Annals of the Banana Republic

Today at the AFR:

Jeremy Lawson said on Tuesday it could take a 1980s-style crisis to force politicians to tackle the country’s shrinking income base while restructuring expenditure.

A global downturn, coupled with policy missteps and a febrile industrial relations environment, drove inflation well into double digits, and unemployment above 10 per cent, in the early 1980s. The deep, enduring recession led to many of the reforms that made Australia a free-trading, low-tariff, globalised economy.

“If you look at Australia’s history, major reform episodes tended to follow crises; it’s not until it’s clear that what’s going on is unsustainable that you’ve run out of time,” Mr Lawson said.

“It’s when you have that next recession, when unemployment is not 6.5 per cent but 8 or 9 or 10 per cent, where you’ll really concentrate minds.”

The logic is difficult to dodge. At MB we track what monetary and fiscal authorities are up to much of the time and I gotta tell you that right now Australia’s macro (and mircro) economic management has gone completely bust. Consider the following inventory.

The Reserve Bank of Australia 

In 2010 the bank went bonkers on endless Chinese growth and openly embraced Dutch Disease to ensure inflation remained contained during the commodity boom, based on the notion that a permanent high plateau in commodity prices justified the structural adjustment to a higher dependence upon mining over other tradables.

Since that strategy began falling apart after 2011, rather than accept that it got it wrong – that the commodity boom was very temporary and the economic restructuring short-sighted – it has slashed interest rates and deliberately re-fired the housing bubble to paper over the increasingly wide growth gap. That has, in turn, given Australia an even worse dose of Dutch Disease with a dollar that just won’t fall.

Thanks to these blunders, competitiveness in the economy has collapsed and aggregate demand is structurally weak, which has led the bank to moan endlessly about poor “confidence”, the direct result of its own policies.

The Abbott Government

Not sure where to start with this but there are perhaps three outstanding blunders. The first was to sacrifice the much needed budget repair at the ideological and corruption alters. Rather than evenly balanced budget repair, we got a file stuffed with favours for the rich and income savaging for the poor. That Budget collapsed in the senate and has led to the second huge blunder which is now underway, no budget repair at all.

After the leadership Abbottalypse, policy is being made entirely on the basis of saving an inept Prime Minister’s skin. Where that crosses over good policy it is entirely coincidental and one thing is certain, anything resembling “austerity” is getting the chop.

The other major blunder – perhaps the greatest of all – was to shove the car industry offshore over a paltry $500 million investment. Whether you agree with this in principle is beside the point. The timing of it is calamitous for the southern states as they try to absorb the RBA’s mining bust. After all, the cure for Dutch Disease is to build your non-resource tradable sectors and we’ve just deliberately killed the largest of ours.

To imagine the folly of this, project yourself forward two years when the dollar is at 60 cents and you buy a Korean-built Holden for more than it cost you when it was made here. It’s very generous of you to support full employment in Korea with your own shrunken income.

Mining state governments

As WA confronts an historic crash owing to enormous oversupply in its key commodities, the state government is busy talking up and pursuing further investment in those same resources.

Like the RBA, the WA government went mad on the China boom and extrapolated ludicrous commodity prices in its budget forward estimates. That is now unraveling spectacularly as a comprehensibly pro-cyclical budget exacerbates the bust underway.

There is no apparent strategy to deal with a forthcoming unemployment crisis, no efforts to retrain, nor any attempt to reorient the state towards alternative growth sectors.

Once the WA housing bust begins in the next 12 months, WA will sink like a stone, and keep sinking until, well, it’s cheap enough to start exporting manufactures to China.

In QLD, it’s a very similar story, where the recently turfed out Newman Government was busy talking up and pursuing further investment in doomed coal assets, all the while threatening the Great Barrier Reef where millions of Chinese tourists are going to want to go in the next few decades.

But that pales next to the LNG debacle that both Qld political parties cheered on – the greatest of the commodity bubbles – at Curtis Island, Gladstone.

Rather than use an auction system, or rent taxes, or plain planning sense to ensure an orderly development, the government allowed four LNG projects to proceed simultaneously in a area the size of a postage stamp. Needless to say, absurd cost blowouts resulted, rendering all four projects uneconomic prior even to completion. Worse, a commitment to rentier economics led them to eschew any domestic gas reservation policy, extending and worsening Dutch Disease for the entire east coast.

