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Henry Thornton - Contributors: A discussion of economic, social and political issues Blogs
Inflation shock - for some
Date: Thursday, April 28, 2011
Author: Henry Thornton

Schlock horror ... inflation surprises on the upside.

Henry said in early March: 'Australia’s goods and services inflation is rising, though when it will break through the RBA’s ‘target zone’ is a matter from legitimate debate. Sooner than you think, Mr. Stevens, is my view, but I do not expect you to take that view seriously. But goods and services inflation is well above that modest level in Australia’s rapidly growing major trading partners, including China.  And asset inflation is a far larger problem just about everywhere, as this column with other dissidents has been saying'.

Goods and service (CPI) inflation has arrived 'sooner than you thought' Glenn Stevens, but I assume you will comfort yourself with the fact that the price of bananas is the most inflated price - contributing to what the hopeful people on you staff and in the press are calling a 'price spike'.

On the subject of imported inflation, the great American inflationist, Ben Bernanke, this afternoon in Washington, said he had no timetable to tighten America's super-easy monetary policy.

Back in what you no doubt think of as the dark ages of Australian policy making, gov'nrt Glenn, Treasury argued that it was the 'temporary' price hikes of potatos and onions that was blamed when global inflation was taking Australia's economy in its frenzied grip, but I am prepared to bet you did not buy the groceries for your family then , nor so you buy the bananas now.

But people on normal wage and salary packages do buy groceries and it is the actual cost of living, not some confected 'underlying' cost of living, that matters to them.  Even Blind Freddie can see it is the prices of petrol, utilities (electricity, water and gas) , school fees and (legal) drugs.

Wage and salary earners went for it in the early 1970s, and it is hard to see their grandchildren holding back now.  Only the flexible exchange rate is offsetting easy fiscal policy and monetary policy in the neutral zone - when it should be tight.

That is why my early April column warned of the pressures of wage inflation.

The terrible temptation of anyone in your high position, Mr Stevens, is that you begin to believe your own rhetoric. 'Brilliant gov'ner' say the younger men you have surrounded yourself with at one of you dry sallies, or (the anointed heir) 'absolutely spiffing Glenn'.

My April column warned in conclusion that 'The government is spruiking a tough budget, which will allow for a flood levy and big new carbon tax.

'The Reserve will be tempted to leave interest rates unchanged until the budget is delivered and assessed.

'That would be a mistake, but an understandable one.

'If the Gillard government cannot persuade the major unions to go easy on wage claims, it will quickly be seen as an important mistake'.

There can be losers as well as winners now.  Either a gunuinely tough budget and further rate hikes prevents a wage blowout or it does not.

If wages blow, your reputation will be trashed and the fate of the Gillard government will be sealed.

Ho, ho, on with the show!

BHP Billiton and the Australian economy
Date: Thursday, December 11, 2014
Author: Henry Thornton

The Chinese economy is in trouble, resource (and other) shares are being smashed and most Australians will find 2015 even tougher than 2014.  The Labor opposition (and micro-party Senators) is (are) mulishly ignoring the crisis, and opposes every attempt by the government to solve the long-term budget catastrophe.  Business confidence is at best neutral and household confidence has plunged.

Henry's author of the much read Raff Report has visited one of the more reliable indicators of economic health, a shopping centre in a leafy suburb to the north of Sydney. 'Last Saturday the Raff and his youngest daughter visited the Westfield Shopping Centre at Hornsby, which for readers unfamiliar with Sydney is about 21km northwest of the CBD. It might have something to do with the fact that Hornsby has a very high Chinese population, but at 10.30 AM there was only one visitor (daughter) to Supre in 15 minutes. Adjacent four clothes shops had combined five shoppers. The food hall was busy, but most of the rest were probably not covering wages. Myers and DJs were near deserted. This ties in with a news item broadcast on the radio minutes ago, saying that shoppers were the most bearish in three years'.  Read on here.

But this is not the whole story.  Global confidence is low, and only the USA seems to be, finally, and slowly, recovering from the Global Financial Crisis.  When the crisis erupted, Australia's strong fiscal position and sensible central bank were able to act to minimise the downside. Yet we always need to pay the piper.  Now our budgetary resources are far less and monetary policy has only a small amount of room to move.

Apart from the long-term fiscal crisis, Australia's cost base is currently far too high. Low wage growth aside - the result of effective dialogue between struggling businesses and prudent wage-earners - nothing has been done to improve the problem of bloated costs.  As international investors lose confidence in Australia's economic prospects the Aussie dollar is falling, perhaps to 70 cents to the US$, and this will help, provided households and businesses remain cautious about further increases in labor costs and prices in the shops.

