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Vital Signs: itís time to borrow to build

Richard Holden writes in The Conversation (15.7.16) about the current global financial conditions, if not necessarily the political conditions, being ripe for governments to borrow money to plan for and build needed infrastructure.

'This column is usually about teasing out some insights from a stream of seemingly boring numbers. This week it’s: housing finance, unemployment and new car sales in Australia, inflation in China, and the producer price index in the US.

'Don’t get me wrong, I was keenly anticipating them. But they did, in fact, turn out to be rather boring. So that affords me the opportunity to look at the bigger picture.

'... The bottom line is this. There is good debt, and bad debt. Good debt produces returns in the future, and private enterprise never shies away from it. That’s why, by the way, the typical private company’s capital structure is about 25% debt (and 75% equity).

'Bad debt pays the ongoing bills with an IOU from future generations. There’s nothing good about that. Right now, good debt and bad debt are conflated.

'Let’s fix the accounting, separate good debt and bad debt, and let the real debate about national priorities begin.'

 

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