Finance

Most red ink ever: $9 trillion over next decade”

Fortunately it’s not anything directly to do with Australia. Instead it’s those fiscally redundant Americans.

“In a chilling forecast, the White House is predicting a 10-year federal deficit of $9 trillion — more than the sum of all previous deficits since America’s founding. And it says by the next decade’s end the national debt will equal three-quarters of the entire U.S. economy.”

Notice I have said directly . Indirectly, the collapse of the US economy, its currency and its entire financial system will have an indirect impact on Australia.

The problem is figuring out whether the collapse will have a positive, negative or neutral impact on us.

It’s proof that you can’t spend your way out of trouble.

It continues to amaze me the number of news reports and commentary we read claiming government needs to keep spending to keep the economy on track. Is spending more money and going deeper into debt good for you?

These so-called economists and commentators have a very warped view of how governments fit into an economy.

They seem to think that governments are disconnected from the economy. Simply fiddle with the economy, and no-one will notice.

And of course, any interference can only benefit the economy.

This is nonsense. Governments are not able to tune an economy to make it run smoother. It cannot interfere to quickly remedy a problem.

One – mechanism that can correct distortion is free market.

Allowing governments to spend so much only gets everyone into trouble.

We can only hope the Australian government doesn’t follow this example following the drop in vehicle sales last month.

Car owners can trade in their old inefficient fuel cars for a a cash payment from the government to put towards buying a new fuel-efficient car. The logic is that this will help the environment by reducing fuel emissions while also giving a vital boost to the car industry.

The real outcome is that not only will the policy achieve neither of those aims but it will also harm other areas of the economy too.

Take a look at the environmental issue. Claims have been made to get all these old cars off the roads will reduce carbon dioxide emissions by several million tonnes a year.

Armed with a new car, people can drive it more than they did their old one. A more fuel efficient car means you can drive it further on the same amount of fuel.

A newer car is perhaps less embarrassing to drive than a bomb.

A newer car is nice and new. Generally people like showing off their new things. What better way to show it off than to drive it everywhere. Why not take that 200 mile drive to the country that you never would have considered in the old bomb.

Boost to the car industry? Undoubtedly it will provide some benefit to car dealers and car manufacturers. After all, if they are able to sell cars that they otherwise may not have sold then that is more money to the car dealers bottom line.

However, once the scheme finishes it will soon be apparent that it has provided no benefit at all. As with any distortion to the market, the Cash for old cars programme has merely shifted the scenery. It’s the same scenery, it just looks different.

It doesn’t address the underlying problems with the car industry. The car dealers and car manufacturers may get extra dollars in their pocket now, but next month they’ll get less dollars.