Greece, Spain, Portugal, Italy, the USA a story of betrayal

Why we're following US towards a dangerous debt with destiny

Jeff Kennett 
The Daily Telegraph 
January 10, 2013 12:00AM

AS you read this column today my wife Felicity and I will be returning to Australia, having spent three weeks in the US. In New York, Boston and Washington.

It has been a wonderful experience. The extraordinary bustle and energy that is New York, where every language and colour fill the streets. The sights, the theatres, the shopping, the restaurants and the sounds. Simply electric.

But more significant than the sites we visited has been the opportunity to observe the failure of the politicians, the President of the US, the Congress made up of the House of Representatives and the Senate, dealing with the issues surrounding the "fiscal cliff".

The cliff was a political device created in 1917 in an attempt to control the nation's level of debt. Until recently gaining support from both houses of Congress for increasing the debt has not been an issue, as debt levels have 

been manageable. But that has not been the case in recent years. US debt stands at $16 trillion. That is about 106 times our Australian debt of $150 billion.

Under President Barack Obama, US debt has risen from just under $10 trillion when he was elected four years ago by a massive 60 per cent to the $16 trillion the country owes today.

The US fiscal cliff had two inbuilt components which, unless legislators acted, would have automatically become law on January 1, 2013 - substantially higher taxes to generate extra revenue, and a range of expenditure cuts to attempt to stop the growth of the deficit.

Legislators have had two years notice of the December 31, 2012, deadline - yet did nothing until the last week. After a lot of political manoeuvring the Senate and house agreed to what I would call a totally unsatisfactory, in fact cowardly, outcome. A rise in some taxes for those with incomes above $400,000, or $450,000 for couples, some other small income increases, and absolutely no cuts in government expenditure.

In fact, with other new government spending commitments adding $4 trillion to US debt over the next few years, the US economy is going backwards. Within the next two months the president and the legislators will have to return their attention to dealing with the debt ceiling when it reaches its legislated $16.4 trillion limit. If the cost of government programs is not reassessed and reduced, the US is heading for a debt level of $22-24 trillion in four years. That would make the Obama administration the most economically disastrous in American history, with frightening ramifications.

What I have witnessed is the greatest demonstration of a failure of leadership, from the president down.

Never have I seen the philosophy of spending your way out of debt work.

We did not do it in Victoria in the 1990s, nor has Canada nor Turkey. Latvia has not done so in rebuilding its economy.

Greece, Spain, Portugal, Italy, the UK to some extent, and clearly the US, are clearly trying to do so - printing more of their currency to get through the next few years without addressing the fundamental reasons for their current economic condition.

They are spending more on recurrent expenditure than they are raising from taxes and charges. Each of these countries are living beyond their means.

A day of economic reckoning will come for them all, and it will not be pleasant.

What is the principal lesson I have learnt from this trip in relation to Australia?

Our economic position is not nearly as bad as the US, at present, but the mentality of our politicians, and we the public, is exactly the same.

We are not accepting any sense of responsibility for our economic and social future.

We are over-governed, we demand and seek too many entitlements from governments, our politicians think short-term, and electoral popularity is more important than electoral responsibility.

It is time for greater accountability and responsibility by all of us. Read the tea leaves, here and in the US!

To ignore the experiences of the US, Greece and Spain, in the belief their economic challenges cannot develop here in Australia, could be the greatest act of hubris of our generation.

Jeff Kennett is a former premier of Victoria and the chairman of beyondblue