Regular readers will be surprised by none of this, but sadly we shall all suffer from the complacent approach of most public officials and the current political gridlock.  More fundamentally, we shall pay the price of accepting uncritically the riches from the mining boom, supporting the costly and wasteful fiscal stimulus of the Rudd'n'Gillard'n'Rudd government and voting for, and accepting the antics of, eight micro-party Senators.

Sorry folks, them's the facts.

Saturday Sanity Break, 6 December 2014
Date: Saturday, December 06, 2014
Author: Henry Thornton

Shiver me timbers, gentle readers, Australia is experiencing an income recession, and very likely soon a production recession.  (The warning was given some time ago.) The Treasurer is facing criticism from all quarters except from his boss, and a new Treasury Secretary will soon be providing advice peppered by half-a-lifetime in the real world of business. Those of us who have toiled in that particular olive orchard know that his focus will be on decisive, effective action to fix an under-performing business.

It is (again) time to  come clean with the voting public, this time without attempts to gild the lily or protect us out here in voter land from reality.  Here is Henry's dot point attempt at an effective narrative and policies.

* After living high on the hog through the global crisis thanks to the China boom (and the economic reforms of the Hawke, Keating and Howard governments), Australia is struggling badly.  Australia has become seriously uncompetitive.

* Overall cost levels are too high, and the budget is literally out-of-control with unsustainable spending levels due to the manifest unwillingness of voters to finance unlimited cheap tertiary education, limitless spending on health and generous welfare spending.  Cross bench Senators, please note especially carefully.

* Hard decisions must be made and implemented. It is the opinion of most sensible economists that the remedy must include people paying a higher proportion of education and health spending. A serious attempt to make the Federation more efficient - by eliminating overlaps and 'double regulation' - would help greatly, and can be justified as a basic contribution to accountability and efficiency.

* It is the opinion of many economists that the only lasting solution is to broaden the GST and raise its rate to, say, 15 %. (Think New Zealand.) This should, however, be presented as a last resort.  The government should state this is its approach and invite Labor to propose its list of savings to add to the Coalition's current suggestions and others that may be devised.

* The exchange rate must be tamed so that industries have greater certainty.  There are only two viable possibilities.  Make Australian monetary policy just as easy as that of other countries, including near-zero interest rates and 'quantitative easing', almost certainly creating massive asset inflation. Or introduce a variable tax and subsidy plan for capital flows. We must remember Milton Friedman's obiter dictum that 'monetary policy cannot serve two masters'.

* Government should lead by example in efforts to cut Australia's bloated cost base.  Henry remains of the view that a temporary and voluntary cut of government salaries, with the opposition invited to join, would show all the right intent. Business leaders should be invited to accept equivalent (temporary) cuts and ask the Fair Work Commission  to impose equivalent (temporary) cuts on workers. To incentivise people in a wholly voluntary scheme, donations to relevant charities, such as the proposed new medical research fund, could attract tax relief certificates to provide future tax cuts at a higher rate than normal to be used when the budget is again in surplus.

Clearly this is a radical set of suggestions. Yet it has the potential to fix Australia's economic woes by rapidly restoring international competitiveness and fixing the budget. As Walter Bagehot once said: 'One of the greatest pains to human nature is the pain of a new idea', quoted by The Economist, digital edition, 5 December 2014.

Best of the blogs, 2014

Financial stability-monetary policy breakthrough, 4 July, 2014

Regular readers will be aware of my attempts to persuade the RBA to sort out policies to control asset inflation, so far as this is possible, distinct from monetary policy, which involves keeping the overall economy on an even keel with low goods and services inflation. This week, Janet Yellen, US Fed Chairwomen, joined the crusade, which is all over save the shouting.

Read on here.  And for those interested to delve further into issues for monetary policy, here is a link to holiday browsing.


After two weeks of incredibly moving response to the unexpected and freakish death of Phillip Hughes, it is back to business for the cricket would.

Preparion has commenced for the delayed first test against India, and bouncers were reported to be flying in both camps.

How fiercely the contest is joined is hard to predict, but the whole episode has revealed the souls of leading cricketers like nothing one can recall.  One hopes at least that sledging will be eliminated, or at least only genuinely funny sledges are used in future.

ASADA's legal case seems in danger of falling apart due to the reluctance of key witnesses to give evidence.

Henry is no lawyer, but surely the court has the power to insist that these blokes give evidence?

In the absence of this, presumably footy goes on as it did, with teams that seem fitter, faster and stronger than their rivals attracting murmurings to the effect 'how could this be?'.

Henry this week enjoyed lunch with a former AFL Commissioner and one of Australia's finest historians. 'How come there is no AFL team in Tasmania?  Was it just reluctance to disturb the native flora and fauna? were the questions. 'Actually no', was the reply. 'It was Tasmania's inability to agree on where the team would be located, Hobart or Launceston, or somewhere in between. The latter might have been just doable politically, but that would have disturbed the plants and animals, not least because of the roads, carparks and the stadium itself required to accomodate the game every second weekend'.

