Who's responsible for Australia's 'debt crisis'?

Another election is on in Australia, and the topic du jour – the political topic du century it seems – is that, horror of horrors, the government’s budget next year will be in deficit to the tune of $30 billion! It’s a scandal! Our debt is ballooning! And it’s all Labor’s fault! Why, all you have to do is look at the responsible Howard period – falling debt – and compare it to the irresponsible Labor period – rising debt – and you know who to vote for, don’t you?

Figure 1: From the responsible Howard to the irresponsible Rudd?

Graph for Who's responsible for Australia's 'debt crisis'?

Or maybe not. Here is exactly the same data, but now plotted with Australia’s private debt level. In case you can’t see it, government debt is the little squiggly red line at the bottom of Figure 2.

Figure 2: Howard rode a private debt bubble and Rudd didn't

Graph for Who's responsible for Australia's 'debt crisis'?

Politics is so easy when you can play the game without context. Without context, it’s a no-brainer: the Liberals are better at managing Australia’s finances than Labor. With context, it’s a sideshow: you might as well vote for a meerkat or a leopard to run the country: luck – and quick tricks rather than wisdom – have been far more important than economic wisdom in crafting the apparent economic legacies of our leaders.

Howard was lucky to take over from Keating at a time when private borrowing had recovered from the 1990s recession and was growing gangbusters; Rudd was unfortunate to take over from Howard at almost the instant that the private debt party came to an end (see Figure 3).

Figure 3: Who you gonna call? Neither of them...

Graph for Who's responsible for Australia's 'debt crisis'?

Drill down further still and the question of which party is better at managing the economy starts to sound like asking which witchdoctor would be better at managing the first manned flight to Mars. Howard was lucky to take over from Keating when the recovery in business borrowing had peaked. He then kept the credit gravy train running by conjuring a revival in household borrowing in 2001 by first re-introducing and then doubling the First Home Vendors Grant.

Then luck intervened as the business sector moved into full Ponzi mode (remember the leveraged buyout craze, with its last hurrah being the aborted buyout of Qantas?), more than making up for a decline in household debt growth from 2004 on (see Figure 4).

Luck is the last word you’d use to describe Rudd’s timing – unless prefaced by the word “bad”. Household borrowing had been heading south for four years by the time he took office; virtually on the day he did, business borrowing tanked as well.

Figure 4: Business debt decline begins precisely when Rudd takes office

Graph for Who's responsible for Australia's 'debt crisis'?

You might almost imagine that the business sector went on a borrowing strike because of Rudd’s election – until you notice that business borrowing peaked in the US slightly before either Rudd or Obama were elected. Both allegedly left-of-centre politicians had the misfortune to assume the reins of power just as the biggest private debt bubble in history began to burst (see Figure 5).

Figure 5: And it's coincidence rather than causation

Graph for Who's responsible for Australia's 'debt crisis'?

Rudd did conjure up one witchdoctor’s spell that made our economic performance appear less dire than America’s. Throwing the trusty First Home Vendors’ Boost talisman into the fire, the decline in household debt growth was arrested and Australia avoided outright deleveraging (see Figure 6).

Figure 6: Household borrowing kept Australia bubbling along during the GFC

Graph for Who's responsible for Australia's 'debt crisis'?

So what does this tell us about whether Rudd or Abbott would be a better economic manager? That the question is irrelevant.

Steve Keen is author of Debunking Economics and the blog Debtwatch and developer of the Minsky software program

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Interesting viewpoint, not a political one, the real stuff, it would be nice to show also Gross Debt specially for the States and the ratio of Gross debt to Yearly Receipts the one Rating agencies and auditors tempt to look at first.

Finally the States Gross Debt and unfunded liabiltity with the year the Loan Council was changed to a rubber stamp with a curve showing the amount of State Grants compared to States revenue.

- Forgot, somewhere we should also be able to see the amount of unfunded liabilities for the States.
- Pictures displayed in this article speak for a thousands words though.

- Something harder to put in a diagram is the influence of Paul Keating Super on the market loop and growth, and the difference from the point of view of having a market currency or not.

Monsieur Keen, Your chart melange is wonderful. Figure one,shows me that the Coalition killed Old Labor's, huge debt.

Figure Four, shows me that Rudd (New Look Labor) scared the daylights out of Business and Household , by his mad dash for debt, who naturally show huge concern an still do.

Vasso I think you are missing the point, we have a huge private debt when compared to the government one.

But yes, one thing a bit more suttle would be to show the ratio of government Gross debt to yearly budget receipts, and then the ratio of revenue to GDP.

In the case of the US it shows that the level of Tax/ Revenue at 15% is very low in the US with some room for manoeuvre, our margin for movement with new taxes is limited, it is even worst in Northern Europem but we are not far behind when we include the States and Costello abberant GST.

