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The perils of popularism

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John Kelly is 69, retired and lives in Melbourne. He holds a Bachelor of Communications degree majoring in Journalism and Media Relations. He is the author of four novels and one autobiography. He writes regularly for The Australian Independent Media Network and on his own blog site at: The View from my Garden covering a variety of social, religious and political issues.

Website: http://johnbkelly.wordpress.com

Are You Feeling Lucky, Malcolm?

My question is directed to the Prime Minister. Your treasurer has just brought down your 2018/19 budget laced with tax cuts to woo the low paid. Some of it will be delivered in a year’s time when everyone files their tax return. The rest over the next seven years.

You have your party’s future in mind and, dare we suggest, your own with this budget. You have been telling everyone that the next general election will be held a year from now, while quietly contemplating the likelihood of going early, perhaps September or October this year.

Suddenly though, there’s a new issue on the horizon, courtesy of the High Court. It comes in the form of five bi-elections. What are you to do? Should you go ahead with the five bi-elections knowing secretly, that those same seats will/might/could be recontested in as little as three months?

If you were to lose all five, which is probable, how would that play with your colleagues and their view of your leadership? What if your support group panics and decides to tap you on the shoulder in the interests of their own self-preservation?

Which would you rather: face them on a cold, dark Canberra night, or place yourself at the mercy of the people? Is it possible those tax cuts, as pitiful as they are, could swing enough voters in marginal seats?

Watching some of the post budget interviews given by Scott Morrison as he began his big sell, one could be forgiven for thinking he really believes all the rhetoric he espouses.

His/your budget has revealed a seductive set of numbers that might fool the person in the street, although, when one compares your generosity with that of Bill Shorten’s, you could be found wanting. You also know that it’s all based on some pretty ambitious forecasts.

Except for a flush of extra cash generated by new tax-paying migrants, the numbers would have painted a very different picture. But, as usual, the party’s conservative ideology continues to reign supreme: Give the biggest share to the wealthiest. Your party does it every time.

How long will it take for the electorate to realise they have been duped….again?

Then, there’s that looming re-distribution. Could you call a general election before that wretchedly unfair re-adjustment of the boundaries is finalised? Once that goes, you know you’re stuffed.

What are you to do? Might it be, that the best course of action, is to call a general election now, rather than proceed with the five bi-elections? It will certainly save a lot of money, not to mention the embarrassment of losing all five.

We know the people don’t like early elections, but this is different. It’s all Labor’s fault when you think about it, Bill Shorten has a bit of egg on his face after boasting that no Labor member was holding dual citizenship. Can you exploit that?

Surely your spin doctors can come up with something to explain why going early this time, has been unfairly thrust upon you and calling a general election, rather than five bi-elections, will save the tax payer millions of dollars?

But the polls, those wretched polls. People believe them. People are influenced by them. What are you to do? Perhaps you would prefer the verdict of the people rather than the party room. Gallant in defeat, something like that? History might be kinder to you, if not your party.

Perhaps you can muster all your charisma, your preferred popularity and go head to head with the guy that ripped all the goodness out of your budget in his reply speech. Let’s face it, no one else in your party could.

SO, ARE YOU FEELING LUCKY, MALCOLM?

Expect some Rubbery Figures in the Budget

It is perhaps a tad unwise to try and second guess the budget to be handed down next Tuesday, but some things need to be made clear, especially to those who might be fooled by what is expected to be a pre-election handout.

Regardless of how Treasurer Scott Morrison might try to sugar-quote the numbers with his breathtaking rhetoric, be assured at least some of his forward projections will be based, not on hard numbers, but more likely, on aspirational and ambitious expectations.

In other words, it’s going to be a budget fit for purpose, but not the national purpose. We can expect some rubbery forward projections that will pave the way for some pretty ambitious outcomes that his party can spruik as we head toward the election, later this year.

The ever-optimistic Morrison who foolishly convinced himself that a return to surplus was only two years away, might be of a mind to project a surplus as soon as next year. If he does, don’t believe a word of it.

He has the figure of 23.9% of GDP in mind as the maximum amount he can receive in tax (it’s a Liberal party yardstick). BUT, should we be watchful of what GDP figure is he basing his projections on? Yes we should. Expect a rosy one. If he can inflate the expected GDP for 2018/19, he can spend a little more and still show a reduction in the projected deficit.

That’s what creating rubbery figures is all about. And if he creates enough rubber in 2018/19, to show a reduced deficit, that makes creating rubber for 2019/20 and the subsequent forward estimates that much easier.

Hence, the temptation to project a small surplus in 2019/20, one year ahead of previous estimates. Again, if he does, don’t believe a word of it. There’s no good reason why the figure of 23.9% needs to be adhered to. Most OECD countries have higher levels than that.

But, 23.9% is dogmatically enshrined into the psychology of Liberal minds. So, if Morrison wants to spend more as he searches for election sweeteners, all he has to do is increase his estimate of what the expected GDP for 2018/19 will be and still appear economically responsible.

From there, he can estimate a higher tax take and a lower deficit. Simple. After all, it’s just numbers in a computer and they can be changed down the line as circumstances require.

So don’t be fooled by whatever comes out of Morrison’s mouth on Tuesday. In fact, the rosier it looks, the less likely it is, that it will be true.

It is unfortunate that Morrison seems to think that running a national economy is the same as running a household. It is not. A currency issuing government is only constrained in its spending by the available resources. It’s “debt”, issued in its own currency, can always be repaid.

No one will be knocking on the government’s door to repossess anything. Sadly, Morrison does not understand this, and neither does his government. He should, however, be concerned about private debt. That is the great threat to the Australian economy, not magical numbers expressed as a percentage of GDP.

It is private debt that threatens to bring the country down. RBA chief, Phillip Lowe knows this and has said as much. But Morrison is not looking at private debt. He has a fixation with government debt.

