Free Nation economics: Time for a change

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Slowly but surely the penny is dropping right around the world.   The issues that caused the GFC have not been resolved, are not going away and are lurking in the corner ready to pounce.16797842_2263570940448247_840417104403875622_o

Despite all the radical actions, by Central Banks and governments, the international economic system remains on life support.

What are the key elements of the system that have demonstrated beyond doubt that it is structurally defective? Continue reading

NSWOSR Watch – Gladys keeps foreign buyer data top secret

The March data on Stamp Duty paid in NSW has been released by the NSW Office of State Revenue and still the Gladys foreign buyer “Secret Business” continues.

As noted in past Glass Pyramid exclusives:

https://pfh007.com/2017/03/16/dig-deeper-release-foreign-ownership-data-for-housing-in-nsw/

https://pfh007.com/2017/03/11/nsw-secrets-gladyswho-is-buying-all-the-property-in-nsw/

…..the NSW State Government stopped releasing data in November 2016 (see the large table below) when it became clear it would provide some useful information on just how much property was being bought by foreign citizens either offshore or temporary resident in Australia.Gladys

Even though Gladys has made it clear that she does not care how much residential housing foreign citizens buy, provided she is able to run a skim operation and milk them as much as possible for revenue, she is still very shy about letting the people of NSW know just how many new foreign milk cows have been added to her herd.

And she is shy for a very good reason.

She knows that the people of NSW are sick and tired of politicians who sell off Australia to foreign buyers one suburban block at a time.

Release the data Gladys!!

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The people of NSW pay the public servants who spend time collecting and collating this data and we know that they are giving you access to it as you and Dominic have made reference to the fact it shows a strong presence of foreign buyers in NSW and that you hope to milk them a bit harder in the next budget

Let the data go free.

 

Stamp Duty

And to make the task even easier for you here is a list of the data that you should be directing the OSR to release each and every month in a nice large and bright font.

Be quick and it could be you.

Will the Premier direct the Office of State Revenue and the NSW Land Titles Office to release the following information on a monthly basis.

(a) The number of new homes and apartments bought by Foreigners (Offshore)

(b) The number of homes and apartments sold by Foreigners (Offshore)

(c) The number of new homes and apartments bought by Foreigners (Temporary residents)

(d) The number of existing homes and apartments bought by Foreigners (Temporary resident)

(e) The number of existing homes and apartments sold by Foreigners (Temporary residents)

(f) The number of new homes and apartments sold by Foreigners (Temporary residents)

(g) The number of homes and apartments bought by Foreigners (Permanent residents)

(h) The number of homes and apartments sold by Foreigners (Permanent residents)

(i) The amount of surcharge stamp duty and surcharge land tax paid by foreign buyers and foreign owners of property

Budget Watch: Good debt, bad debt, jubilees and helicopter cash

Footsore

Cheers for that.

It was an interesting interview and well worth the time.

http://www.debtdeflation.com/blogs/2016/12/13/prof-steve-keen-on-private-debt-and-his-solution-peoples-qe/

Though I am surprised that Steve Keen is still pushing the idea of a “Debt Jubilee” as an application of QE for the People and I don’t understand why he keeps using the term “Helicopter Money”. I think both are real political and economic lemons to be avoided if at all possible.55079t (1)

The traditional jubilee was possible because for the most part it was the king/ruler (public) writing off debts owed to them not debts owed between subjects. It is one thing to write off a debt owed to oneself quite another to write off the debts owed by one person to a 3rd party.  Steve alludes to the complications when he talks about handing out pots of money and trying to force debtors to pay down their debts and not just blow the cash and the difficulties in sorting out which debtor debts should have priority in payment.

Apart from the terrible optics and that ‘demonising’ the “free” helicopter money involved in a jubilee will be completed before 8.00 am on Day 1 – if that has not already been achieved to date – it ignores that there is a much simpler and fairer solution to the problem of too much private debt.

And it does not involve a mountain of pork “infrastructure” either. Legitimately needed infrastructure is fine but sadly the “pork to needed bits” ratio of new infrastructure remains high.  Caution, a sceptical eye and cost benefit analysis is essential.

Instead the government just has to raise the tax free threshold on earned income and in doing so produce a larger deficit which is directly monetised by the RBA.

The politics of this will be golden.    Selling the merits of leaving more of wage earners pay packets in their wallets will be a walk in the park.   Raising the tax free threshold allows for the progressive upper levels of the tax bands to be left intact as well –  SJW can relax and jump aboard.

