Disaster, according to them, tore the curtain from the problem that was lurking below.

But they can easily be used to hide the same suppurating wound.

When Reserve Bank governor Philip Lowe makes his annual speech tomorrow to the Anika Foundation, he will return to the two most pressing problems facing the nation and the global economy: unemployment and swelling government debt.

While it’s never wise to predict the RBA governor’s speech, a betting player can do worse than poking at the idea that the central bank will urge Prime Minister Scott Morrison and Treasurer Josh Frydenberg to be careful of the wind on Thursday, when they renew the country in position Budget, and keeping work support payments flowing.

At times like this, there are very few alternatives, especially because the RBA has run out of conventional economic weapons and is reluctant to carry out radical experiments like negative interest rates.

While Mr. Lowe is usually a little wiser, even nuanced, you might be able to summarize his message to the government as follows: Forget debt and deficit disasters, at times like this, debt and deficits don’t matter.

He has already won the first point. The 2013 election memes have long been abandoned after national debt doubled under his supervision even before the current crisis.

But the second point is a bit more problematic.

Although he never fulfilled his promise in 2013 to provide a surplus in “every year” from his first term, completely discarding the idea of ​​a surplus for the future, many senior members of the government were nervous.

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After all, it spent half a century preaching the crime of deficit and the sanctity of surplus.

But are there choices?

The decline began to spread

The last few weeks have seen significant softening in rhetoric.

After insisting that payment of work benefits – Job Seekers and Job Seekers – will be shut down at the end of September, the Prime Minister and his senior colleagues have talked about “target” support, especially for workers in industries that are slow to recover.

It is now clear that without continued support, unemployment will skyrocket and consumption will decline, harming profits and threatening the survival of many businesses.

It will turn a terrible situation into a disaster, prolong the recession and ultimately lose more production.

Already, we are beginning to see the broader employment impact of the economic crush inspired by COVID-19.

The number of jobs in June last week may have shown a big swing in hiring, with 210,000 jobs created. But they are all part time. Around 38,000 full-time jobs evaporated, indicating that companies that were not initially affected by the closure are now feeling a pinch of wider decline.

However, there are indications that the Government will provide an optimistic recovery assessment on Thursday, even though it did not win enough like Back in Black extravaganza last year.

The investment bank UBS anticipates the Economic Statement will only be slightly less bullish – the brown line in the chart below – than the most optimistic scenario of the Reserve Bank delivered in May – the dotted red line.

Even if that is the case, pandemic costs should be noted. The thin black line is where the economy should head before closing. Even with the brightest projections, it will take more than one year to return to where we are.

If that bright projection becomes a reality, growth will probably tell the story of a speedy recovery. But the total amount of production and work will be long, slow and painful.

Debt, debt, and more debt

So far, the Commonwealth has committed only $ 150 billion to sustain the economy. Add in state expenses and incoming bills of around $ 185 billion. Then there is a further $ 26 billion in tax cuts, brought by the Treasurer in an effort to increase spending.

For the financial year that just ended, UBS chief economist George Tharenou gave a tip of a $ 81 billion deficit and for this year it was $ 194 billion.

The only way the government can fund it is through increasing debt.

For decades, our government debt was almost non-existent, despite hysterical claims from Opposition Treasury spokesman Joe Hockey ahead of the 2013 elections.

No longer.

Total government debt, including states, is likely to rise from 52 percent of GDP two years ago to more than 80 percent of this financial year.

While Australia will still be on the low side globally, it is because most other countries started this pandemic with a much higher level of debt than us.

How do we pay it back?

This is not the first time we have to mess up our future to get out of the hole.

Debt levels surged during the Great Depression of the 1930s and after the war, Australia found itself very deep, reaching 120 percent of GDP. That is far greater than the forecast we will see from the Ministry of Finance on Thursday.

Fast payments in the 1950s occurred mainly because of inflation. The postwar boom saw rapid economic growth and expansion. This is a simple mathematical phenomenon.

If you measure debt in terms of the size of your economy, then the problem disappears as your economy grows.

At present, we don’t have that luxury. Inflation has been stuck in the slow lane for the best part of a decade and for the past four years at a level well below the 2 percent target set by the Reserve Bank.

But we have two factors that benefit us.

The first is interest rates. They have never been lower in the course of human history. The US, the world’s largest economy and reserve currency, has an official rate of zero. It makes debt affordable, at least for now.

And the second, apart from recent events, is that we remain one of the least indebted countries on the planet, especially because every other country has increased its loans to overcome the shutdown caused by a pandemic.

Australia remains one of only 11 countries with a triple A credit rating. Even the US does not have it. That is why, when the Australian Government last week went to global investors to borrow a further $ 17 billion, it was almost crushed.

International investors cannot get enough Australian Government Bonds. They want to lend us money.

Our real debt problem

That doesn’t mean we don’t have debt problems. We do. It’s just that it’s not government debt.

Our problem is household debt, with you and me. Collectively, we are forced into our eyes, mostly to cover our real estate purchases.

Combine that with the weakest wage growth in history, and that far explains why the economy stuttered long before the pandemic struck.

That is the reason why the Reserve Bank cut interest rates three times last year, using most of its ammunition in the process.

That is the reason Dr Lowe last year urged the government to do it abandon his ambitious ambitions and start shopping for infrastructure.

That is the reason why the economy is in danger long before the pandemic kicks out of the global economy.

And that is the reason why the Australian government might be forced to play a much bigger role in the economy in the future. A period of minor reigns, surpluses and tax cuts may be behind us.