Date: Thursday, September 22, 2011
Author: Henry Thornton
'Asian stocks were mostly higher after a choppy session on Wednesday, with a U.S. monetary-policy meeting on tap for later in the global trading day and with European sovereign-debt woes never far from the spotlight'.
The Wall Street Journal reported late yesterday that Hong Kong's Hang Seng Index fell 1% to 18824.17, while the more volatile Shanghai Composite Index jumped 2.7% to 2512.96.
The Nikkei Stock Average rose 0.2% to 8741.16 in Tokyo, the S&P/ASX 200 index advanced 0.8% to 4071.80 in Sydney, India's Sensex fell 0.2% to 17065.15 and the Kospi climbed 1% to 1854.28 in Seoul after seesawing earlier in the day.
"Investors are waiting for more news on Europe and for the Federal Open Market Committee meeting," said Ben Kwong, chief operating officer at KGI Asia. "The trend remains uncertain, and sentiment remains cautious."
Sadly, however, Wall Street reversed this trend overnight, despite rumours of the US Fed introducing 'operation twist' for the first time since 1961.
Robert Gottliebsen reports that CCB International Securities managing director Paul Schulte, publisher of the CCBIS-China Credit Monitor, has agreed to keep him updated on changes in China banking.
'Last night', Gottliebsen said, perhaps helping explain Shanghai's market surge, 'he sent me important news saying that it looks as if China may now be joining the growing number of non-Western countries that are loosening in the face of Western economic stagnation.
“After 16 months of tightening, we are seeing an easing in the lending attitudes of the banks. More banks are expecting an increase in loan approvals. Demand for loans remains strong”.
Northern hemisphere eyes are mostly switching nervously between the Euro debt mess and the US Fed's meeting, where the smarties are hoping Ben Bernanke finds yet another way to spread global inflation.
Henry is leaving early today (Thursday) to travel to Sydney to the conference of the NSW branch of the Economic Society.
Stay tuned, there is sure to be interesting gobbets of fresh analysis to report.
And please consider booking for the launch by the Hon Andrew Robb of Henry's e-book version of Great Crises of Capitalism. Apart from a rattlin' good time, you will be sure to better understand the lessons of history as the world grapples with the biggest economic and financial crisis this generation will face, if we are lucky.
BHP Billiton Chair Jac Nassar and RBA Deputy Chair Ric Battellino gave relatively cheerful accounts of the future of the company and Australia respectively.
And well they might, so long as China powers on.
The currency wars and us
Date: Wednesday, March 30, 2016
Author: PD Jonson
The US Fed has issued a timely warning that it will not rush to raise interest rates. Compared to the 3 or 4 rate increases expected for 2016 several months ago, signs of a slowing economy and unhappy response to the Fed's first rate hike for almost a decade has changed the outlook. At the same time, the ECB, Japan and New Zealand have recently cuts rates, in the first two cases to a point where a customer has to pay the bank to hold their cash. Such 'negative interest rates' are a policy innovation that has little or no sense, as Alan Kohler points out in today's Oz.
This has produced a 'currency war' as nations or blocs compete to get their exchange rate down. Australia's central bank is more conservative than most others (thank goodness) but its policy of holding cash rates at an already low 2% has resulted in the Aussie dollar rising, breaking through 76 cents US and headed, some traders say, for 80 cents. This presents a familiar dilemma for the RBA. This has not so far been handled well, and represents an unnecessary blot on an otherwise excellent copybook.
Australia's jobs market has been suprising by its apparent strength. Of course, a rising dollar and (dare I suggest) lack of a coherent economic 'narrative' from the Federal government is not helping confidence (or 'Animal spirits' as some economists like to call this elusive concept.) Now we learn, thanks to the Business Insider'sDavid Scutt at 4.30 am today, that expectations of job losses have been rising.
As David says, this puts pressure on the RBA to join the currency wars by cutting interest rates. But there is a serious problem with this approach. This I wrote about in early 2013, when the Aussie dollar was above parity and strangling the trade exposed industries. I pointed out the problem of trying to use interest rates (aka 'monetary policy') to both maintain overall economic stability, including low goods and services inflation, AND influence the currency markets in an helpful direction, had been tried in the late 1980s. Failure lead to 'the recession we had to have'.
Now the first casualties of the newly misplaced approach are being felt and well-informed Australian workers are beginning to fear for their jobs.
My conclusion in 2013 was as follows: 'Our floating exchange rate with an independent, inflation fighting central bank has generally served Australia well, supported by helpful international conditions. The policy now needs the support of a direct, non-discriminatory control over capital inflow. If not resolved, this problem with cause great damage to Australian industry, as it did in the late eighties, when the correct conclusions were not drawn. A similar problem [in the late 1920s] helped lead America, and then the world, into a Great Depression'. Read on here.
