Can capitalism survive record peacetime budget deficits?
Date: Wednesday, July 21, 2010
Author: Henry Thornton
'Not without widespread debt default or general, damaging inflation' seems to be the answer.
Historian Niall Ferguson, visiting Australia soon to present the Bonython lecture at the Centre for Independent Studies, concludes an article for The Financial Times/Business Spectator as follows: 'The evidence is very clear from surveys on both sides of the Atlantic. People are nervous of world war-sized deficits when there isn’t a war to justify them. According to a recent poll published in the Financial Times, 45 per cent of Americans “think it likely that their government will be unable to meet its financial commitments within 10 years”. Surveys of business and consumer confidence paint a similar picture of mounting anxiety'.
Ferguson believes that confidence will be killed with budget deficits that are a record for peacetime economies.
The key is effects on confidence. 'In 1981 the US economist Thomas Sargent wrote a seminal paper on “The Ends of Four Big Inflations”. It was in many ways the epitaph for the Keynesian era. Western governments (not least the British) had discovered the hard way that deficits could not save them.
'The remedy for such fears must be the kind of policy regime-change Sargent identified 30 years ago, and which the Thatcher and Reagan governments successfully implemented. Then, as today, the choice was not between stimulus and austerity. It was between policies that boost private-sector confidence and those that kill it'.
'With double-digit inflation and rising unemployment, drastic remedies were called for. Looking back to central Europe in the 1920s – another era of war-induced debt explosions – Sargent demonstrated that only a quite decisive policy “regime-change” would bring stabilisation, because only that would suffice to alter inflationary expectations'.
While Ms Gillard and Mr Abbott trade insults, and increasingly obscene advertisements - themselves doing nothing for the confidence of voters - other western nations are seeking economic salvation in record peacetime deficits.
It is the legacy of the Howard government that the Labor government has not piled up unmanageable debts, despite its reckless and poorly administered stimulus programs. However, poised as we are between inflationary developing nations and western nations facing debt default or inflation, we too are suffering inflation that could yet severely damage our 'miracle economy'.
John Mauldin this week has addressed America's 'debt supercycle'.
The following graph shows total US debt since 1870, close to the start of the so-called 'Long Depression', usually dated at 1873.
The upward twitch in the 1870s is clearly visible, as is the far larger increase - a surge, not a glitch - in the Great Depression of the 1930s.
The scary thing is the far larger and more entrenched surge that began in the 1950s and accelerated substantially from the start of the 1980s.
The size of the task facing the USA is shown by the next graph, which has the heading 'This cannot be.'
John Mauldin says, like Niall Ferguson, the choice for American voters, and indeed voters in all the other highly indebeted and recessed western nations, is between prolonged fiscal austerity and a major surge of inflation.
'It's all well and good to say that you want fiscal rectitude. It's another thing when it is hitting budgets near and dear to you. And to get back to a remotely sustainable deficit is going to take pain in every corner. It is going to hit near you, gentle reader. Some will get hit harder than others.
'And this is the case in every country running large and out-of-control deficits. It is not just a US problem. The Irish are in what can only be called a depression, along with the Baltic states and Hungary. Greece will soon be there, once they have to meet market rates for their debt, or force their labor markets to endure a very serious deflation to make themselves more competitive.
'So, can we know how The End Game will turn out? The short answer is no. Each country will have to make its own political choices. Could we see hyperinflation in the US on Britain or Japan? It is possible, with bad policy decisions. I doubt it that it gets to that. But could we see inflation? The answer is yes.
'That has been the traditional method of default for many countries over the years. Instead of outright default, they simply inflate away debt. And the logic is compelling'.
I agree that 'the logic is compelling' for inflation if the alternative is a decade of fiscal austerity, partial dismantling of the welfare state and slow growth of spending on health, education and defence. (See my February 2010 column on this matter.)
Of course, individual countries may find a 'regime change', as the UK did with Mrs Thatcher at the helm and the US with President Reagan.
But for most, including possibly the mighty USA, inflation may be easier path.
Inflation, if allowed to become too serious, is itself a regime-changer.
But what would the prevailing regime look like if inflation is preferred to great fiscal austerity?
Saturday Sanity Break, 10 October 2015
Date: Saturday, October 10, 2015
Author: Henry Thornton
Henry is in the midst of catching up with the news as he waits with Mrs T to catch the 12.45 AM plane to Sydney and then on to Melbourne.
Niki Savva said last week that Malcolm Turnbull has made a good start. That is a common view, as reflected in the published opinion polls. But, as one wise old owl said to Henry recently: 'The optics are far better, but will the officials have the grunt to make Turnbull's far more expansive approach work?
Henry's chief political writer, Gary Scarrabelotti, reports from the Ukraine. He says Tony Abbott should not rush to decide his future.
'Australian political life has become fragile, uncertain, and crisis prone. My hunch is that there will be opportunities ahead, as future governments break down, and as political leaders crack up under the weight of our common flawed humanity, the empty promises of our ideologies, and the deluge of events.
'One day, maybe not so far away, Australia will need a leader of determination, courage and wisdom.
Abbott has the determination and the courage. May he now set about the getting of wisdom'.
And proponants of serious economic reform, especially IR reform, should read and ponder Grace Collier's column today.
On the economy, we need go not further than the latest Raff Report. The Raff has three key messages:
* 'NEVER INVEST IN MINING SHARES AT THE PEAK OF THE US DURABLE GOODS CYCLE'.
* 'US IP will be lower in nine months after the peak in orders, adding to downward pressure on many commodity prices. This is economics 101 something not understood by pretty well all the commentators on the ABC and Macquarie Radio.
* 'The other key aspect not understood is the excess capacity that haunts almost every manufacture and mine'.
Do not miss Julian McCrann's trenchant comments below the Raff's contribution. Or Julian's dad's column in the Weekend Oz. Here is a quote.
'If the Fed does take us into 2016 without lifting its rate, we are headed into extremely dangerous and turbulant times'.
