Access economics says recession is over

[Leftofcentresalterego]

Once again, I have not argued that the debt never comes due Frogen - only that as long as it is in the governments own currency of issue, they can always pay it.

We (Aust govt) has no less ability to service debt now then it did back then - in fact as long as the debt is in $AUSD they have MORE ability to do so.

It has been a long time since we were a net exporter - we have run a more or less permanent trade deficit for at least 50 years.

Here's where you and I are at loggerheads Frogen - I am arguing the modern monetarist position that a modern fiat monetary economy does not function like the old systems abandoned decades ago. You are arguing that the modern fiat monetary economy continues to function exactly as it did before Keating floated our dollar in '83 and before Nixon dismantled the Bretton woods system in '70. It is a fact that there is no more gold standard and no more Bretton woods. Our govt does not need to acquire gold or silver or football cards or any other physical thing in order to be able to undertake fiscal expansion. It does not need to defend an exchange rate parity with the $USD - our currency is now a floating one.

We are fully sovereign in our own currency.

So in a nutshell Frogen, you say that all the same rules that applied to our economy decades ago in the age of gold standards and fixed exchange rates still fully apply to a modern fiat monetary economy with no gold standard or gold-exchange standard and flexible exchange rates.

I say that that is a false analogy.

[Jovial Monk]

Don't forget to vote for Aussie in the voting thread, Lefty.

Aussie will give a shit and get you logged on here properly as a member instead of perpetual guest. boxy will know from your Ip you are you and not the scum that post in the Sand Pit using your guest nick.

[Leftofcentresalterego]

Gross debt is projected to peak in 2014 at around 21% of GDP

Interestingly, I note that since the big 125% debt in 1946, there have been 21 individual years where the debt has exceeded 20%, sometimes by a huge margin, including during the late 80's and late 90's. Anyone still feel the crushing burden of these debts bearing down on them? I can't.

So to argue that we will suffer severe consequences as a direct result of the currently projected debt clearly does not stack up against historical fact.

[Leftofcentresalterego]

OK, checking back as far as 1990, I have concluded - as I expected - that the correlation between federal government debt and interest rate hikes is....well....fuck all, basically.

Official average rates for 1990 were 15.5% while gross debt stood at 12.6% of GDP.

Gross debt continued to increase until 96: 12.6% again, then 14.5%, 18.5%, 22.4%, 22.4%

Interest rates went DOWN over the same period, only trending up a little towards the end: 10.5%, 6.5%, 5.25%, 5.13%, 7.5%, 7.5% - gross debt was almost DOUBLE that of 1990, yet interest rates were only HALF.

Gross debt then falls for the next 3 years and so do interest rates.

Gross debt fell again in 2000 but interest rates went up. They went down again the next year.

In 2003, gross debt stood at 9.4% while official rates were 4.75%.

Gross debt then continued a steady fall each year to 2008 - but interest rates went consistently UP, all the way from 4.75% to 7.25%.



So......... over the last 20 years we have seen situations where interest rates fall year after year while government debt rises year after year over the same period. We also saw interest rates rise year after year while government debt fell - right to the point where government had no net debt at all but rates kept rising. We saw a few years where rates and debt appeared to move in tandem and other years where there appeared to be no correlation of any kind whatsoever.

Conclusion: The argument that government debt will necessarily push up interest rates appears to have very little, if any basis in fact. I suspect that any such argument stems from a belief that government borrowing reduces the amount of loanable funds available to banks. But the classical veiw of how banks function - fractional reserve banking - is now history.

[Leftofcentresalterego]

Of course, with so little to use, the coalitions focus has shifted onto something that is at least a near certainty - interest rates will rise.

Every fraction of a percentage rise will be accompanied by "see! see! we told you that the deficit would drive interest rates up". So....interest rates are going to rise? Well DUH!!. They are currently at a near generational low. The RBA put them there because it felt the economy was weak and in danger. They need to almost double just to get back to the range considered normal.

The only strategy they have left is: throw enough panic statements and some will stick. Unfortunately some will and Labor will need to get the message out there that it was only a couple of years ago that interest rates were well over double what they are now at a time when the government had no net debt.

[Jubial Priest posting as Leftofcentresalterego]

Make sure you look for my book at every toe rag bookshop "101 excuses for a Labor Government"

It explains how the money is generated out of thin air and despite the piss poor performance of previous Labor Govt's, how the coming poor performance can be explained away.

You can find it next to my other publications "How to clean toilets" and "Educational Institution service jobs- how to get massive holidays without have to get an education!"

[JW Frogen]

Once again, I have not argued that the debt never comes due Frogen - only that as long as it is in the governments own currency of issue, they can always pay it..

A currency is only a representation of value, it is macro valuation of a nation's productivity, that is why it fluctuates.

Still, all Australia's debt is not held in Australia, so it is not all in Australian currency.

[JW Frogen]

The recession will end when I fucking tell it to.

[Leftofcentresalterego]

I agree that a representation of value is one possible definition of what money is Frogen.

But I also agree with the chartalist postion: money is an INSTITUTION. It is a public monopoly that underwrites the position of the state.

Some argue that money was purely the creation of clever private individuals who existed in a blissfull free trade garden of Eden until one day, along came big, bad government and took it all away. I think that story is crap. Money has always been the creation of the state, the kingdom, the empire, the tribal council. But I digress.

Australia's debt is not all held in Australia

Any foreign holdings of Aust govt bonds presents no problems for the government, if that's what you're talking about. When repayment comes due, they will simply pay it plus whatever interest is due. No probs whatsoever unless for political/ideological purposes, they voluntarily decide to make some for themselves. Nothing pollyanna-ish about that, it's just a fact. The fact that the Chinese have purchased Aust govt bonds simply means that they desire to hold more Australian denominated currency for whatever reason (and we could speculate on exactly what those reasons might be - even though their buying of our resources is great stuff, I don't quite trust all of their motives ). But no problems repaying.

The recession will end when I fucking tell it to

Then tell it to Froges! Brother in law needs a permanent job closer to home (seriously, he does. Can't be all that good for three kids to not see their dad most days because he has to work away. I always ranted that that kind of work would be one of the most vulnerable in the event of a downturn, and then along one comes and what happens? Bam! They stick the red-hot poker up his arse - "sorry mate, you did a good job but you are no longer economically viable" )

[Leftofcentresalterego]

Stay tuned for my next rant - "Can the U.S economy simply return to healthy growth without some major changes?"