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Henry Thornton - Contributors: A discussion of economic, social and political issues Blogs
Central banks to the rescue, but urgent problems remain
Date: Friday, September 16, 2011
Author: Henry Thornton

Leading central banks have agreed to pump US dollars into Eurozone markets, helping to produce a fourth day of gains to global equity markets.


(The banks involved are The European Central Bank, the US Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, clearly a serious mob.)


A first sign of US goods and services inflation was ignored amid the general euphoria, as was an increase of initial claims for unemployment benefits and more evidence of weak manufacturing activity.


Debate continues to rage about the future of the Eurozone, with Anatole Kaletsky presenting a varient of Professor Alan Meltzer's notion discussed here yesterday. Kaletsky suggests that Germany (rather than a group of strong Eurozone countries as in Meltzer's plan) leave the Euro, allowing a defacto devaluation of other Euro currencies but without the risk of bank failure that would be inevitable if Greece leaves, followed by other weak nations. (Kaletsky's views are in today's Australian newspaper, but again without a link, like Meltzer's yesterday)


Ambrose Evans-Pritchard reports from the World Economic Forum meeting in Dalian


"This is the most urgent crisis facing the world today," said Zhu Min, the IMF's deputy managing director and China's voice at the institution.


"There is no room for politicians to muddle through: they have to take decisive action today. Banks must be recapitalised and made solvent."


In distant Australia, Henry has purchased some out-of-the-money puts in case the whole Euromess trashes equity markets. Meanwhile, politicians continue to trade abuse and to argue about items on the traditional pinhead.


However, the Australian Bureau of Statistics (ABS) has galloped (well, plodded actually) to the gummint's rescue by redefining the contents of the 'basket' of goods and services in the consumer price index to suggest inflation is less of a threat.


Treasurer Wayne Swan has removed from the 'independent' Reserve Bank the right to set the governor's salary.  Apparently he learned of Glenn Stevens' million dollar plus salary only 18 months after the event, via the RBA's annual report.


If this is true, it almost defies reason because of the risk to a climate of low wage inflation that it posed. If Treasurer, most of us would expect it to be at least mentioned by the gov'nor in one of his regular chats. After-all the Treasurer is the representative of the parliament to whom Mr Stevens is ultimately responsible, despite the 'independence' notionally granted to the RBA by means of an exchange of letters.  The Reserve Bank Act, which defines the relationship of the RBA and the people of Australia, makes it clear just who prevails in any conflict.


Former governor Bernie Fraser was on ABC radio defending (weakly Henry thought) the governor's salary, but Henry's sources say Bernie himself turned down similar largesse in his time, as reported here. (See the May 23 2011 entry of the author's Blog at GreatCrisesofCapitalism.com.)


If 'independent' salary setting can be removed at the stroke of a pen, so too can 'independent' decision making, and it would be one sure-fire way to get the Aussie dollar to depreciate.


Take care, Glenn Stevens. Mention of how much you give to charity each year (assuming it is quite a lot) might be wise about now.




Our major economic challenges
Date: Wednesday, January 01, 2014
Author: Henry Thornton

Here's to a safe and more productive 2014 for all Australians, and especially for Henry's readers.


The main economic theme seems to be fixing the budget, and we learn today that Messrs Hawke and Keating, and John Stone, advise Tony Abbott to fix the budget fast. The former pollies have 'form', as the local copper might put it, having heeded advice to do exactly that in 1986.  It can be done, Joe Hockey, but doing so will take every last bit of self-belief and concentration.


The trouble is, your efforts, though greatly needed, will address Australia's major economic challenge only indirectly. The bigger challenge is to recognise and deal with a cost overhang that is in the range of 30 to 40 % relative to cost levels that apply in competitor and customer nations.  Fiscal austerity will encourage moderate wage settlements in some places, but there is in Australia no widely accepted way for costs to be cut in absolute terms, which is what is needed.  Severe recession will hasten the necessary correction but that is a policy of last resort - 'the recession we had to have', as the Great Man put it.  After, it might be noted, a return to budgetary surplus had been achieved following Mr Keating's 'Banana Republic' crisis, but failed to solve the then prevailing cost overhang.


Soft monetary policy was partly to blame for this failure, but this is also being repeated in the interests of reducing the over-valued dollar.  A lower dollar is another necessary but not sufficient condition for avoiding or minimising severe recession, it might be noted.


The problem of excessive costs is widely discussed by failing businesses, especially in recent days by businesses who have to either operate at a loss due to massive 'holiday' pay loadings or stay closed for the holidays thus failing to provide service for customers.


To her great credit, Grace Collier of the Oz, the journalist who most understands the issues, has promised to give publicity to the unsustainable cost levels of every business that asks for help from taxpayers.


Examples already discussed include Holden's and Tyota's raft of above basic award conditions and SPC Ardmona's decision a year ago, when its management must have known the enterprise was in trouble, to agree to a 5 % wage hike.


In similar future cases like this, Ms Collier has promised: 'There is a queue of corporate beggars forming at the door of government, but I am putting the people in the queue, and their wealthy international owners, on notice.


'Try to get your hands on our money, and you will find me shining a great big torch up your jacksi'.


If you have paid the ferryman's toll to read Ms Collier's artice online, here is the link.


Otherwise, this important contribution may be found on P 10 of yesterday's Oz.


