Thursday, 24 July 2014

The GFC increased public debt

Michael Pascoe in Why our financial minnows are still too big to fail takes a look at a recent speech by Reserve Bank Governor Glenn Stevens. Stevens gave a "carefully considered presentation on how economic policy makers handled and perhaps should handle the global financial crisis".

One of Steven's observations Pascoe highlighted was the increase in public debt due to the GFC:
And then there was another “it’s not about Australia” observation by the governor that nonetheless is worth remembering in the local political context:

“One of the difficulties has been that public debt burdens rose sharply. This was partly as a result of the cost of fiscal stimulus measures and bank recapitalisations in some cases, but it was mainly because of the depth of the downturn in economic activity.

"A financial crisis and deep recession can easily add 20 or 30 percentage points to the ratio of debt to GDP, and did so in a number of cases.”

If you don’t like the (relatively low) level of Australian government debt now, consider what it might be if we hadn’t “gone early and hard” with stimulus. 

And, no, it wasn’t just China that saved Australia from recession – one of the more obviously weird claims regularly made from the loonier edge of the right.

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