So that the “OMG that is money printing” crowd remain as calm as possible (and that is a big ask), the RBA would not 170429 - keenjust give the government the money (though they could certainly do that with a few key strokes and entries to the Treasury Exchange Settlement account).

Instead the RBA would ‘buy’ a bond that pays no interest from the government in the amount of the bit of the deficit the government wanted to directly monetise. The RBA doesn’t need the interest so why pay it and it will buy the bond if the government tells it to.

The government should not try and monetise the full deficit straight away as that will panic people, who will have the likes of Ray Hadley shouting in their ear canals. Just a small chunk of the deficit and let that be digested and understood after the usual foam and spittle subsides.  The amount of the deficit that is financed this way can increase over time but may ultimately be restricted to some fraction of the tasks of government that are beyond debate – defence, security, administration of justice etc.   Those functions of government alone will provide plenty of room for direct monetisation.

Leave it up to the people who now have more money in their wallets from paying less tax to decide what to do with the money. Those without any debt can choose to spend it or save it.  If they save it in Term Deposits that increase the supply of Term Deposit funds which will be important as I discuss below.

Those with debts can choose whether to pay down their debts and in whatever priority they are compelled by law or contract to do so.

Will they pay down their debts?

Yes – and the reason is simple.

It will not take long before that extra spending power in the wallets of all those people who do not have debts starts to make its presence felt with greater levels of economic activity. As sure as night follows day inflationary pressures will start to grow as the economy heads towards full employment.  Wages and incomes will start to rise. Business will find they have more pricing power etc.

Needless to say the desire of debtors to pay down debts will also grow as the mortgage rates (which is largely what we are talking about) start to rise from the canvas.

In every successive budget the government can tweak how much of a deficit it will run and how much of it will be directly monetised with a 0% bond sale to the RBA and how much will be raised/monetised indirectly via bond sales in the usual way.

The other thing that will help mortgage rates rise – and which is equally important – is that the government will direct APRA and the RBA to do two things:

1. Unproductive Capital inflow restrictions – Impose restrictions on the banking sector from borrowing offshore with an effective taxpayer guarantee to support their mortgage operations where existing property is the security. This will cut off the supply of ZIRP/NIRP predatory capital to the local existing property speculator market. (The sale of government bonds and mere transfer of title to assets to foreigners will also be restricted as part of this war on unproductive capital inflows)

2. Restrict private bank money creation – Gradually force private banks into becoming true mere intermediaries between savers and borrowers. Reimpose and start lifting reserve requirements on the local banking sector to force them to attract deposits on terms consistent with their lending.  Eventually all of their lending must be completely consistent with the terms on which deposits are placed by savers. This may put upward pressure on mortgage rates as the banks find they have to pay more to attract Term Deposits from mum and dad and SMSF – though the extent to which they rise largely depends on how much of the monetised deficits people are stuffing away in term deposits rather than spending. At the very least mortgage rates and term deposit rates will start to adjust with the removal of unproductive and predatory ZIRP capital inflows from our trading rivals.

Restricting private bank creation of a public money equivalent is critical as otherwise the banks will do what they always do and ‘create credit’ recklessly pro cyclically.

IMPORTANT

The objective of the exercise is not to jack up interest rates.  The point is to ensure that the economy has as much money as it can handle without inflation or deflation and to introduce that money into the economy in the most equitable and fair manner possible. Interest rates are likely to be much lower without an artificial shortage of public money but regulations fixing maximum lending rates and lending rules generally are likely to be required.

The most equitable and fair manner is by having the government run a deficit doing the critical and beyond debate functions of government and directly monetise some part of the cost of those functions.

What is inequitable is what we have now where the dominant way effectively new public money is introduced into the economy is via the expensive interest trailing commission incurring asset price pumping private bank ‘credit creation’ process.

“Helicopter Money” devalues the idea of the full faith and credit of the public

Calling any of the above “Helicopter Money” is most unfortunate as in truth it is nothing more than public money creation being returned to the control of the public.

What we have now is Private Banker Pseudo Public Money that is created pursuant to a licence that most of the public do not understand and is sprayed by the hundreds of billions at asset prices owned by the few.

And as noted above a Debt Jubilee  has dreadful optics – the idea that people who are debt free should just get a wad of cash from the government sounds dreadful politically but even worse it actually devalues the whole idea of public money created by the public sector into some sort of freebie or giveaway.  Public money created by the public sector represents the full faith and credit of the commonwealth and should be treated with respect.