Go well, gentle readers, and be resolute if you are a business leader and be sensible if you are a worker.  As Simon Crean's father said all those years ago: 'One man [or woman]'s wage rise is another man [or woman]'s job'.  We have already had the wage hikes and now jobs on offer are sliding and will almost certainly slide faster during 2014.


Day 4 - the sledging continues
Date: Sunday, December 29, 2013
Author: Henry Thornton

Is the Pup a genius? Will the PPs show any real fight?  Will Watto's groin hold up so he can bat Australia to victory?  These are the questions, gentle readers, and they will all be answered today.


The Aussies started well.  Rogers, whose technique, and possibly his test career, seem to have taken great leaps forward since he was hit on the helmet in the first innings, and led Warner in the scoring. He edged one past the keeper, who looked like a garden gnome dressed as a wicket keeper, watching out of the corners of his eyes as a ball he should have caught was spilled by his hapless captain after a despairing dive from first slip. Four runs. The next ball, a bouncer, Rogers scooped over the slip corden for another four, a shot that only the cheekiest Indian stars have previously employed in tests.  Was it the very next over when Warner tried the same scoop shot, only to be caught by the gnome-keeper?  In between the hapless captain dropped a ball that went straight into his hands. Henry began to feel sorry for the PPs, even considering a new nomenclature, the HPs (Hapless Poms).


By lunch, with Rogers and Watson scoring confortably at 4 runs an over, Australia had less than 100 runs to go. Henry was therefore required to visit the gallery to see the American exhibition.  Our Paddington host described this as 'disappointing', with only one Hopper, 'not his best' and others similarly mediocre. Henry will be viewing this exhibition with his radio earphones in place, and his opinion may well be influenced by the course of the cricket in what should be the last session of the forth test, score zip-four.


Henry's gift in the kris kringle was Paul Keating's collected bile, correction pronouncements, called After Words. The Post-Prime Ministerial Speeches. I have picked from the first few of these pronouncements three, shall we be generous and say gems, gems in the dark arts of political sledging - (comments in brackets).


* 'The [Howard] government is responsible for the shameless politicisation of the public service' (P 18). {Gor blimey, comrades, what about Labor's (Republican) G-G, stacking the RBA board with labor mates, etc, etc.}


* 'When John Howard famously advertised his wares in the 2001 election, his advertisements said 'We will decide who comes to this country and the circumstances in which they come'. The 'we', of course, was not meant to be all of us but only some of us' (p 25). {Did Mr Keating govern for all Australians? Bob Hawke might credibly have made such a claim, but not PK.}


* 'I have never understood why the Howards and the Blaineys are so defensive. So resistent to novelty and to progress. They are more than conservatives - they are reactionaries' (P 41). {Mr Howard and Professor Blainey 'defensive? Rubbish - Mr Howard was a greatly respected PM and  Professor Blainey must be rated among Australia's deepest and most innovative thinkers.}


I had run out of interest in this partisan drivel at just the time Watto replaced Warner, and immediately set about helping Rogers finish turning the lions of mid-year into the cricketing pussy cats of late 2013. This was no easy hundred, as his fine century was said to be in Perth, but a serious though aggressive contribution to the demolition of the previously unbeatable Poms with the game still in the balance. Rogers batted confidently toward his century, Watto to a half-century until the newly minted centurian-on-Australian-soil-in-tests fell to Monty Panasar for 112 and Captain Clark joined Watto for the last rites.


The sledging of the PPs (now downgraded to HPs) continued after the stumps were collected and taken away.  A fan called the ABC team to opine that Australia was lucky that Captain (James) Cook was not as hapless as Captain (Alastair) Cook, 'or else we'd all be living in Southampton or Antarctica'.


Life can be cruel, gentle readers. Before this series various pommie pundits predicted a five-zip whitewash.


We head to Sydney, where a whitewash seems possible - but if there is one it will be zip-five.


The Pup is already a genius, whatever the result.


Day three at the `G` - the Pup is a genius
Date: Saturday, December 28, 2013
Author: Henry Thornton

The morning headline pointed out that the government's plans might be in disarray if WA requires a new Senate election, the coalition vote having collapsed while that of Labor and the independents having soared since the recent Federal election. Can it really be true that after three short months the voters already prefer Shorten and Milne to Abbott and Hockey?


There was at least better news at the 'G'. Haddin was getting stuck into the PPs, well supported by Lyon.  Ian Chapple was commenting, showing us just why he was such a good leader of the Australian team in his day. 'The bloke at mid-on is waving his arms, the bloke at mid-off is arguing with him about what the bowler should be doing and the captain is at first slip saying nothing'.


Another four to Haddin. Chapple: 'It looks like  there is no-one in charge. Or, if someone is, he hasn't got a clue'. After some splendid batting, Haddin finally lost his wicket for 65 runs leaving Lyon stranded on 18 and Australia within spitting distance of the PPs first inninings score of 250 odd. We learned that Lyon, 18 not out in this innings, is the only player from either side not to get out at some stage of this series.  This means, if Henry recalls the rules, he has the splendid batting average of infinity!