As the currency issuer, the government can safely spend 100% of its GDP without the fear of inflation so long as that spending leads to productive outcomes. And, it never needs to borrow.

Borrowing, via the issuance of bonds is a political choice, not an economic one. It’s high time economists started stating these simple facts, rather than the emotion-charged, political claptrap they sprout forth now.

They won’t, of course. They will fall into line and spread the gospel according to their media owners, who just happen to believe in the household economy myth.

Morrison will talk a lot about that on Tuesday night.

Get ready! An early election is coming

Get ready! We are 4 months out from a federal election. It’s not the polling that has determined this will happen, it’s the roadblock ahead.

Between the 4th August this year, the earliest an election can be called and the 19th May next year, the latest, there is a minefield of events that the Coalition will not want to compete with, in its attempts to stay in power.

The most difficult are the Victorian state election in November and the NSW state election in March 2018. Throw in the AFL and NRL football finals in late September/early October, Christmas, School holidays and Easter and it’s obvious.

Politically speaking, this August or early September is the only clear-air time realistically available for the government to try to redeem itself.

And the first opportunity for redemption will be the May budget, next week. Already, the signs are that it will be as generous as it can be for a government that realises it needs redemption.

The promise of tax cuts resulting from higher company tax revenue, a higher job participation rate, the abandonment of the Medicare levy hike, all indicate the government has already locked in a date with destiny.

They will be able to spruik a lower than expected deficit and a better than projected surplus in 2020/21. They will tell us that the economy is strong (it isn’t), that business is investing ((they aren’t), that they stopped the boats (actually we don’t know) and that Labor will be soft on immigration (simply not true).

They will tell us that without them in charge, the economy will collapse, that our international relations with the USA will be damaged, that Indonesia will invade us, that the sky will fall in, that God has chosen them to rule.

These are the credentials they will present to us over the coming months. This is what they believe will save them. Never mind their incompetent handling of the Banking Royal Commission or their massive accumulation of what is wrongly referred to, as the national debt.

Never mind the absence of meaningful policies, their internal squabbling, the Abbott factor, the Joyce factor, the Cash factor, their broken promises, the savage spending cuts that have devastated community groups across the country, the NBN debacle, the shameful inaction when dealing with Manus Island detainees, never mind all that and more.

They realise too, that the planned electoral redistribution, which does not favour the Coalition, may not be finalised in time for an early poll. That redistribution renders two liberal seats notionally Labor and several others marginal.

Labor, in the meantime, have not been asleep at the wheel. They realised an early election was probable a year ago and have been on an election footing for some months.

Their recent policy announcements on franking credits, no company tax cuts, removing the GST on tampons, the establishment of a federal ICAC, all point to a party ready to go to the people.

The election battle will be a tale of two parallel approaches. Labor will concentrate on micro issues, that of household debt, housing affordability, wages, the cost of living and equality, while the Coalition will present the broader picture of company profits, employment growth and projected budget surpluses and union thuggery.

From the Coalition’s point of view, the rhetoric will be mind-blowing, perhaps overwhelming. In the absence of a policy framework, they will be relentlessly attacking Labor, saying anything to mask their deception and their ignorance.

They will try to scare the bejesus out of us. The truth of it, however, will be easy to discern. They will say, “judge us on what we say, not on what we do,” a clear indication that they are a policy vacuum.

Without a proper policy framework, the coalition are always reactionary. Labor, on the other hand, will demonstrate how proper economic management should be, when fit for purpose. Malcolm Turnbull is also conscious of the possibility of a leadership challenge before the end of the year, courtesy of a slip of the tongue by Barnaby Joyce.

They are a desperate rabble and determined to stay in power. However, it will be up to us to decide and that will happen either in late August or early September,

The Hypocrisy is Mind-Blowing

It’s hard to recall the last time we saw Barrie Cassidy take a blowtorch to a government minister on Insiders, but that’s what happened this morning.

And it was obvious that his target, Kelly O Dwyer, never saw it coming, either.

The first thought that came to mind while watching the interview was, can you believe the hypocrisy? After calling Bill Shorten’s announcement in 2016 that Labor would set up a royal commission into the financial services industry, reckless and ill-conceived, very dangerous, and bad for the economy, here she was trying to take credit for this week’s revelations.

As hard as she tried to put a positive spin on the government’s belated decision to establish a Royal Commission, she was unable to withstand the blistering onslaught she experienced with Cassidy.

His grilling of her was a true reflection of current public sentiment. The hypocrisy from the government has been mind-boggling given that her party never wanted a Royal Commission. It only backflipped after being dragged into line, kicking and screaming, by members of the National Party who threatened to cross the floor in their determination to get one.

While trying to gain some credit for her government setting up the Commission, O Dwyer refused to address questions concerning her criticisms of Labor’s election promise in 2016.

In trying to defend the indefensible, she struggled to cut through with anything that was remotely beneficial to her party’s credibility. If anything, it highlighted what a nasty piece of work they are.

Everything she said, stood in stark contrast to her party’s persistent opposition to it, for so long. Meanwhile, revelations during last week’s hearings that customers were given poor financial advice, were charged fees for no service, that a dead person was charged ongoing fees, that the corporate watchdog was deliberately misled for years, makes us salivate over what might be revealed when things resume next week.

Client theft, more compromised financial advice, financially ruining peoples’ lives; who knows what other surprises are in store.

This government’s actions in cutting funding to a multitude of community services shows us only too well, how concerned it is for the welfare of its constituents.

So, for Kelly O Dwyer to try and convince us that her government’s first concern was for consumers, beggars belief. It was simply a bridge too far, particularly considering their 2014 attempts to water down ethical constraints on financial advisers introduced by the Gillard government.

Thankfully, that attempt was blocked by the senate with the help of Nick Xenophon, Jacqui Lambie, John Madigan and Ricky Muir. Unsurprisingly, it was the major banks that led the campaign for the Federal Government to roll back parts of Labor’s Future of Financial Advice laws (FOFA).

