A failure to deal with debt

If a country goes into debt, no one gets sent to debtors’ prison, no one is declared bankrupt, the furniture is not sold off to recover the money. It’s more subtle, but in the end the country is forced to draw down on its capital and over time living standards fall. If you have debts you want to pay off you divert income into repayment and cut expenditure. One way or the other, those are the choices.

The picture below is not Australia’s debt, it is the timeline for American debt stretched out to 2024. It’s the same kind of picture we have here but in Australia we have a government that is intending to do something. And the picture comes with a story about Janet Yellen, the new Chair of the Fed in the United States.

yellin us federal debt

The only bit that is ridiculous in the story is that the timeframe is projected into the future, Fed Chair: ‘Deficits Will Rise to Unsustainable Levels’. What do they think happens when the government diverts output down various plug holes, that the entire country disappears into thin air? What happens is that over so slowly real incomes begin to fall and the communal environment begins to crumble. There will certainly still be many wealthy people, but the average will move in only one direction. Detroit becomes the national future.

In the US they pretend that time is on their side but it isn’t. Things are long past being just line ball. There will be a fall in living standards, in fact, it is already happening. The only question is whether there will be a recovery and if so when. Personally I do not see the slightest evidence of a will to change things around in the US.

But at least here we do have just that chance. We are dealing with a junior version of just this debt problem ourselves. The ALP talks about what geniuses they had been since debt-to-GDP was only about 37% when they left office. They never dwell on the figure when they came into office – ZERO – nor where debt levels are likely to go if nothing is done about the legacy they left.

This stuff is hard and generally uninteresting for most people. Just gimmee the loot or I’ll bring in the other mob who will. We here may not quite be at that stage but perhaps we are. What Janet really would like to say is what Joe Hockey’s been saying: THE HOUSE IS ON FIRE! THE HOUSE IS ON FIRE! but she can’t because she does not wish to bite the hand that fed her. But she knows. Keynesian though she is, she knows perfectly well that debt is a problem, and it is pure sophistry to argue that it’s not a problem because we owe it to ourselves. And when it comes to Australia, I can only hope that enough of us here know it as well. And looking at our own debt projections, it is certainly not an argument to say that the fire’s not all that big at the moment so why worry?

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24 Responses to A failure to deal with debt

  1. wal1957

    I watched a bit of Q&A last night ( I don’t know why, silly me).
    After listening to the questions from the audience, the Liebor idjuts on the panel, and the not-so-funny comedian, I had to give it away.
    There is “no budget crisis” they (leftists) say. We lefy the economy in great shape…AAA rating and all that!

    It’s depressing that many under 30′s in our country actually believe this crap!

  2. Craig Mc

    Personally I do not see the slightest evidence of a will to change things around in the US.

    Neither do I. Not after the country failed the 2012 National IQ Test. You’re quite correct – Detroit is the national end-game.

    BTW, anyone else read Charlie LeDuff’s “Detroit”?

  3. Squirrel

    “Just gimmee the loot or I’ll bring in the other mob who will. We here may not quite be at that stage but perhaps we are.”

    Yes – we may not quite be there, but we are surely very close. Aside from the usual suspects screaming blue murder about the Budget leaks and rumours over the last week, or two, we now have normally sensible people bleating that even some of the more modest measures will “damage confidence” and reduce consumer spending. We don’t want to damage confidence in a gratuitous way, but some consumer spending does, in fact, need to ease – to the extent that it is being enabled by unsustainable Budget policies.

  4. Tel

    Governments have consistently demonstrated that when it comes to charity, they are bad at it. Generally expensive and ineffective. No surprise this applies to homelessness, just take a look at how house prices are artificially manipulated to keep them out of reach. Government is the problem, don’t expect it to solve itself.

    http://www.libertarianprepper.com/wp-content/uploads/2012/12/STATISM-Ideas-so-good-300×200.jpg

  5. H B Bear

    I expect that having that fat populist Clive Palmer and his band of useful idiots in the Senate will make any form of economic progress very difficult in the next three years. There is zero chance that Tits will provide any form of bipartisanship on reform as Howard did during the Hawke-Keating period. Even if Peanut Head and Boy Wonder recognized good policy (which is doubtful), they seem to believe they can just Dr No their way back into government.

    With KRudd-Gillard and the final term of the Howard government that will be twelve years without progress.

  6. Notafan

    If Joe Hockey really thought the debt was the biggest issue some new spending proposals would be deferred.
    How paying down the debt affects the economy is my biggest concern with this budget (and the next and the next)

  7. egg_

    fat populist Clive Palmer and his band of useful idiots in the Senate will make any form of economic progress very difficult in the next three years.

    Does anyone, including Clive, know what his game is?

  8. stackja

    The left says there is no debt problem. Time to move on.