The RBA kept interest rates unchanged this week and continues to say the economy is travelling well. The strong jobs performance is certainly to be welcomed but is largely in the non-traded service industries. One big question is whether this will help fix what is a very large current account deficit. Such a deficit was the main reason for Paul Keating's Banana Republic call to arms. Then there was strong remedial action, including a swing from budget deficit to budget surplus, but even so the remediation was only temporary. Remember the recession we had to have?
Lending for housing is going at a powerful clip - 12.5 % annual in one source - and one suspects that the new direct controls (by changing asset ratios) over the housing market are already failing. More on this issue from Alan Kohler today.
Out and about
Henry's visit to the great North-west frontier has come to an end at Darwin Airport. Last Saturday's Sanity Break summarised time at Broome International (sic?) Airport followed by some snippets from life on a wonderful cruise ship that carried Henry and Mrs T from Broome to Darwin.
Previous experience on the Gibb River Road and return via the Great Northern Highway are available as follows.
Saturday Sanity Break, 3 October 2015
Date: Saturday, October 03, 2015
Author: Henry Thornton
Henry has been enjoying the scenery, avoiding crocodiles, looking at great (aboriginal) art while being deprived of newspapers, TV and radio, internet or phone access to the rest of the known universe. Hence there is no chance of the usual commentary on the news economic, political or sporting. Instead today we offer two stories. The first tells of challenges at Broome International (Ahem) airport. The second provides hints about life on the Coral Princess during the cruise of a lifetime.
Fasten your seatbelts, sit back and relax.
Broome International Airport (BIA)
Henry and Mrs T survived 13 days on the road with a battle wagon kindly provided by Avis. Returning it proved difficult as there were no signs (or in one case a misleading sign) to the airport. Finally, after circling the airport like an aeroplane that arrived early, Mrs T asked a fellow female in a shopping centre carport how to find the airport. ‘Follow me’ said the nice lady and took off like a regular Broomie at high speed. We struggled to keep up but noticed when the nice lady pointed over her car roof to the road labelled ‘Heliport’.
We returned the battle wagon on time, dusty but otherwise undamaged and wheeled our (excessive) luggage into BIA. As we did so, Mrs T remarked brightly that we’d be able to check into the lounge. ‘Not bloody likely’ was the brusque reply, ‘there’s no Chairman’s lounge here, you’ll be lucky to find a loo’. Henry next asked a security person if we could leave our luggage in a particular spot while we awaited the taxi to deliver us to the Coral Princess, the luxury ship that was to take us to Darwin, with exciting things to do on the way – examining rock art, swimming with crocodiles, riding a rubber duck through a narrow opening in a rock wall at a time of tidal water flow, bush BBQs, etc, etc.
‘I am afraid not sir’, said the security person, ‘I’m about to lock this facility until 5 PM’. ‘Fair go’ Henry expostulated, ‘We paid a lot of money to get here, and we’ve spent even more visiting gorges and other geographic highlights’. ‘Sorry, sir’, replied the security person, ‘them’s the rules’. We wheeled the luggage outside. There was one place with chairs in the shade. It was sign-posted ‘Smoking area’ and ‘Consumption of Alcohol Prohibited in this Area’. No doubt warning a particular minority group how to behave, probably the same group that cannot be trusted to enter the terminal area when the staff have gone to their homes for their lunchtime siesta. We settled down to our humble lunch of ryvita biscuits, cheddar cheese and vegemite. Simply delicious.
We were in luck. It was a coolish day, only 35 degrees and there was a nice breeze blowing across the designated smoking area. We had spent the previous evening having a beer with Duncan, correction Doug, whom with his wife, that old mate of Mrs T previously mentioned, had just farewelled their older son from BIA. The boy was off to Tokyo with a group from his school. ‘It’s called Broome International Airport’ explained Mrs T’s old mate, ‘but Gary has to fly to Perth to get on the plane to Singapore, then on to Tokyo’. ‘It’s only 1 and a half hours to Bali from Broome, but we still have to fly first to Perth', father Doug explained.
Perhaps Kingsford Smith once landed at Broom. Or it might have been the savage and unprovoked bombing of Broome in 1942 by Japan, now our second closest ally and trading partner, that gave the airport its ‘international’ status, but one wonders how it would handle a flood of foreign tourists arriving by air.
Our drink took place in the beer garden of the Mangrove Hotel. We arrived at 5 pm to find ten or twelve long, slow-moving queues of patrons buying drinks, and a massive crowd sitting about watching the sun go down. Never has Henry seen such a variety of female costumes, some dazzlingly provocative, all designed to catch the eye. Or so many men with cowboy boots, jeans, checked shirts and large jaws drinking yard-high beers in just a few short seconds. The ethnic groups seemed to mingle well but our attention was drawn to a small group sitting around a fire about 500 metres away. ‘It’s on’ someone called, and the kids, and some adults, went to the edge of the hotel grounds to watch the fight in the campsite. ‘That’s a woman bashing a bloke’ Doug explained. ‘It’s the way of it here’.
And to think we had to visit Broome to see the new world of female dominance close up and serious.
Enjoy a few of Henry and Mrs T's snapshots below before continuing with their cruise adventures ...
Dry waterfall (*note almost invisable two men on ledge near the water)
Ancient Gwion painting
Gorge at King George River
On the Coral Princess (Bootcamp for Oldfolk)
The bus arrived on time and with another couple we had met in the shady smoking area we had our luggage tagged and loaded. We were slightly shocked at being the youngest people on the bus, and again when the bus driver explained that we should look at fellow travellers carefully as there would be opportunities for spouse swapping. A joke we assumed, but perhaps we were to be tempted to relive the sixties, albeit without the drugs and rock’n’roll.
