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Henry Thornton - Contributors: A discussion of economic, social and political issues Blogs
Financial world at decision point
Date: Tuesday, October 21, 2008
Author: Henry Thornton

The current financial crisis has revealed the astonishing fact that capitalism is not perfect.

Furthermore, progress is in fits and starts, with occasional but costly setbacks.

Sometimes setbacks create a long period of reaction - think the 1890s and the 1930s.

Setbacks also create opportunity and provide platforms for fresh progress.

Will we react constructively or foolishly to the situation in which we find ourselves?

The world is at a decision point.

Critics of capitalism red in tooth and claw are having a field day, despite the fact that for the best part of a century many markets have been heavily regulated and extensive social welfare has softened market outcomes.

For the past 50 years, trade in goods has become freer, many public utilities have been privatised and there has been a complex mix of regulatory change, not all deserving the label 'deregulation'.

President Bush has called a summit to decide what should be done.

Here are Henry's suggestions.

The immediate solution must involve guarantee of bank deposits and bailout (or forced consolidation) of failed banks, central bank provision of virtually unlimited liquidity and judicious easing of monetary and fiscal policies.

Bailouts should involve governments taking shares in the institutions they are required to save and their managers should not be allowed to receive massive compensation for losing their jobs.

The first point gives taxpayers some chance of recovering their involuntary but inescapable investment in global financial stability, and the second will at least reduce the 'moral hazard' involved in the bailouts, to encourage the next generation of financiers to be more prudent.

All this is pretty much what has been done and this is why there should be no global depression following this crisis.

Indeed, inflation is the more likely result.

Central banks should be vigilant and prepared to tighten monetary policy quickly when recovery begins to gather pace.

Fiscal policy should also be reined in as recovery picks up.

It is now being claimed that there are many hedge funds on the brink of collapse.

If at all possible, hedge funds should be allowed to fail. Investments in hedge funds surely are only for 'professional investors' who will not be driven into poverty by losing their investments.  Owners of failed hedge funds surely will cope, even if coping involves a period of driving taxis.

Going forward, there are a number of ways to reform financial regulation.

A start is to make clearer than it has been that there is a difference between 'banks' and other financial institutions.

'Banks' are low risk enterprises whose deposits are guaranteed, whose managers are expected to be cautious and are subject to strong regulation.

Required liquidity ratios of 'banks' might sensibly be required to increase in some way related to the growth of nominal GPP - meaning as real growth or inflation rises there is an automatic 'leaning into the wind'.

(Central banks should be more pro-active in raising cash rates sooner as nominal economic growth accelerates or as credit and asset inflation begins to build).

'Non-bank financial institutions' should, like real estate agents and pawn-brokers, be regarded as high-risk ventures that are not regulated, or regulated only lightly - for example with licences to operate given only to people who have not recently been bankrupt or found guilty of criminal activity.

Where 'investment banks' fit into the risk spectrum between 'banks' and 'pawn-brokers' is for the experts to decide.  Possibly a half-way house in terms of regulation, not allowed to be managed by criminally insane former or potential bankrupts.

The idea, of course, is to remind punters that high risk and high returns are likely to be associated and if you lose money investing in such ventures you should be prepared to accept the consequences.

Conversely, it is important to have an unregulated or lightly regulated financial sector to allow high risk ventures to get funded.

This is in addition to share capital, which ought to be far more subject to strictures of the sort implied by the old Latin phrase 'caveat emptor'.

But this is probably a bridge too far, even for such a robust proponent of capitalism red in tooth and claw as President Bush.

Related contributions.

Australia, New Zealand and the International Economy, by Glenn Stevens

Bailing-out or crowding-out, by Stephen Kirchner

A short history of capitalism, by The Economist


Saturday Sanity Break, 8 August 2015
Date: Saturday, August 08, 2015
Author: Henry Thornton

Bronnie has fallen on her sword, Tony Burke is revealed as a pillock (Defn: A man who has dropped a major bollock. Not nescessarily (sic) a stupid bloke, rather, one who has done a stupid act.), the RBA has reduced its forecasts of Australia's growth rate and two of the newish ventures Henry has been grappling with have achieved important milestones. It is some time since Henry's team has been doing better than the Australian average, but this is definately one of those golden moments.  And this is not just because the Australian average is falling back, which it is in both politics and economics, but because Henry's team is winning. 

Jack the Insider discusses Polly travelgate against the benchmark of Ben Chifley and the latest wonderful British political satire 'In the thick of it'.

Henry is aware of the dreaded word HUBRIS that afflicts Australian Treasurers in particular. Sensible people fix the roof while the sun is shining and have a plan B in case Plan A turns to custard. Henry's team awaits with stoic calm the next slap in the face with a wet fish dished out by a scary universe. But it could be worse, dear reader, Henry's team could be getting the sort of bollicking handed out lat week by the Oz to Australia's pollies (Wraaaak!) and, by implication, econocrats (Booooo!).

'Global disruption is unsettling for workers, companies and governments. Relentless economic forces, largely brought on by technological innovation and capital flows, are reshaping jobs, industries and the wealth of nations. Australia is not immune from political challenges and budgetary pressure, although we have had a buffer because of past policy design and luck. But our inheritance and time for contemplating the next move are running out. We need leadership and proper perspective on the issues but our political system is not up to the challenge. The nation’s politicians are being sidetracked by failed ideas, false debates and third-order issues. We need advocates for growth through leaps in productivity to show the way, not mendicants and class warriors obsessed with redistribution'.

