Australian Debt: A “Watcher’s” guide

The following comment was made in response to a comment at Macrobusiness

170402 - Ermo and debt


“..The slightest withdrawal of the economic stimulant (debt) plunges an economy into depressive conditions…”

“..There are other forms of economic “stimulus” that don’t incur debt, a sovreign state paying for infrastructure, free health and education, and providing a Wealfare State with its monolopy right to Print the fiat,. for example are ways money can be “pumped” into the REAL economy without incurring the expotentially growing out of controll, economic overhead of compounding interest…”

“..The comparision is also BS due to Australias rich Natural endowment and Vast territory,… if we had to, we could eaisly “Go it alone”. For the Greeks that thats not the case…”

“..Tell me why, new money supply should only be issued through debt?..”

Excellent points.

A couple of comments – just for you – everyone else please ignore and go about your Sunday morning chores and prayers of the faithful.

Be cautious how you use the word debt and when you do always distinguish between debt issued by the public sector and debt issued by authorised ADI banks and debt issued by other private individuals or organisations. There are, as Michael Hudson carefully explains critical differences.

And when you talk about public sector debt make sure you distinguish between debt in the form of bond issuance and ‘debt’ in the form of the vague obligations that come from issuing bank notes or these days altering Exchange Settlement account balances. The latter is not really ‘debt’ in any meaningful sense of the word (as many have noted including Mr Hudson) at best it just accounting debits, but if you don’t call it debt you will be attacked by the usual suspects for departing from the “all money is debt” script.

The Banker’s Boys and their fellow travellers and unpaid apologists like to conflate all the categories of debt whenever they can – they can hide in the clouds of obsfucation – and they certainly do not like anyone dwelling on the idea that the public sector has no need to recharge its exchange settlement balances with the proceeds of bond issuance (bearing interest).

First they will say that all money is debt and always has been. Then they will say that debt issued with full faith and credit of the public is the same as a debt (IOU) issued by a private person/organisation. Then they will say that there is no big deal when the taxpayers full faith and credit is extended to the IOUs of specific private organisations – i.e. banks. Some will even claim that the banks would prefer not to have the heavy responsibility of issuing interest bearing IOUs backed by the full faith and credit of the public – chortle is the word that comes to mind.

When you talk about private bank credit being given the effective status of public money they will claim that shadow ‘banking’ is the real issue. Even though shadow banking is not banking at all. It is just a trade in private IOUs. The only time all those completely private ‘shadow bank’ IOUs become a major system stability issue is when the licensed private banks are permitted to trade in those shadow IOUs and thereby put their financial stability at risk when the market in shadow (i.e. purely private IOUs/money) collapses, as it does from time to time.

When it comes to debt, the debt peddlers and the Banker’s Boys all insist we have NO choice. The system is fine… just a few bad apples, a couple of tumours… we just need to regain control, a few good men, a better class of regulator etc etc.

The status quo is sweeeeet if we make just minor tweaks. Now move along and enjoy your shopping while we get back to business.

Is Australia different to Greece?

In theory it is because we could in theory print money to pay our debts while the Greeks cannot.

But could we? When was the last time you ever heard ANY politician propose that Australia pay its debts to foreign lenders by printing money?

When was the last time you ever heard ANY Australian politician suggest we take deliberate measures to short change any foreign lenders.

Jack Lang made sounds along those lines and he was very quickly dispatched by the reserve powers of the Crown.

As we have seen over and over again the RBA insists it will not seek to devalue the $AUD and APRA seems uninterested in the idea either. And when too many public commentators squeal that is what they should do we get some big US dicks swinging our way and making it clear that screwing your lenders by driving down your currency is NOT ON.


So don’t take comfort in that stuff about how we can ‘print our way to happy times’ it is all just ‘theory’ and it aint going to happen.

What will happen is that we will pay all our debts in full to our foreign lenders by transferring title to our capital assets and land and selling off claims on what future income we earn and that will not be easy as we will have sold off the ownership to most of our ways of generating that income.

And why will we do in practice what we don’t seem to have to do in theory?

Why wont we just print print print and let the $AUD collapse in value and pay off all those offshore obligations – all that foreign debt?

Because our membership of the international banking global order insists that we do things a different way to the way we could – in theory.

But don’t you worry, as the system is juuuuuuuuuuust fine!

Have a good one!

Categories: Macrobusiness

1 reply »

  1. The system is just fine until it’s not. The collapse when it happens will leave all in shock as no one seen it coming.


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