Henry commends the e-book, available free here, which tells the tale of a genuine hero, a former star Tasmanian footballer, and his rise to prominance as a global investment-banking guru. Good holiday reading at a time when the big thinkers are again comparing Australia to a Banana Republic.

Image of the week

Courtesy AFR

Fun in the sun, and related matters
Date: Thursday, December 04, 2014
Author: Henry Thornton

As 2014 winds down, the government is making a major attempt to make progress toward a sustainable budget, with Treasurer Joe Hockey speaking as I am tapping this message.  Slowly the narrative is being progressed, helped by the shock of further falls in commodity prices and the prospect of more to come. As the best commentators are saying, the Labor opposition when in government helped create our current budget mess and yet are zealously blocking the remedies.  'Systematic economic vandalism' is a gentle form of the criticism of this behaviour.  'Economic treason' is a tougher label.

One notes the view expressed by the Treasurer that the loss of revenue is no reason to cut spending further. Of course, that depends on whether commodity prices settle at or below current levels. The implied assumption is that commodity prices rebound, meaning the current economic blowout is temporary and the 'no more cuts strategy' is a form of 'automatic stabiliser'. It is entirely possible that there will be no quick rebound, or even further falls, and in that case budget red ink will become deeply entrenched. It is also important to recall that it is not just the Commonwealth government deficit that matters.  Earlier this year veteran business titan, Don Argus, put together a fuller picture of Australian indebtedness, and it is not a pretty sight.

A feature of Mr Argus' analysis is his focus on total (gross) debt - debt of governments, households and companies. Here is the table, which will repay study. And here are some early reflections of a desirable 'narrative' about Australia's unhappy situation.

We are told that Treasury Secretary, Dr Martin Parkinson, is retiring shortly.  Except for the inspired leak some months ago of the name and qualifications of John Fraser, a great man from the global banking system, we have no further information about his replacement.  Deputy Secretary David Gruen has moved on to run the Statistical Bureau, so the team on duty over the festive season looks like being a bit under-weight.  Hope the new boss, whomever he or she might be, is not a skeptic about allowing 'automatic stabilisers' to work, or there might be some feathers flying in the new year.

We learned yesterday that, despite growing national production, Australia's national income is falling. We are like a shopkeeper, selling stock at  price levels so low that profits are falling. Said shopkeeper is cheerfully and deliberately not cutting his family's spending, because 'she'll be right mate'.

Then there is the stubborn overvaluation of the Aussie dollar.  The dollar is indeed heading down, and at some stage, eg if the deficit and debt outlook begins to look really grim, it is likely to plunge. (US$ 0.70 is Henry's guess.) The RBA will keep on with its open mouth policy and is likely also to cut interest rates still further.  Not a cheep from the chookery at the top end of Martin Place about the idea of modifying the exchange rate with a tax on capital inflow as a form of 'macroprudential' policy designed to keep some predictable stability in the structure of industry.

Next day - As Walter Bagehot once said: 'One of the greatest pains to human nature is the pain of a new idea', quoted by The Economist, digital edition, 5 December 2014.

Immigration Minister Scott Morrison is today presenting a generous 'compromise' on treatment of asylum seekers who came here on Labor's watch.  Kids out of detention, grown-ups freed to work and families able to begin to become integrated into regional communities, with a possible road to eventual permanant residence, What more do the bleeding hearts need? At least if these changes are blocked it will be clear to all fair-minded people, that ideological ratbaggery has blocked reasonable compassion, including the compassion of preventing deaths at sea, including deaths of innocent kids. I say this as someone who took a far softer line on the asylum seeker issue during the Howard-Costello years, including in one long conversation with Peter Costello himself who said at the end that he agreed with my views.

Next day - The Senate approved this reform and there is hope for us all. Well done Scott Morrison.

Soon the silly season will be upon us all, and resting in the sun, or watching the cricket or eating and drinking will become the chief activities of many Australians. We must hope for a renewed focus on economic policy in 2015, led perhaps by Joe Hockey with the advice of a sensible and pragmatic Treasury Secretary.

Saturday Sanity Break, 29 November 2014
Date: Saturday, November 29, 2014
Author: Henry Thornton

We join the family and friends of Australian cricketer Phillip Hughes with profound sorrow for his untimely and freakish death. Cancellation or postponement of cricket competitions everywhere is appropriate and it remains to be seen if anyone has the appetite for an early renewal of gladiatorial test match cricket.

Political economy

The price of iron ore continues to plummet, greatly worsening prospects for the Federal government's budget, growth of jobs in an already weak jobs market and indeed the overall national well-being.  The simple truth is that every Australian must get used to making do with less, and the faster this happens the better it will be for all of us. If remedial action is delayed now the eventual, unavoidable remediation will be far more painful.

The journos say the past week has been the worst week for the Abbott government.

