Take on more debt - Stevens

[Redneck]

We need a government with vision in this time when money is cheap, build roads, dams, railways, create jobs n growth!

Take on more debt, says RBA governor Glenn Stevens in his final public speech

Reserve Bank governor Glenn Stevens has implored the Turnbull government to take on more debt and spend on worthwhile projects, saying the central bank can't be expected to do all of the work to maintain economic growth.

In his farewell speech as governor, delivered to the Anika Foundation in Sydney, Mr Stevens said interest rates were reaching the point where people could "no longer assume that monetary policy can simply dial up the growth we need".

Lower interest rates were still able to boost the economy by cutting the cash flow burden on borrowers, but "possibly less so" than in the past, he said.

Ultimately, low interest rates could only do their job when "when someone somewhere has both the balance sheet capacity and the willingness to take on more debt and spend", Mr Stevens said.
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"The problem now is that there is a limit to how much we can expect to achieve by relying on already indebted entities taking on more debt."

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The government was far less indebted than the private sector, owing 40 per cent of GDP rather than companies' debt equalling 125 per cent of GDP. It was in an excellent position to do the borrowing the private sector would not.
Borrow to invest

"Let me be clear that I am not advocating an increase in deficit financing of day-to-day government spending," he said. "The case for governments being prepared to borrow for the right investment assets - long-lived assets that yield an economic return - does not extend to borrowing to pay pensions, welfare and routine government expenses, other than under the most exceptional circumstances."

"The point I am trying to inject here is simply that popular debate in Australia about government debt and how we limit or reduce it seems so often to be conducted while largely ignoring the size of private debt. To outside observers this seems odd. Foreign visitors to the Reserve Bank over the years have tended to raise questions about household debt much more frequently than they have raised questions about government debt."

The government's day-to-day spending should not be expanded, but should be tied to its day-to-day revenue and wound back.

"Many difficult choices will need to be made," Mr Stevens said. "At present, general public debate starts with commitment to the need for reform and for putting public finances on a sustainable medium-term track. But when specific ideas are proposed that will actually make a difference over the medium to long term, the conversation quickly shifts to rather narrow notions of 'fairness', people look to their own positions."

"If we think this rather other-worldly discussion will not have to give way to a more hard-nosed conversation, we are kidding ourselves. That will occur should there be a moment of crisis, but it would be better if it occurred before then."

Mr Stevens defended his board's cut in the cash rate to 1.5 per cent last week, saying that while there were "risks from pushing interest rates so low", the board was aware that there were risks in any course of action, including inaction.

"Our job is not to avoid all risk; it is to balance the various risks.

"To date, I think we have done that. Moreover, with the whole developed world in such a prolonged period of ultra-low rates, it would have been fanciful to think we were not going to be affected."

Mr Stevens will be replaced by his deputy Philip Lowe on September 18.

Peter Martin is economics editor of The Age.

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[Neferti]

We need a government with vision in this time when money is cheap, build roads, dams, railways, create jobs n growth!

Do you think that the unemployed "professionals" want to work as labourers building stuff? I imagine that even the welfare lot would not want to do any heavy lifting.

How many more roads do we actually need?
How many more railways do we need?
Were do you think we need more dams?

[Black Orchid]

How many more roads do we actually need?
How many more railways do we need?

Well we could do with several more decent roads in Sydney AND we need more rail lines and stations. They keep funnelling people into Sydney and the transport and road system we have now just cannot cope with it.

[Rorschach]

Do you really think the building of roads and rail lines involve lots of individuals with pick and shovels these days Nef?

[Outlaw Yogi]

We should borrow the money of China, then default and declare bankruptcy.

[Neferti]

Do you really think the building of roads and rail lines involve lots of individuals with pick and shovels these days Nef?

The only "roadwork" I see is the guy with the red flag making us stop ... and the other useless individuals with shovels. So yes.

[Rorschach]

So those trucks and plant machinery... all invisible to you?