qed’s blog

This doesn’t look good. The so-called Future Fund is the government’s stash for paying out peoples retirement benefits and its source of funds has been government surpluses over recent times. In part these surpluses have come through the sale of government assets such as Telstra and through taxation revenue. In a sense superannuation is some form of guarranteed financial independence for people after they stop working which fits nicely with our current rampant capitalism. No mention of social security, just personal financial security…

However, even given the nature of the fund, you would think that contained within such a body is some consideration for protecting the financial asset they have control of. Apparently the fund usually invests in the stock market, an act of faith not unlike investing in racehorses, but for some inexplicable reason the management of the Future Fund decided to help out the liquidity problems currently being experienced by the local banks who were slightly affected by the sub-prime induced financial collapse. Also stepping into the breach was the local Reserve Bank (supposedly the one that is a measure of a nation’s financial reserves). All to prop up the local lending market which might otherwise have been forced to raise interest rates to some very unpopular levels. Given that these decisions most likely occurred whilst the previous government was at the helm, it suggests that there may well have been political implications at work behind such decisions.

All of that is interesting speculation. What is really interesting is what happens now? Apparently both parties, the Future Fund and the Reserve will want their money back at some stage and it seems likely that alternative sources of funding have all but dried up in the current international financial environment. This seems to suggest that banks will have no alternative but to lift their rates, possibly substantially, in order to maintain liquidity which has inherit risks to the rest of the economic health of the country. What isn’t clear in our so-called free market environment, is why government funds are being used in this way. Time and time again the champions of the free market advocate freedom from government intervention yet it seems the government is only too willing to prop the system up with commonwealth funds whenever it sees fit.

So rather than use commonwealth funds to say build national infrastructure, say for example an efficient railways, a state of the art broadband network, better research and education facilities or even a high quality health care system we are seeing instead government reserves propping up the very engines that drive a consumer society, for the sake of averting some short term political difficulties with the associated risk that the whole thing is only postponing the day of reckoning anyway.