(February 20, 2013 at 8:47 am)Aractus Wrote: Obviously the budget would have gone into deficit. Australia is not isolated nor insulated from the effects of global economics. In fact we are dependant on a strong world economy. What we had in 2007 was an economy that was very strong from the decade-long Howard government, and we had no federal debt. Thus we were in a strong position to handle a sudden global economic catastrophe.
Australia did not go into a recession during the global financial crisis. Because of the great mineral resources (in particular iron ore and coal) which the country has and the demand which China has for them. New Zealand which lacks those went into recession during the global financial crisis.
Because of the fact we did not go into a recession, Australian interest rates have remained significantly higher than other western nations which are nearly at 0% now. Our relatively high interest rates is a significant reason why our dollar is quite overvalued currently. Relatively high interest rates means a strong demand for Australian dollars from overseas buyers.
Our reserve bank could devalue the dollar easily by printing more money. However they fear that would lead high inflation (anything above 3%), which the reserve bank has stated it wants to avoid as much as possible.
Quote:What Labor is doing is spending future money. In a time when the economy is strong (not as strong as it was in 2007, but strong nonetheless), and when productivity is high, they still can't balance the budget. You need to make a choice about having services today, or services in the future - you're spending future money to pay for present services - in the future we'll be spending our present money to pay for past services. Get how it works?
Businesses and households take out loans which they pay with future money. Governments likewise take out loans which payback with future revenue. The only thing I would criticize about the Rudd-Gillard government fiscal policies in the area of government, is that the money should have been used for more useful purposes, like upgrading the national highway and railways systems, which would have produced great benefits to the economy in the long term.
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