The currency wars are here to stay. The revival of upward pressure on the Aussie dollar and worsening of expectations about job stability are closely linked. Prime Minister John Howard famously said that ‘we will decide who comes to this country and the circumstances in which they come,’ and this is now a clear and politically bipartisan policy. It is equally clear that we have the right to discourage the excess capital inflow that is creating a rising exchange rate and renewed pressure on many Australian industries. This is the best way to resolve the current dilemma for monetary policy. The problem of uncompetitive industry cannot be solved by monetary policy in its current setting or by further rate cuts.
There has to be a better way, and there is. Contact your local member and suggest he or she looks into this matter.
Saturday Sanity Break, 26 March 2016
Date: Saturday, March 26, 2016
Author: Henry Thornton
The atrocities in Belgium continue, and thank goodness the Belgium government and security forces appear to be finally getting their acts together. With Europe's porous borders, generous immigrations policies and generally welcoming attitude to people from other cultures, especially cultures inherently hostile to modern secular (largely lapsed) Christianity, the rash of terror attacks is sadly inevitable. While big claims are being made for progress in getting the baddies, one fears for the disruption still to come. Victims have coped with horrific attacks with great courage, but must surely begin to demand stronger anti-terror actions.
Tony Abbott has spoken out on this matter in a long article in The weekend Oz which is an edited version of another in his Quadrant series. 'At home and abroad, the Abbott government strengthened our national security arrangements and reinforced our international reputation as a reliable partner.' Read on here.
Paul Kelly reminds us all that Tony Abbott is a 'potential loose cannon' in Australian politics. It is Malcolm's bold risk-taking that is his main focus today, and one has to recognise that Richo's 'no ticker' claim about our PM is been well and truly dead, buried and cremated.
One can however bewail the lack of ticker in matters economic. The nation was prepped for a 15 % GST, which is the most obvious way to fix the debt and deficit trap while allowing vital tax reform - cutting company tax and protecting us all from the ravages of bracket creep in the income tax scales.
I must say Henry strongly believes that a tax mix away from income tax and toward consumption tax would improve incentives to save, invest and work, contrary to assertions made when the GST approach was dropped like a hot spud. Also that Australia simply cannot afford all the spending plans now in the pipeline without additional revenues beyond what increased sin taxes and soaking the alleged rick folk may create.
The Abbott government was slammed in the parliament for its 2014 attempt to fix the debt and deficit trap by cutting spending. Of course a more sensible Senate may emerge from the mooted Double Dissolution election. The propensity of soft headed people to deny problems and refuse to face the remedies is a big handicap to a nation's progress.
Jared Owens reports that Liberal senator Cory Bernardi has laid the groundwork to launch a new political force, the Australian Conservatives. This could well be the beginning of Mrs Thornton's suggested restructure of Australian politics. Conservative Libs with the Nats. Greens with Leftie Labor. 'Progressive' Libs with Right leaning Labor.
Fiona Prior reads Pride and Prejudice and Zombies, written by Jane Austen and Seth Grahame Smith and judges it better than chocolate! Introduced as “the classic regency romance with ultraviolet zombie mayhem” we enter the novel with the following: “It is a truth universally acknowledged that a zombie in possession of brains must be in want of more ... brains(!) More here.
The Aussie blokes remain in contention in the T20 World cup notwithstanding New Zealand's fine victory in the opening round. Pity to hear of Shane Watson's planned retirement as he is a favourite of Henry's despite, perhaps because of, his apparent unpopularity with Australia's cricketing establishment. Still untold riches await him in the IPL, so go for it mate.
Caaarlton! brought tears to Henry's old eyes on Thursday night at the 'G'. The young team attacked Richmond like maddened dogs from the getgo, and gifted the shaken Tigers with two easy goals for what can only be described as soft (for Richmond) 50 metre penalties in the first quarter. Despite this, if Mr Casbolt had been able to kick goals they would have almost certainly caused the upset of the opening round, if not of the season. Even so they still could have won the game if the young players were not falling over from sheer exhaustion in the last ten minutes of the game.
Well done Coach Bolton and well done team!
'Stuff' this week concerns the alarming reports of off-season drug use by many AFL players, with Collingwood singled out for special condemnation. If our footballers cannot engage in some relaxing smoking or injecting in the offseason, how can we expect them to behave sensibly when the season begins? The mighty AFL has in the past taken the drug problem in a demonstrably relaxed manner, and current attempts to clean up the problem may explain the current carry-on. See Luke Griffith's long past campaign on this site.
Image of the week
Courtesy Herald Sun
Saturday Sanity Break, 19 March 2016
Date: Saturday, March 19, 2016
Author: Henry Thornton
The most interesting, and worrying, economic news is that the currency wars are again driving the Aussie dollar into realms that will seriously damage Australian competitiveness, prosperity and jobs.
