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‘Keynesian’ fiscal policy out of control – Australian government bond downgrades

Posted by Adrian on December 10, 2008

If you haven’t noticed every government on the planet have gone insane with dumping money on the ailing economies, bailing out rubbish companies, guaranteeing commercial bank deposits (hence insuring debt), bailing out dreadful banks that should have gone belly up. The term ‘zombie business’ will be used a lot in reference to a Keynesian economic model, that has been utilised by policy makers in a hyper frenetic way. With dire consequences to government budgets, public spending and economic responsibility of surpluses and the protection of currencies.

A good example of irresponsible fiscal stimulus or protection is when Australia made a rushed decision to guarantee all bank deposits, all and good for the consumer. Except the Australian government was pressured by the commercial banks to guarantee commercial debt. So in agreeing to bank demands the local state government’s got played, as government (and local government) issue debt got downgraded. No one wants it. But the banks are now utilising the government guaranteed to gain a triple A rating on it’s own debt, hence investors buying bank AAA debt and dumping state and government debt – which in turn makes Australia government debt less attractive, that in turn causes governments to find it hard to raise capital through higher borrowing costs.

Also keep in mind that the Australian government, much like other developed economies is in the process of giving out huge fiscal stimulus packages to the population. Which of course empties the government’s surplus and thus States will also find it hard to raise capital (as discussed – this causes government and state debt to be downgraded against bank debt).

Which of course inevitably leads to government cuts to public spending, which means health, community and welfare services.

This is only one example of Keynesian meddling in the economy, since policy makers have lost their minds with bail out packages left, right and center, we are going to continue to see huge distortions in the markets.

All at the detriment of the tax payer.


One Response to “‘Keynesian’ fiscal policy out of control – Australian government bond downgrades”

  1. […] on the whole will end up creating zombie companies and propping up zombie banks. As mentioned in ‘Keynesian’ fiscal policy out of control – Australian government bond downgrades, the worst policy plunders a government can make is cushioning the banking system, that has […]

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