Now, the projects, the government, households and manufacturers are all going to suffer together as the three white elephants sit on everything with high gas prices.

Southern Governments

This has not been quite so bad a story too date, but the complacency here is obvious as well. Commodity state problems will not stop at the border. Confidence effects, bad loans, and falling income are coming to eastern capitals too.

NSW and VIC have managed to repair their budgets to some extent, but largely on the back of the same temporary property booms that are hollowing out what tradable sectors they have left.

Meanwhile, they run grotesque population ponzi schemes to backfill and perpetuate the system, in so doing radically undermining productivity growth as groaning infrastructure slows everyone, doing everything, all of the time.

Moreover, when the pro-cyclical property recovery comes under pressure, southern state budgets will unravel twice as fast and the downside will double up.

Conclusion

Some of you will almost certainly be wondering “what is this guy on, all we did was allow markets to run their course”. That is the very speciousness that has brought us to the point where the system is going to break down.

There is no market in Australia. There is a series of tax, fiscal and monetary distortions that add up to the economy that we have, most of which have turned what was a dynamic young market in the early nineties into the plaything of three great vested interests: mining, banking and a retirement scheme for Baby Boomers. Change the framing distortions and the economy would look completely different, and be more market-driven.

Australia is now the Banana Republic par excellence – resources driven, hollowed out, plutocratically ruled – perhaps the luckiest and certainly the most mismanaged economy on earth.  Alas, the latter is inexorably overtaking the former and, as the reckoning arrives progressively over the next few years and the architects of the above look around and ask “who could have seen that coming?”, you should all remember that it did not have to be this way, lest the same folks take what’s left to the cleaners.

The crisis is certainly coming, the focused minds I’m not so sure about.

Comments

  1. No I’m not so sure about that either, unless they are concentrating on a high school popularity contest.

    The parties/duopoly don’t care, turf one and the others back Freddy K.

    Maybe if the minds of the electorate were focused… But then there’s always The Block

    FMG’s net profit dives 81% in H1 on iron ore price crash
    Australian iron ore producer Fortescue Metals Group (FMG) reported an 81% drop in net profit for the first half of its 2015 financial year on slumping iron ore prices.

    Ruh roh

  2. I’d really like to see this reprinted in the MSM somewhere…..and also our furry mate Jolly Hockey to read…….

    • Not too pedantic I hope, but……

      Even if the RBA did ‘accept it got it wrong…..’ What was it going to do differently then?

      Who should the WA government retrain BEFORE the ‘forthcoming unemployment crises’? Retrain as what, exactly?

      • Retrain Barnett as a yelping clapping show seal? No… wait.

        Personally I think all the blow-ins will retrain as a blow-offs but I know that’s selling that amazing barren, dry, dusty, incredibly isolated and thoroughly corrupt half continent short….

      • Considering the role the RBA board accepted as the de facto manager of the Australian economy they had a responsibility to state that managing the economy with monetary policy was driving the problem.

        1. A mountain of household debt – 35-40% funded off shore.

        2. Increasing amounts of govt debt bought off shore.

        3. A bloated currency.

        4. The cherry on top – Excessive reliance on assets sales and sales of non renewable resources.

        All they had to do was point out that the model for economic management was not working and was creating major imbalances in the economy.

        Had they done that we may have been having this debate across the country back in the early 2000s.

        Now the argument may be that although independent the RBA is still effectively a bunch of public servants and political appointees that would not say boo to a goose.

        Exactly – which is why the ‘independence’ of the RBA is worse than a myth it is actually an obstacle to proper economic management and accountability for the economy.

        It provides political cover for politicians who wish to outsource responsibility.

      • “the ‘independence’ of the RBA is worse than a myth it is actually an obstacle to proper economic management and accountability for the economy.”

        Kind of like APRA.

      • Great comments pfh.

        What a shame that those who enacted this and benefited from this aren’t the ones to pay and be blamed for it.

  3. Excuse the pedantry….. but “Gladstone Island” ain’t a thing

    There is an LNG project on Curtis Island

  4. ‘the bank went full retard’

    I really enjoy your work, but please if you want to criticise someone, don’t do it by comparing them (with offensive terms) to those suffering from mental health issues. It’s unnecessarily offensive towards so many people, and diminishes the point you’re trying to make.