The youngsters in key jobs at the RBA say silly things like 'what doesn't kill ya makes ya stronger', and I'll warrant that none of those youngsters have personally had to fight his way back from a life threatening illness or corporate disaster. What about a tax on capital inflows, boys? (References available in last Saturday's Sanity Break.)
In recent weeks, Japan and the Eurozone have thrown more logs on the fire of monetary expansion. This week, the US Fed announced that its program to begin to return cash rates to normality was slowed if not yet put on hold. As someone said, near zero interest rates and 'quantitative easing' is distorting capital markets. Worse still, it is building piles of logs that will eventually catch fire and create goods and services inflation. In the short term, the burning logs will create more asset inflation, and global share markets responded to the Fed's announcement with a grateful salute that raised share prices.
The coming global economic crisis
Former governor of the Bank of England, Mervyn King, has written an important book, The End of Alchemy. 'As governor of the Bank of England, Mervyn King was at the heart of the policy response to the last financial crisis. Now he sets out his ideas on how to prevent another one'. (Which is inevitable with the current approach to economic and banking policies, according to Mr King, otherwise known as Baron King of Lothbury.)
Despite this, so far as I can find via the mighty machine that is google, it has not been reviewed in an Australian newspaper. Gor Blimey, comrades, surely we should care about such a topic from such a man?
From all the reviews I have discovered that by the Financial Times' John Plender seems the most interesting and thorough. It is linked here.
And in conclusion: 'The former governor of the Bank of England is entitled to say that we have been warned. Those who do not agree with his recommendations will still have to concede that his book is an outstandingly lucid account of postwar economic policymaking and the dilemmas we now face'.
The US Republicans are finally showing signs of getting together to prevent Donald Trump for becoming the grand old party's official nominee for the presidential election later this year. Mr Trump has responded by saying 'there will be riots' if he is denied the nomination. That is pretty feeble by Mr Trump's normal standards. What about armed insurrection, Mr Trump? After all the weapons are out there, and Mr Trump's key supporter base look as if they'd enjoy using them in a good cause.
Locally, increasing numbers of media people are speculating about Malcolm Turnbull's alleged lack of ticker. After a long day's and night's work in the Senate, legislation that is designed to squeeze out the cross-bench 'nutters' has passed the Senate, providing the (assumed) means to do so in a Double Dissolution election. So now Malcolm T has to: (a) produce a plausible deficit reducing budget without cutting spending or raising taxes; (b) get the Senate to reject the legislation designed to smash union power in the building industry; and (c) hope that the Australian electorate is smart enough to re-elect the Lib-Nat coalition.
Australian politics has reached a point that Henry seriously considered creating a satiric column on the subject. Instead, the redoubtable Des Moore has graciously allowed Henry to post his hard-hitting email comments. Please see the first edition, available here. If anyone from the other side wishes to contribute an equally classy column, Henry shall post it, provided it does not contain libellous or obscene content.
Fiona Prior reports on the Sydney Theatre Company's presentation of Golem: "Golem is a little like a life-size graphic novel. Its political content, focuses on a society where corporate consumerism, energy saving technologies and a ratings-driven, B-grade market-place have all lined up to produce a dystopia capable of making Donald Trump President of the United States. Oops! That’s actually not quite how it goes but I’m sure you get my drift ... More here
The AFL season gets closer, and begins next Thursday with Caaarlton! vrs Richmond at the 'G'. The pundits see Richmond as a gun team for 2016 and Henry's mob as a bunch of old has-beens and young-may-never-bes so Henry shall go to the game with low expectations and bottled joy to release with every goal from the Blues, assuming there are some.
An upset would threaten Henry's health, by generating cartwheels in the stand. Punters should not forget that the Tigers were more like Pussycats in the last NAB Cup when their coach wanted the game called off because of injuries to his supposed warriors. What was wrong with parking the injured deep in the forward line, Mr Hardwick, as we used do at Nunawading all those years ago? And stayed true to the code by starting a fight when we were losing a game?
The press have already began to speculate about the chances of a Hawthorn Four-peat. 'Not likely' is one influential view, as the Weagles are coming hard, with other interstate clubs.
The classy Aussie T20 team looked more than a bit overconfident in their game last night against New Zealand. Henry feared the worst when Cap'n Smith danced yards down the pitch only to be stumped by a wicket keeper despite an initial fumble. Other famous batters also went cheaply, making it easy to switch to the footy show.
Image of the week
Courtesy The Oz
Saturday Sanity Break, 12 March 2016
Date: Saturday, March 12, 2016
Author: Henry Thornton
Niki Savva hits the bigtime with a runaway best seller. Is it history? Is it a 'political memoir'. Or just a high class gossip column? Impossible to know, of course, as the Thornton household had failed to order a copy in advance and is still on a waiting list for the second or third reprint. The residue of the Australian's promotion is not the alleged affair, which seems highly improbable, but the number of folk coming out to tell us they had warned Mr Abbott his chief of staff and his Treasurer had to go. Most weighty was Mr Howard's admission that he was one of those who had made that suggestion, and if you choose not to take the advice of such a master politician you are either a genius or too loyal for your own good.
