Canberra is fighting the last war –

As we know, the Western world has passed an historic moment when credit driven growth is no longer viable. We are in the early years of a decades long deleveraging. And, as we know from the sectoral balances of macroeconomics, an economy can only grow through the expansion of the external sector or by expanding credit in either the government or private sectors. Is it useful, therefore, to be comparing Treasury’s triumphant victory over the seventies bogies of wage breakouts and inflation via a tradable goods destroying currency appreciation when the world is now set on a course in which the ONLY economic growth that has lasting value in this new milieu is that driven by expansion in the external sector?

For me the answer is absolutely not.

Treasury is busy fighting the last war. The new war is for export revenues to drive investment and growth to offset the enormous debt stocks that exist in the public and private sectors of Western economies, including Australia. That’s why destroying parts of your tradable goods sector in order to make room for other tradable goods is about as sensible as cutting off a leg so that you’ve lost weight. Sure you have, but now you just gonna sit there and eat.

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