RBA declares war on surplus politics

What is Reserve bank board member Heather Ridout saying? From The Australian this morning:

RESERVE Bank board member Heather Ridout says the Australian economy will need “active management” this year to cope with the slowing mining boom and high dollar, as the case for rate cuts was strengthened by a sharp fall in the rate of inflation.

Speaking ahead of the bank’s first board meeting of the year on February 5, the former chief executive of the Australian Industry Group said the nation faced “persistent” economic challenges.

“We’ve been fairly fortunate so far, but there’s a bit of active management required this year and we can’t just sit back and wait for growth to be put in our lap,” she told Dow Jones Newswires.

…Ms Ridout said the strength of the currency, which remains above $US1.05, was creating uneven pressures through the economy, which has until now been propelled by the resources sector.

“Growth has to be more evident in other parts of the economy and that’s very tough with the dollar remaining so persistently high,” she said.

Describing herself as being more optimistic on the world economy, Ms Ridout said conditions had clearly improved in the US and China and she pointed to firmer activity in Europe and signs of a modest pick-up in Japan.

Economic growth in China accelerated in the fourth quarter of last year, confirming a rebound for the world’s second-largest economy after a slowdown in the past two years.

“You’re seeing reasonably positive results out of China,” Ms Ridout said.

“But the big challenge for us is to be able to achieve a diversified growth model and that’s the big challenge for economic policy over the next 12 months.”

Reserve Bank officials have canvassed their concerns that the tide of resource investment may start to recede before investment elsewhere in the economy has started to pick up.

Three points to make:

  • The RBA has a strong taboo against public commentary  on interest rates by its board members outside official speeches. They like to control the message, not discuss it.
  • Ridout is not especially a maverick. She has a track record of prim and proper team playing in her time the AiG (frustratingly so) and has a modus operandi of working for change from the inside. She is, however, more attuned to manufacturing than other board members.
  • The RBA has a first principle policy of ‘doing no harm’ to the economy. That is, don’t do anything unless it is plainly obvious that it is required, lest you make things worse.
So what portent do we read into these bold public statements about “active management” and the problem of the high dollar, which fly in the face of all three? It means this, also from The Australian:

AUSTRALIA must fast-track new roads, railways, bridges and ports to secure prosperity as the mining boom fades, key members of the Reserve Bank have warned.

…In an interview with The Courier-Mail, central bank board members Heather Ridout and John Edwards said investing in key urban projects would unlock a new cycle of productivity to replace the commodity price boom and continue the 21-year run of growth.

Ms Ridout said short-term considerations had led to under-investment and were holding the nation back. She called on state and federal governments to go into deficit to fund the infrastructure.

“We have under-invested. Congested roads in cities are a major sign that we’re not doing well enough,” Ms Ridout said.

“We just keep putting short-term considerations before the real work of building a productive economy.”

Dr Edwards…warned Australia faced challenges including a high dollar and an ageing population.

“The big investment boom in mining, which has helped the economy over the last six years, is close to a peak,” Dr Edwards said.

Success from now on would “take substantial investment in factories, offices and mines, roads, bridges, ports, railways, broadband and, above all, in education and training.”

Dr Edwards said the National Broadband Network was the most important piece of infrastructure on the table.

“Australia’s future will increasingly depend on our success not only in exporting minerals and farm products, but also clever manufacturers and high-value services.”

…Ms Ridout is calling on governments, state and federal, to go into deficit, if necessary, to fund the infrastructure or to find ways to harness the savings sitting in superannuation accounts.

“That capital will end up overseas if we don’t create the opportunities here to invest in long term, high yielding projects,” Ms Ridout said.

Better education was also “absolutely 101” to our future, she said.

“Every year the skill content of jobs is rising and if you haven’t got those skills you’re going to get marginalised in an economy like Australia’s.”

She warned securing the next 10 years of income growth would be more difficult than the last 10.

“How we make the transition to this more diversified growth model is a big big issue for Australia and just because we have had 21 years of growth doesn’t mean it happens automatically. It doesn’t.”

Dr Edwards said he remained hopeful Australians could successfully transition from a commodities boom to a high skills boom. “It won’t be easy, but it can be done. The last twenty five years have shown us that.”

Crikey, there you have it. The RBA knows where in for it and that pro-cyclical surplus drives must end. The central bank has just spanked the backsides of both major political parties and thrown its credibility behind a new space for the body politic to debate counter-cyclical deficit spending. This is an economically sound approach that I’ve been arguing for for six months.

It is interesting that the Courier-Mail was chosen for the second article, suggesting rather strongly that the message was significantly for the Newman and other state Liberal governments hell-bent on surpluses.

But there’s no shirking it, this is a violation of RBA protocol and, whether passive or not, a huge lift for the Gillard government.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. She may be referring to the government who are ‘passively’ crouching behind the RBA.

    The whole philosophy of Swan seems to be ‘my job is to make some budget cuts but the real work on the economy must be by the RBA.’

