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Why the Brexit result should favour Labor

In 2008, when the full impact of the GFC became apparent to the then Secretary to the Department of the Treasury, Ken Henry, his advice to prime minister, Kevin Rudd was, “Go early, Go hard, Go households.” Rudd didn’t equivocate. A $40 billion stimulus package that put money into the bank accounts of all taxpayers was devised, approved by cabinet and executed without delay.

The rest is history. Australia was the only western economy that did not go into a subsequent recession. It was a fortuitous and brave piece of advice that meant issuing debt when the nation had been convinced that being debt free was a good thing.

At the time, the nation had been seduced by the power of the dark side….the Liberal opposition. They detested debt having no idea how important it was to maintain economic activity during times of instability on world financial markets.

Dr Nicholas Gruen, chief executive of Lateral Economics wrote at the time, “the 1991 recession shows that what the Australian economy needs now is stimuli, not timidity in the face of a possible electoral backlash for an irresponsible government deficit.”

The Liberal opposition at the time were a timid lot. They didn’t have John Howard to steady them. They had Malcolm Turnbull at the helm. They were like a tall ship on rough seas without a captain to guide them. They were arguing for caution. All they cared about was retaining their precious debt free legacy.

Fast forward to June 2016 and Brexit. The United Kingdom has voted to leave the European Union and that has sent shivers through the world’s financial markets. $50 billion was quickly wiped off the Australian stock market in a frenzy of panic selling by greedy, money hungry investors who saw the possibility of losing their money if they didn’t act quickly.

Putting aside the reasons a majority of British citizens chose to leave, it is the greed and distrust in the investor market that now takes centre stage. Markets rise and fall on fear. Some might say, “who cares, it’s not my problem.”

But with so much money now invested in superannuation funds, money entrusted to those funds by ordinary, average working Australians, we do have cause to worry because superannuation funds invest in world markets.

Another stock market collapse ignited by the Brexit decision would impact negatively on those superannuation funds. That would set off a chain reaction beginning with further household restraint, lower retail sales creating excess stock levels, cutbacks in production and workers being laid off. We have seen it all before.

Who, under those circumstances, would trust a Liberal government to execute an economic package to stimulate a receding economy? They were too timid to support the Labor government during the GFC, it is reasonable to think they would act the same way this time around.

That is why Labor should be the beneficiary of the Brexit decision at next week’s election. They saved the country from a recession after the GFC, they guaranteed personal bank deposits and settled fears of what might happen on the stock market.

The present government will not act that way when push comes to shove. They will not go early, go hard or go households. They cannot be trusted to act in the best interests of the average Australian family. Their loyalties lie elsewhere.

No doubt the conservative forces are meeting right now to develop a strategy to convince Australians Labor cannot manage this looming crisis. But the truth is, the Liberal party has already proved to us that it cannot and will not manage this potential crisis in a way that protects the average Australian worker and his family. Only Labor can be trusted to do that.

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  1. Sam_w

    “Australian stock market in a frenzy of panic selling by greedy, money hungry investors who saw the possibility of losing their money if they didn’t act quickly.”

    Also they bet on the wrong horse totally!

    The markets are full of emotion and nothing is grounded in reality.
    Goldman Sachs, JP Morgan and Morgan Stanley tried to buy themselves a stay in the EU vote and were defeated by racists reactionary right wingers run by nutters (sad world we live in).

  2. Keitha Granville

    Thanks for reminding us that not all debt is bad, and that only Labor will put people ahead of profits.
    Do we want to be happy and healthy and smart? Vote for the Labour team. If you would prefer debt free but poverty, sickness and (dare I say it) stupid, vote LNP. Always remember that they are NOT affected by these global fractures, their money and their future is safe. Ours isn’t.

  3. paul walter

    This might be one of the best short pieces I have ever read here. John Kelly is one of the safest writers of all at AIM.

    The problem moves from that referendum to what can be done to avoid ordinary people having to cop the consequences of the City and its greed once again.

  4. michael lacey

    The system has failed it continues to fail a different economic model is well overdue. Neoconservative ideology needs to be relegated to the dustbin of history where it belongs!

  5. totaram

    Keitha Granville: May I remind you that all federal govt. debt is in the form of treasury bonds, denominated in Australian dollars, which is the currency issued by the RBA. therefore there can never be a default on this debt. These bonds are therefore as safe as currency and in addition they pay interest. They are held as valuable financial assets by most superannuation funds, including yours and mine. Why would you and I worry about this government debt? We, amongst others are the creditors. The cry is often heard that we owe this money “to foreigners”, but this is only because we have an open financial system. If the foreigners don’t want to hold these bonds they are free to sell them in the bond markets. If they continue to hold them it means that they value them. Why should this be a worry?