In the meantime, all talk of tax reform seems to have evaporated. If a GST increase is impossible, and spending cuts will be blocked by the Senate, Australia's debt seems fated to get to the point that we ('the punters') can reasonably described as stealing from our children. And when, as seems inevitable, the entire middle income earners hit the second highest income tax bracket, the government will reasonably be accused of stealing from the current generation.
Following our image of the week last Saturday, revealing a massive debt total of $5.6 trillion, the Oz reported that Australia is 'In hock to the world as debt tops $1 trillion'. One of the linking facts is world record household debt to income ratio held by Australian households. What happens when global interest rates begin to rise, as they must, hardly bears thinking about.
And to add to the concerns, the Aussie dollar has crept back up to US$ 0.75. The IMF keeps reducing its global growth forecasts, New Zealand has cut cash rates and the European Central bank says it has announced a further tranche of 'Quantitative easing'. One watcher said 'the real fear is that this will not work' and the ECB may have reached a point once called 'pushing on a string'. With appropriate modesty, Henry reminds readers that in the distant past, he recommended a tax on capital inflow. We are caught in the crossfire of global 'currency wars'. If we reserve the right to decide on who comes here and on what terms, why do we not provide the same approach to investment from abroad? As we also predicted in 2013, Australia was recession bound.
“We’re going through the most serious recession in 80 years if we look at real income,” says Bob Gregory, professor of economics at Australian National University. “The mining boom was a gift that has now been taken away,” he adds. Over the past two years the commodity prices that matter to Australia, and the flow of mining investment itself, have fallen 40 per cent. Read on here.
Also: 'Collapsing house prices would almost certainly tip Australia into an output recession', though Adam Creighton is confident house prices will at worse decline slowly. Perhaps so, but there seems no way to avoid a big drop in prices of apartments in Sydney and Melbourne, where there has been massive overbuilding in that sector with more to come.
Fiona Prior sees Sydney Dance Company’s CounterMove, an exhilarating double bill that will make you yearn to be as lithe as the SDC dancers. Once over the envy you will marvel at the choreography of Alexander Eckman and Rafael Bonacheta as they bring their works – one humorous and cynical, the other elegant and serious – to an appreciative audience. More here.
Pete Jonson presents two new paintings in his Econart venture. Contact Henry here if you would like to discuss an exhibition.
Caaaarlton! fought hard against the Swans Friday night, with Henry cheering them on from his couch, with a brief break to visit the current family favourite Japanese restaurant. Glenferrie Road was hopping and all the restaurants were chokka, and we were grateful to be given a table at the back of the establishment. Buddy was awesome for the Swans but the Blues seem to have recruited well and developed A METHOD of delivering the ball to the goals.
The Matildas drew with China and both teams progress to the Olympics. How those Aussie sheilas remained unbeaten while playing five games in 10 days is a mystery, but we wish them well as they again illustrate that, at least in sport, Australia's gals are given a lot of encouragement. Roll on equal pay for sporting wimmin, Malcolm.
The T20 cricket team won its third game against the rampaging South Efricans and goes to the world cup with high hopes. The footy season will be on full throttle by then, so please excuse lack of reportage, dear readers.
Maria Sharapova has been pinged with 98 others for taking a newly banned drug that in healthy persons supposedly makes them able to perform stronger for longer. Here is an article that makes the case that WADA should have provided more notice and greater publicity about the newly implemented ban drug. But if Essendon players got a year off for unknowingly allowing themselves to be injected by the club's substance guru, Maria must be headed for the high jump, at least 2 and possibly 4 years in the cooler.
Image of the week.
Courtesy The Oz
Saturday Sanity Break, 5 March 2016
Date: Sunday, March 06, 2016
Author: Henry Thornton
This was the week in which the Catholic Church was put on trial for failing to stop the rot of paedophilia in the Diocese of Ballarat thirty years ago. It was Cardinal George Pell in the box at the Australian Royal Commission. He was grilled for four long (four-hour) sessions by video link from Rome by interrogators from the Royal Commission in what Henry - raised as a Presbyterian - was inclined to describe as a witch hunt.
It is agreed that Father Pell as a young priest 'could have done more' to ask questions of his Bishop and perhaps to try to have paedophile priests sacked or reported to the police. What is also beyond dispute is that when, as Archbishop of Melbourne, George Pell had the authority to clean up the mess he moved promptly to do so.
Henry believes that Cardinal Pell answered the barrage of (some times hostile) questions with unflappable dignity, clarity and honesty. His current job is cleaning up the finances of the Vatican and he is by general report doing this in the same considered, measured way that he sorted out the sexual misbehaviour in the church in Victoria.