    One would be forgiven for thinking that Fed Govt has no responsibility for:

    * The flows of capital into the $AUS

    * The rate at which we extract and export OUR mineral wealth

    * The balance between consumption and saving

    *. The reliance on the saving habits of foreigners

    *. The incentives encouraging unproductive investment.

    *. Implement some of the Henry Tax review recommendations

    The list goes on.

    Active Economic management is too hard for this govt so they hide behind the RBA.

    Sadly, I think Abbott skipped the same classes at Uni while working towards student union domination.

    • In principle it sounds simple.

      Counter balance a deficiency in demand from the private sector with extra demand from the public sector.

      A couple of complications which are too often forgotten.

      1. There are good reasons sources of private demand are deficient. People are choosing not to spend – not that they don’t want to spend!

      It may partly be the result of a credit bubble but perhaps people have lost some of the desire for the ‘junk’ they previously considered essential and which formed part of ‘demand’.

      2. Assuming that alternate sources of private demand to fill the ‘hole’ will arise it may take some time. People need to develop new ideas on what they need and businesses need to be created to supply those needs.

      3. If the private sector lacks reasons/confidence to ‘demand’ stuff why should we have confidence that the public sector will be able to make better choices when they try to fill the demand hole?

      Certainly there are public works that are required and can be done competently by a government but they must demonstrate the justification and display competence in execution.

      Recent history gives plenty of cause for concern.

      In my view the best people in a position to generate demand and determine what they need, their households need and the community needs are precisely that “the people”

      By all means undertake public works but value for money is critical. Putting public money into the pockets of mates, shysters, PPP merchants, bankers etc is ‘demand’ that the public are quite capable of doing themselves.

      If it is ‘demand’ you want, simply give money to the people and let them choose what they want to spend it on.

      If they want to save it – good.

      If they want to spend it – good.

      The idea that we need the public sector to fill ‘demand holes’ is a relic of our paternalistic past when the people could not be trusted to know what to do with their money.

      Even worse is the idea that if the ‘people’ are to spend they must borrow the money from a bank first.

      If you really want some ‘demand’ print some money and cut taxes and only reverse course when inflation starts to rise.

      But with 5% unemployment and decent GDP growth aren’t we just getting too far ahead of ourselves anyway??

      • People make very bad decisions sometimes. Five years of so of negative savings rates are just one example.

        Governments, like people can make very good or bad decisions.

        But some things can only be done by governments and infrastructure and a social program are tow of them.

        Infrastructure spending should surely be done when there is a lack of private spending, highish unemployment, high unutilised capacity and cheap interest rates. Why would you want to do it any other time?

        So all levels of government ought to have a program of shovel ready, Australian labour intensive (looking at the whole supply chain) infrastructure projects at all times so that they can absorb unemployment as the mining/processing investment boom washes off, whenever that starts to happen.

        One which is possibly easiest to ramp up if unemployment grows among construction and trades is increasingly massive parallel roll out of the NBN. Number of rollout locations can be increased as unemployment grows, if it does. During that time the next few projects could move to commencement of construction.

        • Yes – A program of well thought through shovel ready projects is a good idea.

          The sort of things that are clearly useful but not urgent and can be done when the next convenient opportunity (down turn) arises.

          But it must always be kept in mind – is the public sector spending money that could just as easily be spent by the taxpayer if they were given it ( or not taxed it in the first place).

          There is a view about that a govt spending money ( usually borrowed) to ‘stimulate demand’ is inherently good and the logical alternative to austerity.

          I am suggesting that there may be alternatives.

          After all, the historic objection to printing money is inflation but as we keep hearing in a period of deficient demand inflation may take some time to develop (and presumably at that point we will have growth) and we have interest rates and taxes that can respond to that situation.

          The real problem with QE may simply be that using the banking system and their debt ledgers is going about it the wrong way.

          But as I said initially unemployment remains low and the need for action is not yet clear.

  2. Seems to me Australian regulators need to answer the following question before they can proceed.

    Is Australia a systemically important financial power “punching above its weight”
    OR
    a piss-ant economy being blatantly exploited by other powerful central banks?

    I’ve got a feeling our recent advancement to the security council has gone to everyone’s heads. The RBA is loosing sight that its primary purpose is to support the Aussie economy not to generate windfall gains for foreigners.

    • I think she is acknowledging the War of Central Banks – activity-maintaining devaluations, currency printing and commercial bank subsidy.

      I’d rather see unorthodox interventions to sterilize foreign CB impacts than ZIRP. Climbing out of the ZIRP hole will stifle those who indulged for decades.

      We all have plasma tv’s and cheap imported cars. Time to take the $A down a little as commodity prices recede. Exporters and import-competing industry might even show a little life.

      Miners would love it, though they will still resist tax reform.

      • War of Central Banks which the main country responsible for this is China. Until they stop devaluing their currency it will never change.