Master Chronicler,  Paul Kelly says today: 'THIS week the accumulating defects of the Abbott government were on graphic display — excessive centralisation around the Prime Minister’s office, lack of proper consultation, flawed judgments and uncertainty about how to address its tactical dilemmas'.

Phillip Coorey in the Weekend Fin says the government is 'All at sea'.  It contains a snippet that accurately reflects the views of bizoids known to Henry: 'One executive, still in Canberra after the dinner, complained that asking business for help was all well and good, but it had to cut both ways.

“He wants us to help him and he won’t tell us anything," said the executive, who had grown increasingly frustrated dealing with the government and with its performance.

'Others are complaining about lack of access and not being listened too'.

Outgoing Treasury Secretary, Martin Parkinson makes his best speech in the role. 'Outgoing Treasury Secretary Martin Parkinson, said the AFR, 'slammed corporate leaders, state governments and other ‘vested interests’ for seeking lower taxes or more revenues at the expense of ordinary citizens'.

This thoughtful speech is worth reading and may be found here.

Warnings there have been aplenty, eg early this year, and as recently as Thursday this week (see below).  But it is surely time to shed the overoptimism of the past two decades and face reality.  It's cold, hard and above all strongly competitive out there in the wider world.  Only a people fully on the case and properly alive to reality will prosper in that world.

Best of the Blogs, 2014

'Gor blimy comrades', 20 May 2014

'Who'd of guessed it?  Tony Abbott has taken the axe to every program he can find, even adding to the taxes paid by his rich Liberal mates. He's hit us battlers harder, of course, and the brothers at the local pub have all agreed to vote for Bill Shorten or Clive Palmer.  Gary Morgan says the Libs are buggered, and even the Oz says Abbott and his mates are in their own world of pain.  Dunno why, as all they're sufferin' is a wage freeze plus less free plane trips when they quit politics. Which looks like commin' sooner than they thought.  Even the useless bloody State Premiers are whinging, and most of them are Liberals'.

Henry's roving reporter filed this missive from a battleground of the class war, the front bar of Balmain's most traditional pub.

Read on here


'What I love about Melbourne and Melburnians', reports Fiona Prior, 'is their continual, surprising innovation and open-mindedness. Sydney is still to get the laneway dining-thing right though we have been attempting to for well over five years now, while Melbourne’s outdoor dining never ceases to delight. Walk into a somewhat excessive exhibition of a famous designer in Melbourne that is at times overtly sexy, confronting, and provocative by virtually any definition, and you will see ladies who lunch, art students, girls and boys who love clothes, design junkies of all ages, silver haired couples with walking sticks, school children on excursion, and variously sized and styled little ones accompanying their parents … How wonderful!'

Read on here, especially if you are a Mebournian.

Image of the week

More RBA `glass half-full` economics
Date: Thursday, November 27, 2014
Author: PD Jonson

The RBA's deputy Chief, Dr Philip Lowe, in a recent address at the Australian Business Economists (ABE) Annual Dinner, made some important points about the structural aspects of Australia's economy, in his boss's great 'glass half full' tradition. In accord with that tradition, the points where Australia is not performing well were down-played or ignored. 

In the interests of objectivity I shall summarise Dr Lowe's cheering points and then list some issues where,  prudence (or lack of gritty front-line experience), has lead Dr Lowe to an overall assesment that is too optimistic. 

First let me endorse without reservation Dr Lowe's tribute to a great Australian, MJ (John) Phillips, a colleague with whom this writer worked in great harmony during the 1980s.

Dr Lowe: 'I would like to pay tribute to one of my predecessors who passed away earlier this month – and that, of course, is John Phillips. John served the Reserve Bank of Australia (RBA) (and before that the Commonwealth Bank) for more than four decades, and between 1987 and 1992 sat in the office that I now occupy. John epitomised the first of the RBA's core values – that of serving the public interest. He did this with great dedication during his time at the RBA and in his highly distinguished subsequent career. At the RBA, John worked tirelessly to modernise Australia's financial and monetary system, and to modernise the RBA itself. The institution that I now serve, as well as the broader Australian community, owe him a considerable debt. John will be sorely missed'.

Dr Lowe's obiter dicta - quotes are from Dr Lowe's speech.

Uncertainty is a fact of life, and 'it is important that we guard against the possibility that this uncertainty mutates into chronic pessimism – that is, for it to become normal for us to think that our prospects are limited'.

'The Australian economy does have the foundations for a successful and prosperous future, ... and how well we take advantage of those foundations depends increasingly on investment not in physical capital, but in human capital'.

The sort of economy we should be aspiring to includes: 'a national currency with sustainably high purchasing power; sustainably high real wages; and sustainably high real returns on capital. High purchasing power and high wages mean that for each hour that we work we are able to buy more goods and services. And high returns mean that savers get rewarded when they take a risk or defer their spending and save for the future'.