    • No. Full-retard is widely understood as a reference to Tropic Thunder. Also retarded people don’t give a shit, what they care about how you treat them. Uptight tossers on the other hand…

      • Well I’m just passing on the message – I know of a great many people who get offended by this term (including members of my own family who suffer from mental health issues). You obviously don’t see a problem, and that’s fine mig.

        The point I want to make in relation to the article is – if you want to get your point across and convince people, it’s good not to alienate your audience needlessly.

      • No I don’t see a problem. When my idiot mother called me speaking in hushed and baited tones to tell me that my sisters second child was born with down syndrome I couldn’t figure what her stupid problem was. Is the kid healthy, breathing and does C. love him? Yes? Then what the fuck are you so uptight about stupid old woman?

        My sister wouldn’t give a shit, my mum would. That tells me everything!

      • Full retard refers to early motor car ignitions where to start the engine, the spark timing would be manually fully retarded. The bogans picked it up and in ostentatious ignorance made it what Billybob objects to.

        As this metaphor seems lost in time and upon the contemporary reader, it should be discarded. There are plenty more fish in the sea to paint with boot-black.

      • Thanks for your understanding HnH.

        Collyer, I wasn’t aware of those origins, I was only aware of its contemporary (abusive) use. Shame how terms get hijacked, unfortunately English is evolutionary which can get confusing!

      • You need not worry too much Mig, nor go full retard (in an ignition sense). Any word or phrase is bound to offend someone. And as the number of the offended grow (for genuine or non-genuine reasons) that word will be sanctioned and fall out of fashion only to be replaced by the next one.

        It is a merry little dance that PC has no hope of addressing. Advocates of PC, like many such things, seem to be more interesting in engaging in needless activity (that is, being seen to be doing the right thing to push their own barrow) as a substitute for any real achievement.

        On the other side of the coin, its can be somewhat petulant (or even adolescent) to needlessly offend people.

      • to needlessly offend people.

        Which HnH didn’t. I was offended by the cry baby attitude. No one gives a fuck that I’m offended however…

        BTW petulant IS adolescent

      • But is not your MO a perpetual state of offense?

        That leads me to a more existential question. In the absence of offense do you exist?

      • Mig, sorry mate, but by my reaction he clearly did cause offence, and didn’t need to. You have no right to determine whether or not somebody else is allowed to find something offensive.

      • Full retard refers to early motor car ignitions where to start the engine, the spark timing would be manually fully retarded.

        Maybe back in your day, mate. :)

        But as noted above in contemporary use amongst the yoof it’s a reference to this scene out of Tropic Thunder:

        https://www.youtube.com/watch?v=X6WHBO_Qc-Q

        (I would also argue that it’s use in the movie is in no way meant to belittle the mentally handicapped.)

      • Retard is often used when giving the instruction to turn back your clock when crossing time zones e.g. “Retard clocks by one hour”.

      • ‘Mental Retardation’ was the medically correct term, as defined in four editions of the DSM, for what is now called ‘Intellectual disability’, from 1952 to 2000, until the editors of the DSM-V removed it, due it being deemed offensive.

        It was adopted in the early twentieth century to avoid the use of terms like ‘cretin’, ‘feeble minded’, ‘idiot’ and ‘moron’, which were the medical diagnostic terms in use at the time, due to the offensiveness of those terms.

        No metaphor intended or required.

      • Actually it’s not meant to be anything of the sort, it’s just a silly sounding username I’ve used all over the place for quite a long time, which was originally created as a play on a nickname I used to have some time ago. Who am I meant to be offending with it?

      • Well nobody has ever claimed offence from this name in over a decade of me using it, across a whole heap of media.

    • Billy Bob,

      When Rupert Murdoch tweeted

      “Political correctness makes for denial and hypocrisy”

      He was talking about people like you!

    • Fail to see where I’ve offended you

      ….

      You have no right to determine whether or not somebody else is allowed to find something offensive.

      0.o

      W@#&^%

    • ErmingtonPlumbing

      My close friends an I, regularly call each other “Spastic” when one fails or falls in an uncoordinated fashion whilst surfing.

      The offending word is always delivered in a infantile, immature and whole hearted laughing manner, real male bonding stuff.
      My wife of almost 20 years still doesn’t get that kind of thing….. And why would she? She’s only got half a brain!

      But back on point, if someone was to call my beloved Down syndrome niece a spastic or mock her in anyway , then I’d be the first chastise the offender.

      It’s the intent and context in which words are used that rightly deserve ethical scrutiny when someone expresses themselves.

