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Where's The Money Coming From?

Discussion in 'The Economy' started by Chris C, 14th May, 2009.

  1. Chris C

    Chris C Well-Known Member

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    It seems that around the world every developed country's government (including our own) has adopted a Keynesian style solution to the problem of this global recession, ie spend big (aka fiscal stimulus).

    Of course the inherent problem with spending big is that you need money to pay for it and unfortunately for Australia and most other developed countries, we are all going to be issuing unprecedented amounts of new government bonds all at the same time in a period where money is already hard to come by.

    My point is simply that Australia is looking to get finance to the tune of $200B over the next 5 years, but I'd bet my bottom dollar that it won't come cheap. Therefore Keynes's idea that government can spend up big to pull a country out of a recession doesn't work so well when the entire world is trying to do the same thing at the same time.

    If this sort of scenario does eventuate as we go forward I hope the Australian government is willing to bite the bullet and start to make some tougher policy decisions about where future government spending will be directed, and we start focusing on allocating what resource we do have towards sectors that are going to actually stimulate this country out of recession rather than score political points.
     
  2. Scotts

    Scotts New Member

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    Government cash-flow?

    Hi Chris,

    you mention about not knowing where the money is coming from and I this this is something that will prove hard to find going forward. We've posted this article that you might find of some interest in the latest "cash-flow" figures from the budget to show incoming and outgoing "cash".

    Where the money comes from and where it goes

    Regards,

    Scott.
     
  3. Chris C

    Chris C Well-Known Member

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    Thanks Scotts for the link. I thought I'd steal a bit of info from the site relating to government expenditure:

    It is amazing just how insignificant the expenditure on actual "nation building" is compared to health and welfare expenditure.

    Over the next couple of years this country has got some really tough decisions to make, and upping the pension age to 67 in 15 years time is not going to balance the budget. It's time to take a hard look at our welfare state because the credit gravy train is over, we're underfunded and the next decade is going to get tougher.

    Hoping against all logic that we'll be back to 4.5% GDP growth in 18 - 24 months is not going to make our future decisions any easier. The sooner we all get honest with ourselves the sooner we get out of this mess.
     
  4. joanmc

    joanmc Well-Known Member

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    this has been coming for a long time. Ten years ago I went to seminars where they were saying that our current levels of welfare were unsustainable because the number of taxpayers is dropping. This country rewards laziness and punishes thrift and initiative. That why I spent the last 10 years reading, learning and investing. I am free. No pension for me:D....not that there will be one in 20 years anyway when I was meant to retire.

    But governments rarely make the unpopular moves.
     
  5. Chris C

    Chris C Well-Known Member

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    Sometimes market force tie government hands though. Like in the example I have given above, there needs to be a buyer of our government bonds before the government can finance its stimulus plans. So if we can't get financing there is nothing we can do to force people to give us money. This would then leave us with two options, cutting back our spending (you'd hope we'd cut back on welfare) or we monetise the debt (definitely the politically easier option given that inflation is the slient tax).
     
  6. joanmc

    joanmc Well-Known Member

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    They will get the money because there is always someone who will lend money no matter how pathetic the applicant is! and Australia is in a reasonable position to borrow. (not that I actually agree with the policy of borrowing in this case)
    On a micro scale look at the number of pay day lenders out there, they are there to make a quick buck out of the financially desparate. Well the macro world is no different. Lending money to us will give the other nation a hold over us (perceived or real), and they may see that to be of benefit to them.

    Remember other countires are not as welfare addicted as we are and will make the cuts to do this lending if they see it as a chance to get a hold over, or at least a foot in, with a desirable country.

    I agree with you that it will not come cheap!

    Looking at the welfare amount I was shocked but looking back over the last 20 odd years that I have been an adult, I can see how it has crept up.

    When I had my first child 20 years ago, there was no baby bonus and family allowance was $18 (yes 18!!!) per fortnight. We were on about $300 per week GROSS, but we never considered ourselves poor. Had a mortgage too (at 18%). Now if you have a baby you get a few thousand thrown at you and then if you income is under about 1000 a week you get about 200odd per fortnight! And they feel hard done by.:eek:

    sorry I'll stop ranting now:p. this is my biggest bugbear!
     
  7. Chris C

    Chris C Well-Known Member

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    This isn't true in the extremes.

    The US spent $450B on interest repaymetns alone last year, and this figure is only going up. Eventually there is a tipping point where people stop lending money to people who they don't believe can pay it back. This is just as true of countries as it is of people.

    In recent history, there has been a very long list of countries that have defaulted or been forced to restructure their debt or face default... Argentina, Russia, Ecuador, Turkey, Brazil, Mexico, Pakistan, Ukraine, Uruguay. And this is just in the last 10 years! You could bet your bottom dollar that his list is only going to rise over the next few years.

    If you look further back you can start throwing names UK and France into the list of sovereign defaulters.

    So the idea that there is always someone to lend money just isn't true.

    Australia definitely is in a better position than most to borrow, but we are still not immune to the world's ills, and if the world is rampant with default risk you should expect that despite our good track record we will still be paying a premium for the privilege of borrowing.