The hypocrisy endemic in this government, is such that it reinforces our ongoing contempt for their political manoeuvring, point-scoring and protection of favoured interests, all of which comes at the expense of governing for the people.

A federal election cannot come quickly enough.

Why a Universal Basic Income is a very bad idea

It is difficult to understand how an intelligent, highly trained man like Richard Di Natale could seriously suggest that Australia should introduce a Universal Basic Income.

It was even more surprising to hear channel 10 television host, Waleed Ali give some credence to the idea on The Project, last night, suggesting it was “no lefto pinky nonsense”.

Natale made his announcement at the National Press Club luncheon this week. For those unsure of it, a UBI is a basic, liveable payment to all citizens without any conditions attached.

Economists tell us it could replace all government spending on welfare, as well as housing, health and education. Even if that were true (it isn’t), it would still be a very bad idea.

According to Professor Bill Mitchell, a UBI is nothing more than, “a scam to absolve the government from its responsibility to create full employment.”

An article by Chris Hedges (April 1, 2018) – The Oligarchs’ ‘Guaranteed Basic Income’ Scam – published by Truthdig explains very succinctly, the purpose behind the recent push for a UBI.
He says:
“A number of the reigning oligarchs … are calling for a guaranteed basic income. It looks progressive. They couch their proposals in the moral language of caring for the destitute and the less fortunate. But behind this is the stark awareness, especially in Silicon Valley, that the world these oligarchs have helped create is so lopsided that future consumers, plagued by job insecurity, substandard wages, automation and crippling debt peonage, will be unable to pay for the products and services offered by the big corporations.”

We are being told that we are on the precipice of a technological revolution where robots are being assembled as we speak, to take over 40% of existing jobs. Never mind that those robots will still require human management.

Never mind also that the computer revolution that began 40 years ago was also going to put most of the workforce out of a job. It’s a familiar projection of future trends that keeps us both enthralled and intimidated at the same time.

A UBI would be another win for the top end of town. They are concerned that the downside of the technological revolution is that no one will be able to afford their products in the future. They are positioning themselves to put pressure on governments to spend money for no return, just to keep them in business.

The result is, the rich would continue to get richer as the poorer continued to be the victim. Paying people to do nothing, is as silly as it sounds. It is, as Bill Mitchell says, “a neo-liberal strategy for serfdom without the work.”

“Business leaders want to avoid attacks on their power as they kill off jobs in swathes. But they also will continue to work out ways to maintain control over workers and what better way than dishing out a little consumption bundle and keeping them out of the workplace,” he says.

A UBI would create a society where people become mere consumption units, where the demand for labour goes into decline, wages and conditions suffer and the inequality balance shifts even further in favour of capital.

National GDP levels would fall as people opting not to work, lowered their expectations and their living standards, forcing production rates to spiral downwards, prices to rise, inflation to run amuck and the only winners are guess who?

Little wonder business CEOs support the principle. It would mean more money for them, less overhead and bigger profits. This is not the society we want for the future, it’s the society from which we have been escaping these last 100 years.

If our business leaders were truly keen to care for the destitute and the less fortunate, they would support a job guarantee where the government provided a job for everyone who wanted work but were unable to find it.

A job guarantee would ensure a pool of workers ready to join the mainstream workforce when the economy was in recovery, help maintain production levels, increase taxation revenues and overall GDP.

Strangely sinister, is it not, that the wrong message, sugar-coated to appear electorally popular, is always the one that seems to get the most media attention, while the more beneficial option, the one that best serves the interests of the majority, languishes in the “it won’t work” basket.

Shorten smells blood

Bill Shorten can smell blood and is becoming bolder by the week. His announcement last week that the cash payments tied to the dividend imputation scheme would end, was just the beginning.

He is becoming more prime ministerial in his approach, made easier by a government  in disarray. The 29th Newspoll showing an increase in primary support for Labor must have sent a chill down the backs of several Coalition members.

Shorten’s boldness was reaffirmed this week, firstly by announcing a tweak to the dividend imputation policy, exempting full and part pensioners. It wasn’t necessary, but it blunts any scare campaign that might be aimed at it.

Then, he announced Labor’s intention to repeal any legislation that gives our corporations a tax reduction. Another bold move, but one clearly consistent with Labor’s continued opposition to the legislation.

Whether this initiative influenced two cross-bench senators not to support the legislation thus far, is difficult to say. But the prospect of the tax cuts being included in this year’s budget looks unlikely.

It is hard to reconcile what the conservatives were thinking, given the severity of spending cuts that have hit hard at individuals and community groups who have lost their funding for social programs and health groups no longer able to extend vital community support assistance.

The government will try to paint Labor as anti-business but as far as the electorate is concerned, that train left the station months ago, as people began to absorb the reality that most of our major corporations don’t even pay tax.

With the polls showing the two-party preferred vote 53% to 47% in Labor’s favour, Malcolm Turnbull will want to delay the next election for as long as he can.

That would mean May 2019 as the date, but if he chooses that option, there are three significant roadblocks to manage; the Victorian State election in November this year, the NSW state election in March next year and the 2019 May budget.

It means that any budget sweeteners planned this year will be long forgotten, with no time to prepare for next year. All of which points to an August/September 2018 election.

Whether Labor planned an election strategy on the grassy knoll of inequality or not, that’s what will take place. A clear “us versus them” battle line.

Malcolm Turnbull can continue to boast 400,000+ jobs created this year, but the unemployment level both in percentages and raw numbers is the same as it was in 2013.

Those new job have done no more than keep pace with population growth, a natural occurrence in any economy. All of which means that in five years of government, their jobs and growth mantra is as hollow as their concern for equality.

Those who remember the months leading up to the 1972 election that saw Gough Whitlam become prime minister might see some similarities emerging. A stagnant economy, a government bleeding from within and an expectation that their time was over.

