perceptions_now
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Australian Politics
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Perth WA
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17/8/13 20.59
Un-sustainability of a Government debt (Gross) level above 60-90% of a country’s GDP, is a level generally accepted by Economists.
Personally, I would have a great preference to keep the Gross Debt to GDP ratio UNDER 45%, as it can get very difficult to actually repay government Debt, except for exceptional circumstances, such as the Peak years of the Baby Boomer Boom!
The level of tolerable Government debt depends on a multitude of factors, such as -
1) The borrowing currency is also a major reserve currency! If it is, then it may be seen to reduce risk levels & increase the possibility of "Printing" more money, to assist in servicing the Debt issue? Some related issues are currently percolating in the USA.
2) Who will own the government Debt, Locals or Foreign sources? The larger the Foreign component, the more difficulties may be experienced?
3) The Likely level of interest rates that will be payable on the Government Debt, over the short, medium & longer term? Higher rates (particularly short to medium term) make higher Debt MORE difficult to service, whereas Lower rates make Debt LESS difficult to service?
4) But, expected economic growth, is the most important factor!
Higher levels of expected growth, will increase the likelihood of higher Tax Revenues, thus possibly increasing the attractiveness of investing in that Government Debt & possibly lowering the rates payable?
Lower levels of expected growth, will increase the likelihood of lower Tax Revenues, thus possibly decreasing the attractiveness of investing in that Government Debt & possibly increasing the rates payable?
Of course, these are government & Market REACTIONS TO THE REAL ECONOMY and that real Economy is now being driven by 3 major factors, each of which has or is, in the process of change course, compared to their positions, over the last 50-60 years in particular & those factors are -
1) Demographic Changes - Over the last 70 years or so, we have seen the largest Population explosion in human history, which is now Peaking, before going into actual reverse over the next 20-30 years.
The major effect here is that the rate of increase in DEMAND for all forms of Goods & Services skyrocketed between WW2, until the early part of this new century, BUT since then DEMAND has started to wane & the rate of increase in DEMAND has commenced to slow.
Over the next 20-30 years, DEMAND for all forms of Goods & Services will first level off & then commence to Decline and no amount of stimulus will change that basic fact!
2) Energy (Supply & Pricing) - This is one of 3 great enablers to the Demographic surge between 1945-2005 and the massive discoveries of Fossil Fuels (such as Oil, Coal & Gas), at very low Prices, assisted the massive Population growth over that period.
However, the rate of growth in Supply started to taper off in the late 1990's, became more evident in the first decade of the new century and the resultant lack of Supply/increasing Demand showed up in massive Price hikes, with Oil going from $10 a barrel in 1999, to around $148 a barrel in 2008.
The major effect here, is that Fossil Fuels & Oil in particular are involved in almost every Product & Service known to humanity AND the increasing Prices of Fossil Fuels are driving Price hikes across the board, with the Publics Disposable income taking a substantial hit, over the last decade or so AND THAT WILL CONTINUE, AS THERE IS NO VIABLE ENERGY ALTERNATIVE THAT CAN DELIVER BOTH SUFFICIENT VOLUME & THE RIGHT PRICE!
Of course, the consumer hit to their hip pocket, MUST & IS, BEING REFLECTED BY A DECLINE IN DEMAND!
By the way, the other 2 great enablers are -
Climate - We have had a goldilocks climate for several hundred years, which has greatly assisted in accommodating the additional Population, primarily by way of providing sufficient Food & Fresh Water.
Technology - Human Technology has exploded, particularly over the last 100-200 years and that has provided an enormous boost in Productivity, again assisting the Population explosion in a myriad of ways.
That said, the goldilocks climate is now in the process of ending, whether it be natural or human assisted is still being argued out, although I would agree there is a degree of human cause involved.
Which leaves us with Technology and as I have said previously, Technology may again ride over the hill to our combined rescue, BUT AGAIN I WOULD COUNCIL AGAINST RELYING ON LAST MINUTE, OUT OF THE BLUE CAVALRY CHARGE BY THE TECHNOLOGY BRIGADE, AS IT IS SIMPLY NOT GOOD PUBLIC POLICY!
No, IF we want a future for ourselves, our children & our children's children, then we will have to start making some really tough decisions & we will have to start NOW!
We will need -
A complete review of Government Taxes, Expenditure and all government Policies.
Specific Tax increases & lower Expenditure & an emphasis on Productivity.
Co-operation across all Political parties, for the longer term benefit of all Australians.
AND, all of the above, will also need to take place Globally.
Can this & much more be done? The answer is YES!
Will it be done? On that, the realist in me, is nowhere near as confident AND the flow on effects from the Demographic & Energy factors, will place Growth in particular extremely difficult and return to past Economics absolutely impossible!
In any event, knowledge is everything and at least if you are armed with what is really going on, then your chances are better of getting better outcomes.
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