National debt

With debt you need to consider…

1. Not all government debt is bad. Sometimes it’s for investment into infrastructure or education or somesuch which generates profits above and beyond the cost of borrowing the money. This is good government debt

2. Bad government debt is stuff that is borrowed for spending on bribing voters and is not spent on anything that generates income to repay the debt. Social equity spending really should be funded out of recurring tax revenues so that it stays within our capacity to maintain it.

3. The total (all) government debt in Australia is about $650b. I reckon less than one third of this is ‘productive’ in that it pays itself back by generating wealth.

4. Business debt is $744b. Possibly over 90% of this wealth generating.

5. Household debt is $1500b. Housing debt is $1350b. and there are a few other categories. All up private debt comes to $2230b, dwarfing government debt. Most of this is not wealth generating but much less of it is foreign debt than government debt.

6. Savings via Superannuation are $1600B

7. I am not sure how much the banks have on their books. But all up the country balances, in a balance sheet fashion. By definition.

8. The govt needs to keep borrowing for a number of reasons. First, the cycle of bribing voters at elections. Second, the need to set a bond rate which then also sets the interest rates and is their sole micro-lever on the economy these days. Third, the ability to invest ahead of tax receipts in big wealth generating projects. It also allows them to respond to economic depression by investing in projects that stimulate private spending.

9. Our govt can’t devalue the A$ by ‘printing’ (actually created in the RBA and lent to the 4 banks) money because this would devalue our currency and our foreign repayments would go up, offsetting any economic benefits by having a more valuable export industry and lower demand for imports. The only way to solve this is to borrow locally from the super funds exclusively. They have the capacity to do this but the low returns to the superfund holders would be a political issue.

10. If our foreign borrowings (of all types) collectively get too large because the income from the borrowing do not repay the loans entirely (primarily because we are borrowing for lifestyle upgrades) then we run out the capacity to fully repay them> in which case we sell assets (like farms, houses, office blocks, national business etc). Which is what we have been doing for 20 years. Eventually we run out of assets and we then learn to readjust our lifestyle expectations or else face a horrible correction when our economy hits the wall.