A couple of quotes emanating from Joe Hockey over the weekend show just how whacky a politician can be these days. First Hockey had a sobering message for Australians:
Australia needs to learn the lessons of the US budget impasse and keep government spending under control, Treasurer Joe Hockey declared after meeting Federal Reserve Chairman Ben Bernanke and other global financial leaders in Washington. “You cannot allow entitlements to get away,” Mr Hockey said in an interview with AFR Weekend. “If you don’t deal with these things before they ensue, then the pain in dealing with it when it’s nearly too late is obvious here in Washington. “We cannot continue to live beyond our means; we need to put in place programs that address the ongoing fiscal challenges, particularly those left by our Labor opponents.”
He is quoted elsewhere saying ”America can no longer afford its lifestyle”. Correct. That, fundamentally, was what the GFC was all about. The Tea Party is attacking the problem the wrong way but the US will have to reduce its twin deficits, and is over time.
But then it was on to some other Joe Hockey:
Treasurer Joe Hockey has left open the possibility of abandoning the Coalition’s pledge to increase scrutiny of foreign investment in farmland to strike a free trade agreement with China.
…The Coalition’s policy of reducing the threshold at which foreign investments in agricultural land must be considered by the Foreign Investment Review Board from $248 million to $15 million is expected to be a stumbling block in the negotiations. It is believed Beijing wants the threshold raised to $1 billion – the same arrangement that applies for proposed US investments, and an offer made by former trade minister Richard Marles on a mission to China in July. ”We will see where the negotiations take us,” Mr Hockey told Sky News on Sunday.
”I’m not going to pre-empt the outcome of any of the negotiations, but I do want to emphasise that Australia is open for investment and we need foreign investment. We need foreign investment because Australia cannot fund its own needs. It hasn’t been able to fund its own needs since 1788, and we have relied on foreign investment since that time to grow our nation. We are going to continue to rely on that investment, but obviously we need to deal with what is in the national interest.”
What is good for the goose is surely good for the gander. If the US needs to live within its means why doesn’t Australia? It does and the reason why is obvious enough. Australia does indeed have a long history of current account deficits but not uniformly so. From the RBA:
Ironically, the chart is from a study in 2007 that concluded the CAD was hunky dory, one year before we were forced to part-nationalise our banks so it remained that way. In the chart you can see that the two material periods of current account surplus both followed depressions, in the 1890s and 1930s. I would argue that there would have been a third period right now, following the GFC, had it not been for the serendipity of the mining boom. And by serendipity I do mean good fortune, not good planning.
In this sense, a current account deficit is always a current account deficit. There are no good or bad versions; they all show that a nation is living beyond it’s means and that always risks the piper coming calling when disruption hits the flow of capital, even if it’s for global not local reasons. So when Joe Hockey concludes his weekend rhetoric with:
Mr Hockey said his predecessor Wayne Swan had handed the Coalition a ”time bomb” by leaving Australia’s debt ceiling at $300 billion, a limit the government would reach before Christmas. ”He’s left the hard work on the debt limit in Australia to the Coalition,” he said.
One cannot help feeling a little double-standard is being deployed. Joe Hockey would no doubt argue that his debt is different. He’s got less of it and he wants to use more for self-liquidating ‘productivity building’ investment. And I agree in principle. But that hangs on him actually doing so and his plans for roads looks more like a reflexive growth push laced with pork than it does well considered investment. Moreover, Hockey currently implicitly guarantees $600 billion in offshore private investment, which is heavily oriented towards mortgages, yet he agrees with rising house prices that will demand more offshore borrowing before long, and he is sustaining large tracts of middle class welfare in everything from tax cuts to parental leave.
Despite all of the US’s problems, it’s still considerably cheaper to insure its debt than it is Australian, both in the public (CDS price of 32 versus 42) and private sectors (major bank CDS price of 80 versus 107), even though Australia’s twin deficits are smaller than those of the US on both counts.
So how come the US is living beyond its means but we can party for hundreds of years, Joe?