      • If the RBA is ready for structural changes then I’d look no further then Warren Buffets advice and implement some form of import quota certificates which are directly linked to manufactured, agricultural and service goods exports. The ratios don’t need to be one for one, lets start at some manageable ratio like 10 for 1. BTW mining exports would not qualify.

        This move needs to be accompanied by some direct intervention to reduce “pseudo technical” and regulatory barriers within the imported sectors, otherwise imported inflation will result. If this move is properly implemented then it will increase our import export efficiency and the global integration of Australian industries. If needed I’d also support the development of “Special economic zones” within Australia, enjoying both tax and regulatory relief.

        • China Bob. There must be radical change but import quotas are a problem.

          We had Import Quotas back in the 60’s 70’s and 80’s. It was a disaster. Baiscally efficient industries trying to export got screwed to death.. Industries that hid behind the quotas were the ‘pacesetters’ in wages etc as the costs could just basically be passed on.
          In the end those holding quotas made fortunes just selling the rights to import.

          The place to start is in the flow of speculative capital….tax it to death. Then I’d work down the sort of list that pfh posted above. I’d add as a high priority reform of
          1. Workplace relations….however this is too late. There is a whole new exaggerated sense of entitlement been embedded in the Australian population
          2. WHS regulations which seem to have become the new playground for the unions and government to destroy small business.
          3.Total reform of the education system.

          Of course we had better be prepared for a an ocean of inflation in all, this and decide how we are going to deal with it.

          Frankly none of it will happen

          • Agreed, quotas alone are problematic so they must be accompanied by an expansion and simplification of the Import process. If implemented properly this move will favor the establishment of new importers. The first step is to avoid the issuance of certificates for existing import quotas, because this always favors the existing importer and cements them in place. By contrast a free market for export certificates favors the new entrant, which indirectly expands the import base (helping to control the imported inflation a quota system creates).

            I know that I’m naive to expect this export certificate system to develop in such a Utopian fashion but what’s the alternative, and is it any less naive?

            The system I’ve outlined will be gamed from day one, all Aussie importers will rediscover the accounting tricks of transfer pricing, huge added value will be ascribed to relatively trivial tasks performed locally (classic example is local Aussie labor changing steel wheels (as imported) to alloy wheels, doubles the value of the car) thereby halving the number of export certificates required.

            I accept that I’m naive to expect this to import certificate system to function BUT I’d counter that anyone expecting export oriented manufacturers to produce new products in Australia, given the existing environment, has moved well beyond the naive.

          • Workplace relations….however this is too late. There is a whole new exaggerated sense of entitlement been embedded in the Australian population

            What are these entitlements you keep going on abuot ? The entitlement to get 4 weeks of leave and public holidays ? The entitlement of penalty rates for working more than 40 hours in a week ? The entitlement not to be fired if you’re a women and get pregnant ?

          • You an astroturfer from the Unions?

            You obviously don’t employ anyone or have your home at risk while you are doing so.

            The answer to your question is NO!!!! But that doesn’t matter to you. You’re just following the old Union ads re work choices claiming all this crap.

            No I’m talking about good people losing jobs, at the behest of union organisers, because they resolve disputes
            before they got out of hand.
            I’m talking about stupid stuff like …Ohhh lifting a carton containing 10 kilos is tooooo heavy and dangerous so we halve the cartons to 5 kilos and charge twice as much for handling.
            I’m talking about stupid exaggerated minor problems turned into too good to miss oppurtunities for the exercise of union power
            I’m talking about plain bloody thuggery to intimidate workers and small business people.

            ]I’m talking about situations where all teh staff want you to get rid of someone because they are lazy, not pulling their weight and causing extra burden of others….but NOTHING can be done about them.

            I’m talking about where this BS happens then you get an unfair dismissal claim or a bullying claim. The complainant’s costs are covered by the Government. i have to pay a lawyer which will cost me minimum 30K, So good people have to plead guilty to some stup[id accusation or other just so they are not bankrupted by bloody minded unions and government employees who take no responsibility for anything.

            Could i give actual examples of all these things? You bloody bet I can!! Am I going to? No. I need my home and my employees need their jobs!

            You sit there with your comfortable salary doing scew all and certainly nothing that produces anything and you criticise people like me who are out here acutally trying to do something…why don’t you give it a go out here in SME world??????

            I’m talking about a systemic problem where people show up for work and do buggar all while expecting full pay.

            I’m fortunate. I have great staff and a great workplace.
            But this country is essentially screwed as long as the mentality of ripping off the boss as much as possible is encouraged and indeed put into legislation

          • Could i give actual examples of all these things?

            Simply identifying the offending bits of legislation rather than ranting would be a reasonable start.

            I’ve seen way too many people moved on to believe it’s particularly hard to do it to someone who is genuinely not performing their duties. Especially at the low end of the job spectrum – I can’t think of any bludgers/incompetents I’ve ever worked with (who retained their job) that didn’t have a position of manager or above.

  3. Ridout (& John Edwards) does a Sarah Palin and goes rogue? Check this out:

    Reserve Bank board members say the road to riches is more infrastructure spending

    She called on state and federal governments to go into deficit to fund the infrastructure.

