On the 1st of October Senator Barnaby Joyce and I had a little exchange on twitter and I must say I was very impressed that he engaged and did not just use twitter as a broadcast mechanism as many other politicians do. The exchange went like this:
Barnaby: Our Treasurer of the Millennia borrow another 2 billion for the week. At least he is consistent. Apparently this habit is not a problem.
Me: As long as it is Australian Dollars he is borrowing it really is not a problem
Barnaby: 73% of borrowing is from overseas last time we asked so i suppose that is a concern.
Anyone that understands modern monetary operations in a sovereign fiat currency on a free floating exchange knows that a country can only default by political choice and cannot become insolvent at all.
So it is today I was updating some data that I first became aware of on the 14th of April 2010 and Barnaby Joyce is quite correct, over 73% of borrowing comes from overseas, it is in fact closer to 75%. However, he is wrong to be worried about this amount of money being borrowed from overseas. Why? Because it is all in Australian dollars.
Using the RBA Statistical Table E10, as of June 30, 2011, the only obligation of the Australian federal government in a currency it doesn’t control (have sovereignty over) is UK Pounds £1 million and USD $5 million.
And with underlying inflation of 1.2% annualised, accelerating inflation or hyperinflation is not likely to be a problem any time soon.
Australian Government being the monopoly issuer of the $A will never default on its debts unless for political purposes it decides to default.
Being worried about Australia’s debt is a mug’s game.