Finally, thank the gods, a serious debate on debt and deficits has been joined. So far, the emphasis has been on government debt, the debt we mostly owe to ourselves or, more accurately, our children and our grandchildren.
This domestic debt will, as revealed in the budget debate, quickly rise to $300 billion. Of course, if the economic recovery is slower than predicted by Treasury, or weaker, this figure will be larger.
What if the world economy suffered a major relapse, a relapse that killed off the green shoots of recovery? We are told there was tightly controlled but deep concern as the cabinet faced the global credit crisis, as Lehman Brothers failed in late September and other bad news hit the screens.
David Uren reports: “Wayne Swan conveyed something of the atmosphere in cabinet meetings at that time in his post-budget address to the National Press Club.
“Historians have written about the tension-filled atmosphere that engulfed the Scullin government in the days after the Wall Street collapse of 1929. That government was swamped by events it could neither understand nor control.
"Sitting around that cabinet table in October, and by teleconference from DC, we were determined that history would not repeat itself. We were determined to respond with immediacy, purpose and effect."
A global relapse now would make the situation far more like that faced by the Scullin cabinet.
Despite the tight control of the Rudd cabinet, with large resources to draw upon, a relapse would find Labor with “no ammo left”, as David Uren puts it.
Yet, even without a dramatic relapse, the news will get steadily worse as the year unfolds. Unemployment, already well above official estimates, will get worse, business profits and investment will fall and credit is likely to contract further.
Roy Morgan's fourth state of the nation report was released late last week, based on thorough polling of what is worrying Australians.
“Clearly, the global financial crisis has had a deep effect on people's own sense of perspective in these times. Over half of respondents to the survey indicated economic-related concerns as being the most important problem facing both Australia and the World today.
“These numbers have steadily increased over the past year, as just a year ago only 23 per cent of Australians nominated economic issues as being of most concern, which grew to 30 per cent by November 2008 and now sits at 51 per cent.”
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