By this vital stage we had arrived to the family Christmas in Strathfield, and a cricket blackout was in place. After kissing all the women (some with more enthusiasm than others) and shaking hands with the blokes, Henry self-medicated with a bottle of crisp white wine. There was a long-lived period of nibbling and drinking while the young lady of the house showered, dried her hair, applied make-up and decided if she was going to grace us with her presence for lunch.


Bert cheered Henry considerably by reporting his smart phone had advised him that the PPs were four down for 60 odd runs, and at that point the TV had to go on.  But first the family Kris Kringle had to be completed, and said daughter left for a wedding (not her own), allowing the rest of us to ingest some food. It was a fine feast, cheered by the regular news that another pommie wicket had fallen cheaply, and then that Lyon had five-for. 


We finally left for our accomodation in Paddington, as Rogers and Warner came out to bat.  Having successfully navigated the final 30 minutes for 30 odd, this leaves Australia with only 201 runs to win the forth test in a row. Seems the colly-wobbles have finally been shaken loose, and tomorrow should prove ...


THE PUP IS A GENIUS.


Day two at the 'G' - Mitch for G-G
Date: Friday, December 27, 2013
Author: Henry Thornton

We arose on day two of the test with the aim of following the cricket on the car radio as we drove northward. The trip started well, with Henry and Mrs T being sledged by Bert and Emily Rose for the choice of the route out of Melbourne, Fortesque having left for Canada to ski with his gf at Whistler in Canada. Gor, blimey, comrades, what has the world come to?.  But the sledging was good natured and the traffic not too bad as we zigged and zagged through Melbourne's northern suburbs, finally joining the Hume Highway somewhere well into the long haul to Goulburn.


Play at the 'G' started almost immediately, and Mitch began to fire. The hapless Tim Bresnan copped the first ball of a new day.  It headed at 145 K/hour, straight toward his throat. With no choice than desperate defence, Breasnan just managed to get his bat in the way of the ball only for it to land safely into the hands of George Bailey. The bloodbath was underway.  Broad survived for a ball (or was it two) until a leg glance for 1 brought Pietersen to face the music.  He backed away to allow himself a big hit, but Mitch saw him going and changed the angle of attack so that the ball followed the English/South African, who only just got out of the way, but it was decidedly inelegant. Pietersen decided it was death or glory, and chose death.  Two balls later his mighty swish missed everything while the ball scattered the stumps.  How we cheered as we passed the third part-hidden cop car for the day at a neat 109 kph.  The inninings was all but over, with another sand-shoe crusher to dismiss Broad (HS 169) to end the parade.


There is a lot of talk that General Cosgrove, AC is to be the next Governor-General.  While we all agreed the General would be a fine occupant of this wondeful sinecure, what about Mitch Johnson, gentle readers? Anyway, as the PPs final batters trudged off, it seemed that Pup had got it right.


The Aussies had, we felt, fielded at less than optimal standard. The batters made us even more certain that there was just a touch of complanency, or excessive christmas cheer, reducing the standard of play. Perhaps Pup should have batted, and kept the PPs on the field for a day and a half. Warner played a lazy shot to go b Anderson, caught Bairstow, 9.  Watto, 'groin' clearly hampering him, poked uncertainly outside the off stump, b, Stokes, c Bairstow, 10. Clarke came in and looked in fine form but left a ball outsife off that took his off stump, b Anderson, 10. Rogers was batting like the anchor man he is, and bravely copped a crack on the helmet that would have sent a lesser man to the sheds. Smith hung about for 77 balls and accumulated 19 runs runs before falling c Bell, b Broad. Bailey hung about for 19 balls before being dismissed c Bairstow, b Anderson for a non-golden duck. Rogers succumbed to Bresnan, c Pieterson for 61 at some stage in the afternoon, a brave effort that should cement his spot in the team for the fifth test. Johnson, Harris and Siddle all went cheaply, leaving Haddin not out 43 and Lyon last man standing.


At the end of day two, Henry and team was at Goulburn, desperately searching for accomodations (Mrs T having said this would be no problem), while it had begun to look as if Pup had blown it. We found the last four unallocated beds in the town and settled our nerves with a cook your ovn steaks at the 'Tattslotto' eatin and drinkin place, highly recommended, incidentally, after a hard day's cricket.


Boxing day at the `G`
Date: Thursday, December 26, 2013
Author: Henry Thornton

For the first time in years, Henry has the opportunity to be the the pinnacle of world sport, watching Australia play the pestiferous Poms (PP) at the Melbourne Cricket Ground (the 'G').


The game is cricket, sadly not footy (AFL-style) which we'd be sure to win.  But, after a major belting in the UK, Australia, correction Mitch Johnson, had beaten the PPs into abject submission at the Gabba in Brisbane, and in Adelaide and Perth.


With Mitch in the finest form of his career, Ryan Harris and Peter Siddle is disciplined support,  Wicket-keeper Haddan consistently, and several other cameo contributions in batting, and all round excellent fielding, the Aussies were unstoppable.


Even 'Watto' was doing ok, with the occasional wicket and a wonderful century to finalise the Perth test, when the PPs were literally on their knees.


Henry is by nature a contrarian.  All the Aussies were being quoted to the effect that they were 'up' for another win at the 'G', with a recent history of limp failure to expunge.