By the way those crashniks who are certain that the world is about to end and there is nothing the bad guys can do to stop it, should start paying very close attention to what Mr Morrison is up to with his “bad debt” and “good debt” distinctions.170429 - Morrison

What he is doing is along the path of what I outline above – he is trying to find someway to increase public creation of money but do it within the current private bank dominated model.  Sadly some chartalist schools may support it as being a innovative and creative use of fiat, but the reason he is doing it is to keep the current dysfunctional system alive not to fundamentally reform the system of public money that was hijacked and privatised by the private banking sector over the last 100+ years.

It is true that the current system of reliance on monetary policy and private (household debt) is coming to an end but don’t assume that means real reform or economic justice.

Some mutant form of QE for Debtors is much more likely from the current crop of banker pet economists and pollies like Mr Morrison.

https://pfh007.com/2015/05/23/bank-watch-qe-for-debtors-is-coming/

Crikey almost 2 years ago …. doesn’t time fly!

Foreign Debt – Gittins gets it wrong….again

It has been a busy week at the Glass Pyramid as a cloud of confusing and obfuscating commentary on “Foreign Debt” has again descended on the nation.

Never have so few worked so hard to convince the general public that racking up trillions of dollars of debt to foreign lenders is nothing to be worried about.

The objective of the exercise seems clear … sprout enough economic gibberish in a condescending tone and hopefully the populace will relax and go back to regular programming …. another plate of unproductive capital inflows (foreign debt), another serve of imported goods / services, more job losses, more businesses heading offshore and all with a side serve of smashed avocado (though only if Bernard Salt has approved your demographic to munch on the stuff).170408 - Gittins Foreign Debt10

So what did Ross do ?

He is normally such a pleasant avuncular chap and often says unkind words about the current government’s state of economic confusion, so surely he is one of the good guys / aka one of the few remaining ‘progressives’ at Fairfax not engaged in marketing the glorious housing bubble and the remaining trickles of gold ?

Well a lot of the time he does say sensible stuff but every so often he reaches into the bag of economic fables and myths and pulls out a big hairy rabbit with a bad case of myxo.

Yesterday was one of those days.

The key to spotting nonsense in any article about Foreign Debt is to look for the words productive and unproductive.

If you cannot see either of them you can be quite sure that what you are about to read is a bunch of half baked hokum cooked up in the spruik laboratories of neoliberalism international incorporated.

See the key to having any sort of sensible understanding of Foreign Debt, or any type of debt for that matter, is to distinguish between productive and unproductive applications of the debt.

In simple terms debt that is applied to the expansion of the productive capacity of the economy is broadly ok – though please note that broadly ok is a world away from rapt endorsement.

However, debt that is not applied to the expansion of the productive capacity of the economy is not okay.  It is unproductive and does nothing but slow burning economic harm about which banana republic inhabitants sing sad songs around the campfire.

Applying the above simple tests to the question of foreign debt the question then becomes

“How much of our $1 trillion in public and private foreign debt was incurred for productive v unproductive purposes”

So what did Mr Gittins have to say about this?

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Ross just imagines the issue away with a wave of his hand.

Accordingly to Ross all that Foreign Debt / Foreign capital flowing into Australia is helping us develop our economy faster and we could not survive without it.

What complete and utter bullshit.

Ross’s technique in the article is tried and tested.  Foreign Debt spruikers and apologists simply call all foreign capital inflows ‘investment’ because that makes them sound like they may be ‘productive’ and it means that now they don’t have to deal with the fact that most of the foreign capital inflows they are praising are nothing like ‘investment’ and for the most part are completely unproductive or speculative.

Most of that $1 trillion of foreign capital was not flowing in to expand our productive capacity at all.    The vast majority flowed and continues to flow in for the following very very unproductive purposes:

  • To purchase bonds and other IOUs issued by our banking sector so they can supply record low mortgage interest rates to speculators and others so they can, for the most part, bid up and bet on the prices of the existing stock of residential land and housing.     While recently there has been more new housing construction (and that is a productive expansion of the economy) the majority of mortgage lending is secured by the existing and often decrepit housing stock).  Foreign debt is goosing our house prices and Mr Morrison implicitly endorses it by doing nothing to stop it.
  • To merely acquire title to already existing assets.  When a foreigner buys title to an existing asset there is no expansion of the productive capacity of the economy.   There is nothing more than an unproductive capital inflow and an outflow of a title to an asset.    Mr Andrew Robb and Ms Penny Wong fought long and hard to win the title of who would allow foreigners to acquire more title to Australian assets the fastest.   Mr Robb and his young dark Jedi Steven Ciobo remain slightly ahead in that sad race.
  • To acquire title to securities issued by the Federal Government for the purposes of financing recurrent government expenditure (just a fancy way of saying blowing the dough on day to day expenses rather than expanding the productive capacity of the economy).   As Mr Gittins noted from the recent speech of Guy Debelle – 60% of all bonds issued by the Federal Government are held by foreigners.   Just ask Mr Morrison what that money was spent on and he will unhappily tell you that in his opinion much was spent on leaners and grifters (i.e. low income earners). In fact “The Australian” only this week editorialised on the amount of foreign debt incurred for spending on fripperies like social security etc. See this link for the Glass Pyramid dissection of that. While the Glass Pyramid does not agree with Mr Morrison’s or The Australian’s characterisations, borrowing from foreigners for recurrent expenditure is a mugs game.