Read on here. 

An American doctor has said of the eurozone mess, as reported by the estimable John Maudlin: 'For such problems, there are no simple solutions. There aren't even complicated solutions. There are only best-guess measures with no guarantees of success. The currency union’s underlying flaws, like so many other modern problems, are far too intricate and perplexing for our minds and institutions to cope with. Failing to admit to our own overconfidence in dealing with the bloc’s problems will only perpetuate the crisis playing out across Europe.' 

More here.  


Fiona Prior has returned from Italy and is busily penning her Impressions of both Venice and the internationally influential 2015 Venice Biennale, a highlight of the world’s cultural calendar. See her preview for Henry’s readers of the work of Russian artist Irina Nakhova below.

Nakhova has filled one room of the Russian Pavilion with the installation of a giant head from which an enlarged projection of her eyes look out and scan the room. Fiona stands in front of the mask to give you a sense of scale but was overwhelmed by not just the size of this strangely monstrous military presence but also the sense of vulnerability contained in those giant eyes trapped inside.

If you have not already read Fiona’s impressions of Florence  and Rome please do so. We will look forward to reading of  Fiona's time in Venice next week.

The People vs Winter

If you think it has been a tough winter, cop this contribution, courtesy YouTube.

Footy'n'cricket'n'drugs stuff

Richmond, brave winners over mighty Hawthorn last week, were smashed by Adelaide on its shiny new stadiun overnight. Today Caaaarrlton! faces Collingwood which is

seeking its seventh straight loss. Given the historical feeling between these teams, if the blues cannot at least look like they are trying, If that cannot be said, what is needed is a clean out from the top, and in fact Henry hears that just such a cleansing is being plotted already.

Alas for Cap'n clark, most of the batters and at least one of the bowlers.  Australia's dismal first session (not even first day!) has sounded the death knell for several aging former stars, including very likely Cap'n Clark. Always go while you are at your prime, dear reader, even if your pals want you to stay.  The interesting question is whether our boys were on strike because what the cozy team members thought was the unfair sacking of Hard Hands Haddin. As it is, the best reports of Australia's dismal performance refer to the batters as having 'hard hands, soft heads'.  The Mont Albert Forths would have batted with more discretion.

Australia's swimmers have fared will in the world swimmeet held somewhere in the Russian Federation.  The shock of the week was to hear that modern tests suggest that one third of olympic medals were won by people with now suspicious drug tests.  If the AFL had been on the case, as advised by Henry all those years ago - link here - we would today know which Premier teams had received help from banned 'substances'.

Image of the week

Courtesy Heraldsun

Greek tragedy
Date: Thursday, August 06, 2015
Author: John Mauldin

In this week’s Outside the Box we have a unique diagnosis of Europe’s ills from … a medical doctor. The author is Dr. Luc De Keyser, who currently serves as the chief medical information officer at Xperthis, the largest provider of hospital information systems solutions in Belgium. He has done pioneering work in multicenter clinical trials, medical ontologies, paleonutrition, and examining human conflict from an evolutionary perspective.

Dr. De Keyser (writing for Stratfor) is not sanguine about Europe’s future. There are times, he reminds us, when a doctor has to make the tough call and conclude that the patient’s case is simply without hope. It's a painful diagnosis and not one that the doctor enjoys sharing with the patient. But at some point the patient must be told.

The fundamental obstacle to solving Europe’s problems, he asserts, is that Europe is simply too complex to fix in any straightforward or dependable way:
For such problems, there are no simple solutions. There aren't even complicated solutions. There are only best-guess measures with no guarantees of success. The currency union’s underlying flaws, like so many other modern problems, are far too intricate and perplexing for our minds and institutions to cope with. Failing to admit to our own overconfidence in dealing with the bloc’s problems will only perpetuate the crisis playing out across Europe.

Our poor human brains, the good doctor says, simply aren’t built to cope with a sociopolitical entity as big and complex as Europe. One thing we not-so-evolved apes like to do is interpret information in a way that confirms our preconceived notions. This is called confirmation bias, and in simpler times it kept us out of harm’s way by encouraging preferences for things we knew to be safe. This is a limitation that afflicts economists right along with the rest of us. And so we see, for example, Wolfgang Schäuble, finance minister of Germany, and Yanis Varofakis, former finance minister of Greece, obstinately pushing diametrically opposed economic programs. Which is OK, says Dr. De Keyser, until people on both sides start to claim that adherence to the other guy’s economic school of thought is going to ruin the livelihoods of millions of people.

We’re riddled with other sorts of biases, too – stuff that the field of behavioral economics is still trying to understand and help us all to cope with. Dr. De Keyser recommends humility: “[W]e must first accept that it is our fate to be overwhelmed by the problems of modern-day society.” Well, that’s a start, I guess; but maybe we should just bring the challenge closer to home and recognize that just as Europe’s (and the US’s and China’s) leaders struggle mightily and often futilely to manage their societies, we too should be keenly aware of our mental limitations in managing our investments and businesses. We all have a lot to learn.

All too often in our investment portfolios we want to make the investment world conform to our biases and opinions. More often than not we find out that reality is far more complex and that there is a plentitude of variables, many of which are unknown to us, that influence what we fervently wish to be a simple, straightforward solution.