This was, to a contrarian, a sign that the wheels were likley to fall off.  In the most recent 'Saturday Sanity Break', linked here, Henry asked: 'Will the pestiferous poms -  minus Trott and Swan, and who knows who - climb off the mat to deliver a knock-out blow on Boxing day?  Will 'Pup' again win the toss and bat on a splendid batting pitch on day one, and which turns into a mine-field about 30 minutes before tea on day two?  Will rain end Australia's chances of a fourth win? '


But Henry's eldest offspring, Bert, had acquired ticket to day one of the Boxing Day test, and which parent could resist such an opportunity.


We arose early on the big day, dressed, replaced batteries in the small radio with earphones we could both use at the same time, packed the ham sandwiches and christmas cake Mrs T had kindly made, and headed off in the elderlyTerritory. 'Where shall we park?' Henery asked Bert, who was driving. 'At this time in Victoria Street, we can park all day at 80 cents per hour', Bert explained. 'That's why I raided your stash of coins this morning.'


Bert's plan was that Henry would buy breakfast, but the relevant eating places were closed, and Henry was pleased that he had snacked on fruit and yogurt while Bert was showering ealier in the day.


By 10.15 am Bert and Henry had found their seats, high in the member's stand, but right in line with the pitch. (The games in Melbourne and Sydney start at 10.30 am so that the extra time from Pommie bolwer lassitude can be made up without upsetting the 6 pm news.)


Seats were filling quickly, with the crowd in a happy frame of mind and very few PPs to be recognised. The so-called Barmy Army were on the far side of the vast areana, and appeared puzzled when the dusky maiden performed a 'Welcome to Country', then stood for 'God Save the Queen' just as the Aussies stood for 'Advance Australia Fair'.


Captain Clarke won the toss for the forth time in the series, (so much for statistical probabilities, making one suspect he has a double-headed coin or is letting the home side bat first part of the sales maximisation sarategy). He appeared just a tad uncertain and informed the crowd that he had hoped to lose this toss. 'I can't believe I'm doing this, but we'll bowl'. The sky was overcast and there had been a sprinkle of rain as we walked from the parking place to the ground, with forecasts of showers, and perhaps thunderstorms, to come.


For the remainder of the game, the main theme was 'did Pup get it wrong?'.  The wicket, we were told, was a bit moist at first, and would present early challenges, but after that would flatten out and become a belter. Kerrie O'Keefe warmed up his irritating, mindless laugh and then it was game on.


The day turned into a wonderful arm wrestle.  Mitch, Ryan and Peter ran in, bowling in short bursts, keeping to the 'line and length' theme that is said to be the mantra of the bowling coach. Every PP got a start and at lunch the score was something like 71 for one. We ate our ham sandwiches in a reasonably contented manner, debating the pros and cons of Pup's decision to bowl and asking ourselves if Mitch was just a bit jaded.  Bert brought coffee and the clouds began to clear.


The arm wrestle continued after lunch, and the scorecard became depressingly similar. Cook, c Clarke, b Siddle for 27, Carberry, b Watson for 38 (a wonderful dismissal, the ball clipping the off-bail as Carberry shouldered arms), Joe Root, c Haddin, b Harris, 24, Bell, c Haddin, b Harris, 27, Stokes, c Watson, b Johnson, 14, and Bairstow, b Johnson, 10. Only Pietersen held out, helped by dropped catches, including a really tough chance turned into a six when he was only 4, a chance that could if taken have justified Pup's brave decision.


Verdict - Pup's brave call had paid off, especially toward the end of the day when Mitch found his mojo and removed Stokes and Bairstow in terrifying manner


Saturday Sanity Break, 21 December 2013
Date: Saturday, December 21, 2013
Author: Henry Thornton

Mrs Thornton has been out and about testing the state of retail sales. She claims to have noticed that things are far from 'hopping', and has taken advantage of the post-Christmas sales that have been brought forward. The nice man selling pasta at the Camberwell market said: 'Its very quiet this year', a sentiment echoed by other retailers. Mrs T scored a fine new pair of sandals that she'd had her eyes on for months for $25, and the shop brought in for her another pair for the same price.


Australians know things are crook in what once was called the 'miracle economy'. They are hunkering down, with inexpensive Kris Kringle gift-giving instead of making the retailers rich. Mrs T has an interesting theory about how the self-made well-off people of our generation are helping their children and grand-children cope with high house prices, ridiculously expensive child-minding and poor job prospects, which we hope she will put down on paper.


The Oz today has the extraordinarily arresting headline 'IR law puts brakes on carmakers'.  If this is 'news', Henry is a monkey's uncle.  The story of how aggressive and greedy unions have ruined one of our last remaining cottage industries is well known.  Mrs T's labor-voting mates to a woman/man all say 'let the car makers go'.  The Productivity Commission's estimate that subsidies to car-makers add up to $30 billion is a terrible indictment of governments of both stripes over the years - and they boast of removing tariffs.


Big spreads on 'The Lucky Country 50 years on' in the long weekend AFR.  We awoke this morning to the dulcet tomes of Ross Garnaut and George Megalogenius debating their books Dog Days vrs The Australian Moment on ABC radio. George trying to be optimistic, Ross doggedly (I knew you'd like that, Comrades) defending his pessimistic view of Australia's future.  Henry in fact thinks the gloomy one is closer to the mark, but here's the catch.  If we are to avoid serious recession we need to reduce the massive cost overhang that is causing companies and entire industries to shut dowm.  Professor Garnaut has no plan to abolish the cost overhang, and in the absence of a successful plan to do just that we face a long slow time of austerity and quite probably a serious recession.