      The blind obedience to the rules of political correctness does not impress me at all and infact worry me in the way it often narrows debate and freedom of speach. What’s next in the evolution of this movement, Thought Policing!!!. It all feels very Orwellian to me.

      “It is not enough just to obey big brother Winston — You must love him …. Do you love big brother?”

      • Well I guess we will have to agree to disagree. The mental health advocates that I hear a lot from would say that your use of those terms in that context is still offensive towards those minority groups. You’re basically saying direct mocking is wrong, but indirect mocking (however innocent in intent) is ok. I completely disagree, as do most advocates for these minority groups.

        Swap it for something racist. Or homophobic. Still ok?

      • ErmingtonPlumbing

        well Billybob

        A few months ago, on our way, driving into the Opera bar for a friends birthday drinks, my wife and I stopped to pickup a Gay couple we have been very good friends with for over 20 years.

        After getting out of the car they great us and then one of them, noticing my new pair of sun glasses, laughingly tells me my sunnies are totally “Gay” and that I would definitely fit in with all their “Fag” friends!

        Now, I was not offended Billy, should i have been?, should they have been offended at them selves?

        Life is not worth living without laughter brother, stop taking life so seriously…………its boring.

        By the way,……..I still have the sunnies

      • “Swap it for something racist. Or homophobic. Still ok?”

        Valid point Billybob. It all depends on personal experience.

        I deal with people every day who have a hell of a time dealing with disability. Yes, they find the term offensive because it is, and semantics aside, they intuit exactly what it implies.

        I’m all for free speech and appreciate the varied views proffered on MB. I’ll give a spray with the best of them.

        But there are clearly a few who might benefit from other perspectives before defending some pretty ill-chosen words.

      • Well I find the butchering of the English language from mental health advocates offensive, so here we are.

      • Ermington,

        No I don’t think you should be offended by anything – that’s entirely your call.

        My general view on the situation you describe: the terms are being used as a description of your clothes in a non-negative way. They weren’t saying: ‘you look crap with those sunnies, because they’re gay, and gays are crap’. They were just playing on stereotypes of what gay people wear, and as members of the minority group, fair play to them.

        The situation you describe is a world away from describing stupid or irresponsible actions of officials using terms also used to describe and belittle those with mental health issues, on a public forum.

        For the record, I’m generally not one to take offence at much, and I’m certainly not someone who gets into these debates regularly. But when I see things which as a general theme negatively affect the lives of members of my direct family (and me as a result), I feel a line has been crossed and something has to be said.

    • You’re the first person I’ve come across who had issue with F-R (didn’t say just for your darling little sensitivity). What’s your point?

      And actually Bluebird had an issue with it one time in precisely the way I outlined.

      • Sorry, you’ve never known anyone to be offended by the word ‘retard’? I find that really hard to believe

      • No I’ve [email protected] to get uptight about all sorts of pointless sh#t. I just don’t think you should get away with it because your being offended at nothing offended me! And I figured if it’s ok for you to winge then you’re giving me carte Blanche. And I always use it. Re….

      • I’d love to carry on talking, but frankly I’m tired of wading through the sea of ad homs to work out if you have an actual point to make. I’m out.

      • I’d love to carry on talking, but frankly I’m tired of wading through the sea of ad homs to work out if you have an actual point to make. I’m out.

        Another satisfied customer !

  5. “Australia’s macro (and mircro) economic management has gone completely bust”

    Absolutely!
    Just three things
    1. Re Southern States”This has not been quite so bad a story too date” Baloney!!!! They suck the financial life out of the rest of the nation then we’re told how bloody wonderful they are and how stupid we are!!
    2.Re the Nineties “what was a dynamic young market in the early nineties into the plaything of three great vested interests” Balderdash – what was done back then was squib the real issues and the setting for the destruction you describe as being the current model was really starting to get velocity – the FFFFFEFR brought into play by Keating (again squibbing the real reforms necessary) was baking the bloody Magic Pudding that everyone thinks now exists.
    3. It’s all the fault of those evil Liberal Govts – Bullshit!

    • Ah Flawse, did you get that backward thinking sorted, your confusion ruined your whole argument.
      BTW AUD 78.1 USD. WW

  6. HnH big hole in your story, the AUD is going no where near as low as 60c USD.
    As highlighted by 007. A mountain of household debt – 35-40% funded off shore., will never be able to be repaid.
    You need to get a grip on this.WW

      • “That debt is all swapped into Aussie”

        Excuse my ignorance or maybe my brain is not working – why does that alter the story?
        (Note I agree with you re WW’s comment.)