    It is private sector debt that is “bad” if it becomes too high compared to our ability to service it. That is because there can be defaults and those are what led to the GFC. Currently, private sector debt is around 150% of GDP, while govt debt is barely 40% of GDP. Which debt should we be worried about? And here is the connection: simple accounting says that the private sector can only pay down its debt if the govt. runs deficits (because we don’t run trade surpluses). Do we need surplus budgets from govt.? No.

    Of course, the pity is that no political party will agree that this is the truth, so far have we gone down the road of neo-liberal macro-economic brainwashing. The only saving grace is that Labor will “put people first” rather than “teh economy”.

    Totarum, I shared your comments here on a Facebook site to try and educate a handful of idiots. Your authorship has been acknowledged.

  6. Jack Russell

    That picture of Bill you used … he looks like a force to be reckoned with. A good thing when it comes from integrity. This country desperately needs him and his team right now. I hope enough Aussies think so as well on July 2.

  7. paul walter

    Game, set and match, totaram.. the LAST thing needed now is panic, the Murdoch types would love it.

  8. Matters Not

    impact negatively on those superannuation funds. That would set off a chain reaction beginning with further household restraint, lower retail sales creating excess stock levels

    Yep! And it comes at a very unfortunate time in the financial year. Superannuation funds were just about to inform their ‘clients’ that this current year was again a year of net profit, and thus forcing them to draw down more of their ‘nest egg’ (those who only take the minimum) and therefore encouraging them to spend more.

    But for many, this will be a ‘shock’ and therefore confidence will evaporate. And the ‘chain reaction’ you allude to will result. (Who said economics was a ‘hard science’?)

    BTW, this ‘divorce’ will take some time.. And may never happen. This ‘vote’ has no legal force, strictly speaking.

  9. mark delmege

    Any impact will be short term. London will remain the centre of global banking. The UK will keep their Pounds – threats will disappear but the TTIP might be dead – pity they couldn’t kill off the TPP too. SNAFU.

  10. brickbob

    Ithink you are right about Labors strategy is the right one to follow,it should be a no brainer but the MSM will tear them to pieces,you know it and i know know it,but what to do about it? Any ideas?

  11. John Kelly

    Brickbob, Labor should take a leaf out of Ken Henry’s bible and go early, go hard and go TV reminding the electorate of what they did in 2008.

  12. Pingback: Why the Brexit result should favour Labor — The AIM Network | James William Fox

  13. paul walter

    Perhaps the most disturbing thing I am witnessing is the attempt of the Commentariat to dismiss the Leavers as racists, Labour as too left wing and all this is now somehow is poor Corbyn’s fault.

    It is obviously true that the Leavers, like the Tea Party and Hansonists here,were early astroturfed by the populist right and boosted by tabloid msm, but let’s have something a bit more honest and factual than just the picture of a few Alf Garnett illiterates griping about too many coons, eh?

    Ask yourselves, why is it that, if so many people were ignorant of what Brexit has been about, how it came to pass that this was the case?

    Do people accept that media and education were functioning in the way they should have, rather than way Murdoch and big business wanted?

    Not me. This has been a long time in the making.

    It was Cameron made the referendum stuff up for his own narrow political purposes, no one put a gun to his head and ordered him to announce the risky referendum, after turning Britain into a resentful, seething mess post Meltdown.

  14. Vixstar

    LIBEXIT Australia vote Labor

  15. wam

    farage’s reference to the good honest worthy people who voted out illustrates the nasty side of pollies and qualifies him as a rabbottian. Given the campaign does anyone doubt we would have voted with the poms not the scots??
    In our social media we need to emphasise that labor has the experience on the board from the GFC. The libs have only profligacy on their side.

  16. Kaye Lee

    I heard Bill saying that, along with economic policy, you must have social policy – something the Coalition seem unable to grasp. As they focus on enriching businesses and waiting for that to trickle down, they neglect the fact that all Australians should share in the wealth created by our country. It seems this was a contributing factor in the Brexit vote. Globalisation is a reality that is not going to go away. It is up to governments to protect us from the greed and exploitation of multinational corporations and to regulate and legislate to make sure that citizens benefit too from the profits made using our labour and our infrastructure and our resources.

  17. Florence nee Fedup

    As someone overseas said, the present crisis will be short lived. The economy today is the same as yesterday. It will be years before UK leaves the EU. Just a side line.

    Morrison refused to answer a question on SKY yesterday. He was asked what he would do if the economy faltered as in GFC. Refused to answer. Then his usual tripe. Was pressed, told the voter had a right to know because of the UK and fall in stock across the globe. All we got was things would remain the same, strengthening economy with cuts and lower taxes. A recipe for disaster, one would say.