The evidence is that such sexual misconduct was a problem for many organisations in Australia all those years ago, and in some pockets still is. We trust that the Royal Commission publicises this matter and the need for constant scrutiny wherever adults are in charge of children, especially when there is lack of normal scrutiny in cultures far more alien that the Catholic Church then or now.
What about such abuse in settlements in remote bush locations or in quiet pockets of suburbia? Or genital mutilation, lack of education and forced marriage of young girls in cultures remote from the Australian mainstream? Even the drug trade that ruins so many young lives is another form of abuse society needs to contain if not entirely eliminate.
The Australian government is ruling out, indeed has ruled out, just about every tax and welfare reform that could fix the budget deficit. Government spending remains extraordinarily robust and even with a reformed Senate will remain so - after all, as Joe Hockey tried to tell us, we live in an entrenched Age of Entitlement. The Commonwealth government deficit has blown out from zero under Messrs Howard and Costello to discomfort now and worse to come while-ever the budget remains in deficit, which on current estimates is 'as far as the imagination can show'.
At the same time, household debt is described variously as 120 % to 150% of household income. The latest national accounts data showed strong growth of spending by both households (mostly debt-financed) and governments while national income continues to fall.
Current debt levels are only possible because global interest rates are at record lows. Soon global rates will need to rise, and readers are encouraged to consider the cost of debt service for both government and households when normal interest rates are re-established.
The image of the week below comes from a fine Australian economist who has also been a successful business leader.
Fiona Prior see the Coen Brothers Hail, Caesar! 'If you are looking for a Coen brothers’ movie like Fargo, The Big Lebowski or No Country for Old Men, don’t even think of seeing Hail, Caesar!, as you will be disappointed. If you want a little fun however go buy your tickets now. More here:
What can we do to change the Age of Entitlement? Apparently a high proportion - 75 % of seniors on one estimate - receive a full or part pension. Henry's parents regarded accepting a pension from government as shameful, preferring to live in genuine poverty, alleviated to some extent by help from their children, who were battlers themselves when their parents needed such help.
After showing a flicker of form against Hawthorn two weeks ago, Caaarlton! were flogged by Essendon's team of raw recruits and players out of retirement last week. One brave tipster said the Blues will not finish last but clearly the journey will be long and hard.
The Matildas, as Australia's soccer ('futball') sheilas are called, are battling brilliantly so far in the intense attempt to win a place in the Olympics at Rio. Its just about a game every second day, a task Aussie elite males would not take on.
As footy winds up, cricket winds down, with a World T20 Cup on the line. Our lads are number 1 in C1 (tests), C2 (ODI) and number 8 in C3 (T20). Do your best lads, but keep your focus on those number 1 places.
Davis Cup is underway, with Mr Tomic back in the tent (and winning on Day 1 to keep us in the contest). Non-playing Captain, Mr Hewitt, may be going to front up for the doubles, but we sincerely hope Mr Kyrgious can arise from his bed if the tie is at 2-1 (or even 1-2) by Sunday.
Image of the week
Gliding toward global crisis
Date: Wednesday, March 02, 2016
Author: Henry Thornton
Last week's G20 meeting was reportedly a gloomy affair. The IMF has been revising its forecasts down for some time, and has reached global growth below 3 %, some think 'recession' territory. Value of world trade fell in 2015 by 13.8 %, and 'Baltic Dry' index of shipping costs is at a very low level. (See graph below.) Ed Conway of The Times says: 'At worst, we are sliding towards a global slump. At best, this has become a limp, lifeless recovery ...'. (Available on P10 of The Australian today.)
At the G20 meeting the central bankers 'hinted' that monetary policy could do no more, and the Germans rejected the idea that the world could spend its way out of trouble. Ed Conway reprises the cause of the crisis: 'A financial crisis that began in the US spread to Europe, where it caused a secondary banking and economic crisis before fanning out across the globe. Mass unemployment, especially in Europe, collapsing trade volumes, competitive devaluations, rising extremism and growing dissatisfaction with the ruling classes, who meant well but couldn't find a way out'. If you are of an historical set of mind, all this should remind you of the 1930s.
I said in the final chapter of Great Crises of Capitalism, written in 2010: 'The biggest threat to modern capitalism in my view is the possibility of instability caused by policy swings: expansion; recovery; asset inflation; goods inflation; policy tightens; economy falls back; recession starting the whole process anew. Such outcomes would destabilise the beliefs of the econocrats in major countries, as well as their political masters. It would also present a severe blow to the confidence of households and firms, and confidence is a vital part of the capitalist way'.
Ed Conway now sees a real possibility of a 'lurch back into depression', as in the late 1930s. He observes that the world total global indebtedness 'has never been as high as it is now'. At some point, a large chunk of this debt will need to be written off. But debt is so high because of sustained near-zero interest rates, which is a deeper reason for current woes. So is the divergence of ownership of debt - China and other 'new economy' nations financing the debt of profligate Western nations.
