Australian government debt (Federal) crossed the $200 billion barrier last year. In a few short years, then, the government has gone from a modest $20 billion surplus to a $200 billion debt. That debt is still small as percentage of GDP compared to the US, Japan, and the UK. But it’s a lot larger than it was a few years ago…and once these things get rolling, they have a way of building momentum.
Incidentally, for you Poms out there, the UK has passed the £1 trillion debt level for the first time in its history. Government debt is now 64% of GDP. Well done Anglo-Saxons! But you’ll have some work to do if you want to catch up with our homeland. US government debt is over $15 trillion and counting-more than 100% of US GDP.
You can see where all this is going, can’t you? Systemic, chronic public sector debts in the Western world. Low productivity. Lazy people. Distorted incentives. Corrupt finance systems. Rot, corruption, putrefaction everywhere. Zombies running the show…zombies with no brains, but a bottomless appetite for the contents of your wallet and an increasing determination to strip you of your pride, dignity, and liberty in public places.
Pretty encouraging, isn’t it?
But wait! We have reached an epiphany of sorts in the last week. We don’t care anymore. About the zombies, the Greeks, the central bankers, the politicians, and the ne’er do wells. We finally realised they’ll always be around.
Things might be a little worse now than in the past. And it may get worse still. But you’re not going to change it. You just have to figure out how to live with it, survive it, laugh at it, and, when you can, punch it in the mouth if it gets too intrusive.
That doesn’t mean we won’t be analysing things in detail and figuring out what to do. But we’ve given up taking a lot of it seriously. Seriously…how long can you pretend that Greece will not default…and how long can you take each new round of negotiation seriously…before you realise it’s all a big charade designed to delay and obscure a simple fact?
And what is that fact? The fiat-money-based global credit boom has gone bust. The Welfare State model is broken. Much of the world is broke and will face lower standards of living for many years as household and government balance sheets are rebuilt. A great many people will endure a lot of personal pain and privation because they were led to believe the world owed them something.
The golden parachute, so to speak, for Australian investors, is that while Australia has the same economic DNA as the UK and the US, and is subject to the same financial and cultural diseases and decay, it’s also in the same economic ecosystem as China and India.
The Eastern ecosystem could replace the Western one. If it does, Australia can exist in a peaceful, prosperous, symbiotic relationship with those rising powers, if it adapts to the new circumstances of the global economy. Or it can fail to adapt and view its regional neighbours as predators.
But if you think we’re taking this East-West passing of the torch business a bit too seriously, you should see what Warren Buffett is up to! The greatest investor ever, turned rent-seeker extraordinaire has serenaded 1.2 billion Chinese in honour of the Lunar New Year, celebrated on Monday.
In the Chinese calendar, 2012 is the Year of the Dragon. Is the Oracle of Omaha, a man who says he’s still bullish on America, placing an each way bet on who will win the commanding economic heights of the 21st century? Or does he just like trains and ukuleles? More to come…
for The Daily Reckoning Australia