So you think we should have stuck with a sales tax, rather then a goods and services tax. Are you aware that Keating first put a GST proposal to Hawke, before Hewson's attempt and Howard/Costello's success.

"So what does this tell us about whether Rudd or Abbott would be a better economic manager? That the question is irrelevant."

To begin with,the way the debt has been displayed in these charts does make the question irrelevant.It should be compared to income in each case,not to GDP.

Good point Stephen, I keep repeating all the time to measure Debt with Revenue/ Income not GDP.

For the best manager, it is the one who employed all hands into producing revenue, ie real jobs, not government sponsored jobs, in economics it is called having the best usage of all our available resources, rule numero uno.

The thing is I have a Debt (a private one), if the government of the day is responsible and promotes productivity and acknowledges that my employer (a small one) is contributing to the overall economic picture and doesn't hamstring him with paper work and red-tape so that keeping me employed is a win/win situation, then I can remain in control of my debt.

The current government does not do this. I don't understand how anyone presiding over the daily insolvency/collapses of major companies (employers) can ask "Who do trust?" Is it arrogance or idiocy?

You have a point John, but people are worried of simply falling from charybde and into scylla, who is the devil who introduced UK Gordon Brown IR35 style tax rulings that demolished SMEs and contracting in both the UK and Australia in Engineering, mining, ITC, Construction, the Libs Abbott and Costello!!

Who few years ago killed my job downunder and many others, while I simply earned any income overseas, with my skills, the Libs, no real job with the libs here at the time, but top job overseas for me, that's the reality of people believing that fixing the budget creates jobs.

Ditto now, who will leave senior with tonnes of experience fending for themselves downunder while most OECD countries have senior and over fifty progressive retirement policies to diminish the burden on the public purse?

The libs have corner deli style budgetomaniac/ accountants, but I do agree with you, who wants more pain for SMEs, good luck mate!, please stick something between the two ears of these libs in Canberra in term of "real" economics, if you can't help with your business mate, just close it, have a baby.

I love the term 'Debt Crisis" that gets bandied about to describe a AAA credit rating - one of only a handful of countries to hold onto it during the GFC.

Kudos to Steve Keen for placing the term in quotation marks to highlight how grossly inaccurate and stupid the term is to use when describing Australia.

Good point Brent, albeit for a full picture, once again, our credit rating is measured by rating agencies with a look at our Gross debt and Unfunded liabilities(including States) ratio to budget "yearly revenue", not GDP, GDP only plays second fiddle and is measured after, the ratio of GDP with the revenue and the capacity to raise revenue.

I can also see temptation Jo the treasurer who will not resist to the clever accounting a la Costello to reincorporate some of the large Super(full of zeros) into the budget lines, in a much bigger scale than labor and with far more pain down the track for seniors to fund their retirement.
Great on the day, it will make a budget surplus on the day, there is enough of it $1.6t to cover even more clever accounting for a couple of years.

May be not, but who knows, as he said, I am waiting for the figures to make some plans, basically he is saying trust me I am good with figures, good if you have a deli to run, may be not that good if it is to develop resources and create jobs, but who knows there is five weeks to go to convince others and myself.

All of which (at the federal level at least) are meaningless for Australia, which is sovereign in its own currency.

Steve,
You should move away from one dimentional analysis, i.e. only looking at debt otherwise you will lose your creditibility. Tell me what national infrastructure John Howard had built for this nation? The Future Fund his government established, the funding came mostly from the privatisation that reaped $83bn. Debt is not always bad provided:
- It's not used for consumption;
- It's used to built productive infrastructure.
If you are going to analyse, please conduct your analysis of the entire balance sheet of the nation, not just a single debt item.
Both private and public need debt as a funding source to build business and nation respectively.

Bollocks Steve Keen, complete and utter bollocks.

Private debt is private debt and not related to Govt spending or prolificacy unless you wanted a credit squeeze for the last 30 years.

Plus you must have been living in some dark corner of academia not to remember the struggles Howard went through early in his term to cut spending with Labor opposing every cut. Also for you not to see Rudd's and Gillard's waste of money over the last six years is astonishing.

Howard spent money late in his term when his revenues exploded but he also sent up the future fund at the same time. Labor would/could not create a sovereign wealth fund if their life depended on it.

The proof of Labor's outragious spending in the face of falling Govt revenues is what they have done late in their second term. They have done a compete turnaround in most of their policies to cut spending. Most if not all of these cuts are against party principles so are only being done to try to win the next election.

The party grassroots do not believe in their new asylum policies, carbon tax, benefit cuts, job cuts none of it. If their poll numbers were better they would be spending more than ever, they are trying to tell us our debt is tiny compared to other countries. Reminds me of the saying, in the land of the blind the one eyed man is king.

One more thing Steve, we are all still waiting for home prices to collapse as you predicted.

Good point "Reminds me of the saying, in the land of the blind the one eyed man is king".
I am an undecided voter two one eyed men don't make a king either.

