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Tag Archives: global financial crisis

I hope Rupert is happy

There was a time not so long ago when Australia’s future looked bright.

In 2008, Rudd apologised to the Stolen Generation and COAG agreed to a definitive strategy to close the gap in Indigenous disadvantage.

We had successfully negotiated the global financial crisis with continued growth and relatively low unemployment.

We were world leaders in putting a price on carbon. We were addressing water issues with the Murray-Darling buyback scheme and extending marine parks.  We had introduced water trigger legislation giving the federal government the right to oppose mining in sensitive areas.

We had expanded the Renewable Energy Target and established the Australian Renewable Energy Agency and Clean Energy Finance Corporation. Wind capacity trebled and Labor supported the installation of more than 1 million solar panels.

Needs based funding for school education was underway, tertiary education had been expanded, and we had an agreement with the states on hospital funding.

The rollout of a world class fast NBN was underway.

We had a mechanism for deriving some income from the mining of our natural resources which was just about to start earning some money as they moved into production phase and had used up their accelerated depreciation.

We had introduced paid parental leave and the National Disability Insurance Scheme.

There was a Royal Commission into child sex abuse instigated.

Our troops had finally come home from Afghanistan.

We had our first female Prime Minister who was admired around the world who looked on bemusedly at the vilification she received at home.

But Rupert Murdoch wasn’t happy.

We had a debt and deficit disaster, which is now much larger.

They were a dysfunctional illegitimate government who knifed their own leader, just like the Libs have done.

We had to get rid of the carbon and mining taxes to improve investment and employment, both of which have gone backwards after the repeal.

And Juliar told us there would be no carbon tax, just like Tony said there would be no cuts to health, education or the ABC.

So what do we have to look forward to now?

Another war in the Middle East.

Paying hundreds of billions for war toys.

Paying hundreds of millions for political witch hunts aka Royal Commissions designed to demonise Labor and the union movement.

Becoming a toxic dump for the world’s nuclear waste.

A great big new tax on everything you buy.

Paying billions to polluters.

Forking out millions to try and keep Telstra’s copper network working so we can have really slow broadband.

Lots of big new coal mines and CSG mines dotting our prime farmland.

Getting sued by global corporations if our laws interfere with their profits.

An influx of 457 visa workers.

Condemnation by the world for torturing asylum seekers.

The selling off of all our assets.

Working till we are 70.

The removal of penalty rates.

Being told that government spending on everything to do with society is unsustainable because we need more money for security.

I sure hope Rupert is happy because we have paid a hell of a price for him to get his way.

 

The Truth about Debt and Deficit

Image courtesy of heraldsun.com.au

Image courtesy of heraldsun.com.au

A guest post from John Kelly, putting the complexity of debt and deficit into simple English and exposing the hypocrisy of Joe Hockey’s references to Labor’s economic management.

Why Joe Hockey will rue the Howard Government’s fiscal mis-management.

Have you ever thought what would happen if everyone in Australia went to their bank and asked to withdraw all their money, all on the same day? Ask Joe Hockey. He will tell you the crisis such an event would kick start doesn’t bear thinking about. He’s right about that. The first customers to arrive would be successful but somewhere down the queue the rest would be told the money had run out. Surprised? No, and you shouldn’t be, but that is just the beginning. Have you ever asked why the banks could not pay out their customers’ deposits? No prizes here; the answer is relatively simple: they lend most of our money to entrepreneurs like you and me so that we can build houses, start businesses and so on. In turn, they receive interest on those loans some of which comes back to us as interest credits.  All sounds good doesn’t it?

In fact, it isn’t good. It’s nothing more than a smoke screen cleverly masking something far more sinister; something that makes fools of all of us and which, if we wanted to, we could collectively act to bring undone. We won’t, of course, because in destroying this obscene arrangement we would also destroy ourselves.