    Dr Edwards said the National Broadband Network was the most important piece of infrastructure on the table.

    That should result in a few furrowed eyebrows and puckered lips at the Treasury and opp benches! I thought RBA telling the Exec branch how to run their fiscal policy was a big taboo.

      • Gosh, this further reporting enlarges the matter. Keynes lives! New train lines to boost land values in advantaged areas, Gonsky to lift the children of the poor and NBN to shrink distance.

        How interesting that the bureaucracy will act to fill a political vacuum.

          • Congested roads in cities are a major sign that we’re not doing well enough

            They’re a major sign that fuel is still cheap. It won’t be in 10 years, according to many estimates (including those by the US military and several EU governments). Can you imagine all the deserted new highways, monolithic testimonies to lack of foresight? 😐

          • Don’t worry R2M, we’re taking this threat very seriously and rapidly adapting to it – all Australians will have 100% electric cars recharged by 100% renewal energy sources by then.

            The NBN will mean I don’t even have to commute to work anymore, but when I do need to travel, I personally will be riding an emissions-neutral flying unicorn to work. Nothing to worry about!

          • Can you imagine all the deserted new highways, monolithic testimonies to lack of foresight?

            They’ll be filled with solar-PV-charged electric cars.

          • Bikes, more likely, Dr Smith

            Why ? Even today, replacing probably 3/4 of the vehicles on the road with electric equivalents wouldn’t be unrealistic.

          • DrSmith, although electric-car battery costs are expected to fall sharply over the coming decade, they are unlikely to drop enough to spark widespread adoption of fully electric vehicles without a major breakthrough in battery technology. Meanwhile electric bikes are becoming more and more popular!

            I think you’ll find there are some fairly significant cultural barriers to widespread bike adoption. After all, scooters and motorbikes are dramatically cheaper than cars to own and run today, yet haven’t displaced them.

          • “Congested roads in cities are a major sign that we’re not doing well enough”

            Congested cities are a major sign that we have a structurally screwed up economy. Our cities produce nothing. In the nature of urbanisation service industries retail etc create a centirfied structure.
            Production tends to create a decntralised structure.

            Our definition of building infrastructure that involves building more roads to sustain the unsustainable is just plain lunacy.

  4. No doubt this will help provide the cover for Swan to open up the purse strings in an election year.

    I’m waiting for the big (read completely wasteful)Govt spending plans, funded by Debt, that the RBA is “sanctioning”.

  5. Oh, gawd. Please, no more building sheds at primary schools.
    We need more incentives for all those latent SME’s-in-waiting to come forth and build their businesses. And/or reduce/eliminate business costs that are strangling the existing ones.

    PS: Impressive edit in such a short time, well done H&H.

    • Swanee now has a filing cabinet full of ‘shovel-ready projects’ you will struggle to disapprove of. SME’s don’t need incentives, they need the removal of dis-incentives – ie Ken Henry’s reforms to remove 125 very bad taxes. Our animal spirits are alive and well.

    • All those sheds were built by small to medium enterprises, from builders, fabricators, designers, architects etc – there is no better, more direct, multiplying and exact form of stimulus with least waste than what was carried out – that was specifically why Swan was praised so highly around the world.

      Large infrastructure is good for major development companies, shareholders and foreigners with huge wads of fat laden all over it.

        • that was specifically why Swan was praised so highly around the world.

          That’s because
          1. we have a view that we can just flog assets to cover the debts this sort of stimulus creates in the external account.

          2. Economic thinking in the western world seems to be all emanating from the US who think that CAD’s don’t matter because they are the Reserve currency and that they and their currency will rule forever no matter what.

  6. GunnamattaMEMBER

    Is Heather lobbying to become head of the ACTU?

    There is a woman who wouldnt say no to some industry policy

    Maybe we can start to hold out hope for some innovative spending programs being put up in the election runup. Ones that generate some sort of lasting economic benefit.

  7. School sheds. Geezus. I agree with your sme notion, but what is wrong with long overdue improvements to infrastructure for our kids. Stop listening to the banshees.

    • Don’t get me wrong, infrastructure is a great idea. I struggle through the truck-congested streets of inner western Melbourne every day. My (poorly written) post was a plug for those SME’s that have the potential to deliver income well after their initial funding injection – delivering continuing wealth long after the final cheque for a school shed has been posted.

  8. The ONLY thing governments do well is collect revenue. AND the only thing Labor governments do well is get into deficit and waste money. Ridout & Labor = a marriage born in heaven.

    • Not according to the financial figures and historical record, but anecdotally when looking through partisan tainted bias you could be right.

    • TheRedEconomistMEMBER

      douglasp

      Straight from the Alan Jones/Andrew Bolt tip sheet.

      Time to think for yourself.

      Turn off the Talkback Radio.

      Put down the Telegraph/Herald Sun.