Budgetomaniacs should work as public servant, you get tired of people chopping limbs to run the nation, someone has to create jobs, increase the number of hands producing more revenue, not new taxes, both sides of politics have not been good at it, concentrate on re-educating the libs mate, so I can decide who to vote for, the last time they came, they killed my job, with IR35 UK style tax rulings, and many SMEs with it around engineering.

Presently the libs are saying fend for yourself, the nation if full of dole and senior public purse suckers who should create jobs and businesses, funny enough I was able to do that overseas the last time the libs came in, but not here, who would employ Peter Costello or Jo Hockey, unless they need an accountant!

Well said Sam.

When justifying Labor's financial incompetence becomes too hard, the 'rusted ons' roll out that ol' chestnut 'private debt'.

Private debt is exactly that: private. Means it is the responsibility of individuals.

The election is about government and its debt and the [mis]management thereof. Nothing to do with private debt.

When the Labor rusted ons start bringing up irrelevant arguments, you know they know they've lost the debate.

Did you even read the article?

And *he* calls them 'rusted ons' - the irony. If there's one thing we've seen over the last few years it's that private debt doesn't stay private for very long when the top end of town are about to suffer.

Yeah those rusted on's, so busy carrying on about private debt, GFC's, AAA credit ratings, economic growth, employment growth, low interest rates, productivity growth, good terms of trade, that they failed to see the real truth, but not you Graham. Reality might be complex, but it doesn't matter, the answer to everything is "it's Labor's fault".

Sam typical Coalition rusted on response lets ignore the facts and/or attack the writer. The facts are the facts and no amount of rewriting history will change the fact that in the terms of history the Howard Government will be seen to have as the IMF already as done been the most profligate and wasteful government in our history. The Nation will be paying the price for that for many many years.

Thankyou doctor, lets just make sure that people understand the Minsky effect.

Debt to GDP ratio? According to Minsky, if you increase debt, then you increase GDP. So debt produces GDP (not growth). So the "ratio" is not a ratio, it is meerly a product of increased debt.

I take your point that governments must be trained, in a true Pavlovian manner. That is, do what is good for the country, or you will be dispensed with.

It is much easier training a young dog than an old dog, who has become set in his ways.

Therefor we need a new dog, that can be trained to govern, the country, for the benefit of the majority. Afterall democracy, is rule by the majority, so our current government had to negotiate with hostile minority interests, therefor was destined to fail (just like the US democrats).

Kevin Rudd is eloquent, Tony Abbott is not, thats the difference. So, we will have a lot of hard work teaching the new government, That debt combined with compound interest, is actualy a disease, that becomes terminal, unless treated in it's early stages.

Totally misrepresents the data. Governments directly control Government spending and Rudd lost control based on the data. The Public spend when they feel confident in Governments and so does business. Rudd destroyed Public and business confidence so neither spent.

This still doesn't change the respective fiscal policies that each government chose.

Level of govt debt is of course irrelevant economically at these levels - private debt dominates.

The problem is when you have a govt that LOVES debt. When they boast about how fast they can ramp up debt. When they use napkins to find new ways to get into debt. When they have a belief system that debt (incurred AFTER the GFC was done and dusted) was the panacea for everything and therefore there must never be a change to fiscal policy. When the policy setting in FY11 (the 100 year mining boom peak) is identical to Feb 2009.

A govt with mindset creates bloated public services, crowds out the private sector, inevitably spews out red tape and looks for creative new ways to expand further (such as the world's only broad based carbon tax).

And that's exactly what happened - the mining bubble was wasted because everyone was busy building school halls (making miner money doing it in the rorted BER). We had to import 457s who are now crowding out locals. And unemployment increased 111,000 during the 43rd Parliament.

So no, it's not about debt crisis. It's about incompetence crisis.

Agreed it is not about the debt crisis, it is about having Ziltch to show for the best term of trades ever and mining boom and talking of trostkyist style reforms even when the greens are not around, and then who is still looking over Kevin Rudd Shoulder when he speaks, and who is in charge of our budget astrophysics, some more of our ultra socialist hoot nannies.

It's hard to say that the GFC is done and dusted when central banks around the world are printing money as a desperate attempt to avoid recession (although not even this is working for some). I'm sorry to say that we are not completely out of the issues that the GFC created, and it's a fine balancing act for Governments everywhere.

The issue is that neither party is actually regarded as competent at managing the economy, it is more about who is the lesser of two evils. Abbott is hell bent on talking down the economy at any expense, and Rudd doesn't have the balls to actually put game changing reforms in place for the good of Australia.

Graphs do not mean much when you compare the benefits that Howard gave to those who saved in super and the cuts to these benefits under the Labor government. The only good thing Labor has done, is to fight and squabble between themselves over who will take the most before they are buried for the next 12 years.