We were efficiently driven to Boome’s International Port (BIP) and along the wharf to the Coral Princess. We were shown to our stateroom, small but perfectly designed for two oldfolk. Twin beds, a lot of hooks for towels and clothes, space under the beds for cases, rails in the shower and tiny bathroom for oldfolk to hang onto should the water be rough. Shortly our luggage arrived and we unpacked and headed to the dining room for a welcome speech, a safety briefing and an early dinner. We eyed our fellow travellers carefully.
There were a few singles of both genders, many couples, a lady who made Henry look slim, some clearly feeble and the average age perhaps a decade ahead of the ever youthful Thorntons. We had pinned the name tags to our shirts and introduced ourselves to others as we mingled before dinner. There were retired or semi-retired folk of many varieties. A butcher named Joe and his wife Pat, both great wits; a couple from Geelong, Peter a retired lawyer and Felicity, an active artist with most interesting ideas best described as ‘fusion’; Martin and Judy, a dynamic entrepreneurial couple; … . One of the most interesting person we met was a former SAS Commander, Geoff, who had lead his team in three one year ventures into Vietnam and who was now fighting for a system for rehabilitating soldiers who returned with what he calls ‘dents in their souls’ and an inability to fit again into normal society.
The staff numbered fourteen and all were fit mostly very young people who we learned to think warmly of for seamless organisation, dealing without fuss with household chores and willing ability to help we oldfolk while we were out and about in the often challenging Kimberly landscape. The most challenging was the climb up a near-vertical cliff with the help of a rope to hang on to and staff at the really hard spots. Terry, aged 90, went both up and down without accident, although at some cost to the skin on his legs. The old soldier told Henry he was 'too heavy' to climb the wall, but that only served to ensure he did.
There were well-presented talks most evenings, for which we were grateful to Chris and Mark, and one night a showing of the film Red Dog.
Each evening was the time we were told of the events of the following day. As implied by the subheading of this article, the organisation was run like a military operation, one highly dependent of the state of the tides. In fact we were lucky to be there with a full moon and thus exceptionally high and low tides. Our time was immediately put onto Darwin time, so we lost an hour and a half sleep immediately. The first full day on the ship began at 8 AM with a hot breakfast. Subsequent starts were to be at 7.30 (twice), 6.30, 6.15 and ….
Each day there were two expeditions in the Explorer, a large tin boat expertly driven by Jo. We were to learn a few days later just how expert as she successfully got us back to the mother ship in large waves and on the second attempt pulled off what someone called a ‘kamikaze’ docking. On some occasions we left the tinny for one of two zodiacs, driven with great flair by two young men; well, one young man and an older, highly skilled bloke with kamikaze tendencies of his own. We used these boats to explore Montgomery Reef which at low tide gives up its water in massive cascades which one watches from about five metres below the highest point of the reef. At high tide, that high point is five metres below the water.
But the greatest fun with high speed boating came at the ‘horizontal waterfall'. At high tide the water in the furtherest pool begins to drain out at increasing velocity. There are two narrows, the first very narrow, with water bucketing out so fast the zodiacs could not get through. (We watched a high powered luxury speed boat rocket through, and it was an awesome sight.) The second narrow is a bit wider, and the zodiac was able to go through in both directions. The ride is pretty wild, and the large tinny waited near the entrance as we went through ‘just in case something horrible happens’. The water was running hard in an intuitively wrong direction as we waited, and I gained a very distinct impression that it was a large land buttress that was moving both in relation to the boat and the buttress further away. No, Henry had not been inhaling illegal substances, dear reader. Another passenger said she had experienced the same illusion. This was worth the cost of the whole trip if you really want to know.
Throughout the trip one is presented with superb sunsets and sunrises, stupendous scenery, wonderful treats including some extraordinary rock art, not to mention the culinary delights prepared by the extremely tall chef named Travis. And reprising our earlier experience on the Gibb River Road, there was even a gorge walk that began with a 30 metre climb up a rock face with the help of a strong knotted rope and staff at the difficult spots coaching and helping and ended with a swim in a magnificent pool below the Ruby Falls, named for the deep red rock shelf the water flowed over to enter the pool.
The walking, climbing, reaching exotic places and in fact many of the expeditions in temperatures exceeding 40 degrees taxed Henry close to his limit, and was challenging for many of the oldfolk present. But the clear message was that normal limits can be overcome even by people in their twilight years if the prize is worthwhile and the assistance well planned, professional and unstinting. I cannot praise Coral Expeditions too highly for their provision of a stunning program, which received high praise from all who travelled with Henry and Mrs T in September-October 2015.
The biggest negative was lack of internet and mobile phone connectivity. What has Malcolm Turnbull been up to in his previous portfolio, dear readers?
Sunset in the Kimberly
Saturday Sanity Break, 26 September 2015
Date: Saturday, September 26, 2015
Author: Henry Thornton
Saturday Sanity Break, 26 September 2015
Malcolm Turnbull has settled into the top job as if to the manner born. So far so good but Mrs T is still grumpy and seeking support for a National Party branch in the leafy electorate of Kooyong. In fact, she is hoping for a series of political earthquakes. Group one, Greens plus left wing of the Labor. Group 2, right wing of Labor with ‘Liberal’ wing of the Libs. Group three, conservative Libs plus Nats. If group three is ever formed, Mrs T is prepared to run against Josh Frydenberg, although without great expectations of victory. Henry is thinking of a Senate challenge with the slogan ‘Don’t touch our super’.
Enough already. The global news is far more fun. The Pope telling the US pollies to remember humanitarian values. Sep Blatter about to become Sep Splatter, and about time too. The annual stampede at the annual Haj, and the old boy who said ‘This was the fault of disobedient pilgrims.’ Imagine a stampede at the ‘G’ as the Eagles hit the front with 30 seconds to go next Saturday. Would the AFL blame disobedient fans and expect the press not to object?
To segue to another topic, what are the rich leaders of the Middle East doing about the tide of refugees currently swamping Europe? We understand they give money (congealed oil), but do they take refugees, and if not, why not? And why does the global press not demand an answer to this question?