To these points one can only offer a hearty 'hear, hear!'

Dr Lowe's bull points

'Exports to Asia are up by around 30 per cent over the past five years. Our three largest export destinations  – China, Japan and South Korea – are all in the Asian region and free trade agreements have been concluded with each of them recently'.

'... around 8 per cent of the Australian population was born in east and south-east Asia or India. This is up from less than 1 per cent of the population around the time that I was born. In comparison, in the United States, only around 3½ per cent of the population was born in Asia and for most European countries the figure is below 2 per cent'.

'There are also large numbers of students from Asia studying in Australia. ... All up, there are more than a quarter of a million Asian students studying here. In time, these students will add to the already vast network of our alumni across the region'.

'The strong people-to-people linkages can also be seen in the broader data on international short-term arrivals. At the moment, more than 250,000 citizens from Asia are travelling to Australia every month, with arrivals from China reaching nearly 80,000 a month'.

'Over the past decade, Australia has had almost the fastest rate of population growth in the OECD and this is expected to continue for some time to come'.

Australia has a 'considerable endowment of natural resources, both in terms of minerals and agricultural land. ... For many years, revenue from resource exports was equivalent to around 5 to 7 per cent of GDP, but recently it has averaged double this, at around 12 per cent of GDP. With a large increase in LNG exports still to take place it is possible that this ratio will increase even further, although this will also depend on how the prices of our exports evolve'.
' ... the jobs have been created over the past couple of decades ... [include] the fact that the largest increase has been in jobs with higher level qualifications. [Also] in terms of industries, the bulk of the new jobs have been in services, with over 3½ million service industry jobs having been created since the early 1990s. These jobs are in health, education, personal services, retailing, finance, engineering, information technology, software design, telecommunications – the list goes on'.

I acknowledge Dr Lowe's comments about general matters required to be done as well as possible in the fast-moving, dynamic modern global economy.  He would like to see a more entrepreneurial business culture, an 'appropriate mix' of sophisticated skills to produce premium goods and services and the need to find ways of 'deepening collaboration between our universities and businesses'.

Again, these aspirations all deserve a hearty 'hear, hear!'

The bear points.

The national mood is gloomy, and expectations of Australians have not yet adjusted to the post GFC, post mining boom reality.

The currency is still too high, but 'the RBA has been saying for a while now that a lower value of the Australian dollar would be helpful from an overall macroeconomic perspective'. But what has been done to create that more competitive currency?

Australia's cost structures are too high, but 'concerns about the overall level of wages in Australia are, to some extent, really concerns about the exchange rate, with the high exchange rate leading to high wages expressed in foreign currency terms. A lower exchange rate would obviously make a difference to these comparisons'. But, again, what is the plan for a lower currency?  In addition, the excessive currency is certainly not the only obstacle to success. Surely Dr Lowe does not believe the regulatory framework for labor and other markets in Australia are optimal?  What about coastal shipping Dr Lowe?

There are many regulatory and cultural barriers and obstacles to expanding Australia's trade exposed industries, as cataloged here.

The debt and deficit position of the Australian government is parlous, arguably out-of-control. Any ideas about this, Dr Lowe?

The political atmosphere is poisonous, and one might assert that 'disunity is death' in football teams and other matters of great importance.

One understands that a central banker concerned to reach the ultimate step on the career ladder must be prudent, but one hopes Dr Lowe at least expresses strong views about these blockages and obstacles in the privacy of his discussions with Australia's Treasurer.

It might be noted that John Phillips was blocked from the ultimate step in his central banking career, as was this writer, and largely for the same reason - excessive frankness in giving advice.

Philip Lowe's speech should be read by all Australians interested in a better future for themselves and their children and their children's children.

But it must be read with a critical eye and a willingness to fill in the blanks.

Time for national belt-tighting
Date: Tuesday, November 25, 2014
Author: Henry Thornton

China's economy is slowing and demand for coal and iron ore is falling.  Both sources of Australia's extreme boost to national wealth in the past several decades are drying up. Yet our national cost structure remains at the exaggerated levels that occurred while we were riding in the ore truck's massive carrying space.  See the successive Raff Reports, or the prophecies of Louis Hissink.

Messrs Raff and Hissink were early to report the massive squeeze on small mining companies.  Now we are told that BHP Billiton and Rio (and presumably other global mining companies) are undergoing rigorous cost cutting and that the era of growth by acquisition is over.  Henry heard this on ABC radio this morning, along with frequent denunciation of the government's 'broken promise' not to cut the budget of the ABC and SBS.  Typically, SBS seems to have copped its share in restoring national prosperity far better than the mighty ABC. But I digress.