        Second – I ask again who is holding that baby? The RBA? How do the Banks get all their offshore funding in A$ when the cost/benefit of obtaining offshore funding at any moment is equal to the interest rate dfifferential?
        Are the Banks so smart they are able to time the conversion to Aussie at a profit 100% of the time. If that’s the case whoever the brain is doing it in each Bank could just go out on his/her own and make infinite billions. I know a very very smart young bloke playing around with models to predict exchange rates – he gets 55% right (note this is just off the model not predicting himself) I’m willing to bet his smarts against anyone in the Big 4.
        So how do they get 100%?

      • HnH, I need to add, that almost everything we buy is sourced off shore including poisoned berries.
        Should the price of our basic necessities rise by 30% the punters are on skid row. Even GS knows that. WW

      • Should the price of our basic necessities rise by 30% the punters are on skid row.

        Yup! We’re screwed and it IS happening!

      • Yep.

        All the current debt is swapped into $AUS so the Australian banks will not Swiss banked but the terms and cost of rolling over debt are affected by the perceived risk of lending to Oz.

        We already have govt guarantees to try and keep the borrowing terms for our Big 4 lower than they would otherwise be.

        Likewise covered bonds were introduced to help the banks obtain lower cost funds.

        As HnH notes the loss of the triple. AAA rating will start to drive up borrowing costs further.

        Countries that run ongoing CADs eventually start paying more for the pleasure.

        The $AUS should be and will go lower – prob to 50 cents having regard to our likely trading performance post mining boom.

        The only area of disagreement between HnH and myself is quite minor (but important) and that is how to get there.

        I prefer explicit controls on unproductive capital inflows introduced progressively as these will soften the exchange rate AND avoid the need to debauch monetary policy and pump up household debt. All done with govt running sufficiently large deficits (lower taxes or sound projects not pork projects or bribe welfare)to maintain money supply as endogenous money creation by the banks softens and ultimately reverses and then ceases.

        HnH prefers milder regulation on unproductive capital inflows – restrictions on some types of borrowers – and lower interest rates presumably to keep other types of borrowers borrowing.

        Unfortunately, neither position is favoured by the RBA, APRA or the government. They remain true believers in having as little regulation of capital – borrowing as possible. The market is perfect in their belief system.

        Though the government promises about FIRB action are interesting as they are consistent with regulating unproductive capital inflows. I think that is most likely just a coincidence as Mr Robb thinks flogging off assets in $1B chunks is the best thing since sliced cheese.

      • pfh

        I beleve there is a basic misunderstanding of how the money flows to and from the external sector in relation to this housing business. So I am running it past you (and HnH or anyone else for that matter)

        As we have pretty clearly established the Banks can create credit. They don’t actually need foreign funds to lend for housing….as such. Keen theorises credit create deposits. If you had no leakage into the external account and no leakage to government running a surplus then all the deposit would end up back at the banks – no need for any foreign funding.

        So the Banks, given a government deficit, do not need to borrow foreign funds until the CAD intervenes in excess imports interest payments dividends etc. Let’s ignore interest for the moment because how that is paid depends on the denomination of the debt. Dividends paid overseas are substantial one imagines and these would be a source of A$ held overseas but the amount is small compared to our annual foreign borrowings.
        Our external ‘liabilities’ are made up of foreigners owning assets and foreign debt. Now we can ignore the sale of assets in this argument although they are a source of A$ from foreign holders the actual foreign debt number is created on top of that.

        Now our foreign liabilities actually arise when we BUY something from overseas not when we play housing monopoly (passing GO 40 times every round of the board). Now I know of no overseas company anywhere that sells in A$. It’s all Euro, USD Yuan etc etc – NO A$. So the bank’s debt, at that moment, is denominated in the foreign currency.
        How can the Bank, in that moment, get a loan in A$, payable some time in the future, without paying, the interest rate differential between the two currencies as an adjustment to the spot rates.
        It’s just NOT possible! If it were you would automatically literally have a Magic Money Tree from which you could pluck infinite amounts every micro second.
        The only alternative is that the Banks are so skilled that they can gamble on the exchange rate direction, take the foreign loan for the moment, and convert to A$ a bit later – a gamble which we know is NOT anywhere near a 100% successful trade particularly in the way the banks would have to do it – i.e. it would have to be some model based transaction – not some 24 year old whizzkid going beserk with billions oif Bank money.