    We know Turnbull when Opposition leader despite money being hand to lower income earners to those would spend it. Turnbull pushed for tax cuts instead. Cuts that go who the better off, who immediately add it to their savings. Why it doesn’t work. Joyce during his NPC address muttered about their would be no $900 cheques, waste under his govt.

    This government will use any crisis arising out of UK leaving UE to cut spending and lower taxes. In fact PM has began this morning.

    Yes one should fear a new Coalition government more so because of unstable global economy. We can’t afford anymore austerity.

  18. Matters Not

    In Scotland, 62% voted to stay. And well they may.

    second Scottish independence vote ‘highly likely’

    Will we see the ‘balkanisation’ of the UK, with Northern Ireland also voting to stay with Europe? Will Ireland become a united country once again?

    Yes, these are exciting times. The ‘youth’ voted to remain while the ‘oldies’ wanted to ‘exit.

    analysis shows the higher the median age in an area the higher the turnout – meaning larger numbers of older, leave voters got their way

    As always the future belongs to the young but it would seem they simply want to ‘inherit’ rather than ‘create’ that future. Be ‘worker bees’ rather than ‘architects’.

  19. cornlegend

    A Pommie Labour mate of mine worked on the Exit campaign for 3 months and convinced me to have a bet when Exit was 3/1.
    What you had was those that caused the GFC throwing truckloads of money at the Stay campaign and Cameron and his lot doing the leg work for them. My friend was out and about talking to those in villages, counties , small business owners and ordinary everday Poms, They saw absolutely no benefit in staying, as all they have witnessed was an erosion of jobs, draconian austerity, an NHS starting to crumble and a bleak future with growing homelessness, rents becoming exhorbitant and small business drowning in the massive increase in red tape to meet not only UK, but EU guidelines. Whether this was an EU problem or just typical Tory politics, but it was a chance for small business and workers ro say enough is enough. The same person working on the exit campaign saw similarities in what is happening to Trump in America. If you see his rallies they are the working class who see no joy on what the Republicans or Democrats are putting forward and have gone to Trump in desperation.
    But even with the Exit vote and against the obvious will of the people, the UK may never really “Exit”, as the money end of town won’t accept the result.
    Cameron may be resigning, but not till October apparently, The Stay vote proponents had paid workers out and about before the count had finish with petitions to have the vote overturned. The are seeking to get a 100,000 string petition up to Parliament that would seek to have the cirrent vote declared invalid, a rerun in which at least 75% of the country must vote and the decision either way would need to gain at least a 60% outcome, Apparently, a 100,000 strong petition is enough to have Parliament the petition and consider moving it forward .
    The right within the Labour Party aren;t accepting the result gracefully either, with Labour MPs now organising for meeting next tuesday to seek to remove Jeremy Corbyn as Leader of Labour with a no confidence motion.
    In some ways the EU Referendum vote provided an opportunity for the working class to let their feelings be known.
    Problem is, it seems “the will of the people” is only acceptable when it suits the big end of town

  20. Stephen Brailey

    Great article but off course as many have pointed out the LNP and the Rupert media circus will never do anything buy try to contract our economy. I’m of the opinion that the real goal of the neo-conservatives is to reduce government to the point that it no longer has ability to effect anything much. This completely disempowers the masses and gives ultimate power to our corporate masters.

  21. Freethinker

    I agree with you John on the points made but IMO the most probable will be a coalition win which will not invest or increase the debt and therefore will be increase their reputation to be the “most responsible party” managing the economy going by the majority of the electorate wishes.
    People do not understand macroeconomics and that will work well for many elections to come in favor of the coalition.
    Sorry to be pessimistic or negative but I just go by history.
    Greedy, ignorance and selfishness rules.
    If a world wide crisis develop because the events in EU I hope that the ALP will not win because all the blame for the world crisis effects in our domestic economy will be put on the ALP and how they wreaking our economy.
    Then the coalition will be in power for many years to come, is a fact.

