Sometimes you have to wonder if Joe Hockey, the putative federal treasurer if the Gillard mob loses power, really has a handle on what’s going on.
AAP quoted him this morning: “Australia has a good long-term future but from my own perspective, I’d be reducing government expenditure, I’d be paying down debt as quickly as possible,” he told ABC Radio on Friday.
He said that more than $150 billion of the government’s debt was held by offshore investors who could dump their investment quickly in a financial crisis: “Australia is a massive importer of money and just as the financial crisis hit our banks last time, there is the capacity for similar events to hit us again.”
Now isn’t the federal government paying down that debt as quickly as possible?
Well, if Joe knew his onions, he would realise that far from selling Australian debt, foreigners have been buying it with their ears pinned back in the past couple of months. In fact the key indicator, the yield on 10-year Treasury bonds was yielding 4.54% this morning, well under the cash rate of 4.75%.
That’s the lowest the yield has been since 2002.
And if Joe really knew his onions, he would also understand that bond yields fall as prices rise: so bond yields have fallen from 5.67% at the end of last December, or more than 1%. And bond prices rise (like share prices), because there are more buyers than sellers: in other words demand is greater than supply.
Remember how Joe and his mate Tony think that all that debt issued by the federal government is bad because it is crowding out other borrowers. Well many of the purchasers of that debt are based offshore and want a “safe haven” compared to the euro and the US dollar.
But the fall in yields has been happening now for several months and as foreign central banks and sovereign wealth funds reportedly buy Australian debt to diversify their holdings away from US government bonds and notes.
So the federal government should keep as much debt on issue as possible (it will have to because the move back into surplus by 2013 is looking dodgier by the week).
Them foreigners want as much as they can get. They think Australian government debt is safer than the US and most European governments, unlike Joe and Tony.
“He said that more than $150 billion of the government’s debt was held by offshore investors who could dump their investment quickly in a financial crisis”
Can someone explain the relevance of this?
So an investor “dumps” Australian government bonds. Clearly in order to do this they must be selling to another investor, so what has changed? And if the investors are onshore or offshore, what difference does it make?
Seems to me to be another case of the Liberal Party buffoon making no sense.
“So the federal government should keep as much debt on issue as possible (it will have to because the move back into surplus by 2013 is looking dodgier by the week).” The parenthesis is pretty right I must say.
But it’s not a matter of “should keep as much debt as possible” but in fact “will have to keep as much debt as they can raise” if Julia and Wayne keep about their ways.
The point being made by Hockey is “very important” to use Swan’s vernacular. Our current debt of over $200 billion, even with the reduced interest rate, is still costing us $10 billion a year, which would be much better utilised in our health or education systems, or even in researching renewable energy..
Interest paid is gone forever, and if the debt has been incurred on non-productive nonsense like pink batts and green loans etc. it’s just bad bad policy by a bad bad government – throwing good money after bad!
Dr Harvey M Tarvydas
Good one Glenn Dyer, concise lesson in economics genuinely helping the psychologically healthy Australian see past the political spinners trying to spin square circles.
Joe has regularly shown problems in comprehension on economic issues but I think he knows no better and thinks he is helping.
It’s clear he genuinely cares about his Party much more than Nick Minchin or the Rhodes Scholar do but like Malcolm Turnbull does and showed some courage about it yesterday.
@MARK HEYDON — Posted Friday, 5 August 2011 at 3:28 pm
You make the appropriate point but to answer your question Joe doesn’t know what you are talking about, he thinks when the purchasers ‘dump’ the Aus Government bonds/debt the debt collectors or sheriff from that other country that’s attracting international investment away from poor old Australia (Sambolia or Rowianartra or whatever it was the Rhodes Scholar exposed to create frightening fear) will turn up with one hand out for the money and the other holding a bankruptcy certificate.
@GRANORLEWIS — Posted Friday, 5 August 2011 at 5:41 pm
Oh no, not playing the economics simpleton now just to get a free economics lecture.
How did you know that I did a graduate economics course while studying medicine, and I am not going to oblige, sorry.
Glenn has done an excellent job here. You should learn to believe the good stuff that you read and your education will prosper.
Dr Harvey M Tarvydas
Glenn I love it ……
“…Them foreigners want as much as they can get. They think Australian government debt is safer than the US and most European governments, unlike Joe and Tony…..”
It reminds me why I seem to be referring so many Aussies back to kindergarten (its a good safe place don’t knock it).
Oh Dr Harvey, apart from boasting your qualifications, I see you don’t want to debate the issue. I presume your economics qual. did you more good than your medical qual. – in which case tell me and others why it is good to incur debt and pay interest, if there is a choice. The interest bill of our national govt is money sprayed against the wall – wasted – never to be seen again. Debt and interest are fine when the money is spent productively on useful outcomes. Pink batts, green loans and unwanted school halls were non-productive, wasted money. Except that the money kept many miscreants in business I suppose.