        So again – How the hell is all this foreign debt that is created in foreign currencies when we buy stuff suddenly converted into Aus dollars with teh Banks getting all the interest rate differential????

        There looks to me to be only one possibility – the foreign actual deb tin foreign currency denominations, is held by the RBA for free with the banks getting a direct subsidy from the RBA for the IR differential.

        P.S. This is a wildly spinning dynamicfeed-back loop. So at any moment it can appear to anyone inside the system that we are borrowing for housing. My argument is that we don’t borrow for housing – we borrow when we buy stuff overseas…..Note this has all sorts of implications for HnH’s favourite of Macroprudential

      • @Pf
        worrying thought: What if Aussies lave lost the recipe for macro productivity? what if the structural reasons for our looming economic predicament far outweigh any globally productive gains that can be engineered through devaluation?

        I’m not sure if the situation is quite this bad but the tendency (apparently supported by both political parties) is definitely toward supporting the externally unproductive rather then developing externally productive businesses, people and skills.

      • CB
        IMO
        Without major reform of all parts of our society – Govt, Business, Laws, population distribution this devaluation so desired by everybody will do no good. It will just result in our foreign debts being harder to repay, very high inflation and much societal dislocaton.
        (Note I am not arguing against devaluation)

        Why would it be different this time if we make no changes? Past devaluations have done nothing, in the medium to long term frame, to solve our debt problems. This time our economy, bar the mining sector, our government, and, especially, our society is so far further down the road to oblivion.
        So, again, how can this time be any different?

        It IS worse than anyone thinks – probably even me!!!!!

      • @CB

        That’s exactly what has happened. At first it seemed ridiculous that you could borrow and speculate your way to riches, rather than innovate and add value. That was back in the mid-90s. We’ve had an entire generation of people showing us stick-in-the-muds that we’re utterly wrong. Something’s snapped. Not until we as a nation have had our faces shoved into this gigantic turd that we’ve created will we recover from this.

      • P.S. to above – I am aware that the Govt borrowing offshore and running a deficit which it distributes in A$ would be an offset. Is this the magic number? Nup! If it was the Banks would not need foreign money and have foreign debts at all.
        It doesn’t matter much anyway – we are all on the hook and it looks to me like the Bank executives walk away with the Treasure while Joe Public just gets shafted.

      • Flawse,

        “….. then all the deposit would end up back at the banks – no need for any foreign funding…..”

        The deposits created by the banks when they create a loan may stay within the Australian banking system but where they are and on what terms at any particular point of time is important.

        When the banks borrow off shore they are not literally – borrowing money from off shore.

        What they are doing is trying to persuade foreigners to acquire local deposits and re-locate them within in the banking system to the bank that wants them on terms that the bank desires.

        Foreigners see merit in this because their ‘savings’ in foreign currency pay less interest. So buying some Australian deposits and shifting them to a bank that offers them attractive terms suits them. Movements in the exchange rate may be a bonus or negative.

        Our banks prefer this to trying to persuade locals to move their deposits because it costs them more to get us to do so.

        The foreigners are essentially just undercutting locals in the market where banks seek people to locate a deposit with them on terms that the bank would like.

        The point that HnH is making is that the banks are not borrowing in $US and then using those $US to acquire $AUS deposits. They are effectively getting someone else to acquire the $AUS deposits – and thus take the risk of currency movements.

        But while that protects them from the currency movement it is not a gift – the party taking that risk charges the bank to do so. That means the banks have to pay a little bit more to have foreigners acquire and direct deposits to them.

      • pfh -thinking out loud!!!!
        Run the money around full circle and thinking in Net terms – Net everything out. There are no excess deposits to sell to foreigners. There would be if we ran a surplus or the Govt ran a big enough deficit.
        At the moment ALL the deposits are used up in re-lending and then the Banks need MORE. The CAD is NOT in A$ despite it being nominally converted to same.If we ran a CAS it would be in A$ It is in USD Euro Yen Yuan etc Any A$ they borrow does not cover the CAD. Again it doesn’t make sense to borrow A$, suffering commissions etc then at the same instant cash A$ to pay the import bill.
        To me that doesn’t make sense.

