Getting a grip on our debt

Published in the Geelong Advertiser, September 2013 by Dale Gillham

A young woman asked Kevin Rudd on the ABC Q&A program why, when she must do her best to balance the family budget, should our government not be expected do the same for the national budget. 

A fair question I thought. Although Kevin Rudd attempted to provide an answer I don’t believe his response satisfied her question. 

Why are we in so much debt and why don’t politicians learn to put things simply so that we can all understand?

Most families accept debt when purchasing or renovating a home as it goes hand in hand with building wealth, however, people are not comfortable with a government who goes on a spending spree. 

Simply telling people that despite the current debt levels our economy has a AAA rating based on global standards doesn’t mean much to the average Australian, particularly when for the past few years we have been hearing about global economic woes. 

Given the state of the global economies, where does this put us, with the best of a bad bunch?

Economists suggest that our situation in Australia can easily be explained by an economic theory called Keynesian economics. 

The theory says that the economic output of a nation is influenced by spending, or total demand. 

Put simply, the idea is to build big budget surpluses during a boom as we saw before the GFC and spend fast and allow a deficit during economic gloom.

If this is how our economy is to run then why are politicians not coming out, being straight up and educating all Australians about Keynesian economics? 

Instead we all have to listen to a lot of rhetoric from both sides that have made many people tune out. 

So what do we expect in the market?

Last week the Australian share market closed strongly at 5125 points. 

What is interesting is how over the past three weeks the close ending each week has been in the vicinity of 5100 points. 

This week the All Ordinaries Index started off strongly, however, momentum slowed later in the week and again it appears likely to come back to around this level. 

What does this tell us? 

That the market is behaving as expected and may settle back to around 5000 points in the short term.

Although the market is unfolding in a more measured way investors and traders still need to be vigilant. 

There is a long held saying we discuss when educating traders who make their living from the market, that all you can control is your decision to enter and exit, the rest is up to the market.