Saturday Sanity Break, 25 November 2017 - political instability
Lots of gloom about the past decade of Aussie politics, with interviews by former PMs Howard and Rudd in The Oz. Both regretting performance of both sides of politics.
Paul Kelly documents the state of the coalition government. 'The Turnbull government now hovers near the valley of despair — as the leader’s authority erodes, the party has no alternative leader and no alternative strategy. It risks a lose-lose future.' Read on here.
Note the graph at the bottom. 'Debt and deficits' refers to Commonwealth results only. Household debt - not included on this graph - is our most telling debt and deficit issue. Small increases in Aussie rates of interest would put many households into serious trouble and if it comes after house prices fall it will become gruesome.
As discussed widely in the press, the mighty Reserve Bank will not rush to raise cash rates. But global rates are rising, with the US Fed likely to make its third increase this year shortly.
Australia's commercial banks are therefore likely to raise lending rates for houses even if cash rates are not raised by the RBA. And, in any case, many people who have borrowed on 'interest only' basis will experience a large rise in borrowing rates when interest plus principal payment is required. Some reports say many battlers are not aware that this will happen to them.
My point about the graph below is to consider examples of Prime ministerial instability.
* Australia's first decade as a federation. The Federation drought followed by the struggles of a new nation.
* The decade of the 1970s, with two rounds of oil price hikes and enormous inflationary build upplus the waste and mistakes of the Whitlam government.
* The past decade with the global crisis, persistent deficits and rising Commonwealth debt. Note that current debt levels are still small, smaller than those that caused Treasurer Keating to declare possibility of 'Banana Republic'. (Based on scary forecasts presented to him by the RBA in, if memory serves, April 1986. While the Hawke government turned the budget deficit into a surplus, this only served to hold off the crisis that came in 1990-91 due to excessive monetary policy ease followed by excessive tightening as Messrs Fraser and Macfarlane scrambled to restore economic stability.)
Current weak government cannot go on for long. Either the Turnbull government will change its 'she'll be right' narrative or a new government will soon be installed.
Rethinking Macroeconomics
A few weeks ago I reported on a conference of famous economists. My report is here.
Each paper is worth reading but mostly they express great uncertainty except for calling for 'more research'. Here is a link.
However, here at Henry Thornton, we do not feel so uncertain. This paper written in 2016 has a set of common sense conclusions, based on ideas of a former policy adviser rather than complicated research that will take years if not decades to reach firm conclusions.
Here is its conclusion.
In summary, what the world needs is:
A more sensible set of rules of engagement for global finance.
Careful deregulation of many other commercial activities, to boost productivity in many industries.
A coordinated restoration of normal interest rates and balanced budgets.
Greater equality of incomes and wealth.
A culture that more seriously embraces the verities of hard work, smart work and saving rather than spending
Kulture
Fiona Prior enjoys the extraordinary beauty of 'Mapplethorpe: See through the eyes of an icon'. More here.
The Sporting Life
'Australia will flog England. We have the best bowling attack in the world, hero batters and a fresh wicket keeper.'
Despite great efforts by our bowlers, especially Cummings and Lyon, on a pitch described as a 'pudding' the pestiferous poms made 302 runs. When Australia batted its prime batters failed, except for Cap'n Smith, recalled Shaun Marsh, removed just after making a nice 50 (when 100 was required), and recycled Tim Paine, removed comfortably once the new ball was taken. I cannot claim that the Mont Albert Fourths would have done better, but they would have certainly not talked themselves up so indiscreetly.
The Aussie shielas relaxed once they won the first T20/T10 game to secure the Shiela's Ashes against the old enemy. The Pestiferous Poms then won the last two hit and giggle games to leave on the better note.
The AFL draft has occurred and Caaaarlton! seems to have claimed some good youngsters. I still cannot understand why no recycled stars have been secured and one of Caaarlton's genuine stars, Bryce Gibbs, was allowed to leave. Coach Bolton must have a clever youth policy that may pay off in five years or so. Or not.
Our Rugby team was slaughtered by the referee and the English team, in that order. The fact that our coach was not punished too heavily for his alleged swearing suggests to this writer that the establishment feels somewhat guilty about the governance of the game by the hostile referee.
Image of the week - political instability