RBA meets ...
Date: Monday, August 03, 2015
Author: Henry Thornton

... amid the encircling gloom.

The RBA meets today and is widely expected to sit on its hands. Main facts include:
* China's economy is slowing, China's stock market has had a flogging, and commodity prices are mostly falling, last month by an eye-watering amount.
* Greek shares, especially shares in Greek banks, fell dramatically when the Greek market opened yesterday.
* The Aussie dollar is slowly sinking, but the rate of sinking is less than the plunge in commodity prices.
* Jobs have been growing, as least according to ABS statistics (Gary Morgan's more accurate reading agrees on a fall in unemployment though from a much higher base.)
* The most recent statistics on job ads shows a tiny (inconsequential) fall after a substantial rise. (And the official (ABS) rate of unemployment has again lurched, this time upward, to 6.3%, and much worse for young people.)
*  Goods and services inflation is within 'the band' but asset prices, while volatile, are still rising too sharply for comfort.
* House prices in Sydney and Melbourne continue to grow at scary rates, especially if one has children soon to be needing help to get into the market.
* The current account deficit is very large, meaning Australia Inc is still borrowing from abroad to maintain its unsustainable lifestyle.
* Household debt is of the order of 150 % of household income - an heroic Greek-like performance -  and households are being understandably cautious about borrowing and spending.
* Business investment is weak, especially in mining but also in the non-mining sectors that are meant to replace mining as the engine of Australian growth.
* Senior econocrats are suggesting that sustainable growth may be slower than it has been.  Combined with a rapidly aging population, this makes the outlook grimmer than it has been for many years.

What would you do, dear reader, if (heaven forbid) you were elevated to the RBA board now meeting in solemn conclave, presumably in the bunker at the top end of Martin Place?

'Cut interest rates' I hear you cry.  'And tell APRA to get on with reining in the banks who are presumably funding most of the Sydney/Melbourne housing bubble'.

Sadly, dear reader, monetary policy is already 'set easy' and very soon will be facing a rise in US interest rates. 'Never bet against the Fed' is an old saying that applies especially to Americans. But if the aim is a far lower exchange rate for Australia the punters of Martin Place may be tempted to give exactly that a go.  'Anyone for a 50 US cent dollar?' asks Chairman Stevens.

A far more lasting solution would be a program of widespread economic reform, including reform of our antiquated Tax, Welfare and Industrial Relations systems.  The Oz today speculates that the Productivity Commission is about to recommend limited IR reform, but if they think our dysfunctional parliament is going to endorse a slightly freer wages system, they will be deeply disappointed. One hopes the review of parliamentary travel and accomodation rorts may provide some (minor) budgetary relief, but on the far bigger question of welfare and tax reform, please do not hold your breath.

Is Henry overly pessimistic?  No doubt, but do remember dear reader that a pessimist is an optimist with experience.

Saturday Sanity Break, 1 August 2015
Date: Saturday, August 01, 2015
Author: Henry Thornton

The Reserve Bank (and probably also Treasury) is beginning to think its forecasts were too optimistic.  This was a generic feature of Australia's previous Labor governments and their Treasurer Wayne Swan.

Australia's Treasurers and econocrats are not alone.  Many countries have fell for overoptimism and associated hubris.  Even Treasurer Hockey has been too optimistic, but then no-one thought the Chinese economy would slow, commodities would fall like stones in a pond and the Shanghai stock exchange would pop like a  bursting bubble.  After all, nothing like this has happened before, has it dear readers? And realists who have offered warnings (eg here) have been described as 'fools', 'dingbats' and virtual traitors.  In Henry's case this was for the second time, the first time being in the leadup to Treasurer Keating's 'Banana Republic' moments, as described here.

Richo this week said it well: 'There should be a law against treasurers “fixing” budgets. Wayne Swan managed to get Treasury to sign off on promised surpluses when deficits were certain. In opposition Tony Abbott and Joe Hockey rightly belted him for it day after day. In government they have mimicked his every move and once again a willing Treasury have acquiesced. On budget night I said the growth figures in the document would not stand up till Christmas. It is not yet four months from budget night and even the Reserve Bank is debunking these dodgy numbers. Just like Swan, Hockey has set out a path to surplus he knows will not be trodden'.

In recent times, the Greek economy has provided the most extreme case of hubris fuelled by false optimism.  Here is a revealing article from Bloomburg.

'In 2010, as Greece signed a bailout deal with the International Monetary Fund, forecasts by the IMF and the European Commission suggested the country’s debt-to-GDP ratio would peak below 150 percent of gross domestic product in 2012. The forecasts also projected that Greek GDP in 2015 would be 8 percent larger than in 2011. This optimistic vision of the future was based on underlying assumptions that Greece would go from having the lowest productivity growth in the euro zone to among the highest, alongside the highest labor force participation rates and employment rates equal to Germany’s.

'No one—including the IMF—believes those assumptions anymore. The latest estimates suggest Greek GDP will be 10 percent smaller than in 2011. Why were those early prognostications so rosy? It turns out that the IMF, the EU, and other institutions have a tradition of consistently overoptimistic growth forecasts in times of crisis. Dealing with that tendency would significantly reduce the harm done by future financial crises'.

More here.

