Dark days ahead
He’s a relieved man today. The debt ceiling will be abolished. He has been given the breathing space he needs. But, deep down, Joe Hockey knows the problem hasn’t gone away; getting rid of the debt ceiling won’t get rid of the debt. In fact, the Greens may have added to his woes. Each quarterly budget update will now, by agreement, bring the national debt to the forefront of parliamentary and press gallery scrutiny. And, as the debt keeps rising, the sweat on Joe’s brow will intensify. Joe Hockey thinks he’s won a small scrap here, and he has, but it is minor when compared with what’s coming. Christine Milne has placed climate change and the Coalition’s ‘Direct Action’ policy right in the firing line by forcing the quarterly budget updates to include reporting on monies spent on climate change initiatives, i.e. Direct Action. It sounds like she doesn’t believe it will ever happen. And I’m inclined to agree. She says, “Direct Action doesn’t exist, it has no shape, it’s not an alternative to what we have in place,” she said and added, “It is not a plan, it’s basically an idea and that is all.”
But that is not all that’s happened.
The debt ceiling event in the early life of the new government has firmly embedded one crucial economic fact in the mind of the electorate: that the national debt, prior to the Coalition coming to power, was less than $300 billion. This will be important when the voters come to judge the economic credibility of the new government in 2016 when the national debt will be in excess of $400 billion. They will have an undeniable reference point. Normally your average voter hasn’t a clue how much the nation owes when they go to vote. This time, however, they will remember that figure.
The debt ceiling deal has also revealed the hypocrisy of earlier statements by the Prime Minister, Tony Abbott when in opposition. “No real friend of the workers of Australia would want to do a deal with the Greens. We can never build a better future by doing cheap and tawdry deals with the Greens”, he said in August.
Well, now it appears, we can.
So, just four months into the new government, an interesting scenario has developed. Joe Hockey is on the record as saying Labor will never produce a surplus. That opportunistic call will most certainly come back to bite him. It is entirely conceivable that Joe and his government won’t deliver a budget surplus either; possible for ten years, should it still be in government. But, the bigger issue will be the likelihood of a recession and the resulting unemployment.
Australia has had a stunning run of good economic fortune resulting in 22 years of uninterrupted growth since the last recession in 1991. It has been brought about for two reasons. It was the Keating economic reforms of the 1980’s and 90’s coupled with the mining boom of the first decade of this century that have made us the envy of the world. The first was a master stroke of forward planning and pragmatism, the second was the rise of China as an economic power and our capacity to be ready for it. In reality, China was just a stroke of good luck. We were in the right place at the right time. But it is pretty clear the good days are over now. Unless we suddenly experience a resurgence in manufacturing or another country’s industrial expansion creates a shortage of ‘stuff’ we have in the ground, there’s not much else that we have to offer to avoid dark days ahead.
The previous Labor government saw this coming. Revenue from the mining boom was in decline. Treasurer Wayne Swan tried to cut back on some of the Howard/Costello excesses, including the $300 private health subsidy. The then Opposition would not support that. Perhaps now, Joe Hockey wishes they had. To his credit Joe has moved to end some of the Howard/Costello vote buying excesses, but they won’t amount to much. Christopher Pine tried to contribute by flip flopping on the Gonski education reforms only to make himself and Tony Abbott look stupid. Cory Bernardi wants to cut funding to the ABC and Scott Morrison is finding new ways to persecute asylum seekers but as yet is not offering any cost savings. In the meantime we waste billions trying to keep asylum seekers from coming to our shores when economic pragmatism says managing the problem on our own shores is the better option.
The danger facing Joe Hockey now is that the government might inadvertently hasten those dark days by a savage reduction in spending without a corresponding increase in private investment from overseas. Their obsession with debt and deficit and the fear of being seen as the very architects of the economic vandalism they attribute to Labor, could result in a premature recession of their own doing. When you combine this with the closure of Ford, the likely closure of Holden, and the parlous position of Qantas, the small manufacturing businesses that these giant employers support are the ones that will take the hit. These small industries are the home of Howard’s battlers, the very people who kept the Coalition in power for 11 years. If Holden stays, it will, most likely, be as an importer, similar to Nissan. Ross Gittins in the Melbourne Sunday Age (Sun. Dec. 8) says “Hockey is right when he says retail sales, building approvals, business and consumer confidence – have improved since September. And it’s reasonable to hope this will lead to a modest improvement in consumption, home building, business investment and other aspects of the non-mining economy.”