Shorten draws a line in the sand

Bill Shorten and the Labor party are beginning to demonstrate true grit. The latest policy announcement that will see an end to a welfare handout to the rich, otherwise known as the Dividend Imputation Scheme M2, is a masterstroke.

The dividend imputation scheme enables salary earners who own shares to minimise their tax liabilities with franking credits. However, where a person has a very low income those franking credits not only mean they pay no tax, but they result in non-taxpayers being owed money by the ATO.

Yes, it will hit some part-pensioners, perhaps as much as $4800 a year but, as they weren’t paying any tax, it was only acting as a supplement to their pension payment anyway. Its cancellation will result in them receiving a larger pension payment.

They will likely be no worse off, or minimally out of pocket. But for those who have large shareholdings and have used John Howard’s overly generous system to firstly, pay no tax, and then receive a cash handout each year from the ATO, effectively working the initiative in a way Paul Keating never intended, their days of sponging off the system are coming to an end.

This is just another example of the Howard era’s middle-class welfare that has reached its use-by date. We can place this in the same basket as capital gains tax breaks and negative gearing concessions that are wasted on the wealthy and which offer no benefit to our economy.

This May, Scott Morrison will deliver the last budget before the next federal election and it is not surprising he has been talking up the possibility of personal income tax cuts. So it wasn’t surprising then, when Bill Shorten made his announcement, that Morrison immediately began a scare campaign trying to frighten pensioners into thinking they will lose their imputation credits. They won’t.

They will only lose the amount over and above the point where they stop paying tax. And that will likely mean they receive a higher pension payment as compensation. As if to counter Morrison’s plan, Shorten has demonstrated that Labor can also offer tax cuts and he is showing us how they will pay for them.

And just so we get it straight, the amendment to Paul Keating’s original scheme was one of several measures introduced by Peter Costello in the early 2000s, that was introduced on the back of the mining boom and which was nothing more than a vote-buying exercise.

Shorten believes that the economy cannot afford such generous arrangements for the wealthy in much the same way Morrison believes we can no longer afford welfare for the unemployed, the sick and the less well off. It’s an interesting dichotomy. It’s neoliberalism versus left-wing ideology. We now have a clear distinction in policy approaches by the two major parties.

At a time when we have record high levels of private debt, record low interest rates, and mortgage stress tied to wage stagnation, the combination of which threatens to bring about an economic meltdown, highlighting the two starkly different approaches will make for a robust debate. It is one Shorten and his shadow treasurer, Chris Bowen are confident they can win.

We will probably get some indication of its acceptance or otherwise when the next opinion poll is published. However, putting some sense and sensibility back into the dividend imputation scheme is the right call.

The Myth of the 2020/21 Surplus

Scott Morrison’s belief that he will be able to produce a surplus budget by 2020/21 is either a pipe dream or a con-trick. It is simply not achievable.

And, to our collective relief, it is ignorance rather than good management, that will ensure it doesn’t happen. Notwithstanding the fact that a surplus budget is the last thing our economy needs now or then, it is government policy that will stop it from happening.

Morrison thinks giving tax cuts to the private sector will create jobs. It’s called ‘trickle-down theory,’ but like all theories, it will only become fact when proven so. There is a weak link in his theory and it is a vital one. He has no control over what happens to that extra money kept by the private business sector.

Morrison et al, are constantly boasting that they have created a jobs boom when in fact, the jobs created are simply proportionate to the increase in population. They occur naturally.

If there was a real jobs boom, there would not be 700,000 unemployed today, which as it happens, is the same number that were unemployed in September 2013 when this government came to office.

They haven’t created anything, but they will happily take credit for what occurs naturally through immigration.

In the meantime, they are more than happy to maintain a pool of 5% unemployed, which some OECD countries regard as full employment, to keep wages stagnant. But low wage growth restricts a nation’s capacity to grow. It limits workers’ capacity to spend.

So, the question should be asked: why would companies use a tax cut to invest when low wage growth inhibits workers ability to purchase more goods and services? Such investment would be counter-productive. Which begs the next question: what would corporate Australia do with the extra cash?

It might be used to invest and expand, or it might be used for share buy-backs, or just bigger executive bonuses. History, however, tells us that it is bonuses and share buy-backs that usually win out, but history also tells us that one in five companies don’t pay tax.

So, a tax cut offers nothing for them, no reason to invest, no reason to hire. So, the projected surplus in 2020/21 is a myth. Without wage growth which produces higher tax revenues and the promise of higher sales volumes and bigger profits, the only way Morrison could achieve a surplus in 2020/21 is to reduce government spending further.

That too, is counter-productive. When government spends less, one of two things happens. People spend less, or they take on more debt. We are already one of the top three privately indebted countries in the OECD.

The likely outcome is contracted growth, leading to recession. We have been on this path now for five years. It has been delayed because of our large immigration intake including 457 visa holders. It’s not rocket science.

So, when we hear Scott Morrison and Malcolm Turnbull spruiking tax cuts for business, we know it’s not designed for jobs and growth.

Is it possible that they have other reasons for wanting to give business breaks they don’t deserve?

Is Barnaby’s career done and dusted?

As we all know, Federal politicians spend nearly half their lives away from home. It can be a lonely life, we know that too. But should we cut them any slack because of it?

No, we should not. That’s a price they pay, and they know that going in. As the saying goes, ‘if you can’t stand the heat, get out of the kitchen.’ A politician is a unique animal; self-obsessed, feisty, argumentative, prone to excessive exaggeration, ruthless and open to outright dishonesty.

They are mostly university trained where they get a grounding in the fundamentals of politics through a variety of campus clubs. They can come from the faculties of medicine or law, history or teaching, agriculture or science, anywhere really, and all of them mask their deeper ambitions with what we call, ‘a willingness to serve the public.’

