Undermining prosperity and subverting public purpose
Over the coming months as the federal election draws closer we are going to hear a lot about tax reform, fiscal deficits, GDP growth and a myriad of macroeconomic terms few understand and even fewer could properly explain. In a way that’s a good thing because most of what you will hear is simply not true.
You are going to hear a whole lot about the need to “get the budget back to surplus” to “live within our means”, that the country, “can’t afford continuing increases in health, education and welfare spending” and a host of other quite meaningless statements that sound reasonable when delivered in the context of everyday life.
If, however, you were to understand properly, the difference between what we comprehend as “everyday life” and the everyday life of a sovereign currency issuing nation, you would know that the two situations are worlds apart.
Every day, we are exposed to macroeconomic terms through media broadcasting and print journalism, without a proper explanation or education as to the terminology used or the concepts associated with these references.
They are presented to us within a framework of common sense logic that has its genesis in household economics. So that when we apply household economic logic to what we hear, we happily accept it as perfectly clear and reasonable.
Thus our understanding becomes trapped in orthodox concepts that are false and misleading and when matters of fact are explained by someone outside an orthodox sphere of influence, those facts are dismissed as crackpot theories.
The result is that decisions will be made by government that undermine prosperity and subvert public purpose. This is precisely where we are, in this country, today. Decisions about tax reform and welfare spending are being formulated to undermine our prosperity and further widen the gap between the haves and the have-nots; in short, to increase inequality.
There are a few things, however, we probably won’t hear very much about. One of them is unemployment, another is debt. Why? Because, using that same household economic reasoning, the situation today is much worse than it was back in 2013 when 53% of voters decided the nation needed a new national government.
As both major parties contributed to that situation, the current government more than the previous one, neither will want to discuss it.
Right now, decisions are being made by both major parties heading toward the election, which will be presented to us as policy and which will be delivered in the context of household economic common sense.
And, in doing so, not one word of it will be true, because the premise upon which it is based, is false. The end result will cheat us out of our right to be provided with proper housing, proper health care, a world class standard of education, welfare for those in need and a job for everyone who wants one.
Why is this so? Because we are a sovereign currency issuing nation with a strong capacity to produce goods and services that people here and overseas want to buy (GDP) and an excess of resources (high unemployment) available to increase our capacity to produce those goods and services.
By engaging that excess capacity, i.e. the unemployed, we automatically increase demand for existing goods and services, we increase production of sought after items which increases our national income, our GDP, which makes us all a richer country. It’s not rocket science.
But when we have two major parties, both of whom voluntarily imprison themselves within a neo-classical mindset that says we must live within our means, curb spending and raise taxes to bring us back to surplus, who talk to us in household economic language we have been conditioned to accept, the understanding and therefore the power of a sovereign currency issuing nation is lost.
With that loss goes the opportunity to lift our living standards, protect the disadvantaged, show compassion for those fleeing persecution and restore equality for us all.
We are governed by idiots who cannot see that their neo-classical approach to macroeconomics is not just flawed but is deliberately constructed to service the 1% who control the flow of money, who control governments around the world and the way in which resources are distributed. That same 1% also control the wealth and the flow of information, i.e. the way the media inform us.
If you believe nothing of what politicians tell you leading up to this election, you will be the better for it. If you want to learn the truth then first learn this: The taxes you pay DO NOT fund government spending.
Learn that and you have taken the first step on a jaw dropping journey, one that puts you ahead of politicians and the stupid things they say.
Here’s a good place to start:
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You say can not see why,
I think they do see and know, but the the lies suit their needs.
Indeed. But to complicate matters even more, that 'household' logic is perfectly valid when applied to State Budgets. As well as businesses and the like.
Demonstrates that ‘common sense’ isn’t common to all and when analysed isn’t very sensible either.
Jaw dropping was the word for it when I watched that video. Now I have your article to compliment it.
There is terminology used by all, including MMTists, that have changed their meaning as a result of the departure from the Gold Standard. Current terminology assumes that money is a commodity. The fact that money is not a commodity changes the rules and the way we have to treat the affairs of monetary sovereigns.
thanks for repeating the message in your calm and clear manner. The penny just dropped for me in the sense that by using the household budget analogy, both the LNP and Labor can perpetuate the fear in us that we must not ask for what we cannot afford, like your children when they nag for something you can’t afford. Just goes to show the opinion of those in power towards the citizens: treated like children.
