Debt Does Matter
Despite what many people believe, debt does matter. It's just you won't notice it until it is too late!
With all the discussion about the US election and the aggressive actions of the Chinese government, little has been said recently about the mounting scale of government debt.
The mantra of debt doesn't matter has caught on, and when governments can borrow money at a negative interest rate, why shouldn't it?
Yes, you read that correctly. A recent issue of government securities had a negative interest rate attached to it. That means the government will pay investors back less than they originally put in!
It sounds crazy, but so much in the current world is so completely mad that it is the new normal.
Everything from finance to economics, politics to personal responsibility has been turned on its head. It is little wonder most people tune out and focus on what they can understand from experience and history.
However, that apathy concerning current events leads to complacency for those with access to the levers of power.
They figure that if no one is holding them to account, why does it matter what they do, particularly if they do it for 'the good of the people'?
That 'good' often means throwing borrowed money at them through one government program or another. Supplements for this, rebates for that, and all are put on the perpetual, never-never debt account.
Few seem to care about the long-term consequences of such an approach, preferring a comforting sugar hit today. Some say:
If the government isn't worried about debt, why should I be?
Frankly, there are people who logically shouldn't be worried for themselves. After all, many won't be around to see the growing debt's impact on future generations. But this is a troubling time for those with a sense of responsibility and understanding that we have an obligation to the future and the present.
This week, the Australian government is expected to forecast a near $200 billion deficit for 2020/21.
Put that into perspective.
It took the Howard government a decade to pay off labor's $96 billion budget black hole in the 90's. Now, we clock up more than double that in a single year.
I don't think we'll ever pay off the current debt. It will likely continue to grow closer to $2 trillion before a sustainable surplus is delivered!
A natural response might be: "But if we can borrow money and pay back less, we get richer from borrowing."
Simplistically, that may be correct, but eventually, interest rates will change, and they only have one direction to go...up.
That's when the fiscal stuff will really hit the fan, and most governments want to avoid dealing with that.
That's mainly because governments cannot risk the political consequences of fiscal austerity. It delivers delayed gratification and immediate difficulties. The people don't want that, and the government wants to remain in power.
Instead, they want magic pudding economics where they can have their cake and eat it too. That might exist in fairy tales, but it doesn't live in the real world.