    • reusachtigeMEMBER

      Hopefully this will encourage government to allow in more migrants to help boost our economy.

      • “Hopefully this will encourage government to allow in more migrants to help boost our economy.”

        More hairdressers?
        Migrants just move to the edges and various parts of our big cities. Nothing more is produced. We have a few more restaurants and coffee shops and more houses to build and fill with imported junk.
        All that happens is that the CAD rises to allow for the extra importing.

  9. Hi H&H

    Here is the thing that I am having trouble working out, (I work in infrastructure, in the private sector, NSW)

    I’m going to use a NSW based experience here, so as a first time poster forgive me if the case is different in other states

    Major Infrastructure ( eg roads / rail / ports) are expensive in australia, high labour, high material costs, and high quality demands, compared to other western economies. Thats a given these days so we’ll leave that argument for another day.

    http://www.smh.com.au/nsw/we-wanted-to-make-sure-we-got-it-right-new-rail-line-opens–three-years-late-20130121-2d279.html

    Often when these jobs are priced the overall costs are reduced during ‘value engineering’ at the start of the project to get federal / state cabinet approval, only to blow out towards the end once the project has been commited politically. see above

    The problem I see is where is the funding for this drive by the RBA going to come from? when a mega project is valued at 10-15 billion here in NSW:

    http://www.theaustralian.com.au/news/billion-paves-a-new-motorway/story-e6frg6n6-1226486891959

    And the state government is chipping in at 2 Billion (Lib) and the feds uncommital at this stage, The options remain are the PPP funding model…

    But with Clem 7, Cross city tunnel, BrisConnections, RiverCity Motorways, and Eastlink lessons who would touch a PPP investment of 8-13 Billion?

    The other option is for the states to go it alone with a bit of a federal kick along, But with the reduction of the stamp duty income, where are these states going to find 8-13 billion knocking around?

    and 10-15 billion is just the inital estimate….

    Am I just arguing semantics? or is the idea that infrastructure will pick up the mining boom slack fraught with danger?

    • The final sentence is absolutely what this is about. Trying to fill the approaching mining investment hole that not many seem to understand is going to be very deep.

      On your point about funding, I added a comment above about why the second article was given to the Courier-Mail. Clearly that’s directed at turning back state governments seeking surpluses.

      The answer will lie somewhere in the middle, with contributions from state and Federal I expect.

      No doubt about the dynamics of tender and blowout but that’s life when you need to develerage your private sector.

      • In defence of Can-Do, he needs to get the budget in shape before Queensland can afford more debt. Interest payments on existing debt are already killing them.

        • That’s the issue I see Alex. Most states are carrying heavy debt loads that have largely produced nothing other than outsized bureaucracies. Their own cost and compliance regimens are working against them. Maybe the states need to issue Infrastructure Bonds linked to specific projects to aid fund raising more maybe putting our super to use. In the current climate, I can’t see how states can borrow the money required to match a Federal grant. The Feds are fine, they’re coming off a low debt base. The only thing we lack Federally is a leader with vision. The states unproductive debt burden is too great at the moment.

    • You are right. Most of infra spending promise is just brochureware to keep the plebs excited until the next elections. They will waste millions of taxpayers $$s on “feasibility” studies which will be quietly buried after the elections.

      In the mean time, the private brochureware creators (Deloitte, BIS Shrapnel etc) are quite happy sucking at the government teat.

      PS: oh, And you missed out Lane Cove tunnel, Westpac owned Airportlink rip-off, and last but not least, Downer EDI Waratah train PPP disaster.

      • “They will waste millions of taxpayers $$s on “feasibility” studies which will be quietly buried after the elections.”

        Exactly. The Tullamarine Airport railway link and Doncaster railway line feasibility studies have been wasting millions for decades here in Melbourne.

    • GunnamattaMEMBER

      Well maybe now is the time to go with what I saw Alan Kohler propose and that is float Australian AAA rated infrastructure bonds, soak up demand for our paper and channel it straight into the infrastructure.

      Sure, making infrastcructure in Australia is ludicrously expensive, but demand for Sovereign AAA rated paper is also ludicrous, and likely to stay that way for a while – it may also take some of the sting out of the AUD.

      • Well, I for one am only the more bemused and befuddled as to the illogic of borrowing – at usury – on the backs of current and future generations of taxpayers in order to “deficit”-spend on infrastructure, when history clearly demonstrates the wisdom of having the government simply print-and-spend on infrastructure –

        http://www.webofdebt.com/articles/bankrupt-germany.php

        I applaud the rationale of govt spending on much-needed, valuable, and productivity-enhancing infrastructure under our present economic circumstances.

        But to increase our public debt-at-usury burden in order to do it is effing nuts … short-sighted, ignorant, and simply plays into the hands of the usurers.

        FFS.

        • Yes.

          The banking system have done a brilliant job of making themselves appear essential to a situation largely of their creation.

          Resolving the problem involves reducing the ability of the banking system to screw with the money supply – up and down.

