THE DEFICIT, SHOULD WE WORRY?
31 Aug 2020
Yes, but not too much. Governments do not just “print money”. They sell bonds in the market, borrowing from investors to balance their books.
Apart from the unique challenge of this pandemic, the other big difference is the interest rate. After the GFC rates were in the 5-6% range. In July, the Federal Government sold $19 billion dollars of bonds at 0.25% for 20 years. The offer was oversubscribed 3:1. The global economy is awash with cash.
Even if the Government ends up borrowing $300 billion plus, the ongoing interest rate will not materially affect the budget. The problem is to wean the community off this gravy train. Recent history shows that is very hard politically..