Today I was looking through annual reports of the Australian Future Fund, which is an example of what is known the world over as a sovereign fund. I have been keeping an eye on the performance of the Future Fund not the least because it is so exposed by its stake in Telstra, which has gone downhill ever since the previous regime persuaded Australians to buy a stake in something they already owned!. Anyway, most people have been conned by the Future Fund concept – it is shrouded in lies and deceit. In general, the idea of a sovereign fund is based on a misunderstanding (deliberate or otherwise) of the way the modern monetary economy operates. So its time to debrief and make it clear that these policy choices by governments generally undermine public goods and full employment.

In this blog, we consider the debt question (again) with streamlined language to ensure it is accessible to all who choose to read it. Yesterday I asked whether future taxes will be higher, which is now being claimed by conservatives who are running a relentless political campaign against the demise of neo-liberalism. Today, the partner claim: will we be paying higher interest rates because of the borrowing? Answer: no! Whether interest rates are higher or lower in the future will have little to do with the movements in today’s budget balance. It is possible that voluntary arrangements set in place by the Australian government in the past will drive interest rates up. But if that occurs it will because the Government wants higher interest rates rather than having anything to do with the net spending that is being engaged in to stop employment growth falling off the cliff. So time to discuss bond markets a bit.

Several readers have asked me to demystify the processes involved in issuing Australian government debt. They also sought an explanation for the sort of scare-mongering that various commentators have been engaging in about the increasing budget deficit causing higher future tax and interest rates because the “mountains of debt” will have to be paid back somehow. Well anyone who is worrying about saddling your kids (and their kids) with mountains of debt and punishing levels of taxation should “just take a Bex, have a good lie down” … and stay calm. All of these claims are of-course mythical and are designed to perpetuate the neo-liberal view that governments should refrain from interfering in the private market. So its time to arm yourselves with the weapons (arguments) that you can use when your mates start up with this nonsense. Yes, its time to debrief!

I read a headline in the Australian newspaper yesterday (March 19) – Nation building funding crisis as private sector fails to find cash. What? Nation building requires significant budget deficits. When was it dependent on the private sector having to trump up cash? I soon recalled that we have been living in the Public Private Partnership (PPP) era where governments have relinquished their responsibilities to build essential public infrastructure that not only supports a sense of public good but also underpins the prosperity of the private market economy. Its that time again. Time to debrief.

Many readers have asked me to explain why social security and pension schemes run by national governments can never become insolvent. Some have heard me commenting on the radio recently about this. In the current recession, where automatic stabilisers are pushing the budget back into deficit to dampen the fall in aggregate demand there are now renewed cries that social security funds around the World are likely to become insolvent. There are the familiar howls that all the “debt” that is being built up as governments go into deficits (mostly because they have been dragged into them by the cycle) will require huge future tax burdens that will undermine the capacity of governments to deliver adequate social security and health care systems. I think its time to de-brief again. The short answer to these claims is: sovereign governments can always fund social security in their own currency. Always, always, and even always.