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So how much of that $1 trillion dollars has been invested in the productive expansion of the Australian economy and how much has been sunk into speculation on asset prices (house price bubbles), mere acquisition of title to Australian assets and buying up the bonds of the Federal Government to fund day to day living expenses?

Start counting Ross and if you come up for air before noting $700-$900 billion sunk into unproductive applications of foreign capital you might be doing very well.

In one of the weirdest lines in the article Ross had this to say:

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Sorry Ross that makes no sense.  Politicians simply love talking about stuff that sounds bad.  Scaring the crap out of the population is what they do best as it makes people vote with the nerve endings in their guts rather than their brains.

As for the claim that economists don’t want to talk about it because they know it isn’t bad, well it is true enough to say that SOME economists, who believe very peculiar myths and fables, think exporting title to your capital base and claims over your future incomes, and spend the proceeds on consumption, is a jolly great way to run an economy……in the interests of offshore parties.

The sad truth of the matter is that most politicians do not talk about the “external sector” simply because they have swallowed great gobfuls of the bulldust being peddled by some economists.

It is also worth noting that economists in most of our trading partners/rivals think our “some economists” are bark raving mad for allowing them to manipulate our exchange rate by exporting unproductive capital to Australia in the hundreds of billions.

And just in case if by the end of the article any readers remained unconvinced that $1 Trillion dollars in foreign debt was sensible, Ross finished with a flourish that suggested that, when it came to foreign debt, it was better for the economy than broccoli.  It was   “….further proof we’re not living beyond our means…”

You see according to Ross, all the extra funding ‘borrowed’ from foreigners is used to fund ‘new’ investment in houses, business structures and equipment and infrastructure.  All of it is productive and not a single cent unproductive, at least no sign that Ross thinks so.


Cobblers Ross.

One final point

One of the great chicken and egg arguments is whether the trade deficit arises because we love imports and then borrow the money to pay for them or we borrow money and then spend it on imports.

As Ross points out in the article the national accounts must balance,

170408 - Gittins Foreign Debt6

but balancing accounts don’t really explain very much.   Ross implies that the process starts with imports exceeding exports which is then funded by the kindness of foreigners who just love saving more than consuming.  With respect Ross that is wrong and implies that decisions to consume imports are not connected to the nature of and magnitude of capital inflows.

The simplest and most logical way to understand the process is to keep in mind that when people go shopping their decisions are framed by the prices on offer and their perception of value.  They do not buy and then run around looking for someone to lend them the dough for the purchase.   Any ‘loan’ takes place long before the purchase and the relevant loan likely involved completely different parties to those haggling over the price of a nice imported toaster.

All of the unproductive capital inflows described above have the effect of increasing demand for $AUD above what they otherwise would be.   This means that one of the consequences of the Federal Goverment and its agencies – the RBA, APRA, the FIRB (Foreign Investment Review Board) – allowing hundreds of billions of dollars of unproductive capital to flood into Australia is that the $AUD trades higher than it otherwise would.

An Australian Dollar bloated on unproductive capital inflows means that the prices of imported goods will be lower than Australian produced goods – everything else being equal.   And we all know what happens when Australian production is less competitive – people buy more imports and we lose jobs and businesses offshore.   It is a deplorable state of affairs.

In other words the unproductive capital inflow that drove down your mortgage rate on your massive mortgage is part of the reason that you thought the price of the imported car and other creature comforts compared favourably with the locally produced alternatives.

Is it really any surprise that we find a trade deficit is the result of allowing the country to gorge itself on unproductive capital inflows.

If you are now asking yourself whether I am suggesting that we should regulate the largest and most damaging forms of unproductive capital inflows to help ensure that the Australian dollar trades at a value that better reflects our trade performance, you bet I am.

Here is a very short and simple to do list.