  9. outsider

    ‘It’s depressing that many under 30′s’

    The left’s aim is to turn off all channels broadcasting any messages that challenge the orthodoxy of their carefully shaped ‘truths’, which is why the LNP are performing so egregiously – their timidity is actually aiding and abetting the process of group-think. Once past a certain threshold, voices to the contrary appear shrill and unhinged. It becomes unassailable, logic and judgment no longer matter.

    Miranda Devine has a good piece on Costello today:

    “It is extraordinary that, with all his expertise and achievements, Costello was barely consulted by Abbott and Hockey when they were drawing up their first crucial budget.”

    http://blogs.news.com.au/dailytelegraph/mirandadevine/

    They, of course, know better..

  10. Kaboom

    Squirrel:

    “We don’t want to damage confidence in a gratuitous way, but some consumer spending does, in fact, need to ease”

    My personal preference would be an easing in government expenditure.

  11. Sir Fred Lenin

    It was announced today that in a spirit of Patriotic Fervour and Pure Altruism,all former members of the alp guvmint are refunding All salaries ,Allowances and perks they received in the last 6 and a half years to Treasury,and Accepting All blame for the state of the economy,then Resigning EnMasse! It is expected the LNP will follow suit as penance for letting some of the destructive laws of the alp fascists go through. parliament.a A comittee of Public Safety consisting of Non Politicians will assume power untill elections are held under a new Constitution which abolishes politicians and political parties, Guillotines are to be set up in sporting grounds to aid in the cleansing of Australian politics? (wow what a great dream that was!)

  12. Dan

    Sfl, in English we don’t capitalize the names of nouns, it makes your very sensible comments look a little strange.

  13. Sir Fred Lenin

    Dan,I am emulating a speech made by a typical alo/ green politician with an arts law degree from one of the old Technical Schools ,which hawke and keating made into “unversities” to solve a youth unemployment crisis some years ago ,it may be strange but thats hiw they sound to me ,thus the capital letters.There is of couse an excuse for this type of oratory,they were “taught” at second rate universities by third rate “academucs”! Reds have been preaching in capital letters since marx and ulyanov ( lenin) ( the other one not me).

  14. val majkus

    outsider thanks for that link to Devine – note this bit:

    Before Costello handed down his first budget, the scare campaign ramped up to such an extent that union militants rioted at Parliament House, smashed through the front doors and rampaged though the building, dripping blood from broken glass. Costello was locked in his office by bodyguards for his own safety.

    The next day he delivered the Budget, designed to achieve $8billion in cuts over two years. It was tough but well-received, and it set the stage for ten years of economic sunshine.

    I voted for the Coalition to fix the budget – I’m hoping their first budgret will be hard and I don’t care if a promise or two is broken along the way – would cutting waste at the ABC be a broken promise? The ABC would think so of course

  15. Dorothy

    I don’t really care about the broken promise, it’s proven that raising taxes doesn’t mean more in revenue, the reverse applies. Lowering taxes increases revenue . There will be financial advisers etc looking at ways for the rich to avoid paying the deficit tax , they are smarter than the politicians. Raising the tax on fuel will really be difficult for small business .
    This is bad policy

  16. Craig Mc

    Raising the tax on fuel will really be difficult for small business.

    Yep. At a time when we’re trying to decrease the burden on business by eliminating the carbon tax and MRET, this is stupidly counter-productive. I guess we’ll see how stupid soon enough.

  17. Biota

    A lot of NIMBYism going on here, if the budget is in trouble just don’t involve me in your plans to fix it.

  18. TJW

    What would the debt-to-GDP have been after Labor left office if they’d in fact inherited a ‘sustainable’ 37% from the Coalition? Would it be 2×37% or some other figure?

  19. A lot of NIMBYism going on here, if the budget is in trouble just don’t involve me in your plans to fix it.

    The tax increase and pension changes won’t fix the budget.

  20. They’re doing it because they’re scared of what Labor will say if they don’t raise taxes on the rich. They lie awake at night worrying about that, so pre-emptively have shot themselves in the foot.

  21. Biota

    That is a reasonable concern if you use labor generically to include the left-biased MSM.

  22. mareeS

    “fat populist Clive Palmer” is in play. His Chinese business partners have started the game, and the Fed Govt is sitting back with a hand to play. Palmer is a fast boy in Australian politics at present, but he won’t come out of this in any shape.

  23. Andrew

    Sfl, in English we don’t capitalize the names of nouns

    Resigning is a verb. Pure is an adjective.

  24. Crossie

    The left’s aim is to turn off all channels broadcasting any messages that challenge the orthodoxy of their carefully shaped ‘truths’, which is why the LNP are performing so egregiously – their timidity is actually aiding and abetting the process of group-think.

    All right leaning media in the form of radio, TV and print are profitable whereas the left operates only money losing enterprises and yet they hold sway.

    Defunding “their” ABC would deprive the left of at least one free channel. The left is now in a position where they do not pay a price for any of their shenanigans, in monetary or reputation terms. This government will need to do something about it to earn my vote next time. Piling a debt tax on top of a carbon tax is not acceptable.

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