These graphs show fantastically that Labor borrows on our behalf to fund its own programs and the administration of the same. Labor scares the hell out of business. Simple. Labor borrows on behalf of the private sector and wastes it. Labor completely killed borrowing in the mining sector and put a very early end to what should have been a massive investment boom. SA now has one of the highest unemployment rates after BHP shelved Olympic Dam. Policy on the run = no investment. Maybe we should have taxed wool in the 60's ?

Bravo those that question relating of debt to GDP; it should of course be related to revenue to reflect what is affordable for Australia.

For example; in Year 2010 US defen(s)e related outlay was about $698billion representing about 5.3 percent of Real GDP at $13.24trillion. But it was a staggering and unaffordable 31 percent of revenue that neared only $2.2trillion.

Australian defence expenditure is presently around 1.56 percent of GDP according to some analysts; but it is probably somewhere between 7 and 8 percent of hitherto unpublished actual revenue.

In 2007/2008, John Howard committed Australia to unaffordable compounding increases in defence expenditure related to GDP out to 2030 that would have required an eventual increase in revenue of near 50 percent. Kevin Rudd said 'me too' and defence acquisition planning was put in train that has arguably more or less squandered maybe $20billion and was way out of whack with responsible economic management.

Relating anything much at all to GDP is really just economic deception.

Bravo, Brian Dirou DFC. I was talking to a friend yesterday, on this exact topic. Defense, expenditure, we discussed the fact that procurement involved wastage and the sums are very large.

So, as you were saying, efficiency has nothing to do with increased spending. Efficiency and effectiveness are products, that have absolutely nothing to do with GDP.

Incompetence is the answer.
If the government can not make surplus during boon times, what hope have we got when the economy is running "steady as you go".
Splashing money around, in hope to boost spending, did not do much good!
Imagine an obese person buying a suite.... boon times
Wearing the same suite after loosing weight and becoming average....see the picture?
Boon times are for putting funds aside for rainy days, not spending it before it reaches the coffers!
Yep, tax the productive population so they do not work harder and support the leaches so the country gets more of them!

Running a government surplus (with our current account deficit) by definition means running a private sector deficit. That means selling of assets, spending existing savings, increased unemployment, or taking on *even more* private sector debt. Why do you automatically assume a government surplus us good? The only reason Howard had a surplus is because the private sector was in deficit - as shown by the massive growth in private debt in the graphs.

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Correct Francios Humbert. Prof Steve. Where is State Debt?

Prof Steve, where are trends on same; i.e. all debt? Where are trends on Federal Debt?

Private debt is private debt and will be dealt with by the relevant party, or they accept the consequences. Sadly the same cannot be said of the politicians and bureaucracy. What is the justification for the level of government spending - don't give me the GFC codswallop which Labor expect us to swallow. It was done and dusted in the blink of an eye - yet Labor continued and continue to spend. What other justifications exist for this continuing expenditure? The greatest mining boom ever and absolutely nothing to show for it except what is shown in Figure 1. Homes tightened their belts as things progressively worsened in the economy and workplace.....what did the government do....lets spend some more.....unbelievable!!!

what? is the point of this article that only private debt matters or that once private debt decreases, public debt will increase? are you saying that when tax revenue growth slows (increases but more slowly) then no government can keep debt low? not sure what the whole point is here

A further interesting article for those who are genuinely wanting to be infrormed.
http://www.crikey.com.au/2013/08/05/quiggin-labor-cover-up-to-hide-succe...

"The first thing to be said about the economic policy debate in the lead-up to the election is that we shouldn’t be having one. Economic outcomes under Labor have been good in absolute terms and spectacular when the global economic environment is taken into account. At least as regards the medium-term settings of fiscal and monetary policy, it is hard to see any reason for change."

Why the selective period for the graphs I would have thought 50 years as more appropriate.
Where is the detail of Government's unfunded liabilities things such Politician's pensions government super, NBN etc .They are not in Govt debt figures .How are they going up or down These figures are potentially misleading without some clear qualifications

Fantastic
Needs to be syndicated to the masses + a 100 year graph of household debt to GDP.
This explains households pain with living costs and the slow motion economy
Thanks

Debt is used to fund, current liabilities which in turn should match current assets and, to fund capital assets. Everything else is irrelevant. We can see the results of ignoring this simple truth in Europe. How does one justify spending the projected revenue from the Mining Tax before any of it was received. Did this not lead to an increase in Debt and should we, whose money it is, just say: look, It's ok, just a few billions here and there and there is plenty more where that came from. and then bury this outrage in a cute sexy graph?What is going on here? Have we all taken leave of our senses?

Debt is used to fund, current liabilities which in turn should match current assets and, to fund capital assets. Everything else is irrelevant. We can see the results of ignoring this simple truth in Europe. How does one justify spending the projected revenue from the Mining Tax before any of it was received. Did this not lead to an increase in Debt and should we, whose money it is, just say: look, It's ok, just a few billions here and there and there is plenty more where that came from. and then bury this outrage in a cute sexy graph?What is going on here? Have we all taken leave of our senses?