  22. Kyran

    There were two articles on the ABC that were written before the Brexit vote and have become far more relevant in hindsight. One, in a ‘political/ideological’ sense posed some interesting notions;
    “Two outlandish ideas that could scarcely have been considered credible a year ago – Britain leaving the European Union and Donald Trump entering the Whitehouse – are now suddenly very real possibilities.”
    “The message is already clear: huge sections of the population in both the UK and the US have unambiguously stated their preference for nativism and global retreat.”
    That article then goes on to suggest how such a shift could impact our ‘conservatives’;
    “Yet regardless of the defence implications, if Britain withdraws from the EU and Malcolm Turnbull goes on to win office, the first destabilisation threat the PM will face will be internal, not geopolitical.
    After all, you could hardly expect a dedicated Anglophile like Tony Abbott to be unmoved by the profound shifts in the Mother Country.”
    “Suddenly Abbott and his band of hard right believers would be emboldened by the cultural shift sweeping the western world.
    Try telling the likes of 28-year-old IPA firebrand Senator James Paterson that the Australian right’s moment in history had not arrived.”'s-politics/7537536

    Ian Verrender wrote a more detailed piece with more economic musings, in addition to the political/ideological aspects. His article also highlights the disenfranchisement with globalisation;
    “Five years on, the left wing movement against capitalism and globalisation has manifested itself in mainstream politics, with many of the very same arguments employed by far right wing groups whose main objection is to immigration with more than a nod towards racism.”

    Both articles are well worth a read. As an aside, and bearing in mind it’s very early days yet to try and predict un-intended outcomes, the demography of the vote is worth bearing in mind. Spain is now looking at accommodating Gibraltar, if they wish to cede from England and stay in the EU. Scotland, which largely voted for ‘stay’, has the option of leaving England and staying with the EU, if they revisit last years independence referendum. The most ironic possibility is the notion that Northern Ireland may vote to re-unite with the Republic in order to stay in the EU. After six centuries of English occupation and one century of partisan rebellion, it may be the economy and the future that finally unites a country torn apart by English rule. From what I’ve read, the youth vote wanted to stay, the older vote wanted to leave. The manufacturing districts were expected to see a better future in staying, but voted for leaving.
    If the youth of England seek asylum in Australia, will we deny them access as they may be considered economic refugee’s? Will we only accept the ‘Christian’ one’s?
    We apparently live in exciting times. Or is that exiting times?
    Labor’s economic credentials should stand them in good stead. For some reason (that has always escaped me), that reality has never been accepted popularly in Australia. Maybe the rigidity of the current mob’s ideology will wake a few more people up.
    Thank you, Mr Kelly. Take care

  23. Kaye Lee

    Do you really think the majority of the working class are well enough informed to dictate economic policy and to understand the repercussions of their decision?

    Those that don’t own shares and who don’t have investments for their retirement might think it’s a good thing to see trillions wiped off the share markets – that’ll teach those rich bastards kind of mentality – but this will impact every Australian worker as their superannuation takes a hit. It is also going to mean that people in the UK will be paying a hell of a lot more for imports with the biggest drop in the value of the pound in decades. Perhaps things will recover quickly….perhaps not.

  24. Kyran

    Apologies, Matters Not. I didn’t see your comment until after I posted mine. You said it far more succinctly. Take care

  25. Jaquix

    Surely the super funds will hold their nerve.

  26. helvityni

    Let the LIBEXIT be the NEXIT.

  27. totaram

    John Kelly: Please feel free to reuse, anywhere and everywhere, with or without attribution, anything posted here by me. It is after all just second-hand knowledge derived from reading books, text-books and blogs of the MMT school, most notably Bill Mitchell’s. Of course, any errors are mine.

  28. Matters Not

    Of course the management of super funds will hold their nerve (if they had their way) but it’s come at a bad time with the end of the financial year in sight. I, for example, will find out in a matter of days what I must ‘legally’ draw down in the coming year. Until this ‘blip’, the year was looking okay, but for many people when they look now at their balances might decide to be more conservative and shift their allocations away from the share market (and the like) to safer areas such as ‘cash’ which is always a ‘slow bleed’ in the longer term. It’s up to the members, not the management of the ‘fund’, to decide asset allocation and many more (retirees not managers) will become risk averse.

    While many Brits won’t suffer (at least in the short term), spare a thought for those who decided to retire to rural locations in France, Portugal and Spain who will feel immediate pain. And there’s tens of thousands that fit the bill. Many (if not most) receive a pension paid in ‘sterling’ which is now worth somewhere between 6 and 7% less when converted to Euros. Will be less fun in the sun almost immediately.

    Villas going cheap? Buy now!

  29. Jennifer Meyer-Smith

    I applaud the British people for voting for Brexit. I support the millions of American people’s support for how far Bernie Sanders got in the presidential nominee contest with Hillary Clinton. I love the sense in Australia that Malcolm Muck and his nice suits and smarmy smiles are not enough to fill our stomachs and keep our roofs over our heads.

    I’ve grown used to pain and it’s made me tougher. Time for the western world to come out of its neoliberalist apathy and find real, alternative solutions that balance the socio-economic playing field in favour of grassroots people.

    Go MMT!
    Go ALLiance!

  30. Pingback: Why the Brexit result should favour Labor | THE VIEW FROM MY GARDEN

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