More here on Dog Days.    And here on the more general issues.


Happy Christmas, gentle readers. We hope you will all be present and correct after (frugal) festivities and that someone figures out how to fix the national cost overhang without a serious recession.


The mad penguin theory of innovation


'Multimillionaire gambling polymath David Walsh says he has stumbled across the answer to an important evolutionary puzzle: why species produce surprisingly high numbers of unpredictable risk-takers who embark on irrational behaviour. They are the mad scientists, odd-ball inventors, and unduly confident entrepreneurs who apportion their time very differently to the rest of us'.


Read on here.


Cricket'n'footy'n'stuff


'The Australian cricket team is headed for number one screams' a headline this morning. 'Ouch!' is Henry's reaction.  Please do not tempt the gods in that obviously risky manner.


Will the pestiferous poms -  minus Trott and Swan, and who knows who - climb off the mat to deliver a knock-out blow on Boxing day?  Will 'Pup' again win the toss and bat on a splendid batting pitch on day one, and which turns into a mine-field about 30 minutes before tea on day two?  Will rain end Australia's chances of a fourth win? These are the questions that any serious cricket tragic will be pondering as he/she chews the Christmas turkey on Christmas day.


'Players will be sanctioned' the eminant sporting writer informed Henry as we rode together on the tram yesterday. He's already acknowledged the wisdom of Henry's attack on the hypocrisy of the AFL's fining Melbourne for 'tanking' while asserting it was not for 'tanking', or agreeing that Essendon would not be paying coach Hird in 2014 if he got the full amount due upfront, presumably delivered by Santa, before the end of 2013.


'Demetriou's got to go' was the conclusion as the tram turned into Collins Street.


The Keating.


Joe Hockey ran close, with his 'fit in or f**k off'' advice to Holden.  Glenn Stevens' 'the glass is half-full' also gave it a shake, and provides a model for boosters of Australian cricket.


But regular correspondant Gary Scarrabelotti wins the inaugural Keating award for the 'bravest political truth-telling for the year'.


'The future, if there is one, for Australian manufacturing would look like this: a mass of small- and medium-sized businesses, staffed by a workforce of non-unionised worker-owners, with the companies they own being run according to Open Book Management (OBM) principles'.


Other finalists may be viewed here, along with the contribution in 1986 that led to the creation of this award.


Words you need to know.


A reader has provided the following definition of a most useful word, especially with the festive season soon to be upon us..


Wamblecropt: 'Wamblecropt means overcome with indigestion. Once upon a time, you might observe that your stomach was wambling a bit. If the wambles got so bad you couldn't move, you were wamblecropt. It's the most beautiful word in the English language to say aloud. Try it'.


Our correspondant adds: 'I find 6 and 8 prevalent, indeed almost viewed as a core competency, by many in the corporate world'.


Nine (even) more useful words here


We wish all of our readers, special correspondants and regular writers every good wish for the festive season.


Please do not forget that you can elevate your loved one to Goldmember status for a mere $55.  Goldmembership would provide shreiks of joy, for example, if it was a gift in a Kris Kringle.  'The gift that keeps on giving'.  


Or go to Amazon, where a Kindle version is a mere $9.99 and a secondhand copy is a snip at (gasp!) $71.89. A new book bubble in the making?


Image of the week


Courtesy Sun Herald


Competitiveness, education standards
Date: Thursday, December 19, 2013
Author: Henry Thornton

Its official, government needs to do the heavy lifting of economic reform.  And the biggest area for reform is the labor market, the area where the Rudd'n'Gillard'n'Rudd government(s) did most damage to Australia's competitiveness. This, of course, is the area in which reform, at least of 'WorkChoices' dimemsion, is 'dead, buried and cremated'.


Greg Sheridan comes out punching today. 'Abbott must crush excess regulation if he is to keep the economy viable in the region'.


He quotes the World Economic Forum. "The main area of concern for Australia is the rigidity of the labor market, where the situation has detiorated further".


Then in the fin, one Max Mason reports the boss of PIMCO, 'the manager of the world's biggest bonds fund'.


"Due to elevated cost structures and a high exchange rate, Australia Inc is increasingly unable to compete in a fiercely competitive global market".


Henry cannot find the link, but the article is on P21 of the fish'n'chips version.


And we must salute Ben Bernanke in his last act likely to influence Henry's comfort in old age. Mr Bernanke has announced a tiny start to ending the 'taper' (printing money) and interest rates likely to be lower for longer. This led US share to rocket up, with Australian shares following in hot pursuit this morning.


'The US Federal Reserve announced plans to trim its aggressive bond-buying program on Wednesday but sought to temper the long-awaited move by suggesting its key interest rate would stay lower for even longer than previously promised'. Read on here, fellow oldsters.


Education standards


Regular readers may recall Henry's perhaps eccentric views that it is the rise of women in a wide range of professions that has led to falling standards of education in Australia.


This is because, before women had reached for the stars, bright women traditionally went into nursing and teaching.  Result, excellent teachers and nurses. Implication, well educated young people, a small proportion of whom went to universities the supplied excellent tertiary teaching.


