Spending More Than We Earn

I’m sure you’re growing a little weary of the farce that Australian politics has become this last week. I’ll keep the previous thread going, with updates as they occur. If, as I suspect, moves begin in Cabinet against Gillard, I’ll start a new thread.

Work has made me a bit of a prisoner this last week, and will continue to do so for a while yet. So I thought I would kick off a new discussion topic, which was suggested to me by this article in the DT by Daniel Hannan. Government debt, always a problem in recent years but exacerbated since the 2008 GFC when governments across the West took over failed banks, investment houses and other industries, effectively nationalizing them. It had the effect—partially, at least—of one plank of the socialist manifesto: nationalization of the banking system. How long, though, can this be sustained in the face of a seemingly endless stream of profligate, Keynsian-style fiscal stimulus?

What happens when the cash runs out? Will the U.S. respond with yet more “quantitative easing”; that is (to all intents and purposes), printing more dollars, thereby making all the other dollars worth less? Click the U.S. Debt Clock above for real-time numbers on just how deep the hole is already. For comparison, I’ve been reading some fascinating articles on Niall Ferguson’s marvellous website, including this one reproduced in the DT earlier this year.

So, over to you. It’s Father’s Day in Australia today, and I belong to the kids; though they’ll have to share me with work. Never rains for small business, but jeez, sometimes it pours.

This entry was posted in Australia, China, Europe, UK, United States of America. Bookmark the permalink.

16 Responses to Spending More Than We Earn

  1. Kitler says:

    Hahahahahahahahahahahahahahahahaha you really think we are going to pay any of that.

    Every penny – in U.S. dollars, of course. Which, by the time you eventually get around to paying it, will be approximately equal in value to Zimbabwe dollars and Weimar reichsmarks – Oz ;-)

  2. meltemian says:

    http://www.debtbombshell.com/

    Well those figures make the UK look almost reasonable…..until you realise the comparative size of the countries! I’m still reckoning on a default here in Greece, my neighbour who works at the airport and is a government employee reckons he won’t be paid in September.

    Scary stuff Mel; I tried embedding the UK debt clock widget you linked to, to no avail. But your link shows the UK owing about £1 trillion, or about £150,000 per household; roughly the same as the US – Oz

  3. izen says:

    The big problem is that the ‘financial services’ that the banking/financial sector of the economy perform now exceed in ‘money’ value the REAL resources extracted and produced by at least an order of magnitude.
    All this ‘extra’ money is unrelated to a real resource which destroys the function of money as a ration chit. In the past governments have created inflation by printing more money. Now by taking on the created debt from financial business from the banks they are forced to legitimize the creation of money driving inflation – or be judged insolvent by the very financial institutions that created the problem in the first place!

    Have a look at this article, but particularly the graphic at the top right –

    http://www.spiegel.de/international/business/0,1518,781590,00.html

    http://www.spiegel.de/international/business/bild-781590-251299.html

    G’day Izen,

    You mean the one depicting the size of the derivatives- and foreign currency-trading industries? Yes, I made the same point back here; it couldn’t occur under a gold standard. Thank you for underlining the need for a form of money that has actual meaning.

    Quite a worthwhile read in Der Spiegel BTW – Oz

  4. farmerbraun says:

    Well Izen that sounds like hyperinflation to me; still I’m reasonably familiar with the scenario. I bought this farm one month before the 1987 crash using bridging finance of four 180-day bills at interest rates of 26%, 22%, 19.5% and 17%. Yes, those figures are indelibly printed in my mind. I survived that; not very comfortably. Debt servicing (interest only, negative amortizing) was 120% of GROSS income; sounds impossible eh? I’m still here; I hope I’m wiser.
    The only reason that I did survive was so unlikely; the bank gave me the money without registering the mortgage against the title, which had been withdrawn in order to issue a new title including accretion (riparian boundaries), so could not initiate a mortgagee sale.

  5. farmerbraun says:

    It’s a great picture Oz; Reality =$60 x
    Fantasy=$955x
    Solution:- don’t hold currency.

  6. Ozboy says:

    New theme over at the Juke Box: “Time Machine Songs”

  7. izen says:

    @- Ozboy
    “Yes, I made the same point back here; it couldn’t occur under a gold standard. Thank you for underlining the need for a form of money that has actual meaning.”