Well, Ross might reasonably be ‘whistling dixie’ on that last suggestion but he goes on to say, “But we know there will be big falls in mining investment, which could offset most of the gain. There’s not a lot Hockey can do about that between now and then. Even infrastructure spending takes a long time to get going.”
Leaders today get elected on the basis of three-word slogans; they become the people’s choice for the time being. They use catchy little phrases to attract ignorant voters. They borrow most of them from past, equally unimpressive, leaders and have nothing original to contribute. But, we anoint them as our Prime Minister until their weaknesses surface and we look to someone else. Few can show the courage and conviction of a Paul Keating when they know what is needed, even if it costs them government. Few have sufficient intellect for that and those that do, like Keating, are generally despised for it. John Stuart Mill once wrote that not all conservatives are stupid, but most people who are stupid are conservative. That is probably because they are afraid of what they don’t know. They seek guidance at every turn and accept the time honoured practices and formulae of the past; they view such a strategy as safe. In short, they don’t know any better and don’t want to. They just want to be reassured. Conservative politicians are good at offering policies of reassurance. But that is not going to work in the present and near future economic environment.
The challenges of the near future require something of the Paul Keating brand of courage. Joe Hockey has not shown us yet, that he is up to the challenge, but if he is, he will have to cast off the conservative Coalition mindset and risk being very unpopular. His decision to block the sale of GrainCorp on the grounds that it would have been very unpopular shows that he is, thus far, not willing to do this.
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Return to home pageWell written and right on the money ( pun intentional ).
IMO the best hope for Australia’s near future is all the recent mining capital expenditure coming on line and producing greater exports. Unfortunately the LNP Government wants to repeal the MRRT, which was getting closer to the corresponding revenue increase as the capital expenditure starts to make money.
So Michael Taylor did you or John Kelly write this piece?
I liked the POV of it as looking at the same problem in different ways shows intelligence.
Does this government have any intelligence 😡 hahahaha,sorry but that I could not help.
Sorry M8,I didn`t see the guest post bit.
“should it still be in government”, John …? I don’t believe that to be even remotely possible.
In reality, China was just a stroke of good luck.
Tell THAT to the climate………..
NOW……….. whilst I pretty much agree with everything in this article, the one thing ‘economists’ almost ALWAYS leave out is peak oil. Australia is bang on target to TOTALLY run out of oil by ~2020. http://damnthematrix.wordpress.com/2013/04/04/australia-still-on-target-to-run-out-of-oil-by-2020/ That’s just six years away now… We are literally half way between GFC MkI and zero oil. Within six years, we will have to import 100% of our liquid fuels (IF there will still be anyone willing to sell us some by then…), and if/when the dollar collapses (to 50c US, which it could), the cost of fuel could double, within as little as 12 months…. certainly within two years. And all that fuel will almost certainly be bought with borrowed money.
Much is said about our government’s debt…. but our domestic debt is FIVE TIMES bigger. When the recession hits, a whole lot of people will default on their debts. The property market will collapse too more likely. Government revenue will plummet, and MORE money will have to go to social security……. we are at PEAK DEBT. I’ve been saying for YEARS now that the party was over. We are facing global depression…… forever.
Furthermore, a lot of people don’t even understand how debt works and how it is at the heart of our economy. Hockey hasn’t got a clue. You want growth? You gotta have debt. It’s that simple, the two are inseparable. Watch this:
A reasonable summary of the situation, I’d say.
Watching Question Time in the House, since the election, I have been stunned by the bias shown by Bishop in the Chair and the almost total neutering of anything even approaching robust debate. The interjection, is seems, is now a major wrong-doing (unless you are an LNP member). Abbott and other LNP members can avoid answering directly and perpetuate outrageous untruths about the ALP and lapse into silence at even the slightest comment from the Opposition benches and Standing Orders can be ignored with impunity by Bishop – always in favour of the LNP. Indeed, I have rarely seen such a biased Speaker from either side of parliament.