          If the money supply needs to be pumped up we should do it directly – as per Lincoln’s greenbacks.

  10. “long term deficit spending. This is an economically sound approach that I’ve been arguing for for six months.”

    Which western economy is long term deficit spending working out well for? U.S.? Japan?

    • BB,
      I am sure there will be a train of posters who will answer your question as to why Debt and Deficit spending are to be embraced.

      It’s as if the sorry data provided here daily at MB on the US, Europe and Japanese debt debacles is somehow “over there” and can’t happen or at least effect us “here”. We are “different”.

        • You want Debt and Big spending nanny Govt to solve your problems. Problem is, running out of other peoples money to spend has it’s own unique consequences which you regularly turn a blind eye to.

          • So HnH, you are endorsing the RBA’s new approach to Central Planning?. Is this how you prefer to see the future of the Australia’s economy?

      • “Different here” just like the perma-bull housing mob lol, interesting comparison.

        I think I’ve finally realised that MB (or maybe just HnH) is as keynesian as the next economic site. There must have been plenty of hints I have missed…

        Let’s just print our way out of pain.

        • “I think I’ve finally realised that MB (or maybe just HnH) is as keynesian as the next economic site.”… etc.

          +1 .

          But, Keynesian solutions offer the “least pain” dont you know?

          • And here is the spin from PF I find quite disgusting;

            “So far you have been incorrect, it is in fact working, the interesting aspect will be how long the world will be in a low interest rate enviroment – 5 years, 25 years, who knows but it will probably be a long long time.”

            All that is working in this low IR environment is encourageing MORE DEBT to be loaded onto Taxpayers. Ther must be low IR’s (artificially induced by CB’s printing money to support Bonds) because the outstanding Debs are far too high to service at anything but close to zero IR’s. This the very situation PF you are advocating marching Australia into. It’s just shameful and craven spruik for your RE business. This is parasite activity at it’s best.

            Who says that Debt and spending is working? The near 50% unemployed youth in large parts of Europe? Or, the 40+ Million on food stamps in the USA , now drowning in Debt? Working my ar$e.

        • Jeez, You guys are hopeless. I’m not Keynesian, Austrian, Monetarist, gold-bug or anything else.

          I’m a combination of everything as any decent intellect should be.

          You tell me guys, with the big growth hole coming from falling mining investment, why is a pro-cyclical fiscal policy a good idea?

          Have none of you read DE’s world-leading stuff on Europe? If you want an Austrian-style cleansing recession then OWN IT.

          I can see some upsides to it in theory but think it’s ultimately stupid because you’ll shrink productive capacity more than the debt you want to eliminate.

          In short, you’ll grow the debt.

          • Becuase there are VERY few Democracies who have managed to come close to controlling Debt and their deficit spending, once it is openly and enthusiastically embraced. It is akin to giving Govts an unlimited credit card funded by Taxpayers, with all the terrible ultimate consequences.

            The risk to Australia’s prosperous long term future would be enormous. Ridout and the RBA should be utterly ashamed of themselves for this craven endorsement. They are signalling that Europe’s Debt disasters would be “OK” here , because we are different.

          • I didn’t say pro-cyclical fiscal policy is a good idea and I do think we are in a catch 22 situation where the opportunity to prepare for the hard times with large surpluses has been wasted… not saying that we are in a situation with an easy answer, but I don’t think “long term” deficits is the answer. That is more likely to trap us in a similar route as other western economies which have taken the same route. It’s simply drawing out the pain over a longer time period and introducing new risks. If I thought the government could introduce a short term plan to boost deficit spending that could be stopped in a couple of years regardless of whether it has been working or not then I would be all for it, but more likely it would lead to the same trap that most (all?) others in the past have fallen into where the spending is not reversed and the deficits get bigger and bigger and bigger, until…?

          • If you want an Austrian-style cleansing recession then OWN IT.

            With future growth questionable (see all my references to degrowth lately, including links to speakers from the 2012 Degrowth Conference and people like Heinberg at Post Carbon Institute speaking about the delusion of endless growth), a cleansing now is probably preferable.

            With new growth increasingly unlikely, it’s time to fasten our belts.
            But I think this is a mental step HnH has not yet taken, or is not ready for.

            This is not like other deep global recessions. Don’t make the mistakes Taleb talks about.

          • Happy to take that criticism BB. I mean deficit spending so long as it is needed to sustain growth in the face of private sector develeraging.

            I am no fan of deficits in normal times and know there are quite clear limits to the deficits that can be run now given the ratings downgrades that will threaten the government and then banks.

            R2M, this discussion is about surplus politics not limits to growth economics.

          • GSM – I assume that you understand that the only way that our government can run a surplus is by taking money off it’s citizens via extra taxes, which certainly guarantees a recession in the current global enviroment. That would mean less tax income and even higher tax rates.

            Do you think these things through?

          • That’s a laugh Pete. You’ve been arguing a global recovery for ages, little did we know there was a hidden disclaimer about it being subject to massive life support. It isn’t working and will continue to fail until we learn to live within our means. Someone has to pay.