Time to listen to Steven Hails’ explanation of Modern Monetary Theory. We know the LNP won’t because it doesn’t suit their rich overlords. It is up to Labor to show they are different and that Labor seeks economic structural reform that follows the principles of MMT.
Another question: if our taxes don’t pay for government spending, where do they go? Maybe that’s where Gina and Twiggy got their tax-payer subsidies from?
We have a banker for our PM and a banker for our Premier of NSW. What hope then have we got for a fair and just society. The spin and lies will continue to spill up until the next election. It is so depressing that I could weep. But thanks John for bringing this to our attention.
And just look at the media: their favourite question about any new policy is “how are you going to pay for it?”
Maybe, just maybe, it’ll pay for itself.
I have watched this many times ( to sharpen my own rhetoric on this issue) and also circulated it to many acquaintances and friends. It is eye-opening to many of them. The more we can get it “out there”, the better, because the MSM will go into overdrive soon with the neo-liberal myths. The election is looming and if we can dispel the FUD of the neo-liberals, especially amongst the swinging voters, we have made a big difference.
Now we’re getting to the ‘ Money of the Matter ‘ John – well done! Hopefully, in the nick of time.
Does anyone recall that during the G F C kerfuffle Wayne Swan said something along the lines that Money & Government Debt were both illusions ?
In the ensuing MSM and Opposition Leader outcry this (incomprehensible ?) claim was howled down/out! … Perhaps I’m having a ‘Senior Moment’, and if so I hope you can forgive me … 🙂 …
Our island continent is uniquely situated in the world, and along with some of our also unique qualities as a population we could bring about our own Five Star version of the ‘ Iceland Revolt ‘ … plus! …
… and Yes indeed … Bankers as P.M and NSW Premier causes my throat to constrict !
Most of that is excellent, John. Thanks.
Perhaps one area worth exploring further – Commonwealth public debt.
It is true that debt however high it becomes will never lead the nation running out of money. That is accepted.
But what about the loss of land – rural properties, city real estate and other real assets?
The interest paid on Australia’s net debt in December was $1,352 million, or $43.6 million per day. That’s from the Finance Department’s monthly report.
It’s now well up on that, according to last week’s gross debt figures from the AOFM. At least $45 million.
John Fraser said in his speech last week that “around two-thirds of Commonwealth public debt is held by non-resident investors.”
That’s $30 million paid to non-residents each day.
What do they do with all those Aussie dollars – 30 million a day, or eleven billion each year?
It seems likely that most, if not all, is spent in Australia buying up farms, cattle stations and other properties as they come on the market.
This means the policy of increasing Commonwealth public debt is accelerating the rate at which non-residents are able to snap up rural and city properties.
So the case for reducing the debt is not that Australia risks going broke. It is to retain title to productive land.
Thanks, John. Your efforts continue to be a ‘light on the hill’. Dismantling those huge misunderstandings implicit in the govt/household analogy is a long hard slog by us footsoldiers, but we draw inspiration–and information–from officers like yourself. Keep leading!
It is not the size of the public “debt” (liability) that matters, but who holds it. You are right, inasmuch as there is not enough focus on foreign “investment”. The 2/3 debt held by foreign entities is likely to be a furphy, even if it is told by a prime idiot like Fraser. John’s article is not about hypotheticals told by some Treasury official but about the lies politicians and the lazy, uneducated media and “expert” commentators will bombard us with.
Alan, firstly lets get the interest payments sorted. I have some suspicion about the accuracy of Fraser’s claim that 63% of debt issuance is held by non-resident investors. If you examine closely this balance sheet on the aofm website: http://aofm.gov.au/files/2013/07/Table-1_2015-12-31.xlsx you will see that only 32% is held by non residents. Even so, those non residents are not identified and may well be foreign superannuation funds who have no interest in land or other tangible assets and just want the yield to add to their bottom line.
That interest, incidentally, is paid into the Australian Commercial Bank accounts of the investors. It is effectively increasing the money in circulation and therefore potentially local economic activity.