Former Bank of England chief, Mervyn King, has written a book called The End of Alchemy. Ed Conway reports that Mr King says the cocktail of low interest rate, high debt levels and its gross misallocation 'makes another crisis inevitable'. The solution, if a solution is possible, lies in greater international cooperation. China and Germany need to spend more, the USA and UK need to invest more. There needs to be international agreement to reshape debt burdens and a new international deal to reshape the global monetary system.
'But even as we glide towards another crisis, the impetus for multilateral deals is dying'.
Saturday Sanity Break, 27 February 2016.
Date: Saturday, February 27, 2016
Author: Henry Thornton
What a weekend. John Howard comes out to play, regretting the lack of an economic policy that promotes serious tax and IR reform. As we all do, dear sir, but it is comforting to have your support. And on Friday, KPMG boss, Peter Nash, regretted the Turnbull government’s ‘debacle’ on tax reform. The report, in Friday’s AFR, says: ‘Tax experts say changes that raise the rate of the GST to pay for company tax and income tax cuts would deliver the biggest boost to growth but are unpopular …’.
And Tony Abbott joins the debate. While this is an acceptable defence of his government’s failed attempts to fix massive economic problems, he provides a key judgment about fiscal policy that I have rarely been said by politician or economist, but is almost certainly correct: ‘Nearly two years on from the 2014 budget, getting spending down remains the critical issue. Contrary to Keynesian orthodoxy, as recent UK experience suggests, reducing deficits is the key to increasing private sector confidence and unlocking more prosperity. It’s also the key to tax reform because, without lower spending, any tax changes must either increase the overall tax burden or increase the budget deficit.’ Read on here, or here if you do not subscribe to the Australian.
Friends and colleagues are uniformly appalled by the approach of the Turnbull government to the issues canvassed by Tony Abbott. Clearly the party is deeply divided and the carnage will be unprecedented if Mr Turnbull loses the coming election. One assumes the idea is to win with relatively benign tax and welfare policies and if he wins, go for it in the first budget after that. But in the meantime, the GST increase having been ruled out, the spending cuts necessary to avoid the horrible anti-growth income tax increases due to bracket creep will be just impossible to achieve.
Is has sometimes said that the Fraser government was policy-shy because of the unorthodox manner of its win over the Whitlam government. Could we be seeing a strange version of guilt blockage again?
‘The global average temperature is likely to remain unchanged by the end of the century, contrary to predictions of climate scientists that they could rise by more than 4C’ says a leading statistician, Professor Terence Mills of Loughborough University.
Professor Mills ‘used simple statistical methods, normally used to predict economic trends, to forecast future temperatures’. (His data base started in 1850, whereas ‘Climate Scientists ‘tend to focus on the period from 1975 – 98, when temperatures rose by 0.5C.) Read on here. And here is a report of a more cosmic approach.
Fiona Prior sees Oscar nominee for Best Film Tom McCarthy’s Spotlight: 'I believe everyone knows that Spotlight centres on the Boston Globe’s landmark 2002 exposure of widespread child sexual abuse by Catholic priests in the Boston area. The Globe won the 2003 Pulitzer Prize for the story...' More here
Are other readers as angry as Henry and Mrs T over the proliferation of adds for gambling on the boxes of Australia? While gambling can be seen as a precuser of entrepreneurial activity, surely in all seriousness encouraging gambling is just stupid. Like Bill Shorten’s plans to massively increase tax on smoking, let’s greatly add to the government’s coffers by slapping a GST of 50 % on gambling turnover.
The extended cricket season is over after a gritty win against McCallum’s Black Caps. The gutsy NZers always fight hard, as we learned first at Gallipoli but have seen many times since. Even their 15 % GST was introduced a nary a grumble and the NZ economy is doing at least as well as ours despite lacking massive resource bases and other benefits of life as a ‘lucky country’. Now the footy season can begin. Sunday’s NAB Cup game against the downtrodden Essendon looms as a danger game for Caaaarlton! Last year’s best and fairest player, Patrick Cripps is out with a bruised knee and aging stars Walker and Murphy have not yet fully recovered from shoulder surgery.
Australia’s defence white paper has finally emerged and is reported to have left China ‘dissatisfied’. Costs will be a massive $145 billion over ten years. Still small voices around Australia bewail the emphasis on large boats and submarines, which according to some are very easy to find and destroy. Henry hopes that the mighty CSIRO is researching some sort of dread disease, which Australians can be inoculated against, that attacks with devastating effect anyone who steps on out sacred soil without the necessary jab at an official immigration post.
Image of the week
Courtesy Herald Sun
Global policy gridlock
Date: Wednesday, February 24, 2016
Author: Henry Thornton
The currency wars continue - Europe and Japan cutting rates below zero; China is in strife as it attempts to pivot to consumerism; America attempting to move slowly toward normality but now its monetary Chief, Janet Yellen is hinting that a stalling economy may stay her hand. The worry is that large deficits and already easy money leaves little room to move. Are the global policy-makers 'out of ammo?' the Economist asks this week.
