Australia Raises Debt-Ceiling to Avoid US-Like Crisis; Is the Debt Ceiling the Problem?

Here's an amusing story courtesy of the International Business Times: Australia Raises Debt-Ceiling to A$500bn to Avoid US-Like Crisis

Australia's government is increasing the country's debt limit by two thirds to avoid a potential fiscal crisis in the future, as it is projected to reach the current debt ceiling by the end of 2013.

Treasurer Joe Hockey said after a federal Cabinet meeting in Canberra on 22 October that the country will increase its debt limit by A$200bn (US$193bn, £120bn, €141bn) to A$500bn. Australia is projected to reach its current A$300bn ceiling in December.

"The Coalition Government will have to increase the debt limit for Commonwealth government securities to $500bn," said Hockey.

"We are increasing it to that level because I've been advised that on December 12, the current debt limit of $300bn will be hit."

He said the country's debt had been expected to peak at A$370bn, but recent trends revealed it will exceed A$400bn.

"The debt limit needs to be set so as to provide sufficient headroom to ensure there is stability and certainty for the financial markets about the government's capacity to finance its operations for the foreseeable future," Hockey said.

"We need not look any further than the recent events in the United States to realise how imperative stability and certainty is for confidence."

Australia's debt is only about 30% of its gross domestic product (GDP) at present, according to the International Monetary Fund (IMF). That compares to 92% for the UK and 106% for the US.

Therefore, an increase in its debt ceiling is not expected to be highly risky for the country.

Nevertheless, Hockey noted that the country would not target a substantial increase in its debt level, as it could lead to uncertainties.

"We are not going to allow ourselves to get into the position that the United States is in where there's tremendous uncertainty about the capacity of a country to live within its means," he told the Australian Broadcasting Corporation.

Debt Ceiling Not the Problem

Good Grief. The debt ceiling is not the problem. Spending is the problem.

The US is in trouble not because of failure to hike the ceiling. The US is in trouble because it spent so much it needed to hike the ceiling every year or so, for years on end.

Australia is falling into the same trap as the US, albeit more slowly. Australia's second problem is modeling actions based on clueless US politicians.

Treasurer Joe Hockey statements suggest he is as much an economic fool as his US counterparts.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com