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Henry Thornton - Contributors: A discussion of economic, social and political issues Blogs
Europe stuffed, US stagnating; Asia growing
Date: Thursday, November 03, 2011
Author: Henry Thornton

One of Henry's most read blogs was posted on 1 November 2007.  Its heading told the story 'US recession inevitable; China unstoppable'.

The visiting guru, like Voldemort whose name cannot be spoken, has returned to Australia for his annual visit, slightly peeved that his visit coincided with the horse race that stops a nation, as this reduces his opportunity to practice his guruship.

Henry caught up with said guru thanks to the good offices of Shane NcNeice.  His headline on this occasion might be 'Europe absolutely stuffed; US to struggle for a decade or more; Asia to grow strongly'.

(Alert readers will see that Henry has no future as a writer of headlines.)

'Greece will default' was the opening salvo.'Its public service is overstuffed; it joined the EU with dodgy numbers simply to get German rates of interest and borrowed far too much; the New Drachma's are already printed so Greece can cut wages by devaluing, which is far more palatable than cutting wages by 50 %'.

'There is no way they can avoid default; the Germans are simply not gonna pay; Greek debt will be written off 100 %; Greek banks will be bankrupt, and the State owned German banks and French banks, who also hold a lot of Greek debt, will be in trouble'.

'Greek debt default and interbank loans will freeze the Eurozone banking system which will need to be recapitalised'.

The guru acknowledged that US banks will not be immune as they are heavily involved in the Eurozone interbank market and have like Lehman Brothers issued a lot of credit default swaps that will be triggered when Greece defaults.  Like Lehman Brothers, we know there are a lot of these instruments out there but the statistics are almost non-existant.

When questioned the guru agreed that, 'within a year', Portugal, Ireland, Spain and Italy would also default. While the guru implied that all this Eurozone mayhem would largely be contained within Europe, many in the audience, including Henry, wondered how this could be possible.

'Mrs Merkel has no interest in solving this problem', the guru added. 'She just kicks the can down the road.  The crisis is keeping the Euro low, and with low wage increases and subdued labor costs in Germany this is helping to make German industry incredibly competitive'.

'There are no jobs in Greece (or the other weak nations of Europe) for young people who are queuing up to emigrate'.

'The big central banks are printing money 24/7; banks are not lending but accumulating cash to cushion themselves when the defaults are triggered.  The latest statistics show US base money grew by 37 % in the year to September'. Henry observes that Milton Friedman must be spinning in his grave.

'The US budget deficit is 9 % of GDP, or $1.3 trillion. The Democrats want to raise taxes, and the Tea Party Republicans want to cut spending.  There is complete political gridlock. Bene Bernanke is printing money like crazy and using most of it to buy government securities - eg $855 billion of that $1.3 trillion deficit.

'Foreigners are reaching their limit for buying US Treasuries and China is selling down'.

Warming to his task, the guru noted (to Henry's delight) that there aret two sorts of inflation - goods and service inflation and asset inflation.

Goods and service inflation is dead in the USA, as it was for 40 years after 1929.  Young people who can't get jobs will be 'scarred for life' and except for food and energy there will be no goods and services inflation.

'But asset inflation is everwhere, even asset bubbles.  The Australian dollar is a bubble, US Treasuries, Gilts, JGBs, even London houses, which are being purchased by Arabs, Russians, Indians and Chinese, are bubbles'.

'Eventually there will be a Northern Europe Euro and brutal readjustment in the South. We're talking about social revolution'.

There will be stagnation or slow growth in most of Europe and the USA, 'at least a decade of austerity'.  Demographics will also hinder Europe, where indigenous Europeans are not replacing themselves, except in Sweden where there is two years paid maternity leave'.

'China is allowing wages to rise so that consumer spending can replace exports.  China knows what it is doing'.

'There will be no war in Europe.  The most likely war is between China and Russia over Siberia - a vast, resource rich area largely empty and unexploited'. (Henry kept his thoughts about a similar rich, lightly populated region to himself.)

'What about Australia?' a brave soul asked. 'Australians will feel very rich when the Australian dollar hits US$1.20, but there will be a lot of industrial unrest, like the UK in the 1970s'.

We thanked the guru in the traditional manner and Henry presented him with a copy of Great Crises of Capitalism. With appropriate modesty , it may be appropriate to say that some of this book's themes are similar to those of the guru, though stated in generally less colorful language.

The group then retreated to Vlados for a traditional (and consoling) dinner of lightly cooked meat, salad and red wine. The guru drank only coke.

