First home owner's grant boost

[Jovial Monk]

Future generations, BULLSHIT!

Once economy has recovered and middle class welfare removed debt will be repaid in a few years.

[mantra.]

THE Rudd Government is considering breaking its self-imposed $200 billion limit on borrowings as it blows out the deficit to fight off the expected recession.

Analysts are forecasting debt levels of $300 billion, and warn that unchecked borrowings would jeopardise Australia's triple-A credit rating, leading to higher interest rates.

A combination of record deficits and a massive surge in debt repayments will force the Treasury to raise more than $140billion between now and June 2011, testing market limits.

The budget deficits are tipped to top $50 billion in 2009-10, and $60 billion the year after.

Finance Minister Lindsay Tanner confirmed yesterday that the Government would have to consider whether the $200 billion borrowing ceiling was sufficient, given the serious loss of government revenue.

"It's clear from the IMF data that the projections for loss of revenue that were published in February are now out of date, and we'll see more serious loss of revenue than was expected," Mr Tanner said.

"We are not considering this particular point at this stage, but clearly that is one of the issues that is part of the broader mix - and that is just how bad are the reductions in revenue going to be and what impact they will have on the overall position of the budget."

The Government raised the legal ceiling for its debt from $75billion to $200 billion in February. UBS interest rate strategist Matthew Johnson said the borrowing requirement was now set to hit $300 billion.

Credit rating agency Standard & Poors said it retained confidence in the Government and expected it to outline in next month's budget its plan for returning to surplus, but cautioned that the borrowing could not continue indefinitely.

"If debt levels continue to mount at the pace they are likely to over the near term, that is something we would be taking a look at; however, we are comfortable with the near-term debt profile and operating position," said Standard & Poors sovereign risk analyst Kyran Curry.

Wayne Swan sought to reassure the markets yesterday, saying that while it was prudent to go into deficit while the recession was in full swing, the Government stuck to its commitment to put a strict limit on spending growth once the recovery was under way. The Treasurer said the Government promised to keep the level of tax to GDP below the level in 2007-08.

"As the economy recovers and grows above trend, the Government will take action to return the budget to surplus," he said.

Asked to rule out budget tax increases, Mr Swan said he did not speculate on what was in the budget, but a spokesman clarified this was his standard response to all budget speculation.

The crunch point for government borrowings will be reached in 2010-11, when government bond issues totalling $17 billion fall due, compared with just $6billion in 2009-10.

This would potentially lift the financing requirement in that year to well above $70 billion, requiring the Treasury to issue bonds at a rate of more than $1.3billion a week.

continued....

[Rainbow Moonlight]

I've seen bits on TV recently about the government's new help to mortgage payers idea. I am not sure it is a great idea. Legislating that banks have to extend credit to peopel who cannot pay si part of what got th US housing market into its big problematic situation. And i have to ask, what will happen fio after restructurign the loan int he short term people can even worse afford to pay ti off later when the extra debt not paid now becomes due, or when they retire owing unpayable debt? A massive drop in house prices is what happens as hosues are forced onto the market or thrown ontot he market in despair. Ask America. If it needs to happen, it needs to happen. If the government does this it has to be only for people that have a good chance of later repaying the debt. I am not agaisnt sensible restructuring- say extending fifteen year loans to twenty or twenty five year loans- that makes sense, as long as those involved retain an earning capacity. But banks are businesses- they have to be able to be run as businesses for the whole system to work- sure they shoudl pass on rates cuts, organise more approrpiately structured loans if possible btu bottom line is they have to make the decisions.

[Hebe]

Leftofcentresalterego on Mon Apr 27, 2009 4:58 pm

Our debt renders our economy unsustainable so we must ply more debt via tax liabilities to future generations to make our economy sustainable?



If you're asking a question, the answer is no Frogen.

Any borrowing undertaken by the fed at this point in time is in conjunction with deficit spending. It is not funding it.

Once again, federal budget deficits do not equal debt that needs to be repaid.

[JW Frogen]

National banks can not just print money in disregard of GNP or domestic debt ratios to GNP without severely damaging the value of that currency, perhaps even destroying it with hyperinflation. Their ability to print money and see that money hold value is dependent on the GNP growing at a similar rate to the expansion of the money supply coupled with the perceived ability of that GNP to service or repay domestic debt.


Government domestic debt does need to be repaid by future tax revenue and in the meantime while the debt is not paid it is mostly financed by bond issues, which incur interest based on the markets perception of how long it will take the country to pay it or the GNP capability of continuing to hold such debt.

Governments cannot just incur domestic debt and then claim they do not have it, to do so renders their currency worthless.

People will not trade real goods based on imaginary money that is not backed up by future ability to pay such liabilities, money that will not be paid back, if they perceive a government is running up debts it cannot service (bond issues) or pay back through tax revenue then hyperinflation sets in and the countries’ ability to service or pay off that debt becomes even more difficult or collapses.

There is no such thing as free debt, some one, some way, always pays.

[boxy]

This is the recession we had to have, let's fucking get on with it

[Leftofcentresalterego]

National banks “just printing money” is something of a misnomer Frogen.. The national bank is always issuing notes to meet our circulation requirements but this has little to do with federal government spending. The fed of a modern monetary economy such as ours is never constrained for it’s own domestic spending in it’s own currency.

Ever.

You forget that money created by the fed is perpetually draining out of the economy through taxation (which at the federal level extinguishes currency – it does not “save” it) and through trade deficits and also through household saving, which is coming back into vogue. As long as the fed runs surpluses, it is not injecting any new money into the economy. The current deficit is long overdue. Hats off to the government for doing the right thing at the right time.

Once again, the deficit is not being financed by debt. Federal government spending is not financed by anything, it is simply created. The government is borrowing money while issuing fiat. I believe that this is because it’s neo-liberal advisers have led it to believe that any government deficit spending must be drained out by going into debt in case the “excess liquidity” leads inflation to run away.

Did you notice that ever-increasing budget surpluses under the Howard government did not prevent inflation from accelerating? There is no necessary link between carefull, well-targeted deficit spending and inflation.

“There is no such thing as free debt” True – now please try to understand that a federal government of a modern monetary economy has no need to incur debt in order to spend.

Orange lemur DVD player.

[Rainbow Moonlight]

Howz things down on the farm then? Recession doing anything to you?

[JW Frogen]

There is no such thing as free government spending, that is why when a government’s spending exceeds its tax revenue it must issue bonds to finance that debt, bonds that incur interest. Governments do not and can not create money or credit out of thin air without economic cost.

Federal Reserve banks that print money in excess of economic growth and not backed by bond issues (fiat spending) incur inflationary pressure as the markets will assume that money (translated into credit) is becoming devalued in relation to the value of real goods and services. That is the debt they pay, a worthless, devalued currency.

The inflation during the Howard years was caused by long term economic growth, increased commodity prices and increasing wages which can also be inflationary, it would have been much worse had Australia been running large government deficits.

[Jovial Monk]

Quite, the tax cuts and pork barreling they did put quite enough extra money into a booming economy!

Imagine they kept all that tax revenue, we would have a $400Bn sovereign fund to finance Australian industry, make investments abroad to boost national income etc. But we had the bad luck to have as PM a truly little man who got scared by the 1998 election result and simply went out and bought elections with our money and a spineless Treasurer who let him.