The scandal engulfing Veedub Inc raises more questions. We bet every car company is doing something similar. The consultants will have been saying: ‘Veedub has established global best practice in pollution control and if you wish to compete you need to follow their lead’. This needs checking by a reputable motoring writer, but we are prepared to bet that ‘world best practice’ is widespread. If this is correct, enforcing standards used for testing would produce an immediate cut in global motor car emissions. We note that some Veedub executive said ‘We do not do this in Australia because there are no serious standards in this area’. Another commentator noted that to have such standards would have made locally made vehicles uncompetitive. Kim Carr, can you confirm or will you deny this all too plausible claim?
We arrived back in Broome, gorged out, but just in time to shop for dinner, check in at the Mercure and turn on the telly to see the ball bounced at the ‘G’. After a fierce start, Freo (aka ‘The Purple Haze’) surrendered their lead and despite brave efforts failed to get their noses in front again. Sadly the contest was besmirched by a man in a purple jumper snotting a female fan who presumably was supporting the Hawks. There was also a lot of booing and a purple haze man pretended to punch an innocent Hawthorn player and luckily (for the fan) it was just a bit of fun.
Tonight the North Melbourne Kangaroos take on the West Coast Eagles. Every expert expects the Eagles to easily progress to the Grand Final, and a loss tonight may well lead to succession of WA. Henry is not allowed to watch this match, as Mrs T has announced her desperate need for a Thai dinner. With luck we may be back for the last quarter.
Did you see the video report of a Man on a paddle board communicating with two wales? The images were filmed by a drone and loaded onto the World Wide Web. This is very big news in WA, but Henry’s attempts to find the video via the SEARCH function failed. We tried paddleboard and wales but got several pages of ads for paddleboard lessons interspersed with ads for Wales, or reports involving the progress of Wales in the Rugby World Cup. Please contact Henry if you find the video, dear reader.
Australia started its World Cup campaign with a win over Fiji. Henry caught only the second half when Fiji looked distinctly capable of an upset. Winning just about every lineout and with large, fast players (mostly related to an Australian player is seems) rampaging about with clever passes we had to applaud the Australian defence. Tonight Australia plays its second game, against Uruguay and is widely expected to win.
Image of the week
Sunday Sanity Break, 20 September 2015
Date: Sunday, September 20, 2015
Author: Henry Thornton
What a week it has been. A new Prime Minister, an exciting new cabinet and a new mission statement for our nation.
Paul Kelly's magisterial summary of recent political developments is available here.
The big news for the weekend is the new PM's cabinet appointments.
As expected, Scott Morrison, becomes Treasurer, replacing Joe Hockey. The less expected, but highly welcome, decision is the appointment of Kelly O'Dwyer as his assistant with extra responsibilities for small business. Kelly's experience as Peter Costello's Chief of Staff makes her ideally qualified for this role and as a member of Cabinet is a two step, well deserved promotion.
Marise Payne is Minister for Defence and, with five women in Cabinet, Malcolm Turnbull has moved Australia quite suddenly into the Twenty-first Century.
Arthur Sinadonis also joins Cabinet as Cabinet Secretary, an office that is closely aligned to his role as John Howard's Chief of Staff. Like Kelly O'Dwyer, he is a proven performer whose talents were not being properly used by Prime Minister Abbott.
Christopher Pyne takes over from Ian Macfarlane as Minister for Industry and Science, with Innovation added. As Malcolm Turnbull said: 'If we want to remain a prosperous, first-world economy [with] a generous social welfare safety net, we must be more competitive, we must be more productive, above all we must be more innovative'.
I note in passing that this is the simplest one sentence description of Australia's economic mission statement seen for many years. Unlike Paul Keating's 'We must not become a Banana Republic', it is positive rather than negative.
'Welcome to the Twenty-first century, dear readers. It will be an exciting ride and Henry wishes the new PM, the new government team and laa Australians all the best
Hawthorn smashed Adelaide, North Melbourne got on top of the Swans after a long arm-wrestle and next week Hawthorn travel to Perth to take on the West Coast while the Kangaroos tilt at Freo.
In the biggest upset in world sport Henry can remember, Japan beat the Springboks in a first round of the Rugby world cup. As the Japanese pilot said when announcing the flight to Honoruru: 'They do not know we are coming'. Apologies for the poor joke, dear readers, it just seems to fit.
A noble loss last night by Lleyton Hewitt and Sam Groth against the Murray Bros in Edinburgh was a great shame and probably means Australia will bow out in the semi-finals of the Davis Cup. But if Bernard Tomic can rise above his ranking and Hewitt is allowed to have a go at the other Murray, anything could happen.
Image of the week
image: A European Union for All? courtesy of Sampsonia Way
Sunday Sanity Break, 13 September 2015
Date: Sunday, September 13, 2015
Author: Henry Thornton
Greetings dear readers from Broome, pearl fishing capital of the great North-Western frontier, glorious Cable beach and much, much more. He remembers an awkward moment on Cable beach involving a German visitor with the curious name of Max Danglemeyer. If you are reading this in a cool/wet German autumn day, Max, it is over 30 degrees here with a gentle breeze and lots of lovely girls like those we gazed at with longing all those years ago. Said dusky beauties were sunbaking as naked as the day they were born, sadly each flanked on both sides by a large and presumably savage dog.
Getting here was easy enough. Qantas to Perth, a 50 minute break and then the Qantas regional 717 to Broome, all done with frequent flyer points plus the $30 tax collected by Brother Joyce to help restore the company's profits and his bonus. Cabin staff working navvies but mostly pleasent, though Heney was barked at by one old dear for not knowing exactly where to stand so the old dear could pass with the drinks trolley.
Broome is just how Henry remembers it, except there are far more police out and about and the Mercure is guarded by high walls and a gate requiring a room key to open. Ideally even cars need to be parked behind the wall and clearly law'n'order is a big issue here.