Over the latter half of the 20th century the money game has become incredibly sophisticated. It has evolved to a point where, today, it is so complex and difficult to understand, only a few at the core actually know what is driving it and only those at the core know what disastrous consequences await the world should it ever be dismantled. Yet, dismantled it should be because it offers nothing but misery and uncertainty for generations to come. Why? Because  today, we are living off the expected profits of future generations and they will only have to do the same when their time comes or suffer the same fate we are desperately trying to avoid. One thing is certain: it has a use-by date.

It’s all to do with debt and deficit and where the money that funds debt and deficit comes from. We call it money but it is really currency. Money is something of value, something that can be bought and sold. Coal is money. Currency is the transfer of securities posing as money.  Issuing bonds to finance infrastructure, social services and wars, is currency. What we deal with today is currency. When a government wants to undertake a project that it can’t pay through taxation revenues it issues bonds that are usually snapped up by banks. Banks love bonds because they are a cash cow in ways the average man or woman on the street doesn’t understand. If they did, they would be outraged. When a bank buys government bonds it receives interest on those bonds but it also uses those bonds as collateral to receive currency from the Reserve Bank. So, it wins twice, because it calculates its asset value by including both the value of the bonds as well as the currency it receives from the Reserve Bank. That currency is then used to lend to other interest producing sources. The thing to understand here is that the Reserve Bank doesn’t have the money to do this either, so it also borrows or simply creates money by writing a cheque to finance the deal with the banks. In turn it gains interest on the deal which it uses to pay a dividend to its depositors. All along this weird currency trail, debt is building up for all the players. In fact, none of them are solvent in the true sense of the word. They are all hedging on the future. It’s a vicious cycle where each institution is receiving currency and passing it on while receiving and paying interest along the way. None of these institutions actually has the money in their vaults to support their transactions. Their borrowings expose them in ways that make a mockery of the true value of money. This could be demonstrated easily if everyone went to their bank on the same day and withdrew their money. It would expose a flawed system that lives off credit to a point where, one day, this paper thin economy will collapse. When that collapse comes, as it most certainly will, the hammer will fall hardest on the countries who have the highest national debt levels. The US is the most vulnerable right now and the only way it can avoid total collapse is to continue borrowing and printing currency. It is gambling on future generations creating wealth, i.e. money. But those future generations are going to be so overburdened by debt inherited from what is happening today, that they will not have the capacity to create real money. They will simply opt to continue borrowing. There’s a well known saying that if I owe the bank $100,000 and I can’t pay, I’m in trouble. The bank will sell up my home. But, if I owe the bank $1,000,000 and I can’t pay and my home is not worth $1,000,000 then the bank is in trouble. Now multiply that by trillions of dollars, money that has no security to support it and what is the outcome? This, as everyone knows now, was the blueprint for the GFC. There was a time when a country’s risk value was based on its gold and silver reserves; real wealth…money. Today it is based on pure speculation of short term return. Value today, is no more than numbers in a computer. It is not backed up by hard cash.

The only upside to this depressing story is that here in Australia, we have a very low debt . . . for now. But, Joe Hockey knows only too well that the present situation is going to change. By 2016 our national debt will be around $400 billion up from $244 billion as at the end of August 2013. The Treasurer acted quickly to increase the debt ceiling to $500 billion in full knowledge that forward projected revenues will not be sufficient to cover what we intend to spend. He doesn’t want to do it again, but he may well have to if China continues to take less and less of our coal. The tragedy is that it could have been a good deal less if the Howard government had been more fiscally responsible; the government in which Joe Hockey was a minister. Back then, China was our best friend generously contributing a windfall of money to our revenue stream that, had it not been wasted in unnecessary vote buying in the form of middle class welfare programs, could have been deposited in the future fund and placed us in a much stronger position than we are now. The Howard government, to its credit, did pay off our national debt, thanks to China, but had a lot left over. It opted to spend that excess to make itself look good. It rode on the wave of a private debt bubble that ended with the Global Financial Crisis. Long term management was overlooked in favour of political expediency. Hockey will be reflecting on this lost opportunity now as he grapples with the reality of having to increase national debt in the absence of a wave of private debt that kept our economy on such a firm foundation in the 1990’s and early 2000’s. And, while he will do everything in his power to convince us that Rudd and Gillard’s Labor is the culprit, it is his own former government’s actions coupled with the international abuses of real money, present and past, the constant merry-go-round of currency trading between banks and governments that must assume the guilt. When the GFC hit, private borrowing stopped and only government debt saved us from disaster. Nothing has changed. If Hockey doesn’t know this now, he will soon. Six years is no more than a blink on the horizon in currency trading.

