RembrandtYou are quite right with your comments about these...

Rembrandt

You are quite right with your comments about these debts not just being the result of the GFC - these debts have been a slow-traing coming for decades.

For example, the USA took 200 peace-time years to run up $1 trillion of debt, but it took Reagan/Bush 1 12 years to over quadruple that debt. When Bush 2 took over he was handed a budget running a handy surplus, but he re-introduced supply-side economics and hence they are where they are today.

I probably have a slightly different slant to you on government spending - people seem to think it is China that has kept our economy out of recession post-GFC, but I'm pretty sure that it was actually government spending that did so. The commodities boom has certainly helped, but if you look at the % of GDP that mining makes up for our economy it is only 6% or thereabouts (pretty sure I have that right) What actually kept us out of recession was federal government policy whereby they flooded our economy with liquidity in one form or another. That is not to say I agree with a lot of these policies, as I found them extremely short-sighted - all those handouts are now a distant and fading memory and were a total waste, when they could have been used to improve infrastructure etc5.

It's only now that this government spending is starting to empty from our economy where the cracks are starting to emerge - hence the two-speed economy etc.

Anyway, I've written too much tonight - the information for the view on government in this post actually comes from noted housing bear Professor Steve Keen - he has it on his blog somewhere.

Cheers, RJS.