So, it’s safe to say they are not illiterate. It’s safe to say they have some intelligence and have experience in something that could, at a stretch, be considered a qualification for public life. It’s also safe to say that somewhere along the public pathway, they fall into the deep, deep pit of hypocrisy.

Sooner or later, they will go on the public record as being for, or opposed, to something only to be found wanting, either professionally or privately. In this context, Barnaby Joyce’s light shines brightly.

His relationship with his staffer was no secret, at least not on social media, where it has been the subject of discussion, comment and innuendo for months and, on its own, is none of our business.

But when it spills over, into the very public arena, via stories concerning rent-free housing courtesy of a friend, back-room job creation efforts by party colleagues, that may, or may not, have required the approval of the prime minister, or suspected inappropriate use of travel entitlements, then it becomes our business.

Just ask Sam Dastyari, just ask Peter Slipper, just ask Julia Gillard.

Which brings us to the question: given the conduct of the member for New England in matters related to public purpose, does Barnaby Joyce have a future in politics?
On Insiders, this morning, panellist, Niki Savva was pretty savage.

He did not, and in her opinion, would not be leading the National party to the next election. That was a bit of a bombshell coming from a conservative journalist who, we might have thought, would have leapt to his defence.

On the previous Sunday, Insiders was all about Bill Shorten’s perceived problems, none of which were discussed today, probably none of which anyone can remember. A week is a long time in politics. Who knows what will be revealed this week?

The Stock Market … better it never existed

Are we witnessing the end of the surge on Wall St? Or is, what we witnessed this week, no more than a minor correction? The current roller coaster ride on the NYSE and other world markets including Australia, demonstrates just how much of a casino these places are.

Putting aside the investment most Australians have with the markets through their super funds, let’s call this out for what it is. While conservative governments pride themselves in using the markets as a guide to economic health, the reality is, they are nothing of the sort.

They are nothing more than gambling houses for institutional investors, merchant banks, brokerage firms and individuals brave or foolish enough to chance their hand.

Yes, there is a plethora of data to show a healthy stock market is necessary for each of us who hold super accounts but overriding that is the reality that super accounts are a secondary consideration when investors make their moves to buy or sell.

Super funds benefit on stock markets by good luck, rather than good management.

To equate these monetary whore houses with that of a feeding frenzy in a poorly run zoo would not be too far from the truth. To pretend that the stock market runs world economies is an insult to the average person’s intelligence. It does no such thing.

Better it didn’t exist, rather than have good performing companies pretending they have inflated values which are based on no more than a guess or a whim. Better it didn’t exist than to use well managed firms as a vehicle in a calculated strategy to make a quick profit from a confidential in-house tip-off.

Better, because only those who got in first benefit, while those who bought late are left wearing a loss when the ones who got in first decide to get out.

At the other end of the market, better it didn’t exist than to have poor performing companies suffer a rumour, become a target for takeover, and lose enough value to become a bargain. Invariably we see the new owners strip these companies bare, show long time employees to the door and bask in the glory of less competition in their chosen market.

Better it didn’t exist if all it does is enable banks to use excess reserves to pump money into a honey pot to reward executives with obscene bonuses.

The markets always recover after a crash. That’s because the crash had nothing to do with performance. Markets are manipulated by traders, by boardroom decisions, by insiders, always with one thing in mind: be first, or if not first, then cheat.

All bull markets, including the one witnessed on the NYSE over the past 5 years, end in a crash. It’s not an accident. It’s planned that way. Bull, crash, bear. Bull, crash, bear.

The clear majority of the QE money issued by the US Federal Reserve in the post GFC period, went into the stock market. It didn’t create jobs, it didn’t bring about the modest recovery experienced since the GFC. That came about by direct government stimulus spending in key job creating industries.

The QE money that flooded the stock market could, if targeted toward production and services, have brought about a quicker recovery.

Is this a responsible method of wealth creation? Money invested in the markets doesn’t produce anything except more money. The higher the index, the greater its value. But nothing has been produced. No jobs have been created.

Perhaps it is time that we called out our politicians who claim that the markets “won’t be happy if we continue with deficit spending.” Of course, they won’t and that’s probably the best reason to continue doing just that.

Better it never existed, or at least, have its reputation downgraded to no more than the commercial casino that it is.

Time is running out, Malcolm

Malcolm Turnbull just doesn’t get it. Or, perhaps he does, and he is hoping against the odds that the situation will improve by the time he finds himself forced to call an early election.

The problem is wages growth, or more particularly, the lack of it. He has been trumpeting the success of his government’s ‘jobs and growth’ platform now for months, citing the creation of 377,000 jobs in 2017 as evidence of that success.

The problem is, that so many jobs created should, by economists’ reckoning, have generated a competitive demand for labour which in turn, should have brought about a more competitive market in wages. But it hasn’t. So where have the profits generated by this job’s bonanza gone?

This is Turnbull’s dilemma. How does he explain to those thousands of white and blue-collar workers who are employed by highly profitable firms that their share of the rewards that they helped produce, have been soaked up by executive bonuses and share buy-backs?

When will it be the workers time to reap some of the rewards?

“Wages growth will come,” he says, “because a stronger economy results in more investment, more jobs and more intense competition between employers for workers.”

Turnbull should think about who he is talking to. His comments might go down well with the business community who are more than happy with the status quo, but it’s unlikely they will cut with average worker who has been starved of any of any meaningful wage increase for nearly five years now, while shouldering significant increases in the cost of living.

By any measure, most Australian workers have gone backwards. It has been a gradual deterioration since 2013 and a far cry from the promises the “adults” made when they rubbished Labor’s handling of the economy between 2007-13.

The very fact that the 700,000+ unemployed people today is the same as it was when the coalition won government in 2013 should send warning signals to every coalition member in Canberra. It simply doesn’t add up, unless one concludes that the job’s bonanza has nothing to do with government initiatives and everything to do with population increase.

