The Fake Debate Between ‘Growth’ and ‘Austerity’

The asteroid 2012 DA 14 did not collide with the Earth last Saturday. In an eerie coincidence, though, a meteor spectacularly exploded about 15km in the atmosphere above the Russian city of Chelyabinsk on Friday morning, at roughly 9:20AM local time. You can watch multiple dash-cam videos of the event on YouTube. No one was killed, but thousands of windows were shattered when the meteor exploded.

Two quick and quirky points about this event. First, the meteor entered the Earth’s atmosphere at a shallow angle of around 20%. That’s why you see such a long fireball and trail. Then it blows up in the air rather than striking the earth. Why do some meteors blow up in the air while others hit the ground?

We’re no expert on these things. But as far as we can tell, it has to do with the size of the meteor and the evenness with which it burns as it enters the atmosphere. If a meteor burns unevenly across its surface, it’s more likely to overheat and explode before striking the ground. Also, if it’s a comet with water inside it, the water will boil inside the rock and blow the thing to kingdom come. Either way, this little meteor put on a big show. But because the angle of entry was so shallow, the blast wasn’t directed down at the ground at a more direct angle. Had it, the damage would have been greater.

The second quirky point is that so many Russians have dash cams. Had this taken place in any other popular area, the length of the burn might have made it possible for people to capture it on smart phones. But Russians seem to all have dash cams, presumably to document accidents for evidence and insurance matters. But without those cams – simple flash memory and cameras – there wouldn’t be so many vivid records of this incredible event.

Now onto more terrestrial matters. West and north of the meteor strike, Australian Treasurer Wayne Swan was in Moscow at the G-20 meeting of finance ministers. There’s a currency war on. But since Australia is one of the few countries to not (yet) actively manipulate the value of its currency, the Treasurer is free to dispense advice on other urgent matters, like the fake debate between ‘growth‘ and ‘austerity’.

If you’re Keynesian, ‘austerity’ is what you call government living within its means. You call it that because if the government isn’t spending money it doesn’t have, and households aren’t spending money they don’t have (and are paying down debt), and corporations are sitting on wads of cash, then there isn’t enough spending in the economy! ‘Austerity’ is bad because aggregate spending falls in a recession, just the way it’s supposed to.

The Treasurer is opposed to this. What’s more, he has a solution to promote ‘growth.’ And what is that solution, you may ask? Why it’s exactly what he’s implemented right here in Australia: more government debt!

‘You don’t need to slash and burn now to put your budget on a sustainable path over the medium term – in fact, cutting too hard now will rip the guts out of growth and leave you with higher debt later on,’ the Aussie Treasurer told the G-20 delegates. We hope they listened. When it comes to increasing government debt, Swan speaks from a position of authority.

Australia’s public debt has gone from zero per cent of GDP five years ago to 10% now. That’s still a lot lower than the big economies. But it’s an impressive start in such a short time. At $144 billion and counting, Swan is set to rack up the fifth consecutive annual budget deficit. That may not be sustainable, but it sure is consistent.

To be fair, the Treasurer is preaching from the same hymnbook as all the other high priests of government debt. They want more money, more programs, and more spending. But that is exactly the problem. Growth through debt – public or private – has become a form of financial substance abuse.

Debasement comes in all shapes and all sizes. Monetary debasement begins with clipping the edges of precious metal coins. These days, it ends with horsemeat for dinner in London and watered down bourbon in America. Everything gets cheapened.

Dan Denning
for Markets and Money

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