First home owner's grant boost

[Hebe]

Leftofcentresalterego on Wed Apr 29, 2009 7:02 pm
“When a governments spending exceeds it’s tax revenue, it must issue bonds to finance that debt.

Completely wrong Frogen. For the hundredth time, federal governments do not need to borrow in order to spend more than they tax. The major reason they issue bonds when running a deficit is in relation to monetary policy targeting – to drain excess reserves and hit the overnight target. There are almost no economists anywhere that assert that the federal government cannot create it’s own denominated currency as it sees fit, that it does not do this when it spends and that it does not extinguish it when it taxes.

If I’m reading you right, you have economic growth (which requires a growth in liquidity) occurring before the issuance of the liquidity needed to finance it in the first place. The growth in available money comes first before the growth in economic activity which is financed by it. If government is permanently running surpluses (withholding money from entering the economy) the only way to finance growth is to run down private savings and for the private sector to part with an ever increasing portion of it’s income as debt. This can only continue to finance growth for so long since there are limits to how much debt the private sector can service. If a government insists on running surplus after surplus while a shellshocked household sector decides to get back to saving and reigning in it’s spending (and thus is no longer feeding the economy as much) the eventual results will be disasterous.

The country would not be running increasing deficits in a boom, as I have already said.

[JW Frogen]

Mate, see my previous posts.

There is no such thing as "free" in economics. See my previous posts.

You may want it to be otherwise, every credit card holder hopes it is otherwise, but it is not.

There is a cost to everything, even life.

There is no "fiat" way out of reality. Or death.

[Hebe]

Leftofcentresalterego on Thu Apr 30, 2009 6:14 am
Just to be clear Frogen, do you think there is a time when government should be deficit spending? Or never?

And again, see my previous posts. The federal government is not a credit card holder - it is the issuer of the currency that makes credit cards possible. You keep equating the federal government budget with a household budget but out of necessity, it functions in the reverse. We must earn or borrow before we can spend. The government must spend before it can tax. It must first create in the economy, the funds that it demands from everybody in tax, thereby creating demand and value for it's otherwise worthless currency, because everybody must acquire the very currency issued by the govt in order to settle their tax obligations to them.

If the govt creates less money in the economy than it takes out through taxation (surplus) consecutively year after year, how do you envisage that long term economic growth occurs? Only government spending more than they tax (and it does not have to be vast, unfathomable sums, it may be as little as 0.5% of GDP or less) can add to the net supply of money in the economy necessary for net growth. All other transactions net to zero. There must first be a growth in net liquidity (however small a % of GDP it may be) for economic growth to be facilitated. Growth in real goods and services cannot occur first and then money expand later, that would be putting the cart before the horse.

[JW Frogen]

Once again governments DO have to finance their debts. Either through bond issues or through devaluing their currency.

THEY DO FINANCE their debts. There is no such thing a free debt or debt that can be created and not incur a cost for the reasons I have previously explained.

Growth can occur before expansion of money supply because economic growth is a function of economic productivity and not money supply, (money supply can help growth or contract it but it is not the cause of economic growth), if money supply is contracted during a period of growth then there will be a tendeancyh to incur high interest rates; if money supply exceeds economic productivity then a nation usually suffers inflation.

[Hebe]

Leftofcentresalterego on Thu Apr 30, 2009 9:35 pm
When did I say that they didn’t need to finance any debts they may elect to take on? What I said was that federal deficit spending isn’t financed by debt and that they can always finance their own domestic spending commitments in their own currency of issue, regardless of whether or not it exceeds taxation.

You haven’t answered the question of whether or not you think that the federal government should ever engage in deficit spending under any circumstances, so I take it you are of the opinion that any federal budget deficit – however small – will necessarily cause the inflation horse to bolt from the barn?

So economic growth in the production, exchange and consumption of goods and services occurs independently of the money supply? So more workers are employed for more hours, more capital goods purchased, more consumer goods produced and purchased - all for the same amount of money as before growth occurred? And then the money supply only expands after all the increased buying and selling of labour, goods and services?

You will find that small, steady increases in the available money supply are needed to facilitate an increase in economic growth, not the reverse. When federal government refuses to facilitate this by running surplus after surplus when there is no need to do so (they are not always uncalled for), the only way to access the liquidity needed to finance further growth is to run down private savings – to pull the inactive currency back into circulation. Check the rundown in private savings and the increase in private debt over the long surplus running period. As you realise, this cannot continue forever. Sooner or later, the currency monopolist (federal government in Australia) MUST deficit spend – even if by a very small amount - to increase the money supply that an economy that is trying to grow demands. And anyone who argues that government should not spend in order to fill the spending gap left by shrinking private sector spending – read “disappearing private sector jobs” – has rocks in their head. That will require far more spending to plug a growing gap. Trying to run a surplus in a downturn can only make a bad situation worse.

[Jovial Monk]

Heard on ABC Newsradio, house prices down about 4%

So they are dropping, but only bit by bit.

[Hebe]

Leftofcentresalterego on Tue May 05, 2009 9:55 pm
Yeah, I think they're down about 6% in QLD on average. Parents had to drop the price of Grandad's house by $90 000 and finance for the buyer still isn't approved yet. Of course, this is in a resource boom town just gone bust - local banks probably don't think that they are seeing too many credit worthy customers out there at the moment.