Those who do not understand history are doomed to repeat it.  Like most western nations, Australia is suffering an investment drought, slow growth, shortages of jobs, lack of business and household confidence ('Animal Spirits') and continued poor international competitiveness. The gradual drop of the Aussie dollar is making us poorer, adding to the income recession that cannot be overcome except by radical economic reform that neither major parties seem unable to face, much less propose.  The 'punters' (ie voters) are disgusted that a sense of entitlement is most deeply embedded in politicians of all shades of opinion, from greedy social democrats to deep dyed conservatives.  We agree with parious pundits that either Speaker Bronnie has to go or the PM has to institute thorough-going reform of the whole mess.  All pollies except cabinet ministers to travel economy class would be a good start.


The Aussie cricket sheilas fought back wonderfully from a first game loss in the wimmin's 'Ashes'. The blokes also fought back well in the second game of their 'Ashes' but have crumbled horribly in the third test.  This is largely the fault of the batters as the bowlers toiled manfully and Mike the Merciless grabbed two wickets in three balls with two of the best short balls at the throat seen so far this series. Nathan Lyon also wove (spun?) his net brilliantly and at one stage was 3 for 3 off three (overs.) 

Bring back Watto is Henry's advice.  After all he did make two 30s in the first test, far better than his captain and just about every other batter in this game, Rogers in dig 1 and Warner and Nevill in dig 2 excepted. The expected result, Poms by teatime on day 3, occurred on schedule leaving two spare days for Australia's selectors to ponder what to try next.  Bring back Watto is Henry's suggestion.

Footy has been besmirched by booingate. Adam Goodes is a superb player, an Aussie of the year and a great exemplar for his role as a leader of the growing indigenous cohort in the AFL. The Swans should just refuse to come out after half-time if it happens again, and stick to this policy until the booing stops.  No money back for the fans, either.

Biggest footy question is whether Hawthorn have peaked too soon. We will know soon but we would like to know what is the secret of their sucess.  The old graffiti that asked 'What would you do if Jesus came to Hawthorn!' might now need to be answered 'Play him with Box Hill' rather than 'Play Peter Hudson at Centre Half forward'. We learned a lot about this matter last night, when a fired-up Richmond lowered Hawthorn's colors.

We really must cheer Foreign minister Julie Bishop for her wonderful speech at the UN Security Council.  She looked fabulous on evening TV and Greg Sheridan's report is well worth reading.  One for the ages.

Henry must apologise for lack of weekday stimulus for several weeks now. There are two reasons; a major (pro bono) task assembling a large three-dimensional jigsaw for 17 research institutions plus uncounted companies seeking a boost from research relevant to their businesses; also, incomplete recovery from a carpel tunnel hand reco, with said hand proving stubbornly determined not to return to normal.

Image of the week

Courtesy The Oz

Saturday Sanity Break, 25 July 2015
Date: Saturday, July 25, 2015
Author: Henry Thornton

Whod'ave thought it, comrades. Bill Shorten turning back the boats, soaking the 'rich' and sucking up to the unions.  Sounds like a perfect way not to get elected, brothers and sisters.  Meanwhile, Tony Abbott has made a reasonable start in creating a debate about tax reform, greatly helped by Premiers Baird and Wetherall.  Conservatives will almost always prefer government to cut spending rather than expand taxes. But if you do have to increase taxes - due to ingrained 'entitlement' mentality among the 'punters' (AKA voters) - a widened and/or higher rate of GST is far superior to just about every other tax one can envisage.

Suddenly 'jobs' are on the agenda too.  The clever people in Canberra and Sydney have noticed that growth is slowing but jobs are (apparently) doing a bit better, ergo productivity is sagging. Of course, those of us in the real world have children who cannot get jobs.  Henry met one of Australia's most successful entrepreneurs this week.  He makes high tech microphones and can out-compete even Chinese manufacturers as almost every job is done by high precision machines.  Fantastic for production and exports, but no so good for jobs.

As we have laboured to inform readers, the official (ABS) jobs data is flawed due to overly-optimistic definion of 'employed'. If a more realistic allowance for who is 'employed' is allowed, as done by Gary Morgan, the true rate of unemployment is not much below 10 %, and underemployment is about the same ratio. These are the national averages; for young people, the numbers are far worse. Even kids in Melbourne's leafy Eastern suburbs with impressive degrees (yes, the plural is not a typo), parents with useful 'contacts' and willingness to work as (unpaid) 'interns' struggle to find jobs. Prospects in the poorer parts of Melbourne, or in regional areas, can only be imagined.

And house prices in Melbourne and Sydney continue to rise. Last week, while Henry was on the road in Northern climes, morning television reported that Sydney's median house price hit $1 million.  'Crazy' said the RBA's Glenn Stevens. Glory be, brothers and sisters, how can a young person with no job aspire to own a house, or even a broom-cupboard-sized apartment? And Brother Shorten wants to double the refugee intake. Nice idea, comrade.  Even Henry would applaud this if there was a long probation period for immigrants that had to be spent in a rural town or city.


Henry and Mrs T spent last night in front of the TV.  After the news we watched Carlton get towelled by Hawthorn for a quarter, hoping for a miracle.  Then we switched to the Sopranos, a 1990s series about criminals and their lives in upstate New York. Then back to the footy to watch the dying minutes of Carlton's largest beating in the entire history of Aussie Rules. And Henry's dear old Blues have to play the Hawks again before the finals.  Could the once mighty Blues beat Box Hill (AKA Hawthorn seconds)?

