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Henry Thornton - Contributors: A discussion of economic, social and political issues Blogs
IMF throws in the towel
Date: Wednesday, September 21, 2011
Author: Henry Thornton

The IMF Chief Economist Olivier Blanchard has thrown in the towel and downgraded the lumbering international agency's economic forecasts.

Though Blanchard still expects 4 % growth for the world, hardly shabby, his forecasts for developed countries have been edged down from 'barely acceptable' to 'bloody miserable'. (These are technical economic terms that sound far more impressive in French, ze language of love.)

As warned yesterday, expect a backflip from Madam Legarde on the question of whether developed nations should tighten their belts or send out for more pizza.

Australia's Treasurer has been made 'Finance Minister of the year', an accolade that must peeve Ms Wong. Henry recalls once being told that 9 out of ten winners of Btitain's 'entrepreneur of the year' award ended up broke withing 2, or was it three, years.

Flushed by the award, will Treasurer Swan now blame the slippage into developed nation misery as an excuse to abandon the 'return to surplus by 2013' promise.  Like 'no carbon tax' and 'we will never send asylum seekers to countries who have not signed the UN protocol and dealing with refugees' this budgetary election commitment will prove to be just as firm.

In the gloaming

Amongst the fading light, the Rugby World Cup was meant to kindle light and hope, that is until Australia was choked into an all-but-impossible position by an inspired Ireland.

TP Maher reports here, and if he stays off the turps will continue to do so as the tournement unfolds.

[Ed: We must apologise and withdraw.  TP Mahar would never dring turpentine.  We acknowledge that he is a lifetime single malt quaffer.]

Work hard, innovate and save.
Date: Tuesday, December 16, 2014
Author: Henry Thornton

The Treasurer and Finance minister have provided the current 'best guess' about Australia's budget, and it is an ugly picture.  We are all hostage to the budget mess just as surely as were the unfortunate people held hostage in the coffee shop in Sydney's Martin Place. Fixing the budget will require stern action by the authorities, as in the Martin Place siege, and there will be casualties.

Some people will find this description macabre, even offensive.  But it is a macro statement of the horrible micro-events of yesterday in Sydney.  After living high on the hog - too high it turns out - Australia is facing a difficult and painful readjustment to a new reality.  Never before has Australia (or any other country, it must be noted) enjoyed a massive boom (not of its own making, it should be noted) without an equally tough bust. The development boom of the 1880s was followed by deep depression in the 1890s. The share boom of the 1920s was followed by the deep depression in the 1930s. The resource boom of the early 1970s was exaggerated by the over-spending boom of the Whitlam government and followed by a jobs bust and then the long, dreary government of Malcolm Fraser.

Famously, the Global Financial Crisis (GFC) followed a massive real estate and share boom but the bust, though severe, lead to a long recession but not a great depression, except in the poor and heavily indebted nations of the Eurozone and the hard working nations of Asia.  Southern Europe was forced to adopt savage deflationary policies, and prevented from currency devaluation to restore competitiveness, and these nations are still wallowing in deep depression whose ultimate consequences cannot confidently be predicted.

Australia was a polar opposite to Greece, Italy, Portugal and the other poor nations of Southern Europe. The China boom was hardly touched by the GFC and our resource boom rolled on.  Australia's government panicked and the head of Treasury, Dr Ken Henry, advised a crude Keynesian remedy - 'Go early, go hard and go households'. This may have saved some jobs, but it fostered all the wrong cultural messages. Spend, not save.  At the first sign of trouble, your government will provide. There is no need to cut consumption and raise productivity in the face of a severe global shock.

This writer much preferred the Icelandic solution when its three banks failed and could not be saved. 'You will have to learn to go fishing again' said the Prime minister.

Many nations are still wallowing in prolonged recession, Japan and Europe in particular.  America is showing signs of recovery, but asset prices are roaring and recovery is likely to be compromised when the US Fed begins to raise interest rates. China's miracle economy is slowing and global commodity prices are being decimated.  Australia's mini-miracle economy is suffering from the end of the investment phase of the mining boom while many other industries have been damaged by the greatly overvalued currency which, thank goodness, is finally and belatedly now sinking.

Australia's governments have since the onset of the GFC suffered a string of surprises that manifests most clearly in Treasurers constantly overestimating receipts and underestimating budget deficits. While the falling exchange rate is mainly due to falling commodity prices, international investors are noticing our inability to control these deficits.

Australia's government debt was negative when Peter Costello handed the keys of the Treasury to Wayne Swan. Now it is rising with successively higher budget deficits and if this is not stopped far sooner than currently predicted Paul Keating's 'Banana Republic' cry will again be heard. It should not be forgotten that household debt and business debt also has to be serviced, and with current trends Australia's total debt will be become a serious limitation on individual economic freedom, even if it does not currently look that way.