Debt is used to fund, current liabilities which in turn should match current assets and, to fund capital assets. Everything else is irrelevant. We can see the results of ignoring this simple truth in Europe. How does one justify spending the projected revenue from the Mining Tax before any of it was received. Did this not lead to an increase in Debt and should we, whose money it is, just say: look, It's ok, just a few billions here and there and there is plenty more where that came from. and then bury this outrage in a cute sexy graph?What is going on here? Have we all taken leave of our senses?

Thanks Steve for drawing attention to the massive private debt.
As lamentable as government debt may be I wonder if the anger about it is because it is so often referred to by politicians and the media while there is silence about the private debt, certainly from politicians. The public could be forgiven in concluding that government debt has caused all social ills.

The private debt is mostly mortgages from the escalation in land price compared to wages since the 90’s and this gives the population plenty of cause for anger. A highly indebted population means business suffers because consumers have less discretionary income and business pays high rent for premises. Many of the young give up hope of home ownership. If parents assist their children with money for first home purchase they are depleting their own retirement funds.

Low interest rates are supposed to have made homes more affordable. The cost of borrowed money may be less but the capital cost of land is still 6 or more times median income. The low interest rates are just a short term fix as increased demand will flow into increased house prices so it ultimately helps only those who already own land further contributing to the rich getting richer and the poor getting poorer.

The politicians are silent because it was a bipartisan effort to provide the subsidies and incentives for investors like negative gearing, and FHOGs as short term economic stimuli to win elections.

The current government has relaxed foreign investment rules so Australia is a target of the Asian money that caused Hong Kong land prices to skyrocket. Foreign investment is fine in principle but in the context of tight land supply and little or no taxes on land this will only contribute to a greater proportion of younger Australians becoming life long renters.

Vested interest and apparently most politicians do not want Australians to direct their anger where it is deserved so government debt is a useful target.

The monetary system is responsible for Australia's debt crisis. Under the current system an increasing money supply is required to underpin greater levels of economic activity. Almost all new money comes into existence when banks create loans. We need to modify the monetary system so new money isn't created as debt.

I get the general drift but how is this achieved?

You can modify the central bank so it conducts policy directly with the public. The RBA can monitor the economy and when it needs stimulus it can expand the money supply evenly into all citizens nominated accounts at a measured pace while monitoring inflation. cmamonetary.org

Creating capital! not creating speculative debt.

Danny. Same in UK. And consider this: If all the outstanding loans were paid back to the banks, there would be no money in circulation today. Since the only way we can get new money into circulation is to borrow it from the banks at interest (who create it out of nothing) – we are effectively renting our entire money supply from commercial banks.

http://www.positivemoney.org/2013/08/is-money-creation-making-the-rich-r...

I believe most comments imply the fact there is good debt (which has a return) and bad debt. Bad debt is what gets you into trouble and it looks like overwhelmingly there is a lot of bad debt incurred.

Steve,

When you have a population growth rate of 1.2 million people every 3 years and everyone of these on average is consuming more than they producing...........a big debt issue follows.

It is even worse when asset sales are factored in .

Even worse again, because of the OPPORTUNITY COST of population growth, it "sucks" money from productive investment in education , research and manufacturing and pours it into the endless pollution of real estate developments.

For example, at the same time 3 billion dollars was taken from university funding for schools because there was "no money", 3 billion dollars worth of road infrastructure was announced for population growth. That is just the tip of the fiscal population iceberg ..

Time to rapidly stabilise population growth by balanced migration ( 80,000 out, then 80,000 in), reduce Govt incentives for more than 2 children ( our birthrate is DOUBLE our death rate......ABS data ) and not only will this release funds for productive investment, but the massive habitat loss to urban sprawl will be halted and the best farmland on the edge of cities will be saved.

For the first time ever in this election. a vote for the Stable Population Party will send a message, that the wishful thinking and lies have come to a rational end.

Best,

Ralph ( Bennett)

Good article Steve. It always good to use data, analyse it and do it in context, things that a lot of people here don't like doing, as it shows either that things are not too bad (especially compared with just about every other OECD country) or that the Howard years were worse than the Rudd/Gillard years.

The problem is that under Labour on your top chart the red line will keep heading on that trajectory. Centre left governments can never control their spending for long. Look at Europe.

The big failing was a couple of years back. We shot out of the GFC and the economy was booming again. Yet the government didn't pull back and run a couple of surpluses. They spent like crazy instead. Interest rates shot up higher than they needed to to balance this and the mining boom.

Now the chickens are home to roost and Labour do not have the answers.