Another good employment number, and some improvement in some confidence surveys, supports the official view that our economy may be improving, albeit a low productivity recovery. This provides some hope that our income recession may be bottoming. Fingers should be crossed as often as possible, dear readers. Henry's editor has just finished a year of (unpaid) hard yakka to get a new Innovative Manufacturing Cooperative Research Centre (CRC) off the ground. The set-up has created a new record for speed and the potential is immense. Sadly, this entity was created by smashing two competing bids together and the Interim board, selected to deal with the factions left over from the initial big bang, fought the factions and advised participants that promises made by one or other faction were just not viable.
In an atmosphere reminiscent of an old-fashioned Labor Party preselection, with attempted branch stacking, lies, slanders and general misinformation being spread by one or other faction, Henry and two other members of the Interim board, who got the beast off the ground, received too few votes to become members of the ongoing board. Fair enough, I hear you say, Australia is a healthy democracy.The problem is members elected a board with strong factional elements, providing real risks of failure. What fun!
National politics is no better. Today's storm in a teacup concerns an admittedly poor joke by the Minister for Immigration. Mr Shorten is thundering on national media, 'This minister must be sacked'. The lefties that mostly populate our universities no doubt model their behaviours on the Labor opposition, an opposition that has achieved new lows of dishonest and divisive behaviour. Mr Abbott has had one of his best weeks in government, joining the crusade to eliminate the head-lopping, child-raping, women-supressing Islamists (IRs) and also declaring that Australia will take 12,000 Syrian refugee kids, women and families from the minority groups that are most targeted by the IRs. But even his friends in the Conservative press say he has to do far better, a brilliant insight that seems to have some support from the polls.
Fiona Prior visits one of the hottest tickets in Sydney last week, Sydney Contemporary Art; an exhibition that has taken over Sydney’s Carriageworks and is presenting the art of over 300 artists and 90 galleries, both domestic and international. Please visit: http://henrythornton.com/article.asp?article_id=6830
It's looking like a corker final season in the AFL. West Coast accounted for Hawthorn on Friday night, meaning the chances of a 'Threepeat' for the Hawks is now small. Freo held off Sydney (minus Buddy) by a goal and change. Adelaide beat the Bulldogs by about the same margin, thanks to a 5 goal blitz by former Caaaarlton! superstar, you got it, Eddie Betts. Today Richmond meets the Kangaroos at the 'G' and should win. We shall be watching the rest of the season with keen anticipation.
Henry's reraders report that the Rugby League finals were equally exciting. Well done to our Futball team, beating teams from countries with unpronounceable names. Soon the Rugby World Cup will provide exciting diversion.
Ms Panetta, the gal who put Australia's Sam Stouser out of the US Open, won the title, her first at grand slam level, and with great good sense immediately announced her retirement. Pity that Serena did not set another record for 4 Slams in one year, but she's a rold-gold superstar and will presumably try again next year. Henry's favourite tennis bloke, Roger Federer,is reported to be sleeping more and thus regaining the speed and agility of his youth. Good thinking, Roger, and good luck tonight - or do I mean last night?
Image of the week
Saturday Sanity Break. 5 September 2015
Date: Saturday, September 05, 2015
Author: Henry Thornton
IMF again warns of slower global growth, with worries about China's performance well to the fore. The eminent consulting group McKinsey says: 'At the National People’s Congress in Beijing in March 2015, China’s Premier Li Keqiang announced a growth target of 7 percent, acknowledging that “deep-seated problems in the country’s economy are becoming more obvious.” Three months later and thousands of miles away in Washington, the World Bank lowered its growth forecasts across the board and asked the US Federal Reserve Bank to delay any contemplated rate hikes. The World Bank’s chief economist said that it had “just switched on the seat belt sign. We are advising nations, especially emerging economies, to fasten their seat belts.” So it’s going to be a bumpy ride? How bumpy? And for how long?'
Read on here for a private sector view of the many complex, difficult-to-understand currents afflicting the global economy. Henry's view is simple. After the heady days of double-digit growth in China and the debt-fuelled asset price boom in developed nations, both decades long, a major reaction was inevitable. Massive monetary and fiscal stimulus postponed the inevitable and may mean adjustment may be a long period of dismal growth rather than global depression. Either way life will be much tougher for battlers and far less euphoric by former masters of the universe. Governments, like ours, will be lambasted for consistently saying 'It's all good punters; borrow and spend'.
The sad state of the labor market, especially for young people, is becoming clearer almost by the day. Roy Morgan Research's measure of 'True Unemployment' has been falling, admittedly from double-digit levels. Now 'Australian August real unemployment 9.2% – up for first time in 6 months'. Here is the link, and check the the image of the week below.
Gary Morgan said: “Roy Morgan unemployment data shows that as the number of jobs increases more people begin looking for work. This clearly shows the pent-up demand for employment and the extent to which Australia’s labour market is under-estimated by the ABS.
“Today’s estimates mean total Australian unemployment and under-employment has increased to 2.12 million (16.6% of the workforce). Australian unemployment and under-employment has now been above 2 million Australians for 45 straight months – nearly four years!'
Europe's refugee crisis
Refugees have caused a massive political ruckus in Australia. But with ocean all round us, and cooperation from some if not all nations of South-East Asia, we have just about stopped the flow. Pity the citizens of the Eurozone who face a far larger problem and the far greater misery of most regugees. Ironically, Germany seems to be the most compassionate and constructive.
'ANGELA MERKEL may be the most powerful politician in Europe, but she has rarely shown much inclination for bold leadership. Both in domestic politics and, especially, during the euro crisis, the German chancellor’s style has been one of cautious incrementalism. She has eschewed sweeping visions, put off decisions whenever possible and usually reflected, rather than shaped, public opinion. The European Union has paid a heavy price for her small-bore instincts, not least because they made the euro-zone crisis deeper and more protracted than it needed to be.
