Try debt delay and central bank probe
letter published in The Australian Financial Review, 29 September 2011
While the failure of finance ministers to agree in Washington on policies to overcome the debt crisis is not surprising, it confirms that solutions to such problems more likely depend on action by individual countries rather than by international agencies.
It follows the shocking G20 decision taken in April 2009, with the prominent support of then prime minister Kevin Rudd and Treasurer Wayne Swan, to implement “an unprecedented and concerted fiscal expansion ... that will, by the end of next year, amount to $5 trillion, raise output by 4 per cent, and accelerate the transition to a green economy”.
Instead we now have a large downward revision of forecast growth in advanced countries to only 1.6 per cent, the possibility of another recession and no agreement on how to deal with the ongoing problem.
True, there is now at least agreement to reverse the fiscal expansion. It will be recalled that in the 1930s Australia’s decision to cut government spending (and the exchange rate) was approved by [British economist John Maynard] Keynes and was followed by a strong recovery. But today there are calls for more funding to countries that have allowed excessive levels of both government and private debt and, in the case of Europe, no recognition of the unsustainable exchange rate policy being pursued there. Also suggested are massive defaults on debt that would surely add to already low investor and consumer confidence.
The present circumstances require a debt moratorium that recognises that time is needed to work off the excessive debt that has been accumulated over recent years. Most importantly, it also requires a full blown inquiry into why the central banking system failed to prevent that excess and what can be done in future to ensure adequate risk assessments of debt levels.
Des Moore
Institute for Private Enterprise
South Yarra Vic