The US must borrow to survive:What about Australia?

Australia will – probably – not have to borrow, to sustain its economy through the present global crisis.

That, of course, is not yet certain.

But, with a crisis package worth $10.4 billion – against what, originally, was to be a $22 billion surplus, there appears to be a strong chance that borrowing won’t be needed.

The United States, where the crisis began, has not been so lucky.

It will have to go, once again, to foreign lenders, to see it through the present trouble.

Especially as the chairman of the US Federal Reserve, Ben Bernanke, is now advising Congress that heavy government spending – on top of the $US700 billion bail out package -will be needed to keep America out of a deep recession.
And that will be expensive.

Interest rates are low, at present.

However, we can expect that they will rise, as the global economy recovers.

Just where, though, does Australia really stand, in all this?

The truth is that not even the Rudd government itself knows that, at present.

The best estimate will come next month, when the Federal Treasury publishes its regular Mid Year Economic and Financial  Outlook document.

Treasury economists are currently using a lot of electricity, working late into the night on  that paper.

But, even when it is published, the MYEFO, as it is affectionately known, will contain a lot of guess work.

Downturns do terrible damage to Federal budgets.

They cut tax receipts.

They increase spending, on items like unemployment benefits.

And the longer they last, the more damage they do.