The most exciting point made by BHP's CEO, Andrew MacKenzie, was the plan to crank up output from the great Olympic Dam mine, first developed by Western Mining Corporation.  Henry recalls with great clarity WMC's Managing Director, Hugh Morgan, telling the board of the RBA just how much time and effort was needed to get permission to begin building that mine.  One assumes companies are still being strangled by red tape, despite Josh Frydenberg's valient afforts.

The Oz reports: 'BHP Billiton has outlined new plans to turn the Olympic Dam mine in South Australia into the world’s second-biggest copper mine and potentially the world’s biggest uranium mine, in a big-ticket expansion that could see extra production at the start of next decade'.

But the full interview, introduced by Radio National's Fran Kelly this morning, will repay careful attention. If Australia's global mining leader is cutting costs, and raising productivity, everyone else should do so also, or soon will be.

Is is way past time to tighten national and individual belts, gentle readers. But it is better late than never, so it is time to listen up and act.

Saturday Sanity Break, 22 November 2014
Date: Saturday, November 22, 2014
Author: Henry Thornton

'THE pivotal plays in Tony Abbott’s foreign policy' writes Paul Kelly, 'are with the big Asian powers — China, Japan and India — and not the US, despite Abbott’s pro-US disposition, commitment to Iraq and his effective working ties with President Barack Obama.

'This trend, apparent for some time, was unmistakable this week. Abbott is laying new foundations for our Asian future likely to last for decades. While Australia enjoys a fully developed relationship with the US, there is greater untapped potential in emerging arrangements with China and India and still fresh opportunity with Japan.

'Abbott grasps this and acts on an ancient law of politics — search for the big new breakthroughs. This is Abbott’s instinct and vision. He is not a leader for sophisticated strategic concepts. He is, instead, a man of action who believes in the power of personal relationships, picks the opportunities and has no truck for academic theorising about the contradictions in what he does'.

Read on here.

The waves from the G20 meeting, Andrew Robb's third Free Trade agreement, with the promise of another, and President Obama's shirtfront on climate policy continue to reverberate. Messrs Abbott and Hockey urgently need to  find a way to fix the budget without a whole series of unpopular policies that (even collectively) are unlikely to put the budget into surplus in the foreseeable future.

I remain of the view that the GST, as part of reform of the Federation - removing 'double dipping' administrations - is the best answer. Surely the states could be brought to agree, especially as the reforms would take us back toward the vision of the founding fathers.  In fact, a force of one Federal Minister and one senior minister from  each state government and a team of sherpas from all areas of government could be tasked to produce a White Paper on the savings from a proper federation, with Defence, International Trade and other obviously national matters run from the centre and all other matters run by the State and Territory governments.

It might turn out that thorough-going abolition of administrative 'double dipping' might do most of the budgetary heavy lifting, and the GST could stay more or less as it is at present.

Just a thought, Tony.


Very sad to read about the supposed 'Twilight of an art movement'.

Nicholas Rothwell writes: '“END of an Era,” proclaimed the staccato media statement sent out earlier this month by Melbourne’s Gallery Gabrielle Pizzi, long the starriest and best-known name on the commercial Aboriginal art scene — and for once the hype was right.

'The closure of the gallery after three decades serves as dramatic confirmation that the high-end market for traditional indigenous art has all but evaporated'.

Read on here, gentle readers, and mourn.  But the great Aussie tradition of outback images will be back, dear readers.

In fact, help is at hand, in the form of Henry's hyper-realistic images from Central Australia, coming soon to a gallery near you.


Player trading has more or less finished in the AFL and Caaaarlton! seem to have flown under the radar. Read the SunHerald article at a coffee shop this week that claimed the Blues have quietly picked uo a number of grown-up players, some of whom may become good regular players, while there are stars in the making among the survivers of the culling by Mick the Merciless.  Time will tell.

The young guns have carried Australian one day cricket to a series win over South Efrica, and one more win will restore us to number one. When in doubt, or desperate, always go for yoof is Henry's views about international sport.  Curiously, however, he sees the wisdom of old age as the ideal for business or politics.

The futball (soccer) team had a great first half against Japan but relaxed slightly in the second half, with Tim Cahill's goal helping provide respectability to the 2:1 scoreline.  As the press has said, several other potential goal scorers have to become more confident and learn how to score like young Tim.

The Wallabies tackle the Irish in the wee hours tomorrow, and can expect a tough encounter.  With Mr Beale on the bench, we may be able to give the Irish a touch of the X-factor.  But I will not hold my breath, or get up to watch.  There have been too many disappointments.

Am coming to that view about the Outsiders, but will watch again tomorrow to see if the cartoon spot (easily the best part) uses the gem below.  Will anyone give me good odds?

Image of the week

Courtesy The Oz

Dire straits for miners; G20`s theoretical triumph
Date: Thursday, November 20, 2014
Author: Henry Thornton

'Without doubt this is the toughest market for the resource sector that the Raff can remember, since graduating from Macquarie University in 1975. Murdoch’s paper is too long to detail in a Raff Report but his key findings were as expected. Here are just a few points from Murdoch to ponder:

1. The Metals and Mining Index has hugely underperformed BHP (this reflects the dumping of junior metal miners and explorers and the relative safety of BHP which at least pays a dividend).