John Kelly

 

Repudiating the negative of the Coalition’s big budget advertising campaign

theTruth Matters

In his syndicated column this week Laurie Oakes tells us that the Coalition is about to launch a big budget advertising campaign against the Prime Minister. He describes it as an “Artillery barrage”. The campaign comprises both positive and negative advertisements and are based on the results of focus group interviews.

As former marketing man let me tell you a little about my experience with focus groups. Generally speaking they accomplishing little. The people in the groups usually know little about the product or service being discussed. Those that do tend to dominate the others and you end up with a distorted view. When this becomes apparent the convener resorts to questions designed to get the answers they want or what the client expects. A waste of time in my view.

Mr Oakes says that the advertisements will attack Kevin Rudd’s performance in his first period as PM on a number of fronts. They will presented as facts but because Truth Matters I will address them individually.

“Fact: Kevin Rudd was borrowing 100 million dollars every day”.

Malcolm Turnbull the then opposition leader agreed with the borrowing (all be it at a lessor amount) and the reasons for doing so. Conservatives are in complete denial of the fact that a Global Financial Crisis actually occurred. Remember the Treasury advice. Go in big and go in hard. Australians should be thankful Rudd took it.

“Fact: Now we have a 254-billion dollar debt”.

Yes we do. Some is being used to build the NBN and on completion when it is sold will be returned to general revenue and repaid. Most economists and world economic institutions give high praise for the government’s handling of what could have been this country’s greatest ever financial disaster. We had a choice. The disaster or the debt. I for one am glad we chose the debt. And remember that it is as a percentage to GDP almost the lowest in the world.

“Fact: He wasted up to eight billion dollars on school hall rip offs”.

The schools building program was more successful than Tony Abbott would have us believe. Three comprehensive reports from the BER Implementation Taskforce chaired by businessman Brad Orgill showed over 97% satisfaction with the program. The report said: “Overall, the Taskforce found that the majority of education authorities attained value for money and delivered quality education facilities. The Final Report notes that the program has touched every community in Australia, and delivered substantial stimulus.” There was some overcharging, mostly in NSW where the rollout was fastest. There was some waste, but overall there was value for money, not billions of dollars wasted as the opposition asserted. The report said that the majority of those who had children at the schools where improvements had been made were well satisfied with the program.

“Fact: He was the architect of the roof batt’s disaster”.

The much maligned pink bats program was not the disaster the opposition made it out to be. Official records show that there were no fires in 99.98% of the million ceilings insulated. Two in ten thousand (224) had fires and just thirty had structural damage. This rate of fires was less than occurred prior to the HIP So that ironically the scheme in the long term has actually prevented house fires.

Tony Abbott has stated, “No good government would ever spend more than a billion dollars putting pink batts into roofs and a billion dollars to take them out again.” This has been shown to be a lie. The cost of rectification of faulty insulation installation was nowhere near that figure. Around twenty percent of ceilings had inspections but only 4.2% had rectification works to make them safe.

“Fact: In 2008 he dismantled our border protection polices and now 45,000 boat people have flooded in”.

Yes to a degree he did dismantle the policy at a time when Middle Eastern conflict had calmed down. And dismantling the Pacific Solution was a bipartisan decision. The pull factors of Afghanistan and Sri Lanka had not yet begun. Mr Abbotts mantra of “Stop the boats’’ still rings in our ears but if anything, the boats are increasing and Mr Abbott can no longer guarantee anything. He can now only promise to” substantially reduce the flow of boats”.

What has changed?

