Deficits? What Deficits?
A few weeks ago I made an observation over elsewhere on the interwebs which I forgot to note over here. Once upon a time in the 90’s when Pauline Hanson was a tyro crank politician, she was much ridiculed for her views. They were in most part totally outlandish and powered by a kind of backward looking xenophobia that made your skin crawl, but in particular she had a solution for Australia’s debt problem, which was “print more money.”
The press went to town on this statement as a clear indication that this would not work because printing money wold cause a massive outbreak of inflation; the likes of which crippled the Weimar Republic, so clearly this was a stupid idea born out of a stupid person. So the narrative went. And who amongst us who bothered to study modern history didn’t know of the crazy inflation that engulfed inter-war Germany as the Weimar Republic busily printed money to pay their reparations for World War I? Print money, you get Weimar Republic.
Fast forward 15 years and 5 years on from the GFC we find, in fact that is exactly the US Federal Reserve Bank is doing in its guise of Quantitative Easing, and even the Bank of Japan has joined the ranks of central banks ‘printing money’ with the celebrated ‘Abenomics’ in progress. The interesting thing is that inflation – the kind we read about in history books about the Weimar Republic – hasn’t exactly broken out in neither the USA nor Japan. In fact the Bank of Japan is running the printing presses much faster than the US Fed, and it might not make its inflation target of 2%. Go figure that one out.
No Inflation. All that money printed, and still no inflation. If anything central banks in the advanced economies are scared shitless of a collapse in asset prices.
I hate to say all this because I really dislike Pauline Hanson, but if the amount of deficit of the Australian Government was the size that it was – such that it could be paid off by the selling of assets under John Howard – maybe the Hanson plan of printing money back then might have been better? That way, the Federal Government, and by extension we the people would still have those assets.
Or maybe government debt isn’t as big a deal as the private sector is making out. What’s really bad about Greece and the other distressed euro economies probably is the fact that they can’t devalue their currency by printing their own money. But if we go by the – ahem, *gulp* – “Hansonomics”, Greece ought to quit the Euro zone and just print whatever money it likes to pay its freaking debts. And as crazy as that sounds to educated minds the evidence seems to be the case. Stick that into your objectivity pipe and smoke it.
This brings me to this article here.
In a 34-page review for clients of how a Coalition government might change economic management, Mr Eslake, chief Australian economist for Bank of America Merrill Lynch, also highlights the potential for “significant and ongoing tensions” in an Abbott government between its “genuine economic liberals”, such as shadow treasurer Joe Hockey, and those who are “more sceptical about markets … including in many cases Tony Abbott as Prime Minister”.
He predicts that the Coalition will ultimately adopt all of Labor’s proposed budget savings measures, except for ending the tax break for cars bought through salary sacrifice.
Even so, Mr Eslake estimates, the Coalition has so far committed to $28.4 billion of tax cuts and $14.8 billion on new spending in the next four years, a total of $43.25 billion. But he estimates the nine savings measures the Coalition has announced so far would save only $13.44 billion over the same period.
“By our reckoning, over the remainder of the election campaign, the Coalition needs to announce additional savings measures totally in the vicinity of $30 billion over the four years to 2016-17 in order to be able credibly to claim that it would produce better bottom line outcomes than those projected (by Treasury and the Department of Finance), he said.”
“That is a substantial sum, although it is considerably less than the $70 billion ‘black hole’ suggested by the government.”
And that ought to give you a bit of a scare. If the polls are to be believed the incoming Liberal National Coalition Government is selling itself on being fiscal hawks and that 30billion will come out of something somewhere along the way in a fit of austerity worship. I don’t know where it will come from, and by the sounds of it, neither does treasurer-to-be Jolly Joe Hockey, but knowing their political persuasion it’s likely to come out of welfare cheques and education budgets.
Yet in a bigger picture sense, all this pain it will inflict on millions of people will basically hurt the economy anyway while doing not much good. It’s almost enough for you to endorse Hansonomic Printing Presses and ask them to simply print the money to pay the freaking debt. It’s what grown up countries do.