        Now it is still an exchange of currency. If the Banks can get cover for less than the interest rate differential then the whole thing is nuts – just keep sending the money round in a circle and you’ve got infinite profits. The other party loses – period! Every time! Bingo! No wonder the banks are a great investment. The foreigners would always be better off staying in their own currency – unless we think they are so dumb as to be 100% losers while our Banks are so smart all the time they are 100% winners.
        The only thing our Banks are good at is rigging the financial and political system to bleed it i.e. good at being parasites

        P.S. Further – Even if you presume that overseas lenders are willing to lend us their money at a loss all the time – is this forever? When they come with us with any A$ they will be wanting their own currency back. There’s a contingent liability there. Now in a one way market , A$ up, you’d have profits – going down you’d have losses. Surely those contingent liabilities have to be counted at the end of the financial year or are we just living in some total wonderful fairy land?
        OR are theycovered by the RBA.

        I think the notion that ALL the Banks foreign debt is in A$from now until forever is such a fairy tale – there’s a big switcheroo in there somewhere

      • Hmmm I did a little thinking backwards in there at one stage – easy enough with these loops – still think my basic argument holds when you net it all out. We get debt in USD etc – it has to be paid back in USD etc sometime.

  7. Economic theory was a fairly rigorous intellectual pursuit post WWII, you know testable, check for biases, inclusive of other fields of soft sciences [psychology, sociology, psychology, history, et al].

    This all changed with the advent of money trumps knowlage or the pursuit of knowlage, to seek out information without a profit motive attached.

    If fact it became an ideological megaphone amplified by the funds heaped upon it to suit the needs and wants of those that supplied said funds, as an ends to a political means.

    All starting out with metaphysical premiss in the first iteration to the application of wonky mathematics and physics in the second iteration. A veritable metaphysical fruit fly series run which is validated only by the perfection of its argument, in the ears of its test subjects.

    Currently the neoliberal out come parallels, in many ways, to the little Akhenaten experiment, where the city had to keep chasing the moving Nile.

    Skippy… that’s what happens when you put religion as the first order of things imo.

    • Always a sobering read. He senses proximity to calamity, but as he says, timing courtesy central bank can kicking is the unknown.

      If and when, a God almightly liquidity freeze, then all hell breaks loose?

      • Yes!!!!! Re CB’s – I’ve always underestimated the degree of stupidity and insanity that is possible. The final nail for me was when the Pitchford thesis arrived on our shores culminating in Huw McKay saying to me “But….But…Australia has always been a Current Account Deficit country”

        As someone writing at John Mauldin said the other day
        “Stupid can always get stupider!”

  8. “Australia is now the Banana Republic par excellence – resources driven, hollowed out, plutocratically ruled – perhaps the luckiest and certainly the most mismanaged economy on earth.”

    and even the kiwis are worried about us now – banana republic confirmed

  9. Lee Kuan Yew was right – Australia is the white trash of Asia.

    A good ol’ fashioned recession and wipeout of financial institutions is what the hoi polloi jolly well require to straighten them out in ship shape form; an “economic Rogering” if you will.

    Too bad the pollies are happy to flood the girted shores with filthy corrupt money snapping up real estate… wink wink, nudge nudge, say no more, say no more. The entire nation is like large casino laundering the dirty work of others pretending nothing is wrong and encouraging “investment visas”.

    Once that tap is turned off you will hear the sound of millions of voices gasping all at once – something like a bath emptying the size of the Pacific Ocean.

    You better lube up that banana.

  10. ‘There is no market in Australia. There is a series of tax, fiscal and monetary distortions that add up to the economy that we have, most of which have turned what was a dynamic young market in the early nineties into the plaything of three great vested interests: mining, banking and a retirement scheme for Baby Boomers. ‘

    Too right. Both parties are accountable but when Swan used to repeat ‘envy of the western world’ I would cringe. Too bad he and others will probably walk away with little accountability for their actions.

  11. Why is building a railroad to an uneconomic coal mine in QLD communism but spending billions on uneconomic car factories in Victoria and South Australia OK?

  12. Don’t worry!! Just swallow that damn blue pill and enjoy the bubbly feeling!!!

    If the worst comes to the worst, we can grow and export bananas. We are proud residents of the banana republic after all!!

    If nobody wants to buy our bananas at inflated prices ……. no problem!! We can still EAT bananas!! We will be long brain-dead by then, so living solely off bananas cannot do any more harm.