From the AFR:
Mr Morrison said the G20 had specifically indicated that there did not need to be any coordinated central bank and government bailouts to manage potential Brexit fallout.
Unlike the last time G20 ministers met in February – when demands for more short-term government stimulus were at a peak – Mr Morrison said the latest talks showed most countries increasingly recognised that economic, terror and other shocks had become “the new norm.”
As a result, it makes more sense for the G20 to redouble the focus on its core economic agenda, which is to spur the productivity and responsiveness of the world’s biggest economies, as well as ensuring tax systems are robust.
Mr Morrison indicated that many of his counterparts at the G20 – which represents the world’s biggest and richest economies – are now looking to find “circuit breakers” that can shift the global economy out “of this low-rate, low-wage growth, low-inflation, quantitative-easing economy.”
“The way out of this is not racking up more debt and printing more money,” he said. “The way out of this is returning to those market economy principles of allowing capital to find a home where it will get a good return based on productive policies.”
Bank of Japan governor Haruhiko Kuroda said during the G20 meeting that he remained open to delivering more monetary policy stimulus, but insisted the use of helicopter money – or the direct underwriting of government debt by the central bank – was illegal in Japan. Late last week he said there was “no need and no possibility for helicopter money”.
So, without a helicopter let’s run through what this means:
- structural reform to boost, innovation, productivity and competitiveness for Australia means Mr Morrison is about to scrap negative gearing, target a lower dollar and break up the banks;
- as the world adopts these policies we will see a renewed wave of deflation as creative destruction returns as the prime the driver of economic growth (or contraction). That is because in an environment of inadequate demand (or excessive supply) there’ll be more destruction than there will be creation for some time, at least a decade, probably two;
- the excessive private sector debt that is the heart of the problem will get much more difficult to service as deflation entrenches but our stalwart treasurers will not intervene and will let weak banks go under. Contagion will sweep the global financial system but no bailouts will be used;
- as the incomes of the disenfranchised and now widely unemployed collapse, we’ll see a radical intensification of the global class war, but our courageous treasurers will hold fast and there’ll be no further restrictions placed upon the free movement of peoples even as terrorism degenerates into a hourly event.
Mr Morrison brings to mind another great treasurer of history, Andrew Mellon in the US in the 1930s:
“liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.