The Government has adopted most of the Coalition’s policies on boat arrivals – including offshore processing and protection visas – leaving Abbott with just one point of differentiation. He has promised to turn the boats around and added the proviso ‘When safe to do so” in the full knowledge that the navy will not do so.

The truth of what has happened is that Abbott has decided to backtrack on his two and a half-year promise knowing that for this period he has engaged in the most racist vile dog whistling politics focused on people who are politically ignorant and disengaged. All for gaining votes in seats in the Western suburbs of Sydney.

At the time of writing, Abbott and Morrison are running away from their policy of stopping the Boats faster than Usain Bolt over 100 meters. Now they cannot say if or when they might be able to fulfil their long-standing undeniable commitment of the past two and a half years.

On Andrew Bolts 2GB Program Scott Morrison admitted the ‘stop the boats’ promise was something the Opposition would only be ‘attempting’ to do if they make it to government – and he could not say when. In fact, he said a Coalition Government wouldn’t ‘stop the boats’ but rather be ‘aiming’ for the same levels as under Howard.

When repeatedly asked when a Coalition Government could reduce the number of boats to Howard-era levels in their first term, he responded with:

‘I’m not making such forecasts’

‘I don’t put timeframes on it’

Therefore, the leader of the opposition has finally after two and a half years admitted that he has really been taking the Australian people for a ride. He is guilty of playing race politics with people’s lives. And the pity is that had he been following the ministry of his Lord, he could have been part of the solution. He has no more chance of stopping the boats under the current circumstances than does Labor.

Well spending one and a half billion dollars on seven drones so as he knows where they are might help.

“Fact: He attacked our mining industry with a super profits tax that failed”.

The super profits in principle is a sound tax because it produces a more equitable share of the country’s wealth and was designed to be most fruitful at times when excessive profits are being made. Commodity prices dipped and so did the revenues. A smart government would retain it. And it did raise around 250 million.

“Fact: He did a backflip on the carbon emissions trading scheme and supported the world’s biggest carbon tax”.

For a start, it is an ETS with a 3 year fixed price period, but that aside:

“According to a 2009 US Department of Energy report, Sweden applied a “standard” rate of US$104.83 per tonne of CO2 and an “industry” rate of US$23.04 per tonne of CO2, Norway’s tax ranged from US$15.93 to US$61.76 while Finland applied a rate of US$30 per tonne. Earlier this year the Climate Institute released its Global Climate Leadership Review 2012 where Sweden’s carbon price was given as US$130/tonne CO2 — while other sources estimate it as $150/tonne. When calculated on the basis of Gross National Income, Australia’s carbon price is lower even than India.”

The carbon tax has proven to be effective in driving down our emissions. Abbott has in the past even admitted that it was the best method. His direct action plan is nothing more than a joke and commentators are treating it as such. I am firmly of the belief that the LNP are in such denial climate change that they have little intention of doing anything.

“Fact: With five budget deficits and the carbon tax Kevin Rudd and Labor have driven up the cost of living”.

Kevin Rudd and Labor have NOT “driven up the cost of living”. Recent figures show that due to reduced interest rates, changes in tax thresholds, etc, the average family has $7,000 MORE disposable income than in 2007.

The fact is that the carbon tax is responsible for a 1.2% increase in the cost of living. We have a measure called the Consumer Price Index that measures the cost of living. This is in the reserve bank’s target range. I think the conservatives get confused between the cost of living and the cost of lifestyle.

“Fact: Now he’s divided the Labor Party again, with one third of cabinet ministers refusing to work with him”.

There is no doubt that Kevin Rudd has stood on a few toes within the party however when I compare his character with that of Tony Abbott’s I am almost at a loss for words. The people can make that judgement.

I have not seen the advertisements however I would suggest that they may just have a reverse effect. That being that they will continue to brand Tony Abbott in a most negative fashion. A person who is constantly negative with little good to say about anything or anyone. Australians are just sick of all the negative stuff.

“The conservatives would do better to concentrate on why Mr Abbott is so unpopular”.

Fact finders should have a ball with all this.

 

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