The venerable mag asserts the 'faith in monetary policy is wavering'. This loss of faith is as good a reason as any for depressed Animal Spirits producing market volatility and losses in values of share portfolios. But more generally, there is loss of faith in the ability of governments to restore strong growth. The most worrying example is Japan. After its massive asset crash in 1989 and 1990 it has struggled to produce any growth, and an aging population is a further core reason for poor economic performance. The western world suffered a substantial asset crash in 2007 and 2008 which produced dramatic cuts to cash rates of interest, bailouts of failing financial institutions and fiscal expansion just about everywhere.
Most developed nations are also suffering slow or even negative population growth, hardly a reason for cheerful investors or powerful investment plans.
While many governments are struggling to restore fiscal discipline, such actions run counter to the extreme ease of monetary policy. The ever optimistic Economist says governments are not powerless. Sensible infrastructure programs would create jobs and raise national productivity. So would 'economic reform', and many economists would if asked line up to present their agendas. Slashing bloated bundles of red tape could also help create growth as (in theory) would the streams of immigrants from the Middle East into Europe or Mexicans into the USA. Trouble is, timid governments avoid policy agendas, governments are usually not so good at picking effective infrastructure projects, and refugees are not always job ready, or even culturally ready.
In any case, says the mag, politicians 'are weak and too quarrelsome to act'. The outlook for effective political leadership is bleak. 'America's political establishment is riven; Japan's politicians are too timid to confront lobbies; and the euro area seems institutionally incapable of uniting around new policies'.
Perhaps, as the Economist says, 'a full blown crisis will force action' upon timid pollies. But this is by no means certain. 'Behind the worry that central banks can no longer exert control is an even deeper fear. It is that the liberal, centrist politicians are not up to the job'.
Saturday Sanity Break, 20 February 2016
Date: Saturday, February 20, 2016
Author: Henry Thornton
It will be long, and it will be hard, like a test match of infinite duration on a flat pitch against boring bowlers. Reminds one of the good old days before the Big Bash and before even the ODI was invented, with Scott Morrison as Bill Lawry and Malcolm as Richie Benaud. The bowlers are the dullest of pommie trundlers, whose modern political counterparts are Bill Shorten and Chris Bowen, with the odd over from Tanya Plibersek. Looks like a boring season, with no Warners, or Voges or Khawajas on the home side and no demon quicks or cunning twisters among the visiting ranks.
Still, it will be one for the serious fan, Australia’s political tragics. Niki Savva reminded us all this week that Cap’n Turnbull has only to appeal to the centre of Australian voters to hold his place. Around the world – in the USA and UK at least - the ‘progressive’ parties are moving to the left while at least in the USA the less progressive side seems by the evidence of the success so far of Messrs Trump and Cruz to be well to the right. Mr Shorten’s espousal of government spending and continue growth of Australia’s national debt gives him a renewed place among the lefties – Jim Cairns rather that Paul Keating.
But I digress. As Niki put it: ‘Malcolm Turnbull will succeed as Prime Minister of the Coalition government if he follows to the letter the prescription he articulated so well before Monday’s partyroom meeting.
‘Everything he said he would do, or that needs to be done, is the opposite of what occurred under Tony Abbott’s rule, which ultimately led to the latter’s ruin. Proper cabinet processes have to be restored; a competent energetic frontbench has to be put in place; consultation must occur within an infinite circle; respect has to be shown by the leader, his staff and all other staff towards all MPs regardless of their views; a decent communications strategy has to be applied, with the right personnel running it, ensuring policies are properly explained from inception to execution’.
From where Henry sits as a (self-funded) almost ‘retired’ (from making money) person it seems sad that Australia’s current economic woes cannot be fixed a bit faster and more decisively. More like the cricketing era of Ian Chappell or Ricky Ponting, or perhaps the era of Steve Smith we are entering. Still, if the major parties combine to get rid of the policy-free zones that represent such a blocking force in the Senate, or if Cap’n Turnbull remains popular and wins a double dissolution election, faster and more decisive remedial action may be possible.
Economy and markets
Global experts reported in an insert to Friday’s Oz, ‘including two Nobel laureates’ are generally gloomy about the state of global economies. Eugene Fama says: ‘China will hit a wall, or explode, unless they figure out how to make their political system much more open’. The author of this fascinating compilation, Adam Creighton, concludes by bewailing the state of economics: ‘mainstream economists’ comprehensive failure to foresee the financial crisis has burst the discipline’s pretence to a uniquely privileged into how the world works’.
Judging by Friday’s Fin, however, professional investors have overtaken the disappointing economists. “Time to buy shares’ was the big message, obviously a mistake if the twelve eminent economists’ gloom about the global economy is correct.
Henry remains in the camp of the gloomsters.