    Actually the macro world is very different. Countries/Central Banks/Government can print money to pay their debts, if I borrow money from a pay day lender I as an individual will be paying him back with the same currency I borrowed without the ability to debase it. You also need to remember that government don't produce anything their only ability to repay a loan is via taxation and there there are definitely limitations to how much a government can tax its population before it revolts.

    I'd argue the point that I think most developed countries are already excessively taxing their populations, and most were already planning to raise taxes to fund the aging population crisis, So there is a real limitation to just how much higher governments can raise taxes to pay for debt as well.

    The UK has already raised its top tax bracket to 50%, the US is upping theirs to 39.6% (plus they also have to pay state income taxes which range from 3 - 10%) and I think it is reasonable to expect that going forward Australians too will pay higher taxes.
     
  8. joanmc

    joanmc Well-Known Member

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    I disagree, the macro world isn't that different at all IMO. Humans are random creatures and governments are run by humans. Just because a course of action would make sense is NO guarantee that a human being would follow it.

    And they can increase our taxes substantially more than what they are now. Our current tax rates are the lowest I have paid in over 20 years of paying tax, there is a long way they can go. They used to be 60% as the top marginal rate that kicked in at around 50 or 60k (would have to go through the old returns :rolleyes:), so they still have heaps of room to tax the life out of us!

    I can see that you are very passionate about economics:D
     
  9. Chris C

    Chris C Well-Known Member

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    Actually taxes rarely are lowered... they are just hidden. It's like dropping income taxes but creating the GST - it's all smoke and mirrors. Here is a graph of Australia s taxation as a percentage of GDP from the Australian Treasury:

    [​IMG]

    Looking at the graph it makes it very clear that taxes are definitely headed upwards, but you are right in that there is definitely more room for the Australian government to move when it comes to upping taxes. Though with GDP likely to fall further over the next year or two, plus taxes needing to be aggressively raised to pay for the increasing debt and welfare for an aging population I'm fully expecting to see Australian taxation get closer to 40 - 50% of GDP by 2020, of which the majority of the responsibility will be placed on the top end of town, which is what most people on these forums are striving to be a part of.


    Yep!

    :D

    I don't believe there is a whole lot of meaning to life. So a life without passions seem pretty pointless to me.
     
  10. joanmc

    joanmc Well-Known Member

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    if at your young age you feel life is pointless the I truly feel sorry for you. Maybe try not to focus on money too much, it is only a tool.:)
     
  11. Chris C

    Chris C Well-Known Member

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    Well my opinion for the last few years has been that the true natural meaning of life is just based around surviving and reproducing (which is true for all organisms on this planet). So for the most part I think the important things in life center around increasing our ability to survive or reproduce.

    Outside of these two things it is all just a big game we play in our own minds to make our lives more challenging because as a species have modified our environment to the point where the whole survival and reproducing part of nature's natural selection process is achieve with virtually not effort on our part. I do however appreciate that there are various levels of surivial and that for most it is not about finding a partner, but rather finding the best partner possible to have the best kids possible.

    So I come from the perspective we are free to make life mean whatever we want it to mean, and if we are free choose what our life means and what we do in it, it's a bit of a tradegy for us not to do something that we are passionate about and inspires us.

    So all in all the only thing that really makes me unhappy is when I know in my heart of heart that I'm not working towards being the best me I can be.

    I also believe that happiness is just a choice we make in any given moment, and that there is nothing you can get or place you have to be that will give you happiness. Most of us have either formed stories in our own minds about how having X will give us Y which will allow us to be happy or we have bought into the stories that society has told us that having X, Y and Z will bring happiness. Of course with each achievement comes the inevitable let down where when we still feel empty at the end of the journey.

    :D

    ...anyway this is running along way off the discussion about where the government is going to get all this money from in the future.
     
  12. bigbuddha

    bigbuddha Well-Known Member

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    I think the governments will find the money 3 ways,

    1. Increase taxes - all forms

    2. Borrow more money from china - yes the asia's will rule the economic world

    3. Print more money - print and print and print - it's call the zimbabwe school of economics.
     
  13. Chris C

    Chris C Well-Known Member

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    I think a combination of 1 and 3 is most likely, but no doubt we will also be forced to sell off highly leveraged assets to the highest bidders as well (like China).

    At this stage, if the RBA pursues the direction that the FED, ECB, BoJ and BoE have opted for (ie debt monetisation) then I feel that Australia, like the rest of the developed world is going to experience a period of either high interest rates or high inflation as a result of the printing, obviously the RBA will decide which, but you'd have to think they'd lean towards the inflation side of the equation given that excessively high interest rates in a period where debt level are the highest they have ever been would be disastrous for the economy which would go against the RBA's charter.

    *Note - when I say debt levels are the highest they have ever been I'm not referring to government I'm referring to our total debt.

    Of course if the government takes on debt ultimately that means we'll have to pay more taxes at some point down the line, because last time I checked the government isn't in the business of money, just spreading the wealth.