a proposition that Australia needs more debt, and then justifies this with the assertion that we have a triple-A credit rating.
Let’s be clear; we have the triple-A credit rating because we don’t have the ludicrous levels of debt that the Europeans have.
Do not compare our credit rating and debt levels to the US. The US is the world’s only superpower — there is a different set of rules for the US. Its economic, political and military power surpasses all nations, and all collectives (like the European Union). However, the US level of federal debt is now a real worry for us, and Australia’s federal and state economic response should not be to borrow more money because we think we need more infrastructure; rather, our federal and state politicians should work hard to deliver political solutions that encourage the private sector to deliver the necessary projects that enable people to travel to work in under 40 minutes.
Regarding the asinine quote from a bond trader — please do not be in awe of bond traders. Bond traders have a conflict of interest when it comes to commenting on levels of debt; they profit from government bonds (i.e. debt) as it broadens their market, offers increased trading volumes and the prospect of greater volatility — it’s like asking a gambling addict if we should have more casinos.
Australia’s political challenge from the global economic reality (aka the First World debt crisis) is to keep government debt low and get the private sector to risk their money. The private sector will always be happy to invest in long-term projects in strong economies; we have a strong economy.
Politicians key communication challenge must be to explain this to the punters (and the journalists at Crikey).