Is Australia spending our grandchildren’s future?
In times of crisis, it seems that governments around the world are more than happy to continue to dish out ever increasing stimulus packages to solve the problem, but are they just delaying the inevitable or are they spending our grandchildren’s future?
According to Katsua, an independent research firm, the US printed $4.5 trillion dollars in 2020, which represents around 21 per cent of all US dollars printed in the last 30 years.
According to Statista, a company specialising in market and consumer data, the US stimulus packages represent 13.2 percent of GDP to October 2020, whereas the Australian stimulus packages represent 14 per cent of our GDP while Japan heads the list at a massive 21 per cent of GDP.
Some economists believe in Modern Money Theory, which in simple terms means that in hard times governments continue to print money to stimulate the economy until times are good and then they buy back the debt.
However, Australia increased its debt during the GFC crisis and now, 12 years later, just when we were looking like we would return to a surplus, we now find ourselves in a COVID-19 crisis and in more debt than we have ever been in the past.
So, is printing money really the answer and how much is enough?
While COVID-19 is the current crisis that governments are dealing with, we know there will be more in the future, but we will never know when they are likely to arise. We were arguably better placed than any other country in the world to handle the economic impact that unfolded due to the COVID-19 pandemic, given how well we had handled the economic recovery following the GFC.
Consequently, this kept our stock market from rising to stellar heights, unlike the US who just kept printing money. I believe the approach taken by the Australian government is far more sustainable and will benefit all Australians longer term.
In my opinion, the US printed too much money following the GFC and it is repeating this behaviour again in the current crisis.
The result that is likely to unfold when the next stock market crash does occur is that it will be far worse in the US than what they experienced in early 2020.
As for Australia, any market crash in the future is unlikely to be as bad as what the US will suffer, which will be consistent with what occurred during the great depression in 1929 and subsequent depressions in the US.
For now, it is imperative that Australia repeat the good work it did following GFC, which is to get the economy back on track and pay off our debt so we are ready for any inevitable crash in the future.
On an individual level, it is also imperative that we prepare for the next challenge by paying down debt and, above all, invest in good assets like shares and property to create income streams independent of our job so we can provide a safety net for ourselves, and our families.