It’s not peculiar to Australia. In the UK, Europe and the US, workers are experiencing similar imbalances, which makes one wonder if we do all exist in a matrix. Turnbull, however, should know that it doesn’t matter how good the economy is performing if the voters are not sharing in it.

He can say whatever he likes, but nothing resonates with people more than having to stretch the budget further to accommodate rising food and insurance costs, let alone mortgage rates. And if he is sprouting his government’ success while families are struggling to pay their bills, that will end badly for him and the government.

Reserve Bank boss, Philip Lowe, is on the worker’s side, saying they should demand higher wages. He knows that some banks have already increased mortgage rates, and if interest rates around the globe start to rise generally, he will be forced to follow suit to protect the dollar. Any interest rate rises here, without a pay increase will precipitate a rise in unemployment.

The time for self-congratulatory back-slapping is about to end for the government and some serious explanations given for the present wage/growth imbalance. There’s an election coming, most likely this August or September, and the clock is ticking.

A Politician’s Guide to telling the truth about taxation

Following an interview with an unusually frank and forthright politician, a journalist was struggling to absorb the reality that taxes don’t fund government spending. He was, however, still conscious enough to ask the next obvious question: if taxes don’t fund spending, why do governments tax?

The next day, while still trying to grasp how sovereign monetary governments pay for things, he returned to continue the interview. While it was questionable as to whether he was mentally ready to learn the truth about why governments tax people, he did have a deadline to meet.

The tax interview resumes…

Journalist: So, let me repeat my earlier question for you. If we can’t ever run out of money, why bother with taxation?

Politician: Taxation is one of a handful of tools the government uses to help stabilize the purchasing power of the dollar. When the government realises the economy has too much money in the system, it acts to correct the balance. It can raise taxes or interest rates, or it could cut back on spending, but that’s never a good idea because those cuts could create unemployment and make the situation worse. This my friend, is the part that gets a bit technical. So, I’ll speak in words of one syllable if necessary. Are you paying attention?

Journalist: er…yes.

Politician: Whenever the government spends, it is creating new money and it distributes that money into the community, via our banking system. That is how you get your hands on it. You think they get it from your taxes, but at this stage, you haven’t paid any taxes, have you, yet, bingo, there it is.

Journalist: Well yes, they had to do that in the beginning to get things rolling, but then taxation took over…. didn’t it?

Politician: No, it didn’t. Taxation never took over. Taxation has always been a means of removing money from circulation, so the economy won’t overheat. If too much money is allowed to circulate, we get inflation.

Journalist: Please explain?

Politician: If the money in circulation exceeds the current capacity of the nation’s production, we get inflation because suppliers haven’t had time to meet the extra demand that comes when we suddenly have more money to spend. When too much money is chasing too few goods and services, prices go up. These things must be done gradually. Taxation helps to keep a lid on things.

Journalist: But then the government has all this extra money it got from taxation. What happens to that?

Politician: It doesn’t need any extra money. It can create any amount it wants to. Your taxes are destroyed, written off the books, they go up in a puff of smoke.

Journalist: You’re kidding.

Politician: No. I’m sorry to be the bearer of bad news, my friend, but you’ve been had. Your taxes don’t pay for anything. Zip, nada, rien, niente. They disappear into the great nothing.

Journalist: My hard-earned taxes are destroyed?

Politician: Sorry about that. Do you need to take a few minutes to recover? Would you like a brown paper bag, or something?

Journalist: I bet Barnaby Joyce has something to say about this!

Politician: I’m sure he does but that won’t change anything. Keeping a lid on the amount of money in circulation helps to maintain its value, but there’s another reason why we must pay taxes.

Journalist: And that is…?

Politician: It forces people to use it. If the government says you can only pay your taxes using Australian dollars, it makes us want to get our hands on it.

Journalist: I doubt that. I’m sure if I offered the tax department a fistful of American dollars to pay my taxes they would happily take them.

Politician: Well, you’re wrong. They wouldn’t. They would tell you to go away and convert them to Australian dollars before they would accept your money. So, if we know that everyone needs our money to function and pay our taxes, we are happy to use it and be confident of its value.

Journalist: I think I need to get a second opinion on this.

Politician: Well that won’t change anything either. And you will probably ask the wrong person and get the wrong advice. The next time you hear anyone say, “my taxes are paying for that,” you can confidently say, “no, your taxes don’t pay for anything, but they do make room for government to spend.”

Journalist: But, if removing money by taxing us, allows government to spend, isn’t that the same thing? Doesn’t one cancel out the other?

Politician: If the total amount of spending equals the total of tax removed, it does look like the same thing, yes. But it isn’t. They are two quite separate functions operating independently of one another. And spending the same amount as the tax removed, is rare. It’s usually the other way. It’s not so much the amount spent, as what the spending is for.

Journalist: If what you say is true, government needs to come clean and explain it.

Politician: Well, don’t hold your breath. If they came clean, they would have to acknowledge their spending patterns are discriminatory and favour certain groups over others.

Journalist: What do you mean?

Politician: Look at all the areas that could really improve our productivity. Our health for a start, our education, public transport, planning, infrastructure, making sure everyone who wants a job can get one. All these areas where spending is kept to a minimum, are the very areas where we should be investing. If our economy is under-utilised, as it is now, the value of our currency will always be less than it would if we had 100% utilisation of our available resources. Instead, we give huge subsidies to the business sector who then use them to feather their own nests.

Journalist: But they employ us. They create the jobs.

Politician: They couldn’t create those jobs without the infrastructure governments provide for them. Roads, rail, airports, seaports, hospitals, schools, police, the military. They reap the benefits of all those services the government builds, and they profit from it. I think the least we can expect of them is to employ people.

Journalist: But they pay their taxes too.

Politician: Well, you and I know that is not true. Some do, many don’t. But that’s another reason for taxation; to enable the subsidising or penalising of various industries and economic groups. Government has a responsibility to create a society that is fair and equitable, something, which is sadly neglected these days.

