Australian fiscal policy

Ivan, a loyal MR reader, requested:

Thoughts on Australian fiscal policy?  Stiglitz is a fan, but it seems to me there was much more room for monetary expansion.

The subtext is that Australia has not experienced a downturn comparable to that of other developed countries.  Here is a very good FT piece on the topic, maybe it is gated.  It points out a few facts:

1. Australia was running surpluses in good times and now, even after some fiscal stimulus, their debt-gdp ratio is only six percent.

2. Australia has experienced ongoing positive shocks from Chinese demand; even in the last year Chinese two-way trade went up 30 percent for them.

3. Their "initial fiscal stimulus package heavily focused on cash hand-outs to pensioners and low earners."  In other words, it possessed some aspects of a helicopter drop, being combined with expansionary monetary policy.  Note that lately they have been tightening on the monetary front.

4. Some people believe that the Australian property bubble simply has yet to burst.  Here is a related chart.  Maybe they're simply behind the times.

Their high-risk, high-return strategy of cultivating Chinese demand could blow up in their faces.  We're still in the high-return phase of that cycle.  This is exactly the sort of scenario I analyze in my earlier book Risk and Business Cycles, now in paperback.


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