2. Only 28% of companies have the cash typically needed to mount a robust site programme that may result in a re-rating of the company’s share price (to give readers an idea of drilling cost, a ballpark figure for a drill rig with capability of 1,000 metres capacity is $6,000 per day; for this you might get 90-120 metres open hole or 30 metres of diamond core).

3. 22% of explorers do not have the cash to do any real work on site (the Raff looked at a bunch of Appendix 5Bs recently and one characteristic in common was cash outflow for administration dwarfing expenditures on exploration).

4. On average, energy explorers spent $740,000 on exploration, nearly three times the expenditure of companies exploring for precious and base metals (the Raff thinks the recent hike in the price for uranium will see a swing back to exploration for uranium in 2015, and energy explorers, on average, will outspend precious and base metals in 2015).

The latest Raff Report explains the dire straits our small mining companies find themselves in, a theme first predicted here by Louis Hissink at least 18 months ago.  And Louis weighs in with his own current thoughts on the dire straits of the mining industry.

Here is a BHP Billiton perspective. 'BHP Billiton, the world’s largest miner, is not concerned with the five-year-low iron ore price, saying its West Australian operations are still making a good margin, as it defends its expansion strategy in an oversupplied market'.

G20 triumph

We have, however, noted the new Free Trade Agreement and the visits of the G20 leaders and Finance ministers.  Both events are positive, but only the new FTA goes beyond nice theory.  Politics, as so often happens, is likely to block economic policy, as we observe so painfully here.

Overall, a triumph for Tony Abbott and Joe Hockey, and now we know how to boost global growth;  but we also know this will only happen if the policies listed by the G20 nations are implemented, and we can see just how many have got through Australia's Senate.  This may well be the usual response, leaving the G20 growth boost nice theory, disappointing practice.

How ironic that the Chinese president Xi Jinping spoke so graciously about China's new partner Australia in the parliament while Barak Obama seemed to undermine our policy on climate change at the University of Queensland.  Noone has explained yet how China's and America's climate change policies are different to ours, and how we achieved a better performance on CO2 emissions than the mighty USA.

Funny business politics.

Saturday Sanity Break, 15 November 2014
Date: Saturday, November 15, 2014
Author: Henry Thornton

What a thrill, the leaders of G20 nations arriving in Brisbane, our new 'global city'. The Agenda for their meeting is largely economic, with the Australia-China free trade deal (Step 1) to be announced Monday to provide an exclamation mark. US-China climate change deal puts a big 'Stop Press' sign as a preamble, and it is also good to see the amount of press activity devoted to international tax avoidance.  Why discuss tax hikes here when Google, Amazon and IKEA, and other multinational are playing us for mugs?

The most interesting item in the weekend press, for this writer at least, is Stirling Larkin's 'Steps to avoid a banana republic'. Here are some quotes:
* The RBA's 'money zero maturity' (whatever this is) has 'placed us in the unenviable position of drifting away from the commodities super-cycle and towards the abyss of ... a banana republic'.
* '... real growth comes from technological developments, human ingenuity and the boosting of productivity through innovation, all of which are precepts of free markets and not the state'.
* Australian Industry group Chief Executive Innes Willox believes "the Australian economy is changing gears and big parts are in the slow lane with little prospect for a quick turnaround'.
* 'Willox highlights the need for the Australian economy to be retooled and rebooted to deal with the effects of a high-cost, high-wage economy saddled with a relatively high currency, struggling with the resources boom tapering off, construction struggling to gain traction, traditional manufacturing under pressure and slowing government hitting the services sector'.
* "Like any good business, Australia needs to focus on its competitive strengths, intellectual capital and skills base to value add in resources, agriculture and manufacturing to give us the balanced sustainable economy with a distinctive competitive edge" Willox added.

The whole article is well worth reading.  Mr Larkin's focus is one the investment practices of ultra-high-net-worth -families, who have for several years putting a lot of money offshore. The conclusion of the article links the economic reform program outlined by Innex Willox with a shift back toward investment in Australia.

'Hear, hear' Henry cheers.

A surpising headline today is 'Economist tips recession next year'. Finally this news is breaking through the Australian economic elite's complacency. This is like spotting the second blowfly at the barbeque.  Henry must admit to being the first such annoyance, with 'The recession we did not need to have', published in The Australian in august 2014.

Will our economy be saved by the G20?  Andrew Robb says says China free trade agreement could ‘set us up for years’, reports Paul Kelly.

If the 2 % hike in global growth really happens, and if the free trade agreement with China happens as advertised, these developments will undoubtedly help.  But to take maximum advantage the domestic reforms outlined by Innox Willox are needed. My fingers are crossed.