Now of course, when women are Governors General, Prime ministers, police bosses, barristers, brain surgeons, Qantas pilots, even journos, and other high skill jobs too numerous to mention, it is the (ahem) less talented women (and men) who on average become teachers.


A professor-pal of Mrs Thornton revealed a staggering fact that explains why China's educational standards are so much better than Australia's.  In China, said Professor reported, women with the highest secondary school marks typically become, wait for it, doctors and teachers.  Guess which country is in the top few, perhaps even top, in the catagory of 'educational standards'.


With all the flack flying about on the issue of Gonski (now Gornski to chair the ANZ bank) and the division of an increasingly large dollup of dough among schools, etc, will someone in authority please focus on the 'cultural' fact of the quality of teachers and how these can be improved.  The private schools typically have teachers of higher quality than the government schools, and this is not just a matter of higher rates of pay.


Christopher Pyne, this is your holiday task.  If you fail to find a solution, you should be made to sit in the corner with the hat with the big 'D' on it.  Education reform won't save us from the current oncoming deep s**t, but it might help us (Correction: I mean any young person reading this column) in 20 or 30 years.


Cricket'n'footy'n'stuff.


It was so 'orrible in Perth that Henry began to feel ever so slightly sorry for the Poms.


Henry and Bert have tickets for the Boxing Day test - paid for by Bert! - at the 'G', and by then any slight sorrow will have been washed away in the haze of another festive day or two.


One saw slight signs of Pommie backbone as the tail enders actually scored a few runs, and the Aussies have been allowed (gasp!) a few beers, so perhaps the forth test will offer more of a contest.


Fiscal mess; cost catastrophe
Date: Wednesday, December 18, 2013
Author: Henry Thornton

Australia's fiscal situation is a real mess, far worse than most people imagined. The latest announcement may or may not continue the modern tradition of a Treasury department that cannot understand that repeated failure to present sensible 'realistic worse cases' destroys its own reputation and makes ordinary Australians worry that our economic and political elite don't know what is going on.


Henry cannot understrand the current opinion polls that show Labor well in front after only 100 days of conservative government finding trouble under every rock they turn over.


The case for fiscal austerity is widely endorsed - eg by editorials in the AFR and The Australian today - while the SMH emphasises that tough measures will only be accepted by voters if the overall package of spending cuts and tax hikes are seen to be 'fair'.


The required process is the same as that required by any person or company that has been living beyond his/her/its means. First cut spending and charitable grants.  Then review options for raising money, and a government of course has punitive taxation to make this part of the process technically simple.


But the outlook is so gloomy with $120 billion of deficits predicted for the next four years that many entrepreneurs would prefer to declare bankruptcy. Joe Hockey and Tony Abbott have no such option and will emerge from the coming fiscal struggle far older and battle-scarred than they are now.


Difficult as the struggle for fiscal sanity will be, it is no-where near as serious as the problem of reducing Australia's cost overhang.  The high level of costs explains why vehicle manufacturers, Qantas, tourist operators, educationaliasts and almost all small businesses are suffering with inability to makes acceptable profits, or in some cases total inability to make a living.


One reason for high costs is a greatly overvalued Australian dollar. The dollar now seems to be on a downward trend, and the battle to regain competitiveness must shift to the question of how to prevent the automatic flow-through of inflation that will result from the dollar's depreciation. Actually, costs have to fall substantially if competitiveness is to be restored quickly, and achieving this will require an unprecedented degree of political, business and worker cooperation.


'Economic reform' - cutting red tape, simplifying approval processes - will help but can contribute only a small amount in any one year.  'Reform' can make Australia more competitive in a decade or two but can contribute little in the immediate future.


If cooperation is not achieved, the traditional remedy of deep recession will be required.  Experience in Southern Europe provides little comfort.


Not much about the cost overhang in the RBA governor's opening address at Parliament, available here.  


Italy on the brink.


Ambrose Evans-Pritchard says that 'Italy’s president fears violent insurrection in 2014 but offers no remedy'.


'Events in Italy are turning serious. President Giorgio Napolitano has warned of “widespread social tension and unrest” in 2014 as the Long Slump drags on.


'Those living on the margins are being drawn into “indiscriminate and violent protest, a sterile lurch towards total opposition”.


'His latest speech is a veritable Jeremiad. Thousands of companies are on the “brink of collapse”. Great masses of the working people are on the dole or at risk of losing their jobs. Very high rates of youth unemployment (41pc) are leading to dangerous alienation'.


Read on here.


Saturday Sanity Break, 14 December 2013
Date: Saturday, December 14, 2013
Author: Henry Thornton

During recent years Australia’s budgetary position has been blown apart by foolish and misguided fiscal frolics of the previous government.  Treasury and the Reserve Bank are  of course well aware of this but cannot say this with an equally blunt manner, at least in public. A return to significant budget surplus is the only sensible course, and this will take time and great effort.  Unless Australia’s voters are convinced of the need for fiscal reform, the political fallout from sensible changes to policy will be considerable.


Australia however faces a far larger problem than restoring fiscal sanity. The bigger problem is a cost base far above that of competitor nations.  Henry is in no position to offer precise estimates, but the evidence is overwhelming. The vehicle manufacturers cannot survive without significant subsidies. Qantas is losing vast sums of money on its overseas routes. Inward tourism is struggling. Tertiary education is losing overseas customers. Small businesses throughout Australia are closing shop. Consumers and businesses alike are groaning under the burden of massive cost hikes by electricity, gas and water suppliers.