  • APRA should direct the local banks to immediate start to wind down to zero capital inflows associated with mortgage lending where the security for the mortgage is existing land/housing.   In due course the local banks will not be permitted to borrow offshore at all in connection with residential housing.  The idea that Australia cannot scratch together the capital required to build our shelter is absurd. If there remains a massive demand by foreign investors for exposure to Australian real estate, without an effective government guarantor, they can be allowed to invest in non-guaranteed residential mortgaged backed securities RMBS.  They can punt at their own risk.
  • The FIRB should demand that any foreign acquisition of existing corporate, infrastructure or land assets (limited to 49%) must demonstrate clear and credible plans for additional investment to expand the productive capacity of those assets.  If they do not deliver within the agreed time frames they will be forced to divest.    No foreigners offshore or temporary resident in the country will be permitted to buy existing residential housing assets. Only new housing assets may be purchased and they will be subject to land tax to encourage the foreign owners to make them available to rent.
  • The Australian Government will introduce a system of registered title to Australian Government bonds/securities and ownership, to the vast majority of new issues, will be limited to locals.   Some government securities may be still available to foreign investors but not many.    As a matter of democratic control it makes sense that the government is forced to convince the locals – not foreigners with all sorts of other agendas on their mind – to invest in a fiscal deficit – assuming that direct monetisation of the deficit is not appropriate.

In summary

  • If people are talking about Foreign Debt and not distinguishing between productive and unproductive capital inflows they either don’t know what they are talking about or they are trying to baffle you with bullshit.
  • The majority of Australia’s Foreign Debt was not incurred for productive purposes.  the vast majority was incurred in relation to three major transaction types as detailed above.
  • Unproductive foreign capital inflows / Unproductive Foreign Debt kills Australian jobs and sends Australian businesses off shore.
  • The sooner Ross stops talking baloney about Foreign Debt and Capital Inflows being nothing more than  ‘investment’ and nice “saving mad” foreigners helping Australia unlock its potential the better.

Scott Morrison’s job killing Foreign Debt addiction

We don’t hear too much about “foreign debt” these days.

Neither the foreign debts owed by our private companies and private banks nor the foreign debts owed by our governments especially the Federal Government in Canberra.

So it was quite a retro moment when an editorial in the Australian was titled “Our complacent reliance on foreigners’ savings”

Note:   It appears Ross Gittins decided yesterday to don the hyper-colour T-Shirt, spin some late 80s stadium rock and run the “foreign debt is cool” nonsense again in the SMH yesterday. More on that creaky skeleton of the 1980-2000s in a separate post.

Now to be sure the point of the editorial in the Australian was mainly to rage about the need for some very selective ‘austerity’ at budget time.  You know the narrative, we need to cut spending on the less well off because ‘we cannot afford it’ but we should spend more/tax less those that are well off because that will make them work harder/smarter etc.   Fairly standard fare LNP myths with the twist for this editorial b170407 - Foreign debt editorialeing that everyone should support these recommendations because we are relying on the savings of foreigners for our horrible budget binges.

Ever the optimist, the Glass Pyramid saw an opportunity amongst this old thin gruel and seized the chance to point out that regardless of what one’s position was with regard to the size of the budget deficit, it should never be funded with sales of Australian Government Bonds “AGB”  to foreigners.

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This is a critical point.

Why allow the Australian Office of Financial Management (the bond shop for Treasury) to sell bonds to foreigners when all they are going to do is push up the Australian dollar when they acquire the $AUD they need to buy the bonds?   The $AUD are already here, selling  AGBs to foreigners does not create any new ones.   The location of existing $AUD deposits simply changes in the banking system.

Why undermine the competitiveness of Australian workers and business by selling bonds to foreigners?  Why allow foreign buyers to own so many (circa $300B)?

The answer is clear and was helpfully provided by one of Australia leading economic commentators, the loquacious and ever charming Mr Michael Pascoe.

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What Mr Pascoe is pointing out is that the attraction in allowing the Federal Government to sell AGB to foreigners arises because foreign interest rates are lower and foreign central banks are running zero interest rates policies (ZIRP) or lower negative interest rate policies (NIRP) and therefore the Australian government can sell its bonds for a higher price to foreigners (via the primary dealers) than to locals.  They will bid more because they are more easily pleased – anything is better than zero or a minus number.

In other words what Mr Pascoe is saying is that allowing the Federal Government to borrow cheaply is more important than avoiding unnecessary upward pressure on the $AUD that kills jobs and local businesses.170407 - Foreign debt editorial6

A funny set of  priorities right there.

According to Mr Pascoe (yes, we are extrapolating from limited data points in a single tweet) it is better to allow Mr Morrison to access the cheapest possible foreign capital to help pay for his company tax generosity and middle class welfare than to stop him and in doing so avoid upward pressure on the exchange rate?