          • jimbo my opinion is based on what is happening, and it is happening isn’t it.

            I’m sorry that like GSM you don’t know how the monetary system works and have trouble fathoming out how the economy will be effected – but that’s fine none of our views count – what will happen will happen, we can’t affect USA or EU policies.

            Could they stuff it up? Absolutely, but they could just as easily get it right.

            So far you have been incorrect, it is in fact working, the interesting aspect will be how long the world will be in a low interest rate enviroment – 5 years, 25 years, who knows but it will probably be a long long time.

            How that rebalances the economy, how that affects us as individuals, and what the risks are is something that should be debated openly so that people can appreciate their own positions, options, and what plans they should make for their future.

            It’s an important argument jimbo, please don’t trivialise it.

          • “I’m sorry that like GSM you don’t know how the monetary system”

            Peter, the problem is that the debt based monetary system today is different to anytime in history where these sorts of policies have worked (for example Hellenomania’s example lower in the thread with Japan during the 1930’s).

            Can you provide a single example where a country has reached debt to GDP in excess of say 80% and then recovered via surpluses that have significantly paid down that ratio (post 1971 when US defaulted on Gold/USD convertibility)?

          • Becuase there are VERY few Democracies who have managed to come close to controlling Debt and their deficit spending, once it is openly and enthusiastically embraced. It is akin to giving Govts an unlimited credit card funded by Taxpayers, with all the terrible ultimate consequences.

            As much as I hate to admit it, GSM does have a point.

            But equally relevant is that GSM’s strenuous objections will disappear when a coalition government is sworn in. i.e. GSM is a partisan. 😉

          • The system has completely changed BB – currency is worth what someone is prepared to pay for it, it has a production based value.

            No country has really done this before, so there are no examples that either prove or disprove an outcome – we don’t know.

            Please don’t anyone mention Zimbabwe – that is not an example of anything except a politically failed state, and Germany circa post WW1 was on a gold standard, and they had none.

            Yesterdays heroes like Schiff have been completely wrong on hyperinflation, it’s hard to say, but if everyone owes a bucket load of cash to everyone then perhaps it’s a nil sum game.

            Australia has a better starting point than most, but we don’t have a diversified economy – I don’t know how each country will end up, but nevertheless this is the path and it is working better than guys like Kyle Bass expected.

            If you choose to hunker down with gold, then by all means do so.

          • Thanks Peter and I agree with you “we don’t know”.

            What we do know is that long term deficit spending hasn’t worked out well for Japan (whose policies come in a post 1971 monetary system), although different economy & demographics to us. QE hasn’t got the US out of it’s funk in 5 years trying. I’m sure you might argue that they are getting there, but the launch of the most aggressive QE programs to date would suggest otherwise.

            I don’t know how this will all play out. Neither does anyone, but I think that my original comment stands… we can’t refer to long term deficit spending as an “economically sound approach”, when we don’t yet know the final outcome of those who have come before us.

          • Peter

            “So far you have been incorrect, it is in fact working,”

            Peter you are fundamentalkly incorrect. It is in fact not working. We are just using the same old methods that brought us to the crisis in the first place. more and more and more debt is NOT the answer. Eventually we will run out of assets to sell to finance it all. Even further the world cannot support the extravagance that artificial consumption based on unlimited debt involves.

            I think you should be very careful patronisingly telling other people they don’t understand how trhe monetary system works. Your esteemed intellectual leader uses this as a technique so he doesn’t have to argue logically.

            I suppose who gives a RA. We can keep running deficits and running up debts, selling off assets, for a while longer….
            We’ll live well…screw those who are yet to come!

          • flawse you are right, I shouldn’t have been patronising, I apologise.

            The CB’s will do it anyway though. I don’t know what the future risks will be as we come out of it, maybe some countries will handle it well and others not so well – none of us know.

            But they are going to do it and we all need to have a long hard think about how it will affect each of us. We can’t argue against change, we can only prepare for it.

          • PF,

            So you base your case for expanded deficits , higher taxes and Debts on this?

            “Could they stuff it up? Absolutely, but they could just as easily get it right.”

            Please name 1, just 1 prediction or financial obligation in the last 5 years or so that Treasury and Govt have NOT stuffed up?

            And you say I don’t know how the economy works? You on the other hand spruik here day after day for more Govt assistance to bail out your RE business.You do have a hide I’ll say that for you.

            Go take a think how the economy really works, not the methodology your RE Institutes would have it distorted for their/your means.

          • Mav,

            “But equally relevant is that GSM’s strenuous objections will disappear when a coalition government is sworn in. i.e. GSM is a partisan.”

            Your crystal ball again eh? Putting unspoken words into my mouth? We shall see then. If you think that I would not criticise broken promises and profligate spending from the Coalition then you are simply dead wrong – but that’s to be seen.