John’s mention of Keating really resonated with me for I read the article just after watching a sitting and it struck me what a difference there was between the challenging, astute and witty exchanges of the “rowdy” Keating parliament and the subdued, virtually neutered, parliament of today. I believe this to be a potent indicator of the level of intellect of the majority of members and the lack of any policy cohesion or courage of Abbott and the LNP. Abbott and Pyne are particularly afraid of questioning, even when under Bishop’s protection.
Tanya Pilbersek’sk is now the outstanding voice in this parliament and, in my view, the Speaker should resign and be replaced by someone less partisan.
It also disturbs me that any agreement reached by the Greens with another Party, no matter which, is described in demeaning terms. Certiainly,it is my view that referring to their actions with terms such as: “cheap and tawdry”. Frankly, when did principled pragmatic aciton automatically become synonymous with selling out, or worse , as opposed to political strategy?
I don’t get economics so maybe someone can explain this to me. If mining companies are no longer expanding, i.e.investing as much in infrastructure, doesn’t this mean they will have less deductions, therefore pay more tax? For example, wasn’t Twiggy’s company, Fortescue Metals, meant to have payed tax for the first time ever last financial year?
http://www.zerohedge.com/news/2013-12-07/ghost-1929-re-appears-pay-attention-signals
They say those who forget the lessons of history are doomed to repeat them.
As a student of market history, I’ve seen that maxim made true time and again. The cycle swings fear back to greed. The overcautious become the overzealous. And at the top, the story is always the same: Too much credit, too much speculation, the suspension of disbelief, and the spread of the idea that this time is different.
It doesn’t matter whether it was the expansion of railroads heading into the crash of 1893 or the excitement over the consolidation of the steel industry in 1901 or the mixing of speculation and banking heading into 1907. Or whether it involves an epic expansion of mortgage credit, IPO activity, or central-bank stimulus. What can’t continue forever ultimately won’t.
The weaknesses of the human heart and mind means the swings will always exist. Our rudimentary understanding of the forces of economics, which in turn, reflect ultimately reflect the fallacies of people making investing, purchasing, and saving decisions, means policymakers will never defeat the vagaries of the business cycle.
So no, this time isn’t different. The specifics may have changed, but the themes remain the same.
In fact, the stock market is right now tracing out a pattern eerily similar to the lead up to the infamous 1929 market crash. The pattern, illustrated by Tom McClellan of the McClellan Market Report, and brought to his attention by well-known chart diviner Tom Demark, is shown below.
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/12/20131206_1929.jpg
Iggy648…mining companies don’t invest in infrastructure unless it is to build a port or railway to transport the ‘stuff’ they dig out of the ground. Those ports and rails don’t get used for anything else, so, they don’t contribute in a way that you or I could take advantage of at a later date. By the time they have finished with the mining those facilities have long since been written off and often left to rust away..
What chance has Australia got when the drinks waiter is running the free trade negotiations ?
Already the simpleton Robb has given South Korea the right to sue his own government.
Forget the sweat on Joe "don't know" Hockey's brow … start worrying about all those receptionists that his fathers real estate business had to find.
Poor Joe (don't mistake this for sympathy its meant to be derogatory … as in devoid of any "logical intelligence") is not going to be anyone's favourite son and he will probably end up tweeting and sending selfies to Rudd.
And then Corman will step in.
And Murdoch/Gina will be pleased.
” In short, they don’t know any better and don’t want to.”
This is the problem. I think it is optimistic to think that the voting public will understand or remember the debt debate. In fact I have had Coalition supporters tell me that Labor left a $500 billion debt. They have seen that number in headlines and attribute it to Labor, and when I tried to explain I was told to “piss off and grow a brain” which is apparently the final line in any discussion with these people. They truly do not want to know the facts – they see the Murdoch press as the champion of their cause, saving them from the biased reporting of those communists at Fairfax and the ABC. Only Tony can be trusted to lead them out of this mess. He’s a Catholic, a family man, a volunteer and he keeps himself fit.
Coalition voters would much rather discuss the AWU slush fund, or the perfidy of that adulterous woman. They would much rather find some dirt on a politician’s family than discuss climate change, which is just a plot for world dominance (cue scary Agenda 21 music). They repeat the same lines that are fed to them with no thought or understanding as to what they actually mean. They decry socialism but don’t understand that Medicare and the old age pension are “socialist” schemes. They talk about a “nanny state” but fail to understand that we need some rules to protect us from the ravages that the corporate world would subject us to if unfettered by laws to protect our environment, health and safety.