Journalist: You’re right. They don’t pay their fair share.

Politician: If companies fail to pay their share, you and I pay more. Remember, the wider and more equitable the tax collection is, the more equitable the distribution of the wealth. Taxation also forces governments to be transparent, to show where they are spending the money they create. The fiscal statement they produce every year, what they call the budget, means we know who gets what, and how much things cost.

Journalist: I’m feeling tired. I think I’ll go home now.

Politician: Your headline in yesterday’s paper was very misleading. I hope you’ll do better this time.

The interview ends

In fact, the journalist doesn’t go home. He heads for the nearest bar to clear his head. It’s all too much. He decides to stick to what he knows best. His afternoon headline reads, “Politician confirms taxes are necessary but doesn’t know why.”

A Politician’s guide to the question, “How are you going to pay for it?”

If there’s one question a politician fears being asked, it is this one. After announcing a decision to undertake a bold new and expensive development project, the question always arises, “How are you going to pay for it?”

It shouldn’t be a horror moment for politicians, but it is, and the reason is simple. They are afraid to be caught out. Such is the millstone they have tied themselves to, over the years, trying to discredit their opposition, or portray themselves as fiscally responsible. In the process, they have shot themselves in the foot because they don’t understand how sovereign money works.

Therefore, in the interests of common sense and as a means of bringing an end to the foolishness that is endemic within this charade we call our parliamentary system, here is a prepared script for politicians to study which should help them to manage the, “How are you going to pay for it,” all fearing, all threatening, career ending, monster question, when being interviewed by a journalist.

Beginning of interview:

Journalist: And how are you going to pay for it?

Politician: We will pay for it the same way we have always paid for it. By crediting the bank account of the recipient.

Journalist: But how can you do that if there is no money in your account?

Politician: We create the money. There is always money in our account.

Journalist: Until you run out of it, or have to borrow, you mean.

Politician: No, we don’t need to borrow money, we create it. We can’t ever run out of it.

Journalist: But how is that possible?

Politician: We use computers, just like you do. Do you use internet banking?

Journalist: Yes, but I can only do that if I have money in my account.

Politician: That’s right, because you are the currency user. The government is the currency issuer.

Journalist: But you still must have the money.

Politician: No, we don’t. What part of, “we are the currency issuer,” don’t you understand?

Journalist: I’m confused. Are you saying a government doesn’t need to raise revenue to spend?

Politician: I understand your confusion. It sounds a bit fishy, but a sovereign government who issues its own currency doesn’t need to raise revenue to spend.

Journalist: But you need taxation revenue to spend?

Politician: Not for spending we don’t.

Journalist: I don’t get it. You seem to be advocating printing limitless amounts of money. Isn’t that what Mugabe did?

Politician: No, it’s not what I am advocating, and it’s not what Mugabe did. Firstly, we don’t print money anymore. It’s all done via electronic interbank transfers. Secondly, Mugabe wrecked his country’s economy by systematically destroying its resources, not by spending.

Journalist: What about Argentina?

Politician: Argentina foolishly borrowed foreign currency and then wasted it.

Journalist: Venezuela then?

Politician: Sheer incompetence, again, by using another country’s currency.

Journalist: But if we just create money what’s stopping us from doing the same as they did?

Politician: We don’t ‘just create money.’ It’s not about the money, it’s about how we use it. If we use it to engage our workforce and produce meaningful goods and services, the kind of things people here and overseas want to buy, we strengthen our economy, unlike those countries you mention, who failed to use their natural resources, and failed to use their own currency.

Journalist: But surely there is a limit to what we can spend?

Politician: There are always limits, but they are resource related limits, not money limits. We can’t spend if there’s nothing to buy. We must produce before we can buy. So, logically, we must issue the money to get our workforce into jobs and manufacture things we need to live and to prosper.

Journalist: All this seems to contradict any need for the government to produce an annual budget that shows how much they will spend, how much they expect to receive in taxation, how much they need to borrow, to make up the difference, that sort of thing.

Politician: Yes, it does seem that way, but that’s a political choice. We do that to keep the accountants happy and to have you believe that running a government is the same as running a household or a company. It isn’t. Households and companies are different. They can’t create money. They can only use money. Only sovereign governments can create money. But keeping books that show spending versus revenue, makes it easier for us to say we can’t afford it and stuff like that. God help us! We can’t have you think we can work miracles.

Journalist: Then why bother with taxation?

Politician: That’s a great question. We do need to tax, but you are confused enough already. We’ll leave that for another day. There is a limit to what you can absorb in one sitting. Best we schedule another interview where we can cover that issue separately.

End of interview.

Don’t be surprised if, after the interview, the journalist returns to the office and pens tomorrow morning’s headline, “Politician says government is money machine, Taxation unnecessary. Hyperinflation imminent.”

 

House of Cards

A quite lengthy article published back in November last year by Matt Barrie and Craig Tindale on Medium.com entitled, “Australia’s economy is a House of Cards”, gives us a comprehensive view of where the Australian economy is at present.

What is revealed should shake Malcolm Turnbull and Scott Morrison out of their overly optimistic complacency, but as unlikely as that is, the report warns of what is to come. It is a long and highly detailed read, so for those who are time-poor, here is an overview…

Australia’s economy is a HOUSE OF CARDS … a précis

In a nutshell, our economy has recorded its 104th quarter of growth through sheer luck, that luck being a combination of rich natural resources and China. Our economy is more dependent on China than any other OECD country.

“As a whole, the Australian economy has grown through a property bubble, inflating on top of a mining bubble, built on top of a commodities bubble, driven by a China bubble.”

Looking down the barrel of some “staggering” losses by Chinese banks in what has been a “$34 trillion experiment” to create an economic miracle, the Chinese government is facing a meltdown likely to be far more catastrophic than the sub-prime meltdown in the US in 2008.

