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A letter to Michael Sukkar from a Deakin constituent

Dear Michael

I saw you on the 9 news last Saturday evening telling us the $60 billion overestimate, if used to help people excluded from JobKeeper support, like casuals, people in the Arts and  university staff, is money our grandchildren will have to repay.

You are an intelligent man. You can’t be that ignorant of how federal government money is raised. If you are, you need educating. This money has been, or would have been, created out of thin air by the RBA. THAT IS HOW ALL FEDERAL GOVERNMENT SPENDING HAPPENS.

It is not borrowed, nor are taxes used.

To offset spending that exceeds tax receipts, as a guard against inflation, The Australian Office of Financial Management issues a bond tender which, under normal circumstances, is purchased by individuals, banks, super funds, foreign interests and others.

For the buyers of bonds it is no different from buying shares or opening a term deposit. Bonds are issued for a set period, one year, two years, three years and on maturity are retired to the bondholder’s deposit account with the RBA. It is an automatic process and has nothing to do with our grandchildren. The RBA just moves the money from one account to another.

As of today, 23rd May, 2020, the AOFM has $649.2 billion of bonds on issue.

The last $100 billion of these bonds were purchased by the RBA. They had to do that because no one in the private sector could raise the cash to buy them. To suggest that this money has to be repaid is to say the government is borrowing from itself and must repay itself. I’m sure you can see the absurdity of this suggestion.

Federal government bond issues ARE NOT DEBT. A Federal government currency issuer CANNOT owe itself money.

So please, next time you are in front of a camera speaking to your constituency, or to the nation, don’t treat us like fools.

If you are truly perplexed by what you are reading here, I’m happy to meet with you and explain modern macroeconomics in greater detail.

Have a nice day,

John Kelly, a Deakin constituent.

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25 comments

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  1. OldWomBat

    I believe your assumption that michael zukkar is intelligent is misplaced and that below the well-presented exterior there is very little depth. Having stated that he would support his electorate in the same-sex vote, he instead chose to walk out.

  2. Ken

    Once again John you have explained things properly. Pity we dont have members of our government with the same talent.

  3. Jack Cade

    Any politician who votes against – or abstains from voting on – an issue that is supported by a majority of voters In his electorate should remember that he or she is in parliament in lieu of the people in that electorate, representing his electorates wishes and not those of his party, or his church, or his investments. Otherwise his or her presence in parliament Is a sham.

  4. Phil Pryor

    This rotten, lying, self deceiving, propaganda saturated, doctrinaire, donor serving government of creeps, crawlies, crooks, cronies and assorted cretins is not vaguely intelligent, except in duplicitous appearance. Sukkar, the featured fool, is a blob in a suit, entirely similar to a scrotum in a jock strap or a boil in a bandaid. Can he count or add up? He is merely covered in superficialities for appearances. They, the the Head Moron (add your own ris in the middle) and his dragooned loyal team of yassir types, cannot tell the truth if it conflicts with policy, which itself is carved out of dishonesty. Trick? We have a society in which a greedy, ambitious, slimy, moneyseeking, preferment demanding, posing perverted political class of operators, in money, mining, media, financial rorting, development scheming, government white anting, throat clamping, threatening and coercing, which will retain controls of society which is geared to consumerism overkill, endless waste and emissions, pollution creating, dud gig jobs, uncertainty, threats, a new kind of prostituted slavery and serfdom. You are with them ,in them,up them, behind them or you are one of us, the Australian people needing decent government.

  5. John Boyd

    Just reading comments on Sukkar’s FB page. Hard to believe the idiocy that his sycophantic followers come up with.

  6. wam

    A good academic piece jkelly with two major points,
    sukkar’s economic background makes him a liar in the tradition of jesuit trained opus dei liars like the rabbott and he has the arrogance to treat us like the idiots were are.
    We are suckers for fear of the word debt and suckers for being in debt.
    Somebody said :
    those that understand compound interest use it and those that don’t pay it.

  7. RomeoCharlie29

    Wasn’t Sukkar one of the three Libs hauled over the coals by a Victorian judge for putative contempt of court and very lucky to have been let off with a slap on the wrist? Intelligent? I don’t think so

  8. Patricia

    Thank you John, but this government will never, ever, acknowledge that basic principle of sovereign nations with a fiat currency.

    It suits the LNP, and in fact most politicians and political parties, to have the majority of the population think of the federal budget and spending as being the same as a household, state or local government budget.

    They are of course light years apart in the way they generate income/currency and spend it, but if you think telling politicians the facts is hard, try telling many of the Australian voters. They have been brainwashed into the same magical thinking that the LNP, and to some degree the ALP, have sprouted for decades.

  9. Ross

    John, from the RBA website; https://www.rba.gov.au/monetary-policy/about.html

    “Sound financial policy requires that the Government fully fund any budget deficit by issues of securities to the private sector at market interest rates, and not borrow from the central bank”.

    This statement implies the government could “borrow” from the Reserve Bank if it wished to do so.
    The RBA is independent but still a government agency, it is a political rather than economic decision.

    As someone born a little after WW2 the weight of federal government borrowing has never weighed heavily on me or anyone else for that matter.

  10. John Kelly

    Ross, well spotted. Normally, it doesn’t, but it could and on this occasion (Covid-19 stimulus) it has. Why? Because bond tenders of this magnitude could not be filled by the market that quickly.

  11. andy56

    its about time it was megaphoned to the masses. You still get pedantic neanderthals peddling last millennium ideas. If you cant see through this deficit and surplus bullshit, you stopped listening and learning. The only worry is inflation and i dont see that as problem for a long time to come. Sure you want them to keep an eye out, but not waste any intellectual capital on BS. It seriously detracts from solving serious problems we do face.

