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There is an old saying – if you owe the bank $1,000 then you have a problem. If you owe the bank $1 Billion then the bank has the problem. The problem is not with the borrowers – they already got the money – the problem is with the lenders – they want a return on this pile of paper that they have accumulated over 40 years. In this closed bubble that we call an economy, somebody must hold the paper/digital money. If you don’t want to hold the paper, you must give it to somebody else in exchange for another asset. The S&P 500 has tripled in value since the GFC. Australian capital city house prices have doubled in 10 years, even with the current correction. The economy is committed to borrowing more and that means more lenders chasing a return.

The 40-year interest rate chart appears to be trending (really). US Government debt is committed to trending higher. The Australian Government must be committed to getting the debt engine going again. The budget being brought down this week will include measures to put money back into the pockets of the voters. The betting is that the July 2022 income tax cuts will most likely be brought forward. There should be improvements to tax offsets for low-income earners. Generally, it should be a cash splurge.

The property lobby will do all it can to avoid a Labor Government that will curtail negative gearing for investment properties and half the capital gain discount. The property lobby were stunningly successful in getting the Government to backflip on the Royal Commission’s recommendation to ban mortgage broker commission. Negative Gearing changes, capital gains discount, and franking credit refunds are the wedge that may give the incumbent government a small glimmer of hope in May’s election.

Both the US Federal Reserve and the Australian Reserve Bank have shifted to a dovish monetary stance. In countries like Germany, Switzerland and Japan, interest rates are negative – to be clear – you are paid to borrow, yet 10 years after the GFC, the Euro area growth is only forecast to grow by 1.3% in 2019.

As the AFR says today, all stimulus – no reform. After 40 years, the likely outcome is more of the same tepid Governments kicking a can down the road.