'Against that background, Mrs Merkel’s approach to Europe’s migrant crisis is remarkable. As throngs of Africans and Arabs turn Italian and Greek islands, and eastern European railway stations, into refugee camps (and are found dead in Austrian lorries), the chancellor has taken a brave stand. She has denounced xenophobes, signalled Germany’s readiness to take more Syrian refugees and set out a European solution to a politically explosive problem'.
This week Australia, Henry Thornton and TP Maher celebrate the life of Bart Cummings, a master of his chosen sport and a wonderful horse whisperer. May he rest in peace. More here from Terry Maher. You will find also some engaging history, some reporting on the form of a horse named Boban and even some discussion of Heisenberg's uncertainty principle.
Its the fag end of the (winter) cricket season.
The Aussie sheilas won their Ashes series of games of different length, while the blokes lost a T20 game and won a one day game. Who cares - better to give the blokes a few weeks off to recover from what seems like an endless season.
Its coming to the business end of the footy season. the Tiges disposed of the North Melbourne seconds, who it must be said fought well for three quarters. If the Kangas do not want him, Caaaarlton! would take Majik Daws to be a big marking forward asnd occasional ruck relief for Kruezer, if indeed our best player is still at Optus Oval next year.
Caaaarlton! play Hawthorn tonight and should be blown away. Henry's brother offered a bet at 200 to one, enticing odds but not acceptable.
Jarryd Hayne has now played brilliantly in his fourth NFL trial game and has, it seems, attracted a small but loyal fan base all on his own. He possibly cemented his place in the final team with a classic shoulder charge. If his NFL team turn him down, Optus Oval beckons.
Little LLeyton Hewitt bowed out of the US open in five hard fought sets, beaten by superbrat Bernard Tomic. Lleyton has had plaudits piled on him from the tennis world, including his one-time doubles partner, Roger Federer. Hear is a link that brought tears to Henry's eyes.
Image of the week
Animal Spirits, Competitiveness
Date: Monday, August 31, 2015
Author: Henry Thornton
'Economists unsure why growth is stuck in the slow lane' reports David Uren. Well, glory be, comrades, economists 'unsure'? At least this beats the usual mindset which is best described by the old crack about Treasury: 'Often wrong but never in doubt'.
What is wrong, dear readers, with this summary from our weekend epistle of 22 August?
'Supposedly "weakness of the Chinese economy" is the precipitating factor, but there are plenty of other reasons for gloomy global Animal Spirits. Here is a list: sluggish Eurozone activity, evidence of slowing US activity, clear signs of global deflation, caution due to unsustainable levels of household, business and government debt everywhere, deep uncertainty about the eventual outcome of global currency wars and when and how the US Fed will begin to raise interest rates'.
In Australia's case, slowing of population growth is an additional factor, but this is as much a consequence of more basic matters as an independent initiating factor. But of course all the initiating factors listed in the paragraph above are interdependent. 'Poor Animal Spirits' is not a bad overall summary, but economists have achieved no basic agreement about determinants of Animal spirits. But clearly sluggish economic activity, unsustainably high debt levels, global currency wars, concern at mooted interest rate hikes are all factors likely to make people and companies bunker down. When leaders are saying 'borrow and spend', as has been the case in Australia recently, then people and companies are likely to add 'confusion about government policies' to their list of things to keep them in the bunker.
Here is a call to economists. Construct a credible index of 'Animal Spirits' and then systematically relate changes in this index to the factors noted above as well as wars, terrorist attacks, global climate change (however caused) and other geopolitical developments. Fame and fortune may come your way.
We thank David Uren for raising this vital question, and indeed much of his stimulating article discusses the interaction among the various factors that indicate poor Animal Spirits. These factors will make up what will be labelled the 'Animal Spirits multiplier' when the analysis outlined above is finally nailed.
Competitiveness and Innovation
Highly competitive nations will find strong innovation helps overcome entrenched depression. Successful innovation is a positive factor for the 'Animal spirits multiplier'.
Minister for Industry and Science, Ian Macfarlane, has today explained his government's focus on innovation and competitiveness.
'A key priority of the government is to boost Australia’s success in innovation and in transforming its great ideas into a commercial reality.
'Like other advanced nations, our economy is undergoing a significant transition in which traditional industries are evolving and new opportunities are emerging.
'It’s essential Australia embraces these opportunities to improve our global competitiveness. Through our Industry Innovation and Competitiveness Agenda we are working to revitalise Australia’s business and entrepreneurial drive to equip our economy for the challenges ahead. We understand that business is the backbone of our economy, and in the 21st century we must continue to be innovative to strengthen our competitiveness — which is the key to our future prosperity'.
'The path to this goal requires collaboration across industries and stronger links between industry and science, to better harness leading-edge research and ensure scientific breakthroughs are commercialised.
'By tapping into the expertise of our Co-operative Research Centres (CRCs), Australian businesses can build and develop through innovative research in areas as diverse as hearing, healthcare, pest management, bushfire and natural hazards management, financial markets security and the aerospace industry.
'As well as commercialising leading-edge research that takes place in our universities and research institutions, CRCs are producing graduates with hands-on industry experience. This is helping to create a highly skilled and innovative workforce.
'We are investing more than $731m in CRCs over five years to ensure small and medium enterprises have the support to overcome the initial barriers and risks associated with introducing new concepts and technologies, leading to improved competitive advantage'.
Disclosure; Henry has had a long association with Australia's CRCs, including 5 years as head of the committee overseeing the Commonwealth government's CRC program
Saturday Sanity Break, 29 August 2015
Date: Saturday, August 29, 2015
Author: Henry Thornton
By week's end the global markets had rallied, though in Australia equity markets were still well below the previous peak. Overnight, however, US markets suffered another downturn and the Chinese central bank reportedly threw a lot of money into equity markets. So we can expect another week of turbulance and volatility. In times such as this one needs the comfort of trusted advisors, and Henry's favourite fund manager has come through with the view, appropriately hedged, that current events add up to a correction, not a bear market.
