Remember late last year when Barnaby Joyce as shadow finance spokesman warned of the risk of a US debt implosion:
Senior government figures have taken aim at Barnaby Joyce’s dire warning about a global financial meltdown if the United States government defaults on its debt…
”That’s shooting from the lip, making it up on the run,” Prime Minister Kevin Rudd said…
Assistant Treasurer Chris Bowen went further saying…”His comments on the United States need to be taken with a grain of salt,” he said, adding the vast majority of economists believed US debt levels were manageable….”Senator Joyce adopts very extreme positions, he is an extremist.”
So the reaction ot Joyce’s warning was predictably over the top and ill-informed. Would Chris Bowen and the PM make the same criticism of rating agency Fitch, which said this week about US government indebtedness:
“Difficult decisions will have to be made regarding spending and tax to underpin market confidence in the long-run sustainability of public finances. In the absence of measures to reduce the budget deficit over the next three to five years, government indebtedness will approach levels by the latter half of the decade that will bring pressure to bear on the US’s ‘AAA’ status“
Oh, so is Fitch adopting an ‘extreme’ position, or ‘shooting from the lip’ ? And what about the ‘vast majority of economists’ claim made by Bowen. Has a survey been taken, has it? More from the Telegraph:
Fitch expects the combined state and federal debt to reach 94pc of GDP next year, up from 57pc at the end of 2007. Federal interest costs will reach 13pc of revenues, meaning that an eighth of all taxes will go to service debt. Most fiscal experts view this level as dangerously close to the point of no return for debt dynamics.
Oh, more extremism then?
Stephen Lewis, of Monument Securities, said a US downgrade would rip the anchor from the global system and pose a grave risk to the stability. “This would set off tremors, making all dollar assets less secure….”he said.
While US debt was higher after World War Two, circumstances were very different. The age structure was healthier. Most bonds were held by Americans. Demobilisation of the troops allowed for drastic budget cuts. America had emerged as the world’s strategic and economic Colossus. This time the US cannot rely on exuberant growth to whittle down the debt.
The reason Rudd and his comrades reacted so hysterically to Joyce is because they are set on taking Australia’s finances down the same path as the USA. It won’t be a happy ending.