There is a growing awareness that all is not right with the global economy. The false dawns of ‘recovery’ spruiked by politicians and bankers in an attempt to lure consumers into greater consumption are increasingly falling on deaf ears.
Consumers are saving what they can in an attempt to improve their personal balance sheets. This is in stark contrast to many national governments who are compounding debt upon debt in an attempt to keep kicking the ‘economic can’ down the road. The problem confronting these governments is that the ‘can kicking’ has been going on for decades and their efforts are increasingly laboured.
As the level of government debt increases, the potential consequences become increasingly dire for their citizens. Debt can only be repaid through higher taxes, reduced spending or by inflationary means. Another option is to simply default on the debt, an alternative chosen on a number of occasions by governments throughout history. This leaves the lender bearing the cost of bad loans. Should those lenders be another nation’s banks, and the loans be large enough, fiscal contagion can result.
This is the circumstance that many debtor nations find themselves in right now and all stops are being brought out by central bankers to prevent another global financial crisis.
The European Central Bank is printing money; so are the UK, America and Japan. This devalues the existing currency in circulation and encourages savers to spend or invest. This approach has fuelled large gains in major stock markets but has seen little or no translation into meaningful economic recovery.
And the lack of recovery is being felt by the mainstream.
In Australia, consumers are struggling with the cost of living. Australia is suddenly a very expensive place to live and do business. Food, utilities, rents and housing are a heavy burden compared with many other Western nations. Unfortunately, our government looks set to make that burden even heavier.
Treasurer Wayne Swan has indicated that his next budget will deliver his fifth consecutive deficit and that deficits will be business as usual into the foreseeable future. That suggests that the national debt will exceed the current $300 billion limit sometime soon and that parliament will be asked to approve yet another increase. It is tantamount to getting another extension on the credit card. Just like any other credit deferral, it will delay the day of reckoning but won’t make it disappear.
Hence Swan & Co will have us joining the ‘can kicking’ brigade so that someone else will be left to deal with the problems they will inevitably leave behind.
The difficulties attached to repaying several hundreds of billions in debt will be immense for our citizens. The interest bill alone is running to hundreds of millions of dollars – every week!
It will require a long period of austerity, something that our current Treasurer has actually lectured the world against. This is a clear signal that he has no intention of reining in his high spending, high taxing ways in the May budget.
In a nation with an ageing demographic, where workers are slowly being replaced by welfare recipients, the alarm bells should already be ringing. To date, our economy has survived the most incompetent government administrations in our history due to the rivers of gold produced from the mining boom. Those rivers are now flowing at a lesser rate thanks to the deteriorating health of the global economy. The implications of that slowdown for our national accounts, and for all of us, could be very dire indeed.
Cory Bernardi is the author of seven books and has been a member of the Australian rowing team, a publican, an investment portfolio manager and spent nearly 14 years as an Australian Senator.