The Glass Pyramid thinks that is a dud deal and that anyone with an interest in Australian jobs and Australian industry should be arguing that Australian Government Bonds should ONLY be sold to foreigners when the proceeds are clearly and unmistakably going to be invested in the expansion of the productive economy.  Just pumping up the GDP numbers with a bunch of parasitical financial sector transactions does not cut the mustard.

Our exchange rate should reflect our trade performance and not our ability to export title to our assets and claims on the future income of the Federal Government.

In other words heavily restrict unproductive capital inflows.

What about other interest rates?

Might Mr Pascoe be referring to other interest rates?   Possibly but he would not elaborate when asked.  One assumes he was talking about the yield on Australian government securities if they could not exchanged for predatory unproductive capital inflows.

Australian mortgages rates will not be affected by limiting the Australian Government to selling AGB to locals.   Though Australian mortgage rates are the result of a growing mountain of privately owed foreign debt and also place unnecessary upward pressure on the exchange rate (and help drive the great Australian House Price bubble)

Other interest rates will only be affected IF the government also sought to restrict some of the other exchange rate bloating unproductive capital inflows. And yes the Glass Pyramid reckons most unproductive capital inflows should be restricted.

It is not just Mr Pascoe who has a problem with the idea.

But Mr Pascoe was not the only person to find fault with the idea of restricting the Federal Government from selling bonds to foreigners.    Some of the Praetorian Guard of basement based commentators at the Australian chimed in as well, presumably because they detected, at several parts per million, a possible hint of criticism, of the wonderful Malcolm Turnbull government in Canberra.

Matthew (see below) chimed in with some the old classics of Australian economics forelock tugging. Despite being one of the largest economies in the world (top 15 out of 200+) poor little Australia is still incapable after 200 years of generating surplus capital and relies on the stuff exported by the USA, UK and increasing the ‘savers’ of the developing world.

How do people not gag when they find their brains trundling this stuff out is a wonder. Mr David Uren has a particular strong gag reflex as he recently wrote a whole book spouting rubbish about how first world Australia could never hope to generate surplus capital as that was the job of  poor people who love building things.  Our job in Australia according to Uren and his boomer/Gen-X army of fellow neoliberal commentators is to sell assets and issue IOUs as free of government regulation as possible and consume the proceeds on imported cars and asset price frenzies.

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But it was not long before the switch was flicked to vaudeville with one keen Fonzi leaping the shark and landing on the compulsory acquisition of retirement savings at 2%.    Take care readers…. the logic can give you whiplash.

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One would think the denizens of the deep depths of the Australian’s comment threads would fall over themselves applauding a policy proposal that by increasing the cost of Federal Government borrowing (by forcing them to borrow from voters like mum and dad) might cool the enthusiasm of the “socialist hordes” from spending quite so freely in the future.

It might even cool the enthusiasm of Mr Morrison who has been setting new records for exploding deficit spending.

But nope – defending the indefensible is too important.

Much much better to drive up the $AUD with the predatory unproductive capital inflows of our trade rivals and watch our jobs and industries depart offshore.

But there are more important things we need to worry about?

One the great bits of economic obfuscation comes from the crowd who insist that to chew gum and walk is a health risk.    The moment they think they are losing the debate on an issue they will leap on another issue, any issue, and claim it is more important and must be done first.

Classic examples include:

  • Don’t worry about the banks and their misbehaviour – “shadow banking” is worse – even if it is not even banking to start with.
  • Don’t worry about public debt – private debt is worse.
  • Don’t worry about the mining industry – feminism is the real enemy
  • Don’t worry about corporate criminality – union thugs are the real enemy.

on and on they go, throwing up dust and making the world seem so complicated that everyone loses the energy to do anything.

In the context of selling AGBs to foreigners the “there are more important things” crowd will say thing like:

  • But private foreign debt is much worse, with the external liabilities of our banking sector (effectively guaranteed by the taxpayers) now of mammoth proportions and much of that has been “invested” unproductively as well in bidding up the prices of our existing housing assets and making us feel “wealthy”.

To that the Glass Pyramid’s response is – well yes the taxpayer guaranteed external liabilities of the banking sector are not much more than foreign owned debt that is not yet publicly owed foreign debt (in time my pretties).

But we can walk and chew gum and even pat our bellies at the same time, as all major forms of unproductive capital inflows should be identified and heavily restricted.    The Glass Pyramid identifies them and their features all the time.

This is just an evil plot to starve the beast by forcing up government borrowing costs?

As noted above, there is a price to be paid if you restrict the Australian Government to borrowing from the people who elect it.    The cost of borrowing from those people will be higher – especially in places like Australia where ‘saving’ is for wusses.