Probably not, but and their performance this year makes the case for relegation to an inferiour group just about waterproof.

Meanwhile the Aussie sheilers have beaten the Poms in the second one-day game of their 'ashes' battle. The lads will put on their whites again in the week ahead to provide more distraction from the footy, distraction much needed for dear old Henry. Someone wrote this week about why batters fear Michael Johnston's fiendish fast bowling. Apparently it is because his hand is hidden for longer due to his particular 'slingshot' action.

Lovely story in The Age today about the man who was robbed of a gold medal and a record in the Moscow Olympics.  We hope justice is handed out before too long.

What a comeback it was in Darwin when Lleyton Hewitt and Sam Groth fought back from 0-2 (provided by the two Ks) in the Davis Cup tie in Darwin. Here is a stirring report.

Image of the week.

Saturday Sanity Break, 18 July 2015
Date: Saturday, July 18, 2015
Author: Henry Thornton

Henry’s readers might recall that the Raff has tracked many US economic time series for many years, in fact for 36 years. Over that latter period the US data has never provided a bum steer. And so it is that the current business cycle in the US is at a peak as depicted in Figure 1. Long-time readers of Henry might recall the Raff Report suggesting never buy resource equities at the peak of a cycle; only at the bottom and get out before the peak before the thundering herd heads for the revolving door.

Exibit 1: US New Orders for Durable Goods

Read on here, dear readers, and note the Raff's medical challenge. We wish him well, his analysis having contributed materially to those, including Henry, who have followed his advice.

 Other economies.

What can we say?  China's wild stock market crash and partial recovery is typical of market behaviour toward the end of a bubble.  China's government, however, has learner plates with respect to the wilder excresences of capitalism and may stave off the eventual supercrash for a time.  This need not slow the economy more than it has already slowed, as Australia discovered after the 1987 sharemarket crash.

Lovely to hear soothing Chinese words on front page of the Oz today. 'Make love (well, trade) not war' is always comforting and we believe they are sincere.  Why start a war to obtain access to resources (remember Japan, possibly also Germany before 1939), who were denied access, or thought they might be.

Greece has retained its place in the Eurozone we judge by a fingernail, and there is a long way to go before this festering sore is properly sorted.

Australia seems gradually to be waking up to the fact that we are in dire trouble and that real economic reform is extremely unlikely with this parliament.  The good news is that the RBA, Treasury and the business community (in the form of the BCA's Catherine Livingston) are all publicly calling for economic reform.  Doing better probably requires some sort of gross economic or political  shock - a massive CAD, our little dollar at 50 % of the big dollar, continued rising unemployment, a double dissolution election that either returns the coalition with a majority in both houses of parliament or neither major party receiving many votes. What would a Nats-Green coalition get done, dear readers?  Not much, one fears.

We shall refrain from bothering to remind readers that we have been warning of severe economic danger for several years now (well 2.5 years at least) and have been co-author of the most comprehensive reform proposals yet published. No invitation yet to the G80 talkfest being run by the AFR and the Oz, but it will be great to see the crack economic commentators going about their work.  Nodding in unison, no doubt.


Fiona Prior writes: "Henry has featured the 2015 Archibald winner at the bottom of this blog. I’m not in place to review this weekend so below I have placed a link to all the finalists for Henry’s readers.

This year’s Archibald winner Nigel Milson with his expressive portrait of Charles Waterstreet Judo house pt 6 (the white bird) is touched by alchemy….. An exceptional artist with a troubled, criminal past; a barrister known for his eccentricity and his singular style; an artist/subject bond tinged with the salvation of at least one party …. You really could not have created the recipe with better ingredients. Milson is also a winner who possibly is more deserving than many who have come before. I can make statements like this as it is Australia’s Archibald Prize and outspoken views are mandatory!

I hope Henry’s readers will explore the Archibald 2015 finalists here. Enjoy. Note the number of politicians and art-related public figures, choose your favourites and maybe even visit the Art Gallery of NSW before 27 September 2015 to experience the originals."


The poms celebrated too soon after smashing a sleepy Australian side on a heavily doctored pitch in Cardiff. Our team was too old, especially Rogers, Smith couldn't bat and the bowlers were either injured or had lost their mojo. Well, glory be (as Henry's grandmother used say when an apparent miracle took place), look what is happening at Lords. Rogers a 'big' hundred, Smith joins the immortals, the untried (at this level) wicketkeeper takes a catch off the second ball of the game and the supposedly buggered bowlers got four for after Australia 'asked' (chuckle) the poms to bat after nearly 2 fruitless days in the field.

Caaaarlton! is expected to be smashed comprehensively by Free tonight. Just think, the blues get to play Hawthorn twice in the run up to the finals.  Is this more evidence that the authorities are determined to keep this once mighty team in its newfound place in the AFL celler?

In Darwin, sans Tomic, the two K's (cannot spell, too tired to look up) got smashed in the opening two games of the Davis Cup, against a country also with a K-name. K1 crying 'I don't wanna be here' as he went down, not exactly fighting. Fortunately little Llyton and former footy player Groth are representing  us in the doubles today, and Henry is confident they will fight like maddened wallabies. This may give K1 and K2 the chance for redemption on Sunday.  Mr Tomic's apology to Tennis Australia gives him a chance at redemption also, but who do these wunder-kids think they are?