'There is a sense that we have been overdue for a correction in equity markets and we know that corrections are both a necessary and healthy phenomenon that washes out the weak holders of shares and presents opportunity for those with the nerve to commit.
'This correction, which we define as a decline in the index of more than 10%, has been a long time coming. In the US, for example it has been nearly 4 years since the S & P 500 has declined more than 10%. This correction was well overdue……….
'Yet we live in the moment, not in the text books of history. And no matter how hard we strive to remain objective thinkers, no matter how overdue a correction was, we cannot but help let that subjective part of our minds wander into the realm of fear and ask “This is just a correction right?”
Despite Henry's faith in the team that manages his Australian equities, (thankfully a lot fewer than they were at the onset of the GFC, that's the equities, not the managers), readers may follow the logic here. Of course we must advise you not to act on these views unless you are a fully adult person who takes advice from an ASIC-approved financial planner.
(Some people believe that sacrificing a virgin sheep under the light of a full moon would be more useful, but we cannot possibly comment on that.).
The Great and the Good have spoken about the need for thorough-going economic reform. The newspapers that sponsored the talkfest provided a blitz of fact and opinion,
Today's Image of the week provides a fair comment on the effectiveness of the flow of (highly sensible) advice. The only new thought comes from Judith Sloan under the enticing headline of 'Why the economy is going to hell in as handbasket'.
'It’s easy to blame shortsighted, feckless politicians whose main experiences in life have been school, university, a short stint in legal practice, working as a trade union official (Labor only) and the inside of a politician’s office working as a staff member. This is the “real” world experience of far too many politicians.
'The process of setting up a business, negotiating the regulatory maze, selling to willing customers to make a profit, making payroll: this is simply foreign territory to all but a handful of politicians.
'It’s also too easy to blame an obstructive Senate ...
'The reality is that the quality of the advice our gormless politicians receive from our key economic institutions has declined dramatically during the past decade or so. ...
'It’s not because bureaucrats are unwilling to speak the truth to their political masters. It’s rather that far too many of them share the delusions of their political masters; indeed, some of them are only too willing to join the political game, admittedly from the protected precinct of the public service. Take Treasury. The rot really started when the so-called Wellbeing Framework was adopted as an organising principle to be followed by all Treasury staff. Apart from the fact many Treasury officials never understood the purpose of the framework — this much has been acknowledged by Treasury itself — the real impact has been to downplay the importance of (per capita) economic growth and to emphasise issues such as fairness and sustainability'.
Henry's opinion was provided two years ago when we spoke of the coming 'grim recession' and powerbrokers 'walking unknowingly into a new economic crisis'.
'Warnings have been sounded, and not just by this writer, and the only excuse for the steady tramp into recession is the insularity and self-congratulatory hubris of successive ministers and officials, especially those in Treasury.
'Where is the Westminster tradition of strong, independent advice? Treasury (and the Reserve Bank) has many excellent and dedicated economists. Have relevant warnings been ignored, or have the fine economists effectively been nobbled? Fear that the messenger will be shot is a powerful nobbling device'.
Shared delusions or nobbled officials, perhaps it is a bit of both. Whatever the cause, Australia's compromised 'Washminster' system is in urgent need of reform. We need to go back to the Westminster tradition of strong independent officials, perhaps poorly paid but showered with honours when they retire. Or move onto the Washington tradition that each new administration fires the last lot and appoints its ideological friends. To work properly, five year terms for parliament and a new tradition of negotiating with the upper house when necessary would be desirable, but being far clearer about the position of advisors would be highly desirable also. And there is the side benefit of advisors from the previous administration giving honest, hard-hitting advice from the think tanks, all of which would become far more effective than they are at present.
Fiona Prior bids farewell to the ballet superstar Sylvie Guillem who is up there is the world of dance legends with Anna Pavlova, Margot Fonteyn, Vaslav Nijinsky and Rudolph Nureyev. Guillem is hanging up her leotard after almost 40 years of dance. Please see here.
the magnificent Sylvie Guillem
Usain Bolt has given global athletics a welcome boost by beating his convicted drug-enhanced rival in the 100 and 200 metres world title races. The world's fastest man has revealed his ambition to break 19 seconds from his favourite race, the 200 metres, equivalent perhaps to running the marathon in two hours. An Aussie long jumper surprised the world with a silver medal in the long-jump, and a young bloke called Starc (brother to the cricketer) has jumped a best height of 2.1 metres to win a place in the high-jump final.
Could Australian athletics be making a comeback?
Footy approaches the finals. How did that Hawthorn star get only 2 weeks off for driving an opponant into a goal post is a mannr that seemed deliberate to this viewer? And how did the Brownlow medal favourite get off after sliding into an opponant? Could it be possible that the mighty AFL money machine is protecting its profits from the finals and Brownlow awards?
Caaaarlton! provided cheer in the Thornton household with an upset win over Melbourne. Our main trouble has been 1. Lack of confidence (thanks Mick); 2. Lack of a power forward and a ruthless centre half back, and ditching some players who have flourished mightily elsewhere (thank you, recruiting team); and 3. The lingerly effects of the cruel penalties applied by the AFL for salary cap rorting all those years ago (thank you big bad John.)
Not much cricket news, but Henry did spot Watto playing one day cricket against Ireland. Glad to see that this fine cricketer has not been fully sent to the cricket knakery.
We come now to a subject usually unnoticed by Henry, ... SEX. Betina Arndt has tackled the apparent loss of libido by women, noting in passing that blokes retain their demanding, animalistic habits, meaning growing malesunhappiness in the bedrooms, couches and back seats of cars in our overworked, stressful, boozing, child molestering nation.
Soon the ABC will take up this theme, in the process blaming Tony Abbott and Joe Hockey. Wht fun it will be on Q&A in a week or two.