It is becoming accepted that part of the problem is an ‘uncomfortably high’ dollar. The Reserve Bank has responded with partial success by cutting interest rates and more recently the governor has said limited direct intervention may be used to further reduce the currency. Eventually there is likely to be a far larger currency depreciation imposed by market forces.


Whatever the degree of currency depreciation there will be no automatic resolution of the problem of Australia’s excessive cost base.  Currency depreciation was an important part of Australia’s response with the onset of global depression in the 1930s.  But severe depression meant that cost levels were reduced at the same time and the Australian economy quickly became more competitive.


In the 1980s, as part of the so-called Banana Republic crisis, the dollar fell a long way. The government’s response was to turn a budget deficit into a surplus and to negotiate with unions to secure helpful cuts to real wages.


The team at Henry Thornton.com believe that both fiscal reform and cuts to the domestic cost base are needed now. Without direct action to contain or even reduce the cost base the market will reduce costs by imposing a severe recession and it will be very hard for the Abbott government to avoid being blamed for such an outcome/


Innovative policies are needed to resolve both fiscal catastrophe and the national cost overhang.  In the 1950s, Britich economist James Meade suggested that the British government simply give the coal mines to the mining unions.


Gary Scarrabelotti this week suggests a version of this policy to deal with the cost overhang problem as it applied to vehicle manufacturing.


'The future, if there is one, for Australian manufacturing would look like this: a mass of small- and medium-sized businesses, staffed by a workforce of non-unionised worker-owners, with the companies they own being run according to Open Book Management (OBM) principles.


'That is to say, the employees would hold major stakes in the businesses where they work and the management of these companies would empower the workers to have a decisive role in directing the operations of the business, above all at the workplace level'.


Read on here.  Innovative policies like this are a vital part of avoiding serious recession, which is the usual way an economy purges itself of an excessive cost base.


Graduation Day 2013


Yesterday the Thornton family gathered at Melbourne's Exhibition building - the place where Australia's first national government met - to celebrate the graduation of two offspring, Eliza and Timothy, and that of (it seemed) thousands of their co-graduands.


Hard seats, hundreds of metres from the action (but with a big screen), a procession of academics in Hogwarts-style gowns and funny hats (most of the males without ties), even a Mace.  Much bowing and tipping of the funny hats, often with toothy grimaces as T Abbott is depicted by the AFR's Rowe. The authority figues (on this occasion) were Deputy Chancellors, Deputy Vice Chancellors and Deputy Deans, a veritable flotilla of deputies.  The whole event took more that three hourts, longer if one stayed for the champagne and sushi after the formalities were completed. Oh, I nearly forgot the fine address by Henry's old mate, Keith Hancock, on how the world had changed since he was a new graduate.


As readers who have attended graduation ceremonies will know, each lad or lass mounts steps, waits in line until their name is called out, then walks across the stage, bows to the (deputy in this case) chief who is handing out certificates, receives his or her ticket to ... whatever job excellence or influence can get them.


A highlight was the wonderful pronunciation of the names.  Clearly a strong grounding in Mandarin is needed at Melbourne University, and with our limited knowledge of that increasingly important language we felt those reading out the names did  a wonderful job.  Except in the case of Henry's daughter Eliza. Here I list the five first names (not 'Christian' names necessarily) and the five after that of the Thornton's darling Eliza. Yudi, Hao, Xuan, Zhimo, Fengqin, Eleeeza, Sejung, Quinwei, Nicholas (a break in the series), Hyukjoo and Lucinda.  


Degrees were handed out like eggs produced by chickens in modern egg-producing farms, and one is aware from feedback from our young darlings that is how teaching is conducted at Australia's modern degree-factories. A David John Black received a doctorate for his finding that: '... approximately 20 % of working-age employees can be deemed over-educated'. It was unclear if Dr Black's research related to the whole world, just Australia or some collection of countries presumably including Australia. But it was clear that Melbourne University is engaged in industrial education on a grand scale, and it is highly likely that many of its graduates will find jobs (if they are lucky) for which they are overqualified.


There is (we hope) only one more graduation ceremony to attend, when our oldest son Bert gets his Juris Docter (not actually a doctorate, but like other aspects of modern tertiary education, this is an inexplicable mystery) from Monash University sometime in 2014.  Will Monash hire the MCG, one is gforced to ask, to release an even larger flood of graduates onto a severely over-supplied graduate labor market? 


Kulture


Fiona Prior visits Yoko Ono's exhibition at Sydney's MCA and pays homage to the visionary, loving and naughty spirit of the Ono/Lennon partnership.


Cricket'n'footy'n'stuff.


The pestiferous poms are finally feeling the heat, real heat, in Perth.  If they think bowling is hard work, just wait until they are under a helmet with the sun blazing down facing Mitch Johnson with his 150 km an hour thunderbolts.


Sadly, footy in the news again.  The AFL famously said Melbourne was not guily of throwing matches but fined them anyway. They have a notoriously weak drugs policy and generally act like bullies in primary school. Now these iconic sporting managers have insisted that James hird can only be paid in a lump sum to avoid the AFL obiter dicta (that someone failed to write down) that the hapless James Hird receive salary in 2014. Gor blimey, Mr D, do you think we are all complete idiots?