When Henry became an Australian national boomerang thrower, there was no carry on, no dummy spitting just humble acceptance of the finest sporting win of his life.

Sport excessively like 'stuff' today so it is time to shut down.  We are hoping for a review the Archibald later today.

Image of the week - 'seriously scary' the verdict of our art critic.

Courtesy Archibald PR Dept.

Saturday sanity Break, 11 July 2015
Date: Saturday, July 11, 2015
Author: Henry Thornton

China's 'do what it takes' approach to maintain what was looking like one of history's greatest share bubbles seems to have had some effect. Booms eventually bust, and history shows that, the bigger the boom, the bigger the bust, though history also records an upward trend.  So we must stay calm, like corporal Jones in 'Dad's Army' shouting 'Don't panic'. And in Europe the Greeks have presented a tougher budget to the financiers. The departure of the Game Theorist Marxist is another fact that is presumably helping the Greek cause.  On the other hand, as we must say, Greek debt is now reported to be $380 billion, a result that would have made Wayne Swan feel his life had not been in vain.

Here is our tribute to Comrade Wayne and his pals - Julia in Wonderland. ('Vanity, vanity, all is vanity'.)

Treasury Secretary speaks out.

'Treasury boss call for IR reform' reports Peter Martin in the Smage. John Fraser has delivered a fine speech, including the telling point that Australians are 'overly complacent'.  Here is the link to Peter Martin's report, and this link takes you to the full text, which is a must read.

Read the speech and ponder, dear readers.

Aussie property 'undervalued'!!!!!!

Despite fears of a property bubble, Australian house prices are 30 per cent undervalued, the widest such gap in three decades, research conducted within the Reserve Bank has found.

'Under our assumptions owning a home is now more attractive, relative to renting than it has been at any time in the past 30 years'. Peter Tulip, Reserve Bank senior research manager.  Could this bloke be off among the flowers at the bottom of the garden?

'Delivering the "preliminary results" to a session on housing at the Australian Conference of Economists in Brisbane, and stressing that they should be attributed to him and not the bank, Reserve senior research manager Peter Tulip said that whereas a year ago home prices were "fairly valued", today they are about "30 per cent undervalued".'  His boss, of course, recently said some prices were 'crazy'.

More here.


With Mrs T away tending to family business in Sydney and Boggabri, Henry made a fire, cooked and ate a chop, gave the bone to the Border Collie Jack, and settled in front of the fire with a bottle of reasonable red. The Blues fought hard throughout but were gradually overcome.  A clear mark in front of goal by Kreuzer was instead given to a Richmond player who was the 'man in front' but did not touch the ball. This was effectively a two goal turnround on a cold and windy, lowscoring night.  The Blues battled on, their spirit eventually crushed by a better team and whistle-blowers who seemed to think it was their job to wreck the game, especially for Carlton.  

After the fiasco of the Gibbs tackle, two weeks in the stands, then the near identical tackle that was ruled hunky dory, Carlton fans are entitled to be mad as hell. But no-one's listening so why bother? Jack Elliott would be in the AFL threatening mayhem right now if he was still El Supremo at the club.

Henry was hoping for a long and watchable Ashes series.  But with the Welsh wicket shaved and (allegedly) brushed and shaved again, our ferocious quicks, especially enforcer, Mitch the merciless, were unable to terrorise the pommie batters.  Looks like we're headed for a belting.  The Smage certainly comments thus.

Not much other stuff this week, except for a superb article about Bill Shorten's performance at the Royal Commission into union hi-jinks. Highlight was when Justice Heydon, QC, and a former High Court Judge, gave the opposition leader some advice designed to raise his credibility.  Answer the question, don't ramble off answering another one, and for goodness be brief.  Another translation - Avoid pollie speak. As the good book says: 'A fool also is full of words: a man cannot tell what shall be; and what shall be after him. who can tell him?'

And on the subject of Same sex bonking certificates, Paul Kelly today  provides a magisterial account of the dilemma involved in balancing same sex marriage against religious people's right not to accept such a law.

Image of the week

Courtesy The Oz

Greece, China, financial fallout
Date: Tuesday, July 07, 2015
Author: Henry Thornton

The comrades in Greece are in a very hard place.  This is what happens when a country finds itself burdened by crippling debt, inefficient and uncompetitive industrial structure and hopelessly unfunctional tax and welfare arrangements.  Oh, and an extreme leftist government that lies both to its own people and its creditors. At least the game theory afficiondo posing as a Finance minister has fallen on his butter knife, and his replacement is said to be a mild mannered bloke used to negotiating in good faith. Very difficult to predict what happens from here, but Eurozone central is on the horns of a dilemma. Cut Greece loose sets a bad precedent, but bailing Greece out maybe sets an even worse precedent.

China is a far bigger worry for the global community.  No doubt a slowdown was inevitable after decades of double-digit growth.  No doubt a pivot to consumers had to come soon, plus an attack on rampant corruption. But Australia is the biggest loser, heavily dependant as we are on exports of iron ore and coal to China. Finally the Aussie dollar has fallen to the level wished for by RBA chief Glenn Stevens.  (But note the post-meeting announcement issued today said: 'The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices'.) The two-and-a -half years since the powers ignored Henry's proposal to tax capital inflow as a way of restoring a level playing field for many non-mining industries has left us with intractable budget deficits, rising unemployment (far worse than the official statistics, especially for young people) and many kaput businesses that did not need to be lost.