But keep in mind that those interest rates are paid to Australian taxpayers and not foreign banks and other international lenders.   Surely it is better that Australian invest their super savings in risk free government securities that pay a return rather than have them punt via their self managed super funds on the house price bubble (driven with cheap foreign debt) reaching ever greater heights.

Plus if the government really wanted to avoid paying interest on its deficits it could simply instruct the AOFM to sell and for the RBA to buy – 0% AGS bonds.    Cut out the banker middle-persons and have the AOFM just sell direct to the RBA.  The RBA can pay for them with just a few taps on the keyboard.

Such bonds would be held by the RBA and could not be resold.    They would pay no interest and so most of the fears of making the future generations pay do not apply.

Naturally if the “0% bond sold to the RBA” recommendation was undertaken the measurement of CPI would need to be conducted with great care as inflation will be the limiting factor.  There are no free lunches – sorry Milton not even for you.

Considering that the economy is on the verge of being crushed by the deflationary forces generated by creating one of the greatest debt bubbles (public and private) in Australian history, a bit of direct monetisation of the federal deficit is probably the only thing that will save us from the consequences of believing everything we were told by neoliberal economists.

Australian Debt: A “Watcher’s” guide

The following comment was made in response to a comment at Macrobusiness

170402 - Ermo and debt

EP,

“..The slightest withdrawal of the economic stimulant (debt) plunges an economy into depressive conditions…”

“..There are other forms of economic “stimulus” that don’t incur debt, a sovreign state paying for infrastructure, free health and education, and providing a Wealfare State with its monolopy right to Print the fiat,. for example are ways money can be “pumped” into the REAL economy without incurring the expotentially growing out of controll, economic overhead of compounding interest…”

“..The comparision is also BS due to Australias rich Natural endowment and Vast territory,… if we had to, we could eaisly “Go it alone”. For the Greeks that thats not the case…”

“..Tell me why, new money supply should only be issued through debt?..”

Excellent points.

A couple of comments – just for you – everyone else please ignore and go about your Sunday morning chores and prayers of the faithful.

Be cautious how you use the word debt and when you do always distinguish between debt issued by the public sector and debt issued by authorised ADI banks and debt issued by other private individuals or organisations. There are, as Michael Hudson carefully explains critical differences.

And when you talk about public sector debt make sure you distinguish between debt in the form of bond issuance and ‘debt’ in the form of the vague obligations that come from issuing bank notes or these days altering Exchange Settlement account balances. The latter is not really ‘debt’ in any meaningful sense of the word (as many have noted including Mr Hudson) at best it just accounting debits, but if you don’t call it debt you will be attacked by the usual suspects for departing from the “all money is debt” script.

The Banker’s Boys and their fellow travellers and unpaid apologists like to conflate all the categories of debt whenever they can – they can hide in the clouds of obsfucation – and they certainly do not like anyone dwelling on the idea that the public sector has no need to recharge its exchange settlement balances with the proceeds of bond issuance (bearing interest).

First they will say that all money is debt and always has been. Then they will say that debt issued with full faith and credit of the public is the same as a debt (IOU) issued by a private person/organisation. Then they will say that there is no big deal when the taxpayers full faith and credit is extended to the IOUs of specific private organisations – i.e. banks. Some will even claim that the banks would prefer not to have the heavy responsibility of issuing interest bearing IOUs backed by the full faith and credit of the public – chortle is the word that comes to mind.

When you talk about private bank credit being given the effective status of public money they will claim that shadow ‘banking’ is the real issue. Even though shadow banking is not banking at all. It is just a trade in private IOUs. The only time all those completely private ‘shadow bank’ IOUs become a major system stability issue is when the licensed private banks are permitted to trade in those shadow IOUs and thereby put their financial stability at risk when the market in shadow (i.e. purely private IOUs/money) collapses, as it does from time to time.

When it comes to debt, the debt peddlers and the Banker’s Boys all insist we have NO choice. The system is fine… just a few bad apples, a couple of tumours… we just need to regain control, a few good men, a better class of regulator etc etc.

The status quo is sweeeeet if we make just minor tweaks. Now move along and enjoy your shopping while we get back to business.

Is Australia different to Greece?

In theory it is because we could in theory print money to pay our debts while the Greeks cannot.

But could we? When was the last time you ever heard ANY politician propose that Australia pay its debts to foreign lenders by printing money?

When was the last time you ever heard ANY Australian politician suggest we take deliberate measures to short change any foreign lenders.

Jack Lang made sounds along those lines and he was very quickly dispatched by the reserve powers of the Crown.