The Coalition and the Murdoch press have hypnotised these people and, as they have no problem lying and changing history, I fear that the truth is an endangered species. Joe will be sweating but I fear it will be viewed as the sweat of an honest man toiling to fix the mess he has been left.
AND…… has anyone here seen this latest fiasco..?
The government has refused the Senate access to the secret text of the trade deal it is negotiating in Singapore, saying it will only be made public after it has been signed.
As the final round of ministerial talks on the Trans-Pacific Partnership resumed on Sunday, Nobel prize-winning economist Joseph Stiglitz wrote to each of the 12 participating nations warning that the deal and the secrecy surrounding it presented ”grave risks”.
http://www.smh.com.au/federal-politics/political-news/coalition-blocks-senate-from-secret-details-of-transpacific-partnership-trade-deal-20131208-2yzh2.html#ixzz2muq8KZMi
@mikestasse ….. Thank you for the reminder about peak oil and some of the other major trends that are going to hit. If I think of the amount of constructive communication, discussion, and action that is required to navigate those challenges and compare that to the level of discourse at the moment, I just despair (especially when looking at Kaye’s comment of her experience talking with coalition voters – thanks for sharing, though, Kaye!).
Peak oil did slip my radar, especially as I hadn’t previously seen any data about Australia. Wow. Dark days ahead, indeed.
Mike – are there any active forums in Australia that are constructively looking at what can be done? Thanks!
Kaye,
Take those thoughts (@ December 9, 2013 • 8:41 am ) and have a read of Ad Astra’s piece on Lakoff’s depiction of the ‘left/right’ dichotomy at The Political Sword and then see if the behaviour of Coalition voters makes more sense… 😉
Lakoff’s theories do explain a lot IMHO – I’d also be interested to hear what Dan Rowden and John Lord think of this topic too…
I thought you were too busy working out how to move onto another host Michael…
Well that’s my excuse, and I’m sticking to it 😳
How about me. 🙁
Thank you John, much food for thought.
@ Bacchus, thank you, the piece on Lakoff was a VERY interesting and thought provoking read, and made perfect sense to me, although I’m sure crtics will say it’s a bit too simplistic, (which is probably why I found it so interesting).
@ Kaye, you are far braver than I. I checked out the page and began gagging almost immediately. I decided not to engage, as I am having a bad enough day already and could live without the vitriol that would be heaped upon me by any dissenting view I may have expressed. While I have seen some comments on this site about Abbott etc that I found a little over the top, nothing prepared me for the visciousness and bile expounded there. YEESH!!
@ Mikestasse, I am a complete luddite re financial/monetary systems, so I checked out the video link. Seemd to make a fair bit of sense, but I also then checked out some detractors, e.g.
Most of the article in the link went way over my head, as did most of the comments, and I would greatly appreciate if, at some stage, you could point me to some sites /articles /reviews that explain things more in layman’s terms so I can make a more balanced, educated decision about how this stuff works, or doesn’t as the case may be.
Yes, you too Michael.
That’s an excellent link Wayne T – further reading on this can be found at Professor Bill Mitchell’s blog (http://bilbo.economicoutlook.net/blog/). A lot of the material is well over my head, but try starting with some of his ‘Debriefing 101’ blogs (http://bilbo.economicoutlook.net/blog/?cat=11), especially those that deal with deficits and unemployment – explains a lot…
The three part series, ‘Deficit spending 101’ (http://bilbo.economicoutlook.net/blog/?p=332) explains the concept of Modern Monetary Theory in terms even I can make sense of 😉
Hours of bedtime reading! 😀
Brilliant Bacchus, thanks heaps. 🙂
Actually Wayne T, there’s a wealth of useful information on the ‘Education’ section of the page you linked to – hours of bedtime reading for me…
I had an interesting phone call this morning from “a senior source within the education department”. These are people who have devoted their lives to helping children – the pay ain’t great and the job is tough but it is the most important job in the world (and a shout out to the nurses and police too – thanks).
There are deep throat rumblings as they try to erect an Abbott-proof fence. They need our help.