Any attempt to manage currencies is of course fraught with difficulty. At various times strong economies such as Germany (in the 1960s and 1970s) and Switzerland more recently have tried tax and other ways to keep their currencies to a level that keeps their trading businesses viable.  Switzerland eventually gave up trying to restrain its franc and industry seems to be thriving despite a massive revaluation. Germany discovered in the Euro a far more reliable way to keep its industries competitive, linking itself to the weak economies of Southern Europe. Among the many disruptive effects of a breakdown in the Eurozone by those weak economies leaving in the wake of a Grexit would eventually leave German industry fighting much harder for success.

Far more worrying after such a fracturing of the Eurozone would be a series of bank failures that left the Eurozone banks with massive debts  So one imagines that Germany will be inclined to bail out Greece with a non-game-playing finance minister in place.  But only time will tell. Whatever happens, Greeks will be a lot worse off than they are now with banks closed, tetering on the edge of bankruptcy, incomes decimated and over 50 % of the workforce unemployed or pretending to work in low paid, or non-paid jobs.

The global financial markets have taken fright and we may be at the start of a substantial correction.  The US Fed may decide yet again to postpone the rise in global interest rates that has been postponed already with the ongoing, largely hidden, global financial fragility.  A general conclusion from research on financial booms is action delayed makes the eventual bust greater.

It will not be a happy day from the RBA board. Australia is in far less dire straits than Greece, of course.  Yet the budget is far from fixed, interest rates are low and expected to go lower, the current account deficit is setting new records (though export volumes are growing strongly, at give-away prices) and unemployment is deeply troubling.  We should have done far more to fix underlying problems while the global economy was looking stronger.

The Abbott government needs help to fix the budget, and the opposition is showing signs of waking up to the fact that opposing necessary fixing will leave it up the proverbial creek with a broken paddle. Monetary policy needs to be normalised as soon as US monetary policy is normalised.

The powers must recognise that at some point a rising dollar will again make great swathes of Australian industry uncompetitive.  However, sufficient industrial reform will stave off the day that we again need to be concerned about that matter. There is plenty of opportunities to reform our still highly inefficient industrial structure. Here is a modest set of recommendations.

Saturday Sanity Break, 4 July 2015
Date: Saturday, July 04, 2015
Author: Henry Thornton

The team at Henry Thornton.com wish all our American friends a successful Independance Day celebration. The mighty machine that is the google search engine will provide lots of anecdotes for readers partaking in July 4 celebrations - eg here.  And we also wish all friends and countrymen and women generally a safe and financially positive new financial year.

The Grexit

The Australian-Greek Finance minister, Yanis Varoufakis, is reportedly a man who practises game theory and who some say has attempted to use it in the current national insolvency case.  Mr Varoufakis is reported to believe that Greece's creditors would ultimately cave in if only Greek continued to behave like any failed bankrupt trying to avoid reality. The Oz reposted a fine Wall Street Journal article on the subject.

'How much of Alexis Tsipras’s tactics over the past five months have been driven by incompetence and how much by conspiracy? It’s a question even the historians may never fully resolve. The Greek Prime Minister said in a televised statement that those accusing him of having a deliberate plan to take Greece out of the eurozone were telling lies. But what is certain is that if Tsipras had set out in January to take Greece out of the eurozone, it is very hard to think of anything he would have done differently'.

More here.

The ultimate question is this: Is it a cock-up or a conspiracy? Most likely a cocked up conspiracy.

Same sex bonking certificate

'Jobs are more important that same sex marriage' is the gummint line. Obviously this is correct, though there may be some modest jobs growth with the rash of same sex marriages that are expected once parliament chews the relevant same sex legistration. But surely the Australian parliament can both walk and chew gum? One way to minimise the disruption and distraction involved in parliament considering a same sex marriage act is to schedule a special midnight session from which the whips are banned from their usual activities of making members attend and vote. 

Those mostly interested in jobs can sleep while the same sex enthusiastics put Australia into the same enlightened national company as Netherlands, Belgium, Spain, Canada, South Africa, Norway, Sweden, Portugal, Iceland, Argentina, Denmark, France, Brazil, Uruguay, New Zealand, Britain, Luxembourg, Finland and Ireland, while Mexico allows the freedom to marry regionally and has  court-directed provisions enabling same-sex couples to share in the freedom to marry. In Slovenia, ...

Read on here, and there is an interactive map to heighten your pleasure. Another gift from the mighty google machine.

Where will it end? Can a threesome be allowed to register their 'marriage'. Or what if someone from a strange religion wants to marry all forty-four of his flock? (Is that 'Polyamory'?) Married to a sheep? Or a hamster?  There are moments in the Thornton household in which Mrs T would undoubtedly prefer to be married to Jack the border collie. These are the possibilities that Australia's multi-talented-Minister the Hon Eric Abetz, Liberal Senator for Tasmania, Leader of the Government in the Senate, Minister for Employment and Minister Assisting the Prime Minister for the Public Service is apparently worried about, spewing forth from Pandora's box.

Here is the great man pontificating. 