As we have seen over and over again the RBA insists it will not seek to devalue the $AUD and APRA seems uninterested in the idea either. And when too many public commentators squeal that is what they should do we get some big US dicks swinging our way and making it clear that screwing your lenders by driving down your currency is NOT ON.

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So don’t take comfort in that stuff about how we can ‘print our way to happy times’ it is all just ‘theory’ and it aint going to happen.

What will happen is that we will pay all our debts in full to our foreign lenders by transferring title to our capital assets and land and selling off claims on what future income we earn and that will not be easy as we will have sold off the ownership to most of our ways of generating that income.

And why will we do in practice what we don’t seem to have to do in theory?

Why wont we just print print print and let the $AUD collapse in value and pay off all those offshore obligations – all that foreign debt?

Because our membership of the international banking global order insists that we do things a different way to the way we could – in theory.

But don’t you worry, as the system is juuuuuuuuuuust fine!

Have a good one!

Dig Deeper! – Release foreign ownership data for housing in NSW

It was good to see the ALP making an effort this week to extract data from a reluctant NSW Government about the level of foreign citizen buying of housing and land in NSW since 1 July 2016.

Note:  For the period (decades) prior to 1 July 2016, there is no data recording foreign ownership of NSW land because our dimwitted politicians did not direct the OSR to require identification from buyers and sellers.  Yep, no records were kept.OSR

However, it quickly became clear that the ALP needs to keep on digging and pushing Premier Gladys “Secret Squirrel” Berejiklian and Treasurer Domininc  “I knowz nothing” Perrottet  to cough up the data so the public know what is going on and there can be an informed debate.

Accordingly to newspaper reports the Office of State Revenue provided data, pursuant to the Freedom of Information request, for the period 1 July 2016 through to 30 September 2016 only. Continue reading

Australian Banana Republic: How to fix it before it is too late!

It always sounds odd to argue that we need a lower $AUD but the ‘value’ of the $AUD is very important in determining whether or not Australia becomes a Banana Republic.

People buying imports and planning a holiday overseas love a high Aussie dollar as they have greater spending power.

However, people who have lost their jobs or businesses as a high Aussie dollar made imports cheaper and made it harder to compete in foreign markets are not so keen on a “mighty” high Aussie dollar.

So how do we resolve the happiness of consumers v the happiness of Australian workers and business, bearing in mind that at different times of the week most people are both consumers and workers/business owners? Continue reading

NSW Secrets: Gladys, who is buying all the property in NSW?

NEWSFLASH   – Since publishing this post on Saturday there has been a flurry of activity by the State Government, as some foreign buyer data for the period July through September 2016 was released following a FOI request by the Daily Telegraph.  The Premier and the Treasurer promise to do “something” to slow the acquisition of local housing by foreign buyers. But when and what is the question.

The real story is that the government is sitting on the foreign buyer data for the perioGladysd right through to the end of February 2017 and should release it immediately.  The period July – September 2016 was likely to have been slow for foreign buying activity as the introduction of the new charges on 1 July 2016 caused buyers to bring their transactions forward to before 1 July 2016. Release the data Premier Gladys Berejiklian and Treasurer Dominic Perrottet!

A few weeks ago the Glass Pyramid noted that much of the speculation about “who is buying Australian houses and driving up prices” could be resolved very easily if the Australian Tax Office released some of the detailed information it is now receiving from the state land title offices and offices of state revenue. Continue reading

No fracking way! A National Export Volume Auction is the solution to the Australian Gas Crisis.

The papers are full of stories about Australian companies being gouged and charged top dollar for LNG supplies at the same time as a bunch of international companies extract our gas reserves and ship them offshore to sell in foreign markets for peanuts.

There are even loony ideas circulating whereby we build a new terminal to re-import the gas those companies are selling offshore for nickles and dimes.

Why import what should never have been exported in the first place?

Worst of all some industry clowns are trying to use this massive policy failure and incompetence induced gas shortage as a reason for demanding that every farm gate be forced open and every paddock be made available to the agricultural vandalism of fracking.

The solution is simple and no different to the one required for iron ore. Continue reading

Bank Watch: Aussie Bank CEOs deny nicotine is addictive!

Sorry there was a typo in that headline.

Bank CEOs deny Australian Housing is in a bubbleis what it should have said but in terms of denying the obvious it is right up there with the mass denial by tobacco CEOs that nicotine is addictive.

The Sydney Morning Herald covered the denials this week.

So what delicately expressed sentiments did our very dear bankers provide to help Mr Morrison sleep soundly in his “bubble boy” bubble?

Westpac Continue reading