Secondly, the practice of issuing debt is not to fund deficits anymore than taxes fund spending. It is to control the interbank overnight lending rate between the commercial banks. There are other ways to achieve that and therefore, issuing debt could be dispensed with altogether, if the government wanted to.
that we’re still banging on about “protecting the disadvantaged” or “retaining medicare for the the most needy” in the 21st century demonstrates that the psychophants of the 1% have conditioned our language to their own parasitic advantage and have no intention to eradicate the reality or the concept of poverty in this country. the IPA’s LNP-ALP COALescence are still trapped in their own fundamental delusions and will never change – it’s not in THEIR interests, or so THEIR conditioning tells THEM. an egalitarian society (ALL OF THE PEOPLE – EQUAL BEFORE THE THE LAW) in a “sovereign currency issuing nation” has no need for these Econo-Sadistic FIENDS !
KICK THEM TO THE GUTTER ! ELECT GREENS ! : )
Jennifer M-S.: Your taxes go into the bin, although people may tell you that they are taken into “account” when issuing debt. However, that cannot be exactly true, since debt was being issued even during the most wonderful surpluses delivered by Peter Costello. As explained in the video (watch it again) they are the government’s way of removing demand (spending power) from the economy, so that it can spend without risking inflation, or indeed causing unintended effects. So in a way, you can think of it as “allowing government to spend more”, with emphasis on “more”. The point is that the government doesn’t have to “spend only what it earns”, which is of course nonsense.
Also, Stephen Hail’s explanation of why governments must run deficits if the private sector is to save, appeals to bankers or those well-versed in finance. Those not so “gifted” may like a different explanation. In fact it is one that is surely comprehensible by high-school students who know arithmetic and the simplest rules of algebra. I will send it to John Kelly by e-mail and he is free to do with it as he likes. I hope it will be useful to someone. It does require a little bit of “work” in adding up numbers and doing some simple algebra, and we will then arrive at the equation shown on the slide by Stephen Hail. My belief is that if people can actually arrive at his equation themselves, it will be very empowering because they don’t have to take the result “on authority”. They will also understand exactly what it means.
Just on this: “That interest, incidentally, is paid into the Australian Commercial Bank accounts of the investors. It is effectively increasing the money in circulation and therefore potentially local economic activity.”
Doesn’t the evidence suggest that it is then transferred to other Australian bank accounts in exchange for title to property?
So the net result is increased local economic activity but decreased local ownership of land?
Thanks totaram @8.12 pm.
@Alan, That maybe the case, Alan, but I doubt it is every case. The Chinese are buying big chunks of Australia, that is true, but the government has the power to stop that. The question is, do they want to and does it really matter?
I hope this doesn’t sound silly, but just say our taxes (which in reality go into the bin) were obliged to be paid into a government-run bank term deposit at a modest interest rate, and were tied to an infra-structure or service initiative.
That would create more available funding immediately for when the project is timed. It would also assure citizens that their hard earned money was not wasted by mis-guided government or pilfered by greedy oligarchs and their political sycophants.
Jennifer, in answer to your earlier question, as stated by totarum, taxes once collected have no further use and despite what others may tell you, are destroyed. In answer to your question to totarum about a government bank, we already have one, the RBA, and again, because we are a sovereign currency issuing nation, such a fund is simply not needed. The RBA can create any amount of money it wishes.
John Kelly and Alan Austin,
This is an re-post (edited) of a relevant comment I made on AIMN “We are Governed by Idiots”.
The issue of foreign owned bonds and securities needs to be presented in proper perspective.
As far as regulation of the Australian economy is concerned the nationality of the owners, or recipients of bond interest payments is irrelevant – and largely uncertain.
As all transactions occur in $AU, so as a currency issuing govt. there is no likelihood of Aust. ever being unable service/payout the debt.
Foreign security ownership estimates are very imprecise – the holders of bonds/securities generally is via ownership obscuring entities/banks/financiers etc. who refuse to provide commercial-in confidence information to govt.
Only 14.5% of AU securities are definitely identified as foreign, 18.8% as Australian, the rest (66.3%) are deemed foreign as they are transacted through opaque domestic custodian and nominee companies.
“..The AOFM has no means by which to compel the provision of information by the beneficial owners of securities or by persons holding securities on their behalf….The figures in the tables represent opinions formed by the AOFM based on limited information…”
In the US similar ownership obscurity applies the quoted figure of 48% foreign ownership [Table1] should be also be viewed as likely too low.