Image of the week - to be provided after Henry's morning walk.


Economic straight talk
Date: Friday, December 13, 2013
Author: Henry Thornton

Thank goodness, comrades, some straight talking on Australia's economic problems/challenges.


Most important is RBA governor Glenn Stevens who has provided a long interview to the AFR.  Highlights include:


* Economy. Forecasts revised down 'But there are some promising signs, I think'.


* Monetary policy. Markets have priced in one chance in three of another rate cut in February. Stevens will not pre-empt the board's decision then.


* On the US Fed 'taper' and the Aussie dollar. 'You have had extraordinary policy accommodation by the Fed and, by the way, not only by the Fed, by the Bank of England, by the Bank of Japan and, in various respects, by the ECB as well. So the extraordinary policies that we’re seeing isn’t just an American phenomenon but it will be the Americans who I would expect will be the first to be able to say, “Look, we don’t need that level of extraordinary accommodation now because things are improving.”


'I think you’re right to expect that the pressure on our own currency to be downward and not upward in that world, though presumably some of that’s already embodied in the current pricing, but I would expect we will probably get some more adjustment when the event comes to pass'.


* On the likely future value of the Aussie dollar. 'I don’t think the extent of our knowledge about what’s correct is that good, but I did think 95 was rather too high. I thought 85 would be closer to the mark than 95 at the time we started to make some comments some months ago, but, really, I don’t think we can be that precise. I just think that if things over the medium term evolve as we’re presently assuming – and I think it’s reasonable to make these assumptions – it’s going to be surprising if a nine at the front is the right number'.


* On the embryonic housing boom. 'I haven’t felt particularly constrained thus far by what has been happening in housing. The view that I’ve held to this point is that we want more dwelling construction. ...
'we have seen an appreciable pick up in investor activity in Sydney ... and people ought to be careful here. Property is not the sure fire, guaranteed way to wealth that we tend to assume. Prices can fall, they don’t always rise and be careful how much leverage there is'.


* So-called macroprudential tools to limit the supply of capital to parts of the housing market,..., even though in some other countries ... seem to be going into it solidly.
'We’ve thought about these issues and we have had, as well, preliminary discussions at a working level with APRA and other agencies about if we needed to do something like that, ...
 'My general attitude to macroprudential tools is I think they’re potentially a useful adjunct to other policy tools that help you manage some of these tensions for a period of time. I think it would be a bit naďve and contrary to the lessons of history to expect that prolonged use of regulatory tools, and that’s what they are, they’re regulatory tools, and we know that regulatory tools over a prolonged period to try to make up for the fact that the price of credit is, in some sense, not in the right place'.


* On intervention to drive the dollar down. 'To the extent anything we’ve said has had some effect at nudging it down, I would regard that as probably nudging the market in the direction of the medium term equilibrium and therefore not inappropriate. But I don’t harbour the illusion that mere words ... are all powerful. They’re certainly not.


* Fiscal policy.
'I  don’t think there’s a need to do a big, discretionary, aggressive tightening in order to achieve a surplus in a particular year'.
'The real question is have we got the revenue streams to cover the good things the community wants the government to give us out over the medium term'.


* Productivity and real wages.
'Wages growth in nominal terms have slowed, to some extent that was expected, but it has been quite responsive to the softer labour market. But the deeper thing that’s happening is, real national income is growing more slowly because the terms of trade aren’t rising, they’re in fact falling a bit. That’s already showing up in slower growth in real wages,...
'I think there is a conversation to have with the community there, I think it will resonate, and what they most need is, I think, a sense that the people who are in charge understand the problem and have a plan that’s going to work, that’s what people want to hear'.
There is an understandable sense stepping carefully through the daisies on this issue, and I recommend readers go the the section about two-thirds of the way through the discussion.


* A nightmare scenario, that unconventional super-easy US (and Eurozone, and Japanese) monetary policy continues.
' I am reluctant to speculate about nightmare scenarios openly but if they all keep doing QE forever does there come a time when we, you know, over the various cycles that the interest rates just keep trending down and we end up in the same place as them. ...
'Beyond that it’s hard to see unless there was a complete retreat in our own country from rational policy making generally which I don’t think that’s happening at the moment and it’s up to you guys in the serious media and us and others [including business leaders] to articulate why sound policy frameworks keeping making sense'.


Read the full transcript for yourself here.  It is a path-breaking contribution, and well done to both Glenn Stevens and the AFR.  My main criticism is that Michael Stutchbury did not ask Glenn Stevens about the potential value of a broad-based tax on capital inflow to tame the dollar, as promulgated here.


We also need some further straight talk on how to convert a fall in the nominal exchange rate to a fall in the real exchange rate = rise in Australia's competitiveness. The real nightmare scenario is what happens if we fail in this vital matter. (More on that issue here.)  


The float of the Aussie dollar


This week has provided Paul Keating, John Stone and various other previous players - even Henry's editor - with a wander down memory lane. 


We read with astonishment Peter Martin's account in the SMAGE.  Mr Martin has done some deep delving and, except for a typo (similar to that in one of Paul Kelly's books), has nailed important parts of the 'inside story'.


Time to turn one's mind to the third test starting today on the 'green monster' in Perth.


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