[Tepid] Global economic recovery, with a catch or two
Date: Tuesday, January 07, 2014
Author: Henry Thornton

Bene Bernanke has made his last speech as supremo of global monetary policy. His summary: 'Although the Fed undoubtedly will face some difficult challenges in the years ahead, our people and our values make me confident that our institution will meet those challenges successfully'.
His oration - linked here -  covers the Federal Reserve's commitment to transparency and accountability, reform of financial stability and financial management and monetary policy. His final subject is the prospects for the U.S. and global economies, which is our focus today. But this speech is a nice complement to Chairman Bernanke's recent book, which is reviewed here.

Bene says the economy has made considerable progress since the recovery officially began some four and a half years ago.
* Payroll employment has risen by 7-1/2 million jobs from its trough. 
* Real GDP has grown in 16 of 17 quarters, and the level of real GDP in the third quarter of 2013 was 5-1/2 percent above its pre-recession peak.
* The unemployment rate has fallen from 10 percent in the fall of 2009 to 7 percent recently. Industrial production and equipment investment have matched or exceeded pre-recession peaks.
* The banking system has been recapitalized, and the financial system is safer.

And, to conclude the positive factors: 'When the economy was in free fall in late 2008 and early 2009, such improvement was far from certain, as indicated at the time by stock prices that were nearly 60 percent below current levels and very wide credit spreads'.

But there are important caveats: 'Despite this progress, the recovery clearly remains incomplete'.
* At 7 percent, the unemployment rate still is elevated. The number of long-term unemployed remains unusually high, and other measures of labor underutilization, such as the number of people who are working part time for economic reasons, have improved less than the unemployment rate.
* Labor force participation has continued to decline, and, although some of this decline reflects longer-term trends that were in place prior to the crisis, some of it likely reflects potential workers' discouragement about job prospects.

The soggy recovery partly reflects unpredictable facts including the resurgence in financial volatility associated with the European sovereign debt and banking crisis and the economic effects of natural disasters in Japan and elsewhere.  (Were these things really unpredictable? Somehow I doubt it.)

But other factors that were allowed for but not as strongly as, in retrospect, they might have been, 'werethat the boom and bust left severe imbalances that would take time to work off. As Carmen Reinhart and Ken Rogoff noted in their prescient research, economic activity following financial crises tends to be anemic, especially when the preceding economic expansion was accompanied by rapid growth in credit and real estate prices.

'Weak recoveries from financial crises reflect, in part, the process of deleveraging and balance sheet repair: Households pull back on spending to recoup lost wealth and reduce debt burdens, while financial institutions restrict credit to restore capital ratios and reduce the riskiness of their portfolios. In addition to these financial factors, the weakness of the recovery reflects the overbuilding of housing (and, to some extent, commercial real estate) prior to the crisis, together with tight mortgage credit; indeed, recent activity in these areas is especially tepid in comparison to the rapid gains in construction more typically seen in recoveries'.

This is the story of Japan following its great asset booms in the 1980s and subsequent crash. It seems odd to this writer that the US Fed, with all its resources of highly intelligent economists, could have underestimated this set of factors. But there are further points that seems to me to have considerable contemporary relevance.
* US 'Federal fiscal policy was expansionary in 2009 and 2010. Since that time, however, federal fiscal policy has turned quite restrictive; according to the Congressional Budget Office, tax increases and spending cuts likely lowered output growth in 2013 by as much as 1-1/2 percentage points. In addition, throughout much of the recovery, state and local government budgets have been highly contractionary, reflecting their adjustment to sharply declining tax revenues'.
* 'The weakness of the recovery [also] reflects the overbuilding of housing (and, to some extent, commercial real estate) prior to the crisis, together with tight mortgage credit; indeed, recent activity in these areas is especially tepid in comparison to the rapid gains in construction more typically seen in recoveries'.
* Another factore is weak productivity performance, whose effect was initially overlooked because of problems of measurement, a major problem for any set of forecasters. 'The reasons for weak productivity growth are not entirely clear: It may be a result of the severity of the financial crisis, for example, if tight credit conditions have inhibited innovation, productivity-improving investments, and the formation of new firms; or it may simply reflect slow growth in sales, which have led firms to use capital and labor less intensively, or even mismeasurement. Notably, productivity growth has also flagged in a number of foreign economies that were hard-hit by the financial crisis. Yet another possibility is weak productivity growth reflects longer-term trends largely unrelated to the recession'.

However, Bene Bernanke is determined gto go out on a positive note. The 'headwinds' afflicting the US recovery seem to be abating. 'The [tepid] U.S. recovery appears to be somewhat ahead of those of most other advanced industrial economies; for example, real GDP is still slightly below its pre-recession peak in Japan and remains 2 percent and 3 percent below pre-recession peaks in the United Kingdom and the euro area, respectively. Nevertheless, I see some grounds for cautious optimism abroad as well. As in the United States, central banks in other advanced economies have taken significant steps to strengthen financial systems and to provide policy accommodation. Financial-sector reform is proceeding, and the contractionary effects of tight fiscal policies are waning. Although difficult reforms--such as banking and fiscal reform in Europe and structural reform in Japan--are still in early stages, we have also seen indications of better growth in the advanced economies, which should have positive implications for the United States. Emerging market economies have also grown somewhat more quickly lately after a slowing in the first half of 2013.  

