It is so easy. Out comes the credit card. A quick slash across the electronic reader and the purchases are taken away for consumption. Last month Australia put another $2 billion on the international credit card, according to figures issued yesterday. Next month interest will have to be paid on it, and the rest of the $180 billion we owe overseas.
Gradually the value of our currency is eroded against other currencies. Gradually our comparative standard of living slips away. The J-curve was a mirage. Assertions that Australia has been importing capital items to make more export and import-replacing items has proved nonsense.
The foreign debt is cornering the Federal Government. It is removing any chance of lowering interest rates in case the debt blows out further with a loss of confidence that would cause a flight of capital and a crash in the exchange rate. Comparatively high interest rates in turn remove the chance of business expanding and employing people.
The figure again reveals the Government’s three policy weak points. The Government has failed to contain expenditure appropriately at this point in the business cycle. It has spent too much money on the wrong sort of things … too much on intangible welfare and interest-group programs and too little on capital infrastructure. It has failed to inject the same liberating forces into the labour market that it injected into the financial markets.
One way or the other it cannot go on.