  12. Dwayne Dibley

    John Kelly

    As I understand it, the major portion of Australia’s deficit is actually private borrowings, not that of the Australian governments.

  13. Delia Lord

    To suggest money has to be repaid is to say the Government is borrowing from itself and must repay itself. I’m sure you can see the absurdity of this suggestion. Federal Bond Issues are NOT A DEBT. Currency CANNOT owe itself money. If you are truely perplexed my what you are reading here. Please read the article.

  14. John Kelly

    Dwayne Dibley, the total indebtedness of all entities in Australia is indeed far greater than any federal government issuance. State governments issue bonds too and they must repay them over time. Banks and Corporations borrow too, sometimes in a foreign currency, though why, I’ll never understand.

  15. DrakeN

    John, international borrowings are another mechanism for hiding the profits from the Tax Office.
    In effect, they are often only borrowing money from themselves, such is the ownership of shares in banking corporations.

  16. Matters Not

    Yes much of a particular company’s (so called) debt can be an artificial construct. Loans taken out from and through a web of subsidiaries at sometimes artificially high interest rates. For illustrative purposes, look at the List of subsidiaries of BHP Billiton Limited and BHP Billiton Plc and where they are located. All in all something like 420 entities spread across the world. Take an army of accountants to keep track of the borrowings. All at a time when the tax office was downsized.

    https://www.sec.gov/Archives/edgar/data/811809/000119312509191302/dex81.htm

  17. Matters Not

    Re:

    is a political rather than economic decision.

    Some would argue that all economic decisions are indeed political decisions – in that economic decisions always involve the exercise of power (which is what politics is all about). Thus studies in ‘economics’ should (and do) involve ‘politics’ as well – so we have studies in Political Economy – defined as:

    Political economy is the study of production and trade and their relations with law, custom and government; and with the distribution of national income and wealth.

    Some might remember the days of Professor Ted Wheelwright who argued along those lines.

    http://sydney.edu.au/news/84.html?newsstoryid=1868

  18. Henry Rodrigues

    Thanks John Kelly et al. Politicians like this Sucker assume that they can bamboozle everyone, because in many cases their audiences are less knowledgeable than they are.With the ever present duplicity of the so-called media commentators and financial experts the uneducated consumers always succumb to that well worn con that a national budget is similar to a family household budget. Even people who are normally intelligent fall for that dishonest argument.They have never heard of Modern Monetary Theory and probably would never understand it even if they did. So they listen to the Sucker and get Suckered.

  19. Matters Not

    Re:

    never heard of Modern Monetary Theory

    Indeed! And where are the MMT experts when their moment in the sun is at hand? Very quiet as usual. But there are some stirrings.

    there is a growing body of thought that argues the Treasurer is wrong, that governments do have the ability to fund deficits forever and that it is wrong to raise debt to fund excess government spending. … what’s known as “modern monetary theory”. A government with its own central bank has the ability to create and spend as much money as it wants, they argue. Like Keynes, they argue government spending and taxation are the best tools to manage the economy. Unlike Keynes, they don’t believe in balanced budgets over the longer term. Deficits don’t matter.

    So says Ian Verrender from the ABC. And how times have changed.

    support for this course recently sprang from an unusual corner. Former prime minister Tony Abbott, the man who coined the term “debt and deficit disaster” as a hugely successful 2013 election meme, only to then blow the deficit out and almost double national debt, argued life should have greater purpose than mere economy.

    Writing in The Australian, Mr Abbott said rather than withdrawing the payments, he’d rather turn them into a wage subsidy …

    But will MMT champions seize the political moment? Probably not.

    https://www.abc.net.au/news/2020-05-18/covid-19-hastened-an-economic-revolution/12257642

  20. Andrew Smith

    Agree with comments, but the targetting of recipients and gaming of payments may make for later investigations.

    Larger (eligible) entities have a significant advantage over less liquid (and harder hit) sole operators and SMEs, meanwhile anecdotally, one has heard of employees on long term open ended leave (no intention of returning and/or being reemployed), already overseas, allowed back in the ‘loop’ for six months from offshore….. and bragging about it…..

  21. Ross

    MMT proponents are still out there talking economic sense, unlike Mr Sukkar.

    From an article by Bill Mitchell over at http://bilbo.economicoutlook.net/blog/?p=45026

    “The latest data shows that on May 20, 2020, the UK government issued a three-year Gilt (expiring in 2023) worth a total of £3,869 million (quite a tidy sum) at an auction yield of -0.003%”.

    In other words the buyers get less than their initial outlay for the safety of the UK government holding the securities for three years. The UK government gets to theoretically trouser some coin.

    Who would have thought!

    (Gilt is a HM Treasury Security in pounds sterling listed on the London Stock Exchange, it’s a gilt-edged security much like our government securities are called diamond bonds)

    Note; £3,869 million pounds sterling = $7,211 million AUD.

  22. Trevor

    The LNP places narrative above all else.

    Bullshit is the political currency that Australia’s failed experiment in representative Parliamentary democracy trades upon.

    Honest brokers need not apply

  23. michael f slocum

    Thank you Mr Kelly. This is why I spend most of my time shouting at the television whenever politicians spout the nonsense and just plain lies about the makeup of the fiscal system in Australia and other countries that issue their own currency. Do the Australian public not become just a little suspicious when the government can overnight pluck 130 billion dollars out of thin air but cannot fund a fully functional NBN?

  24. David

    The light dawns on the light on the hill. What silly old sods you are. This was obvious to Clement Attlee.

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