In this article Ross Gittens of SMH anticipates that Australians will save most of the upcoming Fiscal Stimulus to pay off oversized debts:
http://business.smh.com.au/business/its-a-hangover-take-the-medicine-20090310-8u58.html
Is the Government anticipating this, or that our propensity to consume is high enough to keep the economy growing and keep up spending? Gittens title suggests that, whatever we do with the initial hand out, it is still the medicine which will ultimately contribute to lessening the 'hangover.' But, continuing the metaphor, what if many Australian's didn't 'get drunk' - having borrowed cautiously, saved prudently and spent wisely through this last boom anticpating a down turn in the market. These people don't need medicine - which itself will have side effects: http://www.theaustralian.news.com.au/story/0,25197,25175184-601,00.html
Here Peter Costello is reported to have warned the Australian public that Government spending now is financed by debt and itself will require repayment and interst payments later on - suggesting it may not be the most prudent policy decision.
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The Australian government is hoping that with possible stimulus people are more likely to go out and spend, however with Gittens article he mentions that people will be spending that amount on previous debt. However, this amount of money is "borrowed" initally by the gov. and then given out to others so will that actually help out Australia in the long run? Will we continue in debt, Rudd recently borrowed a $100 Bil. Debt in 12 months in which the coalition paid over ten years. How will this affect Australias future and current growth and will this loan help Australia out of the economic downturn?
Thanks Sam, for your interpretation of Ross Gittens article.
Adding more on to that, Gittens article not only mentioned that people will be spending given amount(gov.debt aka gov.bonds) on previous debt. However, it also talks about recession in the early 1990s (when the businesses rather than householders that had borrowed too much (not to mention banks that had lent too much to business). Now, it is vise versa. Householders borrow too much loans, (not meaning that they carelessly spend the money).
Sam, you mentioned Rudd recently borrowed $100 bil which the Coalition paid over TEN years. Without prejudice to any political party, think this through. It took 10years for the last debt of $100 billion to be paid off.Currently, we have predictions of $200 billion debt being thrown around and were not out of the woods yet! When and How is this going to be paid off and what are the effects on the Australian econonmy? It will or might start the economy to grow again. However, this doesn't mean that gov. bonds will be paid off! Only way to pay the debt is by "taxing people to pay the interest bills, eventually taxing people to pay off the debt" What actions could the governement take instead of charging service taxes on Australians?
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