Great links guys – the more we learn the better.
@ Wayne T…. I wouldn’t take too much notice of that http://pragcap.com/ link……
If you want the BEST site out to teach you what is really happening, you cannot beat http://www.peakprosperity.com/crashcourse
A word of warning though……. if my memory serves me right (I’ve seen it six times, but not for a few years…) it takes three hours to see the lot. BUT I guarantee it’ll change your life!
Great stuff. Thanks Kaye Lee, as usual…could we also give a nod to mum’s who dedicate their role as ‘Primary Teacher’ to their bubs as ‘most important job in the world’? Teachers et al do a fab job..but they do not love their charges….Love is a powerful teacher.
I’m sure there are one or two, Kaye, but in my experience of Education Departments, there are very few senior staff who give a toss about teachers or children and very few that have even the vaguest clue about education. Their pay is usually way beyond their worth and when they mess things up they inevitably, at worst, simply get shunted sideways or, often, even further up the ladder. Hence we have dolts in parliament making decisions on the advice of dolt officials who are actually just career climbers who know the jargon but little else.
;
The keys to improving education in this country is to remove private schooling – or at least any subsidies to it; to forget the silly notion of a “national curriculum”; to reorganise around resource-based learning and topics chosen for their interest to students; and to appoint and promote on merit. Oh, one more thing, we have to get rid of the notion that “big is beautiful’ – it’s not.
I believe the days just got darker for this government, Bad polls.
Who says the Greens are incompetent? Well, pretty much everyone who doesn’t vote Greens I guess.
Anyway kudos to John Kelly for this analysis and kudos Christine Milne for the cojones to effectively neuter the LNP’s blame game (the Labor party is Australia’s Tea-Party bullshit), tie the LNP into some form of accountability admittedly at the cost of lifting the debt ceiling (which was only a recent development in 2008 by Rudd), and also bringing into public awareness that both sides of government do borrow money.
And the cherry on top:
LNP negotiating with the Greens. Who’da thunk it?
These LNP arseholes should never have been let out of the asylum! They are even cutting previously Labor approved pay increases to lowly paid child care workers, cutting super benefits to the poor and handing them to the rich. Let’s hope this low life scum get their just rewards in hell where these parasites should go led by so called Jesuit Abbott
Thanks for an enjoyable article John Kelly, especially the Keating references.
After watching Kerry O’Brien’s interviews one was left with a real sense of loss. Where are the Keatings in today’s parliament ?
Maybe we don’t need the combative style (as entertaining as it was) but where’s the vision stuff ?
I must chide you on however over your seeming capitulation to the Debt Terrorists. The miniscule size of our debt/GDP ratio is actually irrelevant. The reason the government issues bonds (“debt”) is to mop up the excess reserves in the banking system that deficit spending creates. Excess reserves put downward pressure on the cash rate.
If you find that confusing, you’re meant to. It’s one thing however for us minions to be deliberately misled, but when the Treasurer doesn’t get it either, it’s a bit of a worry.
Bacchus have helpfully provided some links you might find interesting.
If the Leftish end of the political spectrum can’t get its head around this technical stuff and tell the fiscally righteous to shove it, the neo-liberals will always have us by the short and curlies. Ignorantly compliant.
@WayneT. I saw your link to PragCap but I couldn’t find in Mike Stasse’s comments any link to an article about “The Biggest Scam In The History Of Mankind” that might’ve sent you looking for a second opinion.
Mike seems to dismiss Cullen Roche’s PragCap in favour of “The Crash Course”, which is a bit of a pity. Cullen Roche certainly knows what he’s talking about. I didn’t watch “The Biggest Scam” but read the points Roche was criticising, and I’d say he was dead right.
I read the first half dozen chapters of “The Crash Course” just to see where Mike was coming from (before it, um, crashed) and apart from falsely conflating foreign debt with domestic deficits (Yugoslavia’s case) and a few nitpicks most of it would’ve been helpful to somebody wanting to learn about money. Better though to go to a site like PragCap or Billyblog and learn it right the first time.
And Mike…I clicked on one of your own links and downloaded that YouTube on money. It could’ve been put together by some MMT professor. Did you notice where he pointed out that the Money Multiplier and Fractional Reserve banking were myths ?
I think he said it was “irrelevant junk”.