Such a meltdown will have horrific consequences for Australia. But that is looking at it from a purely selfish perspective. More broadly, the world could plunge into depression, with no further wriggle room for escape, given the present level of record low interest rates across the globe.

The US, Europe, the UK, Japan and China all fought the global financial crisis printing $19 trillion US, in exchange for various bonds and securities offered by commercial banks. It might have worked had that money found its way into the hands of those who would spend it buying goods and services.

But instead, that money was used by corporations in share buy-backs and property development (high-rise apartments) too expensive for the average consumer to afford. While brand new homes and apartment blocks with inflated values remained empty, they pushed up stock markets to new, unprecedented highs, despite no corresponding lift in company performance.

In the property bubble market, China was the main offender causing billions of dollars to flow out of the country by investors in search of more affordable opportunities that, in the process, set off a subsequent bubble wherever they went.

Back in Australia, we are the largest producer of iron ore (29%), in the world and 80% of that is sold to China. As we speak, a perfect storm is developing with other nations like Brazil ramping up their production and moving in on our market, at a time when China’s demand is in decline.

One doesn’t need to be an economist to see that the price of iron ore is set to take another savage dive. Coal is our next biggest export supplying 38% of world production. The long-term future for coal is not good. It’s use-by date is approaching.

Banks know this, but our government has its head in the sand. In the meantime, for miners in Australia, revenue is down and costs are up, meaning profits are dwindling.

In any event, Australia’s “economic miracle” does not come from mining or manufacturing. It comes from services. “With an economy that is 68% services, as John Hewson put it, the entire country is basically sitting around serving each other cups of coffee or, as the Chief Scientist of Australia would prefer, smashed Avocado.”

With an export market that delivers just 20% of our GDP and the value of goods and services produced barely above cost, little wonder we run both a trade and fiscal deficit.

When one applies the principle of the three sectoral balances to this equation, it means that the private sector is in surplus. A good thing, one might think, except that the private sector is not spending it.

Corporate investment has been dragging its feet waiting for the government to lead by example. Consumers are using their money to pay down debt rather than buy goods and services, or hanging on to it in anticipation of trouble ahead. Retail trade figures confirm this.

The only thing keeping Australia in growth mode now, is the property bubble. It’s a bubble that is helping to sink average working Australians further and further into debt.

Meanwhile, the only thing enabling them to meet their mortgage payments is the low interest rates they are paying. Fortunately for them, that will continue for some considerable time yet, because the RBA has precious little to offer the country in terms of monetary policy.

But when consumers start to lose their jobs, the spaghetti will hit the fan. 60% of Australian bank loans are mortgage loans. This is consumer debt, not productive debt. This is a disaster waiting to happen. And it’s not as if we never saw it coming.

Australians have the second worst household debt servicing ratio in the world, spending more of their income paying off interest that was, in 1989/90, double what it is now. We are about to experience an asset value collapse that could bring banks to the edge of insolvency.

There’s more bad news, particularly in the field of education, our third biggest export. Many have been warning about the oncoming tsunami, including Steve Keen, Bill Mitchell and others.

When it comes it will not be pretty. More importantly, it will set us back decades, all because we thought property portfolios sounded more glamorous than making cars.

Better we had made cars.

Why an Election in 2018 is more than likely

Notwithstanding the issue of foreign citizenship facing both the Liberal and Labor parties, which could trigger an election in 2018, there is another more pressing issue looming for Malcolm Turnbull, one that he created all on his own.

It concerns the senate, the Constitution and the double dissolution Turnbull called in 2016. It may well be that 2018 turns out to be a federal election year, by necessity.

The Constitution states that after a double dissolution, there must be a half senate election no later than 30th June, three years later.

This means that those currently serving a three-year term will see their tenure expire on 30 June 2019. Allowing for a minimum of 33 days for campaigning prior to that date and finalising other necessary matters, the next half senate election must be held no later than 18th May 2019.

And herein lies the dilemma for Malcolm Turnbull. Given that he will not want a half senate election on one date and a House of Representatives election on another date in the same year, Australia will go to the polls no later than 18th May 2019 for both houses.

But will he wait that long? South Australia will go to the polls 17 March 2018. Victoria goes to the polls on 25 November 2018. The next NSW state election is scheduled for 23rd March 2019. None of these fixed dates make it any easier for Turnbull. Adding fuel to the fire, Tasmania must go to an election no later than 19th May, 2018.

There is little to no time available between Victoria going in November 2018 and New South Wales going in March 2019. Either way, at least one and possible two states will face both a federal and state election in the same year.

Running the risk of local state issues coinciding with federal issues makes for a messy campaign trail and one in which some issues could become hopelessly confusing. Turnbull and his government, will want to avoid that and provide as much breathing room as possible.

That suggests sometime in August (Sat 4th being the earliest) or early September 2018 as the least damaging, one that allows the dust to settle in South Australia in March and before Victoria votes in November, with the possibility that Tasmania will go earlier. Tasmania will also be dealing with the Jacqui Lambie factor.

The South Australian election is the most interesting, because of the popularity of Nick Xenophon and his party. If both Labor and Liberal were to lose primary votes and seats to the Xenophon party resulting in some form of coalition, a honeymoon period would still be in play by the time an August poll was held.

Either way, it could influence the result in a federal poll, although not as seriously as one held too close to either NSW or Victoria. Current polling suggests the government will be struggling to survive either way and the timing of an election will be crucial to their chances.

Keen election watchers will be looking for the signs. If the Coalition begin offering big incentives to South Australia early in the new year, it could point to an August election nationally. Apart from the pork-barrelling, it’s all in the language and the activity in key seats. We should also be watching for signs from the mainstream media, particularly the Murdoch press.

Labor will be keenly aware of the timing and begin ramping up the pressure as well. There is a huge amount at stake for both parties as well as all four states involved, not to mention the leadership of Malcolm Turnbull and Bill Shorten.

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