All this fun has diverted Henry's gaze from the constant drip of economic news and views. Gary Morgan has detected another fall in numbers of jobless, from (wait for it) 10.3% to 9.3 %. The current account deficit, $4.1 billion in May, fell to a mere $2.4 billion in June. Retail trade is stagnent. Wages growth is setting new lows. The budget deficit continues to blow out, and the dread words 'Banana Republic' have again been spoken. Things could hardly be better, on the home front, dear readers, and the Treasurer advises you to borrow and spend til it hurts. 

Of course, in lesser nations overseas, the rash of terror attacks, the relapse in the price of iron ore, the financial market's panicked palpitations, likely Grexit (due to excessive alcoholism, perhaps), China's attack of chronic fatigue.  These are nothing but small clouds in an otherwise clear blue sky. Spend til it hurts, comrades.


Sydney beats Port on Thursday night, but who could be bothered watching? Hawthorn v Collingwood last night was a game for the ages, narrowly won by the Hawks. The two teams plus coaches observing a minutes silence in remembrance of slain Adelaide coach, Phil Walsh, showed there is decency in footy, and the game was played with decency, if just as fierce as always between these two stellar teams.

Caaaarlton! toughed out a hard, low-scoring game against the Western Bullies. Disappointing, but Essendon's flogging by cellar dweller St Kilda was a sign of a vehicle with square wheels and not much motivation.  The Suns came back with a rush to spank the Shinboners, thanks (presumably) to the return of Gary Abbott.  How this footy genius got 30 odd disposals and kicked three goals after almost a year's layoff (interupted by only two games while still injured at the start of the season) is a complete mystery to Henry and his fellow footy tragics.

In the UK, a county side provided stern resistance to the fearsome Aussie bowlers, and Shaun Marsh looks to have won the battle for the allrounder spot from Shane 'Watto' Watson. In late breaking news, Shaun Marsh has had a fingernail broken by friendly fire, which may give Watto the reprieve that his long and effective service demands.

The Aussie Sheilas bowed out of the World cup of Futball with a narrow loss to the Daughters of Nippon.  Next stop the Olympics and we confidentally predict an eventual world cup triumph from this young team.

Tennis is another exciting diversion. Little Lleyton went out fighting, Nick Krygios swore his way through the first two rounds and stormed passed the hapless Milos Raonic (seeded no 8) in the third round. Bernard Tomic unloaded on Pat Rafter and Tennis Australia and complained of 'lack of support'. So sad, especially to see him routed by world No.1 Novak Djokovic. Slammin' Sam Stouser unloaded on herself after being flogged by American Coco Vandeweghe, dropping 12 consecutive games after winning the first two to bow out of tournament 6-2, 6-0.  In late news, Mr Tomic has been told he is no longer needed for duty in the Davis Cup.

Bert Thornton, finding himsel a bit short of the ready, kindly offered to update the index pages to Henry's popular 'News + Views' column for money. The new pages may be accessed here, and you will be able to refresh your minds about the wonderful year just past in your very own Banana Republic.

Image of the week.

Courtesy The Oz

Its the banks, stoopid
Date: Tuesday, June 30, 2015
Author: Henry Thornton

The Greek imbroglio rumbles toward what is looking increasingly. like a 'Grexit' - ie Greece leaving the EU after a default.  The Eurozone overlords seem increasingly annoyed at the cheek of Mr Tsipras, calling a referendum about the Eurozone plan for more austerity and advising the people to vote against it.  And in the meantime asking the overlords to refrain from ringing the bankruptcy bell.  Global equity markets are in a state of apparent alarm but we must always remember that brokers and dealers make money from volatility and are not immune from the temptation of stirring up mud and complaining that noone can see.

A brief SkyNews report from New York, featured an oldtime New York broker wondering why the price of gold is not surging. 'There is something going on here that we do not understand' said the old boy speaking from the floor of the New York exchange, once described as a 'rat pit at full blast'. The Aussie market looks like it will fall further today as the local rodents come out to play.

Alan Kohler reminds us today that 'Greece is a distant thriller, but China is a nearby horror show'.

Here are the main facts supplied by Alan Kohler:
* 'The Chinese stockmarket is a sentiment-driven casino, not a vehicle for investment. Earnings growth of listed companies this year is minus 1 per cent while their aggregate market value has doubled'.
* 'The Chinese economy as a whole is bloated on debt after years of economic stimulation based on debt-funded infrastructure spending by local governments and a roaring real estate boom in the four major cities'.
* 'The fundamental question about the Chinese economy is about the banks and whether they can remain solvent in the event of a double crash of both real estate and the stockmarket'.

In Europe, the main issue is how a Greek default, with or without a Grexit, would impact on the banks. Kohler again: '[In Greece] it’s all about the banks, as it is in China. The Greek Government has done the right thing in closing them -- and they'll likely have to stay closed until the situation is resolved. Will the ECB continue to supply them with liquidity after Tuesday’s default? Will that be enough anyway, given the long queues that are now forming at ATMs?'

If the Greek banks fail, what does that do to the Eurozone banking system?  Not much, one must assume, but what if the other weak nations of Southern Europe were to default and leave the Eurozone?  This will be the major issue in Europe, as it may become in China. Gold will then become the ultimate safe haven asset, and gold bugs everywhere will have their day in the sun.

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