Establishment gets it, at last
Date: Thursday, August 27, 2015
Author: Henry Thornton
The Great and the Good have spoken - Australia needs economic reform, there are plenty of good ideas and the government needs to get on with it, helped by the opposition. The AFR and The Australian have provided excellent summaries and Henry's favourite quote was from Dr Martin Parkinson - 'We are 'sleepwalking into a real mess'. This is great rhetoric, especially as it echoes Henry's comment published in The Australian in August 2013. 'Now the nation's leaders are walking unknowingly into a new economic crisis'. The the now free-to-speak former Secretary of the Treasury also spoke of "Recession". As Henry said two years ago: 'Why is Australia headed for a grim recession, and why will it be seen by historians as a recession we did not need to have?'
Here is where the current grim economic situation was predicted before it happened, and why.
The master writer about the political economy of Australia is Paul Kelly. His column today starts as follows: 'The National Reform Summit has sent a singular message to the political system: Australia is a better country than you think, it is more ready to debate reform than you think and it is past time to tell the economic truth about our future.
'The agreement from the summit is that reform is now urgent, our economic and social position is slipping, unemployment is too high, poverty is rising and growth combined with equity is the priority objective.
'The summit stakeholders — if true to their word, and this is a hefty proviso — have drawn the line against the “rule in, rule out” political culture that is wrecking policy progress and driving the decline in living standards growth. The widespread coverage of the summit constitutes a threshold of sorts — public recognition the political system is failing.
'This perception imposes fresh obligations upon Tony Abbott, Bill Shorten, the parliament, the Senate and the states to lift their game'.
Do not miss Louis Hissink's latest diatribe. The summary is the 'Establishment economists have wholescale embraced Keynesianism and contributed to the death of the free market in the Western world'. sort of consistent with what the great and the good were saying at the latest economic Summit.
Read on here. Those with a mistaken view of causation in economics are destined to repeat the mistakes of the past.
Date: Monday, August 24, 2015
Author: Henry Thornton
'The Australian sharemarket has plummeted today amid a global sell-off sparked by fears of deflation and standstill economic growth, with a plunge on the Chinese markets making matters worse.
'At 3.15pm (AEST) the S&P/ASX200 index was down 4 per cent cent to 5007, the biggest intraday drop since 2007.
“Today has all the hallmarks of being one of the worst trading days of the past five years,” IG market strategist Evan Lucas said.
“Fear-selling is now stronger, faster and harder than ever before, and now there’s another pressure to it — are central banks out of tricks.”
'China’s main stockmarket gauge, the Shanghai Composite index, tumbled 6 per cent in the first minutes of trade, despite Beijing authorising the state pension fund to invest in stocks to shore up the markets'.
Whether this is part of a 'correction' (a 20 % fall), a 'crash' (up to 40 % fall) or a catastrophe (name your own figure) is impossible to say. Henry said in his 2011 book Great Crises of Capitalism (signed off in late 2010) that he had no confidence that the Global crisis was over. Since then 'Quantitative Easing' and near zero interest rates have boosted global share prices and there have been rapid recovery from downturns in global indices.
Factors that are worrying experts, and should be worrying us all, include: continued near-zero interest rate and uncertainty about how that situation can be normalised; the apparent severe slowdown in the Chinese economy - with non-official sources suggesting this problem is far worse that official numbers; continued uncertainty about economic recovery in the Eurozone and how very weak Eurozone countries like Greece can recover with continued, much disliked austerity imposed by creditors; the signs of slowing in the US economy; fears of global deflation; and poor 'Animal Spirits' among many global investors; businesses and households.
The link to Australian superannuation is that the market meltdown has already hacked into incomes of retirees with self-managed funds, and will decimate returns several times more in a wost case. Most if not all global decision makers, like Australian politicians and officials, have defined benefit retirement schemes that are backed by tens of millions of assets. This illustrates the ridiculous nature of those who argue, while sitting on a guaranteed pension backed by millions of dollars of assets, that a person who has accumulated a one, or two or three million super fund is 'rich'.
The only way to minimise the fallout from the market meltdown and all the current uncertain but mainly bleak prospects, is to embark on thorough-going economic reform, after the government carefully and honestly explains things are not 'she'll be good mate!' as weekend propaganda put it.
Superannuation and tax reform
Superannuation tax has raised its ugly head again, thanks to Henry Ergas. The rhetoric is wonderful, and the warning (front page of The Oz) is chilling: 'It seems only a matter of time before super savers are slugged'. But try as he might, Henry (Thornton) cannot see how Henry (Ergas) justifies his argument that super savers are already being slugged any amount between 40 % of income and 465 %. We suspect it involves calculations that depend on humanity's defective way of discounting the future, but we cannot be sure. Please Mr Ergas, explain so even a man close to entering his eighth decade can understand.
The big front page headline, of course, says Smokin' Joe Hockey is going to raise thresholds for income tax bands and (possibly) cut rates of income tax. Great for future earners of salaries, but not so good for people entering their eighth decade whose future income is (ahem) limited. Smokin' Joe may not survive to introduce these essential reforms, although Henry dearly hopes he will. “At the moment, 2.7 per cent of Australian taxpayers [including both Henrys presumably] fall into the top income tax bracket, and they are paying more than 28 per cent of all income tax,” [Joe Hockey said].
Smokin' Joe will promise to reform income tax without introducing a higher GST tax rate, but rather cutting spending. This is going to be part of the current government's pitch to voters at the next Federal election. Recall Smokin' Joe's first budget, dear readers. Fat chance of spending cuts even if the coalition wins the next election, currently not something to bet the house on. The possibility of super being slugged while income tax is being cut, in both cases when Henry (Thornton not Ergas) is no longer earning much by way of fresh income, is deeply disturbing.
Thorough-going economic reform includes tax reform. In the modern global economy, rates of tax in various catagories need to be near the that of competitor nations or there will be massive local disincentives. But there are plenty of non-tax reforms that are needed if Australia is to become a dynamic, entrepreneurial nation that is as fire-proofed as possible in a dynamic, unstable world economy.