Fiona Prior visits the colourful artist Grayson Perry's exhibition My Pretty Little Art Career at Sydney's MCA. "As you walk into the Grayson Perry exhibition, over a giant, golden teddy bear on the MCA’s stairway, then into the lifts with “My Pretty Little Art Career” graffiti, then into Grayson’s installed works on level three ‒ vast in scope and ranging from vibrant ceramics, to intricate silk embroidery, to oversized tapestries, to frocks, sketchbooks, videos … all in alluring splashes and squiggles of vibrant colours ‒ you think ‘Oh my God how gorgeous!’
Get up closer and you just think ‘Oh my God!’ as some of the details on the works reveal themselves as phalluses and fetishized scenes, or intricate maps (somewhat like a Tolkien rendition of Middle Earth) revealing carnage as every minority group from non-smokers through Catholics, through to homosexuals, through to the Royal family is bombing the hell out of everyone else’s minority settlement. In short, you realise Perry’s work is highly political. More here
In the real world of sport, Australia started well in its task of farewelling Brendon McCallum with another good thrashing, at least until McCallum himself came to the crease and began to hit the bowlers over or into the ropes with gay abandon.
Friday night Caaarlton!’s largely new, very young players took on the might of the Threepeat premiers and we prayed in advance that the decimation would not be too brutal. In the event, the Hawkes were kind and the newBlues lost by only 21 points. Actually it was a low scoring game and Caaaaarlton! scored most of its points in the first quarter. Report here.
Image of the week
To be posted in the meantime, see Nicholson on p 37 of the weekend Oz
Saturday Sanity Break, 13 February 2016
Date: Saturday, February 13, 2016
Author: Henry Thornton
It seems that the economic case for substantial cuts to income tax funded by a rise in the rate of the GST is insufficiently large to be worth pursuing. While we are not privy to the evidence on this matter, one might have thought that a higher GST discouraging consumption (after compensating those people in genuine need) with income tax cuts providing greater incentive to work and to invest would provide some net stimulus to growth.
Cutting welfare entitlements would also boost efforts to work and to save for old age but will of course be agonisingly difficult as Joe Hockey's call for an end to the age of entitlement seems to have been lost with its lack of selling and his move to Washington.
Meanwhile the deeper thinkers are beginning to conclude that the western world is facing a long period of slow growth. Aging populations, entrenched unfunded welfare entitlements, the steady rise of corporate and government debt, the shock to Animal Spirits from the GFC and the apparent onset of a bear global market in equities will all act to stifle growth. Bold governments may by economic reform including a focus on innovation provide a countervailing force, but Henry advises readers not to rely on such initiatives coming to your nation, state or local council.
Planned retirements and effective sackings have allowed a bold reshuffle to refresh the government's ranks. More women and younger blokes in cabinet and promotion of some highly competent new ministers and assistant ministers all improve the talent base. Warren Truss and Andrew Robb will be missed, while Barnaby Joyce and Steve Ciobo will bring fresh faces and feet in large shoes. Fiona Nash, newly elected Deputy leader of the Nats, provides a breath of fresh air to a party previously largely associated with rather elderly males.
Bill Shorten continues to sneer at any effort of the Turnbull government and having seen off (as he sees it) any thought of a higher rate of GST now offers in addition to a general tendency to soak the rich a limit on negative gearing and a reduction to one quarter to the discount on income tax for capital gains. Great way to discourage entrepreneurial flair, Mr Shorten.
Henry and Mrs T were treated last week to preview showing of a delightful movie called Brooklyn. Reflecting as it does on the difficulties of a mixed (in terms of national origin of participants) marriage it will provide food for thought in today's highly mobile young people. Here is a link to the trailer.
Fiona Prior sees the Oscar nominated Carol featuring Cate Blanchett.
"I must admit that I am Cate Blanchett-saturated and it was only at the wish of a dear friend that we went to see Carol, one of Cate Blanchett’s latest cinematic triumphs! The result of this excursion was that both the film and my friend had me viewing Ms Blanchett and her work from an entirely different perspective, a complete ‘zoom out’ from my usual position. More here.
Steve Smith won the toss and invited the brave black caps to bat on a pitch tinged with green. Just as well that Mitch Johnson and Mitch Stark were not bowling but their replacements played well and got the job done. Then our brave openers staged a mini-collapse but Capn Steve, Usman Khawaja (who earlier took a spectacular boundary catch) and Adam Voges (who survived due to an 'horrific' umpiring decision) settled in to build a large lead by the end of day two.
Soon footy will replace cricket in most households and this cannot come too soon for Henry. Not that he expects too much from Caaarlton! but he hopes they will at least lift themselves from the bottom of the ladder. Geelong are being promoted as the coming power, but Hawthorn, West Coast, Richmond and perhaps even Adelaide should make up half of the top spots in the 'eight'. And, as someone once said, it is better to travel than to arrive.