    Yes you did. And while I still maintain that linking gold stocks to a nations currency is NOT a way of conferring ‘actual meaning’ on the money – its another bit of political metaphor – there is a real issue of what actual meaning money has.
    Once banks and other financial institutions persuade governments and society that making money is equal to creating value/wealth the cause is lost. It echos the Wildean phrase about knowing the cost of everything and the value of nothing…

    I have to belatedly admit – I’ve been putting this off but this subject makes it unavoidable – that I was massively WRONG when in that past thread I dismissed bimetalism and the issue of linking money to a material asset as trivial and irrelevent. I do have form in this, there have been occasions in the past when I have declared something to be trivial, obscure and arcane, only to be proved very wrong by subsequent events or further information. Perhaps the most extreme example was a claim I made in the 1970s (for various complex reasons!) that Wharton’s jelly was the most obscure, arcane and trivial bit of biological/human anatomical knowledge that existed – of no use to anyone…
    Ah, stem cells… ! -grin-

    Metal standards WAS the means that governments and society tried to keep SOME tenuous connection between money and resources and oppose the slide into regarding money as of value in and of itself. Mistaken it may be, but on further reading about the economics of depressions it becomes clear that one key component of the ‘Long Depression’ of the 1870-1890 was Germanys’ adoption of bimetallism because it could not hold sufficient gold stocks to back its currency. This caused the markets to suspect that money was no longer ‘real’ because it wasn’t tied to a resource.

    The Long Depressiom was long because it persisted for at least 60 months, and it persisted because at the time Keynsian did not yet exist. Banks were NOT bailed out. They went bust taking individual savings and many businesses with them. The LACK of intervention and regulation that the neo-cons are advocating at present as a free market mantra was tried.
    And failed.
    It was the ONLY policy option acceptable at the time, the long depression was in some ways responsible for the emergence of alternative ways of managing the capitalist market after the Long Depression had clearly shown that the present ideology and methods were inadequate. It was a major motive for the development of socialist and communist economic ideologies of course as the lasse’ faire approach at the time hit the poor even worse than the banks….

    You use, as is your wont, the term “resources”, which are just “out there” and to be “distributed”. I use the term “wealth”, which is created by the skill and hard work of individuals and collaborations of individuals. Nonetheless, I think our concepts of money, if you interchange the terms “resources” and “wealth”, are actually the same – Oz

  8. izen says:

    @- farmerbraun says:
    September 5, 2011 at 3:36 pm
    “Well Izen that sounds like hyperinflation to me; still I’m reasonably familiar with the scenario. I bought this farm one month before the 1987 crash using bridging finance of four 180-day bills at interest rates of 26%, 22%, 19.5% and 17%. Yes, those figures are indelibly printed in my mind. I survived that; not very comfortably….”

    That has a ring of familiarity….
    I bought the business I then worked in from the retiring boss in the mid 1980s with a business loan running at +16% interest rate – a couple of years later I got DEEPLY investigated by the taxman. I don’t think they could believe the owner was on a lower ‘wage’ than his staff !!

    Things got better – well a little.
    I finally closed the business in 2002 – and have been better of SINCE as a ‘free-lance’ service provider!

  9. izen says:

    @- Ozboy
    “You use, as is your wont, the term “resources”, which are just “out there” and to be “distributed”. I use the term “wealth”, which is created by the skill and hard work of individuals and collaborations of individuals. Nonetheless, I think our concepts of money, if you interchange the terms “resources” and “wealth”, are actually the same – Oz”

    Probably.
    I must try and remember that the term “resources” implies to some/many a Marxist POV, that is not intended. The ‘resources’ I am referencing are not just out there and to be distributed, they are ALL materials, inventions and work that contribute to the subsistance, existance and sybarytic luxury that various percentages of the global population enjoy.
    I hesitate to use ‘Wealth’ as a synonym because it is not ONLY created by the skill and hard work of individuals and groups; and that skill and hard work are also capable of DESTROYING resources….
    It is a complex matter whether a cruise missile is ‘wealth’. It is certainly costly and takes a lot of skill and hard work to invent and make, but is a pointless monetary drain until used, at which point it may destroy more ‘wealth’ than it cost to build….
    Or not as the case may be… even with the most extreme assesment of loss of life in Iraq during the US invasion it cost several thousand dollars to kill each Iraqi.

    Your typical Keynesian economist, whether he admits to it or not, regards war as a stimulus to the economy and therefore a good thing. Mostly because his calculations don’t factor in the cost of getting killed. Using that logic, I suppose there is a case that could be made that military weaponry, used in a defensive manner, creates (or at any rate, defends or preserves) more wealth than it destroys.

    No wonder it’s called “the dismal science” – Oz

  10. Dr. Dave says:

    One of my favorite songs by Bare Naked Ladies is “If I Had a Million Dollars”. I stumbled on this parody by M4GW and couldn’t help but share:

  11. Just read on JoNova that Gillard has suddenly decided to push through the cap and trade bill next week. Probably trying to force it through before anything happens with Thomson.

    This seems strikingly similar to the way in which Obamacare was forced through in the U.S.

    http://joannenova.com.au/2011/09/carbon-tax-going-through-next-week-alp-set-to-be-global-patsies/

  12. fenbeagle says:

    izen
    Definitely not humorless

  13. Dr. Dave says:

    fen,

    I think obtuse is the word I was looking for.

  14. Dr. Dave says:

    izen,

    You seem to enjoy these parodies. Here’s another for you….

Comments are closed.