Australia now has the highest private debt in the world. It’s mainly household debt and can’t possibly be repaid. As Michael Hudson says with some finality: “Debt that can’t be repaid, won’t be repaid.” You can’t get blood out of a stone, so things must end badly for Australia – as they did in the USA and Europe in 2007 and 2008.
Here’s what Australia must not do:
Going back a step, to the bursting of Japan’s property bubble in 1990, we’ve had 25 years of Japan now proving you can’t possibly manage a debt deflation by printing money to bail out banks, nor by offering zero interest rates on your money. [Now it’s negative rates: The Japanese banks will now charge you to deposit your money and pay you to borrow!] Clearly, this hasn’t worked, yet it’s the same anchor to which the USA has shackled itself!
As Steve Keen says, we’ve got to bail out people, not the banks. Somewhere along the line, Australians will need to be given a significant grant of money. This will provide for borrowers to pay down their debt, and give other Australians the confidence to spend.
But it can’t be allowed to stop there, as it did with the Rudd government’s $900 grant, the ‘pink batts’ scheme, and the building education revolution. It must be accompanied by complete reform the Australian tax system – which would abolish taxes, along the lines proposed by the Henry Tax Review, and to capture, as we once did, more of our public funds from land-based revenues.
That’s really the only alternative to Greek austerity, or to Japan’s zombie-like ‘lingering death’.
Economies need to resurrect. Let Australia be the first to do so.