The debt in Australia has many faces…
In this post I’m going to concentrate on the Queensland and Federal Government debt because I think it’s the most important outside of household debt. Nobody, myself included, wants to wallow in household debt subject. Although I think that’s definitely a post-worthy subject.
If you are unaware of the process governments raise funds via debt, it’s in the form of selling bonds. Not every government is the same in how or how much they sell, but the process from a high level is the same. Bonds are sold on a set period of time with a set interest rate (return) made available on the maturity date. Typically, five or ten years and at lower than market interest rates. These bonds are typically used in share portfolios to balance risk because the government always pays right? These are often referred to as a ‘proxy to’ or ‘zero risk’ investments. The region’s treasurer will make a call and set the debt levels based on a ratio of value to debt based on estimates of the value of government assets and revenue or GDP etc. You get the gist. Just before the Queensland treasurer opened the flood gates to pay for the border closures and shutdowns debt was already, in my opinion, high. Australian had become comfortable with debt levels after the 2008 economic crisis much like household do in the years after getting their first mortgage.
Looking at government debt is contentious as it depends on what ratios you are comfortable with and the value place on infrastructure and potential revenues. You for instance would not be able to use the same process when borrowing money from the bank. You actually have to get a value for the assets you have, the ones you want and prove your income. I am not wanting to focus on the estimations of government infrastructure, although I think it’s overinflated, I instead would like to focus on the guesstimated revenue. Afterall that’s what we will need in order to pay out the maturing bonds. And that day is fast approaching.
To put this into perspective, the amount of national debt per Australian has increased more than tenfold from the 2008 crisis to 2022. It must be considerably higher today. Somewhere near $50,000 AUD per Australian. And unlike the typical household mortgage, the debt the government has committed us to was not to purchase anything as concrete as a roof over our heads. Much of this was used for failed social programs and handouts to ease the pain of the governments mandated shutdowns. I’ve heard it best described as ‘a self-inflicted wound’. My analogy : “Dad lost his job and on the way home and bought presents for the family on his credit card”.
Left wing proponents will use debt to GDP ratios of other countries to paint Australia’s position favourably. I would suggest this is not helpful as each countries prospects differ vastly. Japan for instance has a very high debt to GDP ratio, but it also has an incredible portfolio of international companies and is staunchly independent. It’s simply disorientating comparing globalised countries like Australia with the highly sophisticated likes of Japan and France. We’ll catch a cold at the first dip in overseas stock markets. Australia, and specifically Queensland is in a particular predicament due to our chosen bed partner. Australia has very foolishly built a critical trading relationship with an adversary. China. The forecasted revenue that both the Federal and State Treasurers based their fantastical budgets upon require continued growth from an economic partner in freefall.
Although most media channels are choosing to ignore the fact, it’s an absolute reality. Once more geo-strategists have long pointed out China declining demographics and lack of independent financial oversight was an accident waiting to happen. What communist government has ever tolerated criticism? Nothing is too big to fail. This is a country that has repeatedly physically challenged Australia’s ships and aircraft in international waters. A military spokesperson once threatened to fire missiles at us. Again, I am lost for words that some Australians do not take seriously the fact this is a nation that does not hold free elections and has imprisoned people for no other reason than having a differing opinion to the ruling party. And we have entrusted our future on this. That’s immoral in the least.
So what happens when we can’t pay our sovereign debt?
In short, we would have to default and or negotiate with creditors. The cost of borrowing money will increase exponentially for all Australian as our credit rating takes a hit. We would need to increase taxes and exercise quantitative easing, all bad ideas. Left wing proponents will say this isn’t a real risk. And I’d suggest it’s because they don’t value the effort required to build a business and generate that wealth governments need for revenue. Afterall money grows on trees.