Remember when Rudd spent billions on stimulus packages, with the view to stimulate consumer/ business spending during the GFC. Following both packages, Australia recorded a less then .1% positive growth during those two months. It would be my guess that at least 80% went towards reducing private debt, as the graph indicates. It's in the interpretation, consumer and business confidence in our economy is at a low ebb. It was there during the Howard years, but disappeared following the GFC. That you would expect, and lets face it, it certainly put a scare through consumer and business confidence. So by Rudd giving handouts to consumers (stimulus), whether it was right or wrong, consumers did realistically the smart thing, and payed down private debt. That's what the graph tells us, just that Keen has put Labor slant on the interpretation. I've have just done the opposite, you can believe my version or not. On a personal level, I really don't care, it's your life. On the future of this great country, well that's a different story.

There's no question Howard/Costello were better economic managers then the current crop, because they allowed both consumer and business confidence to grow, consumers felt safe borrowing and business felt safe expanding, with interest rate movements (upwards) ensuring the economy didn't overheat. Sure the GFC didn't help Labor, but they haven't done anything to inspire a return to confidence post GFC, which was 5 years ago. The drop in interest rates proves that because it is an indication of a slowing economy, lack of confidence. Good for some, the mortgage belt, which is more often than not Labor heartland, but bad for others, self funded retirees. Another reason is the stranglehold unions have on the business sector, a hold that is supported by Labor. Other OECD countries are moving forward, we are lagging behind. If another GFC like scenario hit Australia tomorrow, we are up s__t creek.

I keep harping on the fact we have a very small manufacturing industry, which is basically domestic, as our competitiveness on the world stage is almost non existent. We import 80% of what we buy off the shelf meaning our economy relies albeit on the export of raw materials, particularly coal and iron ore. World needs for both these exports are on the wane, meaning a drop in export sales and government revenue, and the government has made it very clear that revenue has dropped. We need to diversify, build on an alternative income provider. You can only do that by boosting confidence, which is not exactly in the socialist DNA. Francois has consistently bemoaned the fact that we need world class corporations establishing business representation here in Australia. That would be great, but won't happen while these international conglomerates see a business sector stifled by union interference, joined at the hip by a socialist government. This only happens in Australia, no other OECD country. It's purely a business decision, and we need to influence a change in their decisions by making it inviting to be here.

Those graphs above do not support any invite. In fact the crux of the story is that you can use any graph anyway you like, and interpret it to mean anything you want.

Wow, who knew economic illiteracy was so high in Australia.

"Remember when Rudd spent billions on stimulus packages, with the view to stimulate consumer/ business spending during the GFC. Following both packages, Australia recorded a less then .1% positive growth during those two months. It would be my guess that at least 80% went towards reducing private debt, as the graph indicates."

Since the Rudd government didn't pay off the private debts directly, but gave the private sector the spending power to pay off their debts, if his government had not done so then the Australian economy would have entered a recession rather than having 0.1% growth at this moment. The size of the recession could be estimated by subtracting the stimulus size from GDP, but this is an under-estimate of the net effect of the stimulus.

"So by Rudd giving handouts to consumers (stimulus), whether it was right or wrong, consumers did realistically the smart thing, and payed down private debt."

You seem quite miffed that these stimulus 'costs' added to the Australian government deficit at this time. I think one difference should be pointed out between Australian government spending and Australian private spending. All these private sector entities can go broke, while the Australian government can't. Because the Australian government issues the $AU (through the RBA) it can always secure funding no matter how much it wants to spend. This is not true for any of the private sector entities who prudently paid down their debts.

"If another GFC like scenario hit Australia tomorrow, we are up s__t creek."

So, it's obvious from point 1 that the Rudd stimulus staved off the first GFC like scenario, and the way to do so again is more of the same. In fact by running a government surplus the opposite is true (a government surplus subtracts from GDP in the same way spending increases it) and the government would be exacerbating the resulting recession or even causing an otherwise avoidable one. Other policies to government spending have been suggested, including Steve Keen's own suggestion of effectively writing off large chunks of the private debt.

In a complete panic for no rational reason. Reminds me of the last Olympics when NZ was leading OZ in the medal tally and all the Australian news outlets responded by censoring the results. We were concerned that if NZ was still winning at the end, then you guys might have declared Australia unsporting, so we had to slow up the pace a bit and let you get ahead!

Government debt is forever, cannot go away - ask Argentina how that default worked out for them. Private debt disappears and the borrowers take their medicine when the person/business goes bust. Big difference.

Don, well said, it appears that many dont understand that, fiscal debt, is like paying for the debt, that one of your children accumulated, on their i-phone.

It's useless, non productive and it only goes away, when you pay it off and that's a drag on personal budgets.

Perhaps we can stop using electricity, to pay for the debt - you see the carbon tax does work (yeah sure).

Argentina was pegged to the USD; big, big difference.

The Australia government could make all of their AUD denominated debt disappear tomorrow, if they wished, but they continue to pretend that they need to 'borrow' from the private sector. See Cameron Clyne recently calling for more government debt, because it's just more corporate welfare for him. And the private sector certainly does not take its medicine when their business goes bust - how many people went to prison for causing the GFC?