ASADA is said to have finally issued 'show cause' notices to 34 former and current Essendon players.  Stephen Dank is still smirking for the press, and looks like escaping from penalty for his alleged part in the supplements saga. This issue is becoming a bigger 'clusterf**k by the week, and can only end badly for the AFL. 

Meanwhile, Australian 'Futball' goes from strength to strength with its advantages if being a global game far friendlier to children, and therefore modern parents. Henry recalls at age 15 being given a shot of whisky before going out to play the hard men of Scorsby in an EDFL grand final.  Nunawading played an honorable but losing game, and the young Henry was delighted no-one was killed or crippled.

Mitch Johnson is cricketer of the year for the second time,  still scaring the cr*p out of batsmen and cheering local audiences.  Pakistan was a catastrophe, the One Day series against South Efrica has started well, and the test series against India looms.


Fiona Prior survived Java and now reports from, no, not from that comet but from a cinema showing the film called 'Interstellar'. Interstellar 'is a grandly enjoyable movie'.

Henry's sources reveal that a number of excellent movies will hit the screens this summer, so readers can find entertainment plus refuge from the heat if the cricket is boring.

Image of the week

  Courtesy The Oz

Saturday Sanity Break, 8 November 2014
Date: Saturday, November 08, 2014
Author: Henry Thornton

Big international companies evading tax.  Who'd have thunk it?  The BCA opposed to fixing this. Well, what a surprise!  Clearly there neeeds to be some international accord that companies will play fair on tax or be outed, or worse. What happens after outing remains to be seen, but individuals can make their views known in the most obvious of ways - stop buying their stuff.

Free trade agreement with China looking likely. Chalk this up as another bold move by the Abbott government, and will provide much opportunity to farmers and agriculturists. And it is a very welcome move strategically, which could be compared with pre-world war II decision by western powers to starve Japan of raw materials.

Jobs growth about half growth of the workforce, leading to inexorable increase in unemployment, loss of productive workers (dropping out of the workforce) and further upward pressure on welfare payments. Who cares? The government must and anyone else concerned at growing inequality should.

Imposing a modest real wage hike on the defence forces and others on the national payroll. In reality, if Australians all took a 20 % cut in money wages, our economy would be competitive again and our jobs growth would surge. Who cares? The government does and anyone else concerned at growing inequality should. 

The exchange rate sinking, not yet quite like a stone, but that could be the next issue people worry about, or take advantage of by moving assets offshore and generally tightening their belts. Provided wage costs are contained - see previous comment - a lower exchange rate will help restore competitiveness. A lower exchange rate is a graphic signal of our nation giving up the fruits of the mining boom, reality bites.  Ergo, we are poorer and can afford less welfare and lower incomes generally.

Points like these should be part of the Australian 'hymnbook'. Henry has been working to see that a 'hymnbook' is agreed by all participants in two significent industrial ventures.  That is difficult enough for one enterprise, imagine the challenge for the Prime minister? Even the cabinet is said to be in need of more solidarity.

Hope these notes might be useful at festive season bbqs.  Spread the news, folks. Global economic competition is ruthless, and Australia's current lack of competitiveness will impose costs on us all.  As dear old Frank Cream said way back when: 'One man's wage rise is another man's job loss'.

We wish the Prime minister, his ministers and every one battling to improve Australia's competitiveness, thereby allowing more compassion, all their best with their endeavours, so look out boys and lady, disunity is death. This is why we need a compelling national 'narrative'.

Here is the latest RBA prognosis - their glasses now well below half full - indeed 'grim' as one newspaper summarised. 

Do not panic, gentle readers - the G20 (sans shirtfronts) will sort it all out. Is it 2 % of GDP or 2 % pa Growth of GDP that is being added?  Henry suspects we are all equally confused about this but either outcome will be welcome.


Our recently victorious cricket team has been given a salutory lesson in the duust of the Middle East.  Overnight it drew level in a T20 contest, whatever that is.  Bring back the five day tests meandering to a meaningless draw is Henry's views. 'G20' is apparently the economy's version od T20, Henry has been told. Helter skelter for a short time, then its on to the next talkfest.  One assumes it is better than fighting.

Rugby team started well under its new coach but faces severe tests in Europe.

No news of footy, except the non-news that ASADA has again failed to pounce.  Obviously Asada feels its case is not sufficiently backed by evidence, and surely someone should insist there be an end to this farce.  And it was good to read this week that Caaaaaarlton! believes is has recruited wisely. Time will tell.

So sad to see two horse died after the running of the Melbourne Cup. Not much to be done about it except, perhaps, to enforce rules apparently in place about use of the whip.

Terry Maher has again presented all the news that's worth reading in his views of the Spring Carnival.

Image of the week - from the archives


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