The International Monetary Fund (IMF) has a less optimistic take. Ambrose Evans-Pritchard reports that its view that much of the Western world will require defaults, a savings tax and higher inflation to clear the way for recovery as debt levels reach a 200-year high'.

' The IMF working paper said debt burdens in developed nations have become extreme by any historical measure and will require a wave of haircuts, either negotiated 1930s-style write-offs or the standard mix of measures used by the IMF in its “toolkit” for emerging market blow-ups.

“The size of the problem suggests that restructurings will be needed, for example, in the periphery of Europe, far beyond anything discussed in public to this point,” said the paper, by Harvard professors Carmen Reinhart and Kenneth Rogoff'.

Read on here and ponder Australia's place in the global debt overhang problem, and what it means.

Please note that almost no-one, except Australia's failing businesses, a few journos (especially Grace Collier) and the odd economist - eg here - give prominance to Australia's even more problematic cost overhang.  More on this worrying issue shortly.

Saturday Sanity Break, 4 January 2014
Date: Saturday, January 04, 2014
Author: Henry Thornton

Global equities have continued to boom, and Australia's Super funds have had their best year in a while.  House prices have risen nationally by almost 10 per cent, illustrating concerns expressed last year that the next housing bubble was building strength.

Could the RBA have overdone the stimulus in its desire to cut the value of the Aussie dollar?  'Probably' is the answer, but there are powerful forces, including a growing population and artificial limits on available land and housing density also pushing prices higher.

Here is a clear warning, issued by the AFR in August of 2013.

Despite the rises in house prices in 2013 (see chart below), only in Sydney have new records been set, and then only by the width of a cigarette paper.  But if like Henry you have children struggling to find jobs despite being neat, polite and well credentialled, you cannot help wondering if they will ever be able to find dwelling places they can afford to buy.

Global growth seems to be slowly but reasonably surely picking up, good news of course. But there is continued uncertainty about the pace of recovery, with China leading the charge but trying to slow its own housing boom.

Ben Bernanke has started the long anticipated 'taper' reducing US Fed bond buying (= money printing) an event that was widely expected (including by Henry) to end the share boom with a bang. Instead Bene also said official cash rates would remain low for a long time, which cheered market participents.  Bene soon hands the task of unwinding massively easy American monetary policy to Janet Yellen.

Can America tighten its way to prosperity is the big question for global economics in 2014.  As a supplementaty question, can the US (and therefore global) share boom continue.

More here on the first lady of monetary policy.

Random bashing

The random 'king hit', often followed by a brutal head-kicking or head-stomping, is worrying parents throughout Australia's major cities.

Kids are left severely damaged, facing death or long and usually partial recovery.

So far as we can tell, the offenders are almost always treated leniently by the courts.  Usually their identities are protected, and penalties are trivial.

Why not force them to sweep streets wearing a sign saying 'I am a cowardly head-kicker', or some equally explicit message.

Perhaps for a second offence the message could be tattooed on the offender's forehead.

Such public shaming might be used more often for rape, pedophilic acts, murder and other heinous crimes, in addition to whatever goal term is decreed.  This would include messaye in T-shirts while convicted offenders are released on parole (or tattoo if they are in for a second offence) to warn the innocent person going about their usual business.

Contact Henry here if you wish to express a view here, or offer a different solution.


Australia's top order batters have again been saved by Brad Haddin, this time with the help of Steve Smith.

Now we can sit back and watch Mitch and the boys torturing the PPs. (Eg early today, Cook out, night-watchman Anderson cops nasty hand hit.) Then it will be off to meet the scary South Efricans (SSAs) on their home soil, but at least by then the footy will be cranking up and we can focus there if the newly resurgent Aussies are struggling.

And in the meantime, there is the tennis, with Little Lleyton still Australia's best chance of tennis glory.

Image of the week

House prices - 2013 increases - see images here. (With bonus video.)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Pup is already a genius, whatever the result.

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The mad penguin theory of innovation

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

Read on here.


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

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

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

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

The Keating.

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

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

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

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

Words you need to know.

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

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

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

Nine (even) more useful words here

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

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

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

Image of the week

Courtesy Sun Herald

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

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

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

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

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

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

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

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

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

Education standards

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

Italy on the brink.

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

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

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

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

Read on here.

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