Jobs are growing more slowly than population and therefore the rate of unemployment is rising even though many older Australians are dropping out of the workforce. Furthermore, part time jobs are providing most of the jobs growth, and many of the available jobs are low paid and do not use the skills current young people have acquired in universities. There is a glut of graduates in law, for example, but law firms are the latest to send work offshore where, a senior lawyer said at a recent social event, work can be done at 10 % of the Australian rate. Accountancy will follow this trend shortly, while Fly-in, Fly-out work practives sould an ominous warning.

Australia needs policies to fix the budget.  The quality press is beginning to point out that Labor must help fix the mess it did so much to create. Cross-bench Senators have a lot to answer for also, as they have so far blocked several of the more important budget repair efforts and seem to think like Labor 'the budget crisis not belonga me'.  Overall cost levels are far too high and will be even harder to fix than the bloated budget.

'Enough, Henry', Mrs T has cried. 'Dinner is on the table'.  Henry and his family are blessed, but like all Australians subject to the iron laws of economics. Instead of Ken Henry's crude Keynesian dogma, the alternative should be: 'Work hard; innovate; and save. Not so snappy, or populist, but far more likely to produce a real mini-miracle economy.

Saturday Sanity Break, 13 December 2014
Date: Saturday, December 13, 2014
Author: Henry Thornton

'Get real' says RBA Chief Glenn Stevens to the pollies.  Guv'nor Glenn deserves a gold medel in public policy for telling it as it is.  Retiring Treasury Chief, Martin Parkinson, gets the silver medal for his advice in deficits as far as the mind can imagine. Treasurer Joe Hockey is also in the medal-winning frame (as the argot allows) with his forthcoming mini-budget, and for admitting his first budget lacked the careful 'narrative' used by previous governments seeking to inflict tough management on an hedonistic nation.

(Memo Dr Parkinson. Contact Henry here if you wish to become one of Henry's special correspondants.)

So wonderful to read today of 'Coalition axing 175 agencies'. Buy the Oz and ponder the list of bodies, each of whose chairperson was in line for an AM or better, and whose meetings involved overnight stays at good hotels, aeroplane flights in business class and often luxurious hire cars to transport the eminent agency board members to and fro.

The government has reached accomodation with the Senate micro-parties on one or two of its more controversial savings and there is more effective politicking to be done on this front yet.

So the nation is, or should be, ready for some serious budget clipping and patriotic constraint.

History wars.

Hal Colebatch's Australia's Secret War: How Unionists Sabotaged Our Troops in World War II was a co-winner of the Prime minister's Literary Award for History.  This is marked by a nice article by Mr Colebatch in the Weekend Oz today, link to come, but on P 17 in the fish'n'chips version.

The introduction to this fine contribution was posted on this site in October 2013, with permission of Quadrant and the author, and currently has a 'member's rating' of 4.8/5.  The story deserves to be told to all Australians. As the Oz says 'Militant unions held the country to ranson and helped end [Prime minister] Curtin's life'.

Best blogs of 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.


What a blinder of a test match, with wonderful batting from Warner, Captain Courageous and future Captain Smith. Great bowling by Lyon, who looked more like Warnie than ever before as he showed the Indians that they are not necessarily the world's best players of spin.  Day five looks like being just as much fun so stay tuned to the ABC if travelling or to Channel Nine if enjoying a nice couch potato day at home.

STOP PRESS: A glorious end to a great test match. India looking like winners until Lyon produced a day for the ages as he bowled them put with not many runs to spare. On to the Gabba, where the pitch should be green, the temperature will be hot and the beer will be cold, but there will be no Captain Courageous.

ASADA has lost a battle to have a court insist that the guys who really know the truth give evidence.  Henry is no lawyer, but this seems likely to cruel the chances of cleaning up the great sport of footy. With 4 tests to come, Henry will now focus footy talk on the 2015 season, which in his always optimistic brain flits the ideas of Caaarlton! finishing ... in the top eight.

Meanwhile the hockey players seem to have done well, with the girls' teams in all sports doing exceptionally well. Regular readers will agree this is evidence for Henry's theory that women in Australia are given a better 'go' than just about anywhere else, but try telling that to Julia or Peta if you want a bop on your noggin.

Henry is exhausted after six months in which at any one time two out of the three start-up entities he chairs have been in crisis.  Fortunately - touch wood - all three entities have emerged into sunlit uplands as the year draws to a close. Aplogies at sparsity of blogging during recent times, but regular transmission should resume in the new year.

Image of the week

 Courtesy Herald Sun

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.

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