From US treasury document: “Distinguishing official from private holders in the surveys is difficult for the same reasons that obtaining accurate information on the country of foreign owners of U.S. securities is difficult: in both cases chains of financial intermediaries can obscure the true foreign holders. Thus, some holdings attributed to private intermediaries, especially in major custodial centers, may actually reflect holdings of foreign official institutions.”
While on the surface at least it may be considered ‘concerning’ that interest payments are leaving the country we should view it in the context of the external trade picture.
Australia runs a trade deficit of around $2 billion per month (~$20 billion pa) – that means we annually export $20 billion AU currency to foreign suppliers – those suppliers/nations then must decide what to do with those AU dollars.
They have only numbers on a spreadsheet account that are useless until spent; they can either buy Australian imports, sell $AU via Forex for a preferred currency, or re-invest in interest bearing Australian bonds/securities.
Not all $20 billion can be used to buy Australian exports as Australia is a net importer.
I suggest that many will choose to invest in Australian business/property or bonds/securities.
From Aust. pov investment of their AU$ in Australia is preferable – it strengthens, stabilises our currency & contributes to productivity – whereas selling the $AU on the Forex would tend to weaken our currency.
We must also bear in mind that foreign investment is 2 way traffic, while foreigners invest in Australia, Australia invests in foreign countries too; [select Australia on map] Australia presently possesses half the value of foreign assets that we have in value of foreign liabilities.[Graph1]
The currency inflow from Australia’s foreign investments presently provides approx a net 33% reduction in currency flow outbound [Table1].
If we wish to continue to enjoy the real social benefit of imports, then we will continue to be an exporter of $AU.
Those exported dollars can either work for us as re-investment, or against us as a weakening influence on our currency value.
The purposeful obscurity afforded by the current global financial system (that facilitates so many contrived interwoven entities) ensures there is no effective way to guarantee AU securities/stocks/bonds investors have Australian resident/beneficial ownership.
Our private banks are owned by transnationals – no one outside the banks inner circle know or disclose the destination/source of their funds. (currently all bonds/securities transacted via AU banks are presently deemed by AOFM ‘Australian’).
Alan Austin: February 5, 2016 at 6:50 pm
“But what about the loss of land – rural properties, city real estate and other real assets?”
Does it really matter who owns the purchased ‘real’ assets? They can not be taken out of the country – and they are in (presumably) productive use. The resulting (taxed?) profits can be exported, but so can the profits of all transnational corporations operating in Australia. As with so many incorporated entities who own property in Australia who knows who really owns what? They are often structured to purposely obscure ownership.
“So the case for reducing the debt is not that Australia risks going broke. It is to retain title to productive land…” Query .. Is foreign title of productive land any more important/significant than foreign title of a productive business?
Contrived ‘Double Irish Dutch Sandwich’ and other common transfer pricing/tax haven techniques being used to minimise/avoid tax payment, returns to the host country can be minimised in both cases.
At least ‘the produce’ of productive land can be deemed by the host country to have local market value on export – whereas business intellectual/output services are of ill defined value.
AIM is doing the sort of broadsheet journalism that is anathema at Murdoch and only partly dealt with by the rest. Meaningless, innaccurate and out of context pseudo science alibiing for defacto looting that imposes costs on the duped public, to pay off wealthy supporters, regardless of long term damage done to the base. My favourite Goose that Lays the Golden Egg analogy is about what is really going down.
Alan, firstly lets get the interest payments sorted. I have some suspicion about the accuracy of Fraser’s claim that 63% of debt issuance is held by non-resident investors. If you examine closely this balance sheet on the aofm website: http://aofm.gov.au/files/2013/07/Table-1_2015-12-31.xlsx you will see that only 32%
This from the AOFM website
It has come down a little bit but 64% of our debt is owned by foreigners which means 64% of our interest bill goes overseas never to return
on the other thread, you have so far not answered my question as to who you would prefer as LNP PM instead of untrustworthy Malcolm Turnbull. Show some initiative and say Sharman Stone, as she has integrity.
Neil, I have refrained from discussing anything with you thus far and I have no intention of starting now.
John, for some reason your comment was caught up in spam. Don’t know what happened there.
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