Note also
http://www.positivemoney.org/2013/08/is-money-creation-making-the-rich-r...
And consider this: If all the outstanding loans were paid back to the banks, there would be no money in circulation today. Since the only way we can get new money into circulation is to borrow it from the banks at interest (who create it out of nothing) – we are effectively renting our entire money supply from commercial banks.

John, welcome to the club, of those who understand what money is.

Essentially you seem to be saying the key to good economic management by government is keep confidence high and manage interest rates,
While I agree that smoke and mirrors is important in economics, suggesting that the governing political party of the the day determines interest rate policy or determines private confidence is a pretty long bow. You suggest that the currently low confidence is all Labor's fault, I can equally contend that it's the LNP fault for conducting a three year long dummy spit, aided and abetted by a 24 hr news cycle addicted to confected outrage. More accurately I could contend that the reserve bank set interest rates and that private sector confidence is a reflection of many things, of which the role of government, opposition and the media is just a part.
No matter how generous a sprinkling of magic LNP fairy dust one applies, underlying economic fundamentals will not change. Constrained consumer spending, debt deleveraging, lower business profits, lower government revenues, increased population, increased expenditure on health and welfare, these are the new reality, Both sides of politics need to deal with this, both have to work with the same set of numbers, actual revenue is actual revenue.
Both sides of politics know that returning the budget to surplus is not a simple task and will require hard decisions on both cutting spending and increasing revenue. Only rusted on's seem to ignore the reality. I have no doubt that Labor's plan is dodgy and overly optimistic. So far all I know about the LNP's is that they are getting rid of some taxes and introducing another (revenue negative), they are keeping most things and sacking some public servants and spending on direct action (neutral or increased spending).
Neither has a plan to return the budget to surplus quickly, so you and others concerned about government debt will continue to be dissapointed. Fortunately there are other indicators and measures of economic health that are far more important than the fiscal policies of political parties.

My rant is in response to Colin Barry's

You guessed wrong, but typical response by one who supports the left. There are many factors that drive consumer/business confidence. I pointed out this current government has led both consumer and business confidence to it lowest ebb. I did not infer that governments control interest rates, interest rates are a tool used by the central bank to control a steady economy. The government can certainly manipulate the reserve bank to lower rates, as has happened here. If you create a slower economy, rates will drop to avoid a recession, similarly increasing rates are assisting an overheating economy from heading towards inflationary trends. It no magic dust, it called common sense.

As I said 80% of stimulus was spent on reducing debt, a sure sign of low consumer confidence, that what the graph tell us. Retail figures today are also telling us that confidence relating to consumer spending is also at a low ebb, again consumers focusing their money on lowering personal debt levels.

Your inference about population growth should have seen a rise in revenue, personal taxes, meaning lower revenue is more likely the result of business downturn, not population. Also this spending on health has barely kept up with inflation, in fact when the federal government took over 40% of this countries health needs, many, if not all states/territories budgets were duded millions of dollars. And have welfare payment kept up with the CPI, I doubt it, just ask pensioners etc. what they think. So I can't agree with those comments.

Ross, ask yourself, does the office of PM deserve to be paid more the office of the US president. Salary increases for our politicians increased more then 40% over the last 3 years. What about your wages, then ask yourself, is that good fiscal management. some years back I was critical of the NBN, still am. I claimed why have a Maserati when all we can afford is a Commodore, nothing against the technology of fibre, but is it value for money. Many companies already use fibre, secondly technology changes everyday, who knows what will be around in ten years. With the delays and problems that have occurred, you can't tell me there's hasn't been a blowout in cost. These are just two examples of increasing debt by unproductive spending, creating low confidence.

People are frightened of our debt load, feeling this government has not doing enough to allay their fears, taking matters into their own hands and reducing personal debt, rather then spending their money in the retail sector.

I agree, the economic situation as it stands is the responsibility of both major parties, who ever wins the government benches. The winner will be the one that presents a better confidence building program over the next 5 weeks. At the moment I see Labor's as more destructive then positive. And Ross, I am fully aware that the budget may not return to surplus tomorrow, so I won't be disappointed. I just want it to head in the right direction, keep our AAA credit rating. Remember Howard took several years before he hit pay dirt.

I am not sure if you are aware, but Gillard had been reducing the size of the commonwealth public service for some time now, Rudd has openly indicated that he will do so as well. Maybe you can explain how the unions sit on this issue, or is it just that they prefer to attack the Coalition and not their Labor buddies.

Thanks Colin for trying to address some of my points.
Let me start by saying I am not of the left but firmly in the center, as wih all things balance is the key.
I am pleased you have some understanding of monetary policy and responsibility with respect to the role of interest rates. Moving on, I say business and consumer confidence is largely not determined by government. On this you seem to agree, but you then still manage to blame Labor. In your original post you specifically used business confidence to compare the economic credentials of the current governing party with the previous one. Your welcome to draw your own conclusions, but one needs to be wary of causation and correlation, especially if one recognises that the GFC did infact occur and that global sentiment is still affected. One would also have to ignore a whole range of other factors including exchange rates and the high debts levels of businesses and individuals. You have refuted none of this. I am not an apologist for the left, far from it. I just wish people would stop blaming political parties (and political parties would stop claiming credit) for economic factors that are out of their control. This just supports the style over substance and popularity contest over policy situation, where the current political debate sits.
Personally since the GFC I have reduced spending and paid down debts. This had nothing to do with who was living in the lodge. I am now in postion where I'm spending again and looking to make some new investments. Again nothing to do with which political party is in power or likley to be. I would suggest more individuals and businesses need to concentrate on their own affairs, instead of confected outrage and blaming politicians for everything.

I don't know and don't care about what the unions think of public sector job cuts. I'm in favour of a lean public sector, but I also recognise that the public sector provides services and a ROI (with often very good multiplier effects). Offloading public servants on ideological grounds or for a short term fix of the bottom line is lazy and unimaginative fiscal policy.
Essentially, I would like to see both politicians and the media, talking to us like adults, instead of appealing to the lowest common denominator, wishful perhaps, and many people seem happy to persist with their parochrial and partisan views about management of the economy.
I'm reasonably confident that despite all the bluster, both sides of policitics are planning for a medium term return to surplus, which is sensible and acheivable.
I'm afraid I don't agree that the election winner should be about confidence. That is smoke and mirrors , personality stuff. I'm more interested in the actual substance and costings of policies. So far I'm not very convinced by what the LNP have on the table and I'm not very impressed that they are planning to bypass the budget integrity process, instigated by Howard.
I look forward to the clearing of the air that an election will bring, but returning to Keen's original point, the performance or otherwise of the economy will not be greatly influenced by who wins. This supports my view that only the economic illiterate or rusted-ons believe that economic performance of a country is determined by the political leanings of whose in the lodge.

Thanks Colin for trying to address some of my points.
Let me start by saying I am not of the left but firmly in the center, as wih all things balance is the key.
I am pleased you have some understanding of monetary policy and responsibility with respect to the role of interest rates. Moving on, I say business and consumer confidence is largely not determined by government. On this you seem to agree, but you then still manage to blame Labor. In your original post you specifically used business confidence to compare the economic credentials of the current governing party with the previous one. Your welcome to draw your own conclusions, but one needs to be wary of causation and correlation, especially if one recognises that the GFC did infact occur and that global sentiment is still affected. One would also have to ignore a whole range of other factors including exchange rates and the high debts levels of businesses and individuals. You have refuted none of this. I am not an apologist for the left, far from it. I just wish people would stop blaming political parties (and political parties would stop claiming credit) for economic factors that are out of their control. This just supports the style over substance and popularity contest over policy situation, which is the current political and media commentary situation we have to endure.
Personally since the GFC I have reduced spending and paid down debts. This had nothing to do with who was living in the lodge. I am now in postion where I'm spending again and looking to make some new investments. Again nothing to do with which political party is in power or likley to be. I would suggest more individuals and businesses need to concentrate on their own affairs, instead of confected outrage and blaming politicians for everything.

I don't know and don't care about what the unions think of public sector job cuts. I'm in favour of a lean public sector, but I also recognise that the public sector provides services and a ROI (with often very good multiplier effects). Offloading public servants on ideological grounds or for a short term fix of the bottom line is lazy and unimaginative fiscal policy.

Essentially, I would like to see both politicians and the media, talking to us like adults, instead of appealing to the lowest common denominator, wishful perhaps, and many people seem happy to persist with their parochrial and partisan views about management of the economy.
I'm reasonably confident that despite all the bluster, both sides of policitics are planning for a medium term return to surplus, which is sensible and acheivable.
I'm afraid I don't agree that the election winner should be about confidence. That is smoke, mirrors and personality stuff. I'm more interested in the actual substance and costings of policies. So far I'm not very convinced by what the LNP have on the table and I'm not very impressed that they are planning to bypass the budget integrity process, instigated by Howard.
I look forward to the clearing of the air that an election will bring, but returning to Keen's original point, the performance or otherwise of the economy will not be greatly influenced by who wins. This supports my view that only the economic illiterate or rusted-ons believe that economic performance of a country is determined by the political leanings of whose in the lodge.

The job of government in Australia is to convince us that we are more affluent than we really are, and governments of all persuasions have been very successful. The job of the RBA should be to keep things sane but they seem to be happy just to let debt expand.

The graphs confirm an impression I had from the RBA charts. Household debt is not expanding, so all the press coverage of house price increases is just anomalies. People who should just sit on their money for a year or two and wait until here are more properties on the market.