            Btw, they are not elected yet with a long ways to go. Perhaps best to focus on those who currently have the Treasury? 😉

          • If you think that I would not criticise broken promises and profligate spending from the Coalition then you are simply dead wrong – but that’s to be seen.

            Well you haven’t yet, despite their ~10 of the last ~15 years worth of Government.

          • Actually I like Bill Gross and do believe in national surpluses, as you know and as I’ve written extensively for ten years here and at The Diplomat. I’m one of the very few commentators in Australia that has done so.

            What I dislike is the way you constantly misrepresent my views.

            Since you don’t even know an ally when you see one, make your points all you like but I’m asking you to leave me out of it.

    • The US economy is reviving due to deficit spending, while Japan is about to embark on some of the most aggressive in decades – the original deficit spend in Japan in the 1930’s saw them become the powerhouse they are today (third largest on earth).

      The US deficit spend was on military and ill conceived wars, had that deficit been spent on productive economic areas then yes – they would be more than just the most powerful economy on earth by a factor of ten.

      What a thing to write – “US, Japan” two of the most powerful economies on earth.

      Perhaps we should look at Algeria or Haiti for low deficit spending ? 3% or 4% of GDP ? Sounds great.

      • Hellenomania, as above (in case you missed it): Can you provide a single example where a country has reached debt to GDP in excess of say 80% and then recovered via surpluses that have significantly paid down that ratio (post 1971 when US defaulted on Gold/USD convertibility)?

        • There has been unprecendeted world peace and economic boom since the 1970’s due to the oil agreements – nor has there been any debt shock through financial collusion and fraud – so your highly specific period is entirely useless.

          That said –

          US had a debt well over 100% in 1950 – and recovered spectacularly due to the governments massive investment in infrastructure and public employment programs.

          • Economic boom due to oil agreements? So the economic growth had nothing to do with a multi-decade long debt bubble that we are sitting at the peak of?

            It is a highly specific time period, but with highly specific relevance. The change to the global monetary system in 1971 was the enabler for unprecedented and uncapped growth in credit.

          • “US had a debt well over 100% in 1950 – and recovered spectacularly”

            There was a gold standard In the US then maintaining a strong currency. As well as a little thing called WW2 just finished , wherein pretty much all of the world’s manufacturing ccapacity outside the US was in rubble. The Soviet economy was a basket case. The USD became the world’s reserve by default. Oh yeah, it was the Debt that made the US great.

          • Oh yeah, it was the Debt that made the US great.

            No-one is saying it was the debt, they are saying it was the things that debt bought.

            I’m kind of curious, given your apparent attitude towards debt, have you never taken out a loan in your entire life ? Personal ? Mortgage ? Business ? Credit Card ?

    • As Bill White suggests, an all of the above option is the best approach – some deficit spending, debt monetization(esp in a currency war) and even debt forgiveness is needed.

      Monetary policy is over-rated. the ZH article below shows how ineffective Helicoptor Ben has been in rescuing the real economy (unless his hidden purpose was only to rescue bank balance sheets, real economy be damned).

      http://www.zerohedge.com/news/2012-12-26/record-2-trillion-deposits-over-loans-feds-indirect-market-propping-pathway-exposed

        • Yeah, I need to give some hope to the little landlords who think the gubmint and the RBA won’t let their precious property market go down (as against not letting the banks go down). 🙂

      • The funny thing is that Helicopter Ben has not even left the tarmac.

        Well to be accurate he has circled the banking system and dropped a ton of cash but not much went far because people are sick of debt.

        If he actually flew over suburbia and dropped the fresh cash down chimneys there may be a different result or dropped it into the hands of the public works departments of cities and school districts.

        People freak at the thought of printing money but it may be the best way of flushing the banking systems debt tumours out of the economy.

        Needless to say once debt is flushed – the banks must be chained down and locked like the Gimp in a cellar.

    • JPN and USA are trying to re-inflate popped asset bubbles in unproductive assets.

      Borrowing long term debt at low rates to fund productive infrastructure isn’t a problem. It will pay for itself in the long term and then some. The USA has had massive deficits before, BUT the money was used to fund roads, railways, factories, farms etc. Ultimately these investments produced long term wealth probably in excess of hundreds of times of the debt, and the US became the largest economy in history.

      The real problem is that govts. around the world are borrowing to recap corporate balance sheets so holders of debt can avoid taking haircuts, all at the expense of the poor and middle class who’s wealth is being burnt to a cinder. This is all being done in the hopes that when these corporations eventually deploy the cash it will be in productive assets and lift the economy. Why not just cut out the middle man?

      The USA is lucky in that the massive shale boom over there coupled with their deflated dollar may eventually restart their manufacturing, with positive flow on effects to other sectors.

  11. Sounds like the RBA has moved on from a housing led recovery.

    The RBA could print and use the printing to fund infrastructure projects.

    • GunnamattaMEMBER

      Yeah thats what I reckon. That is certainly an RBA member looking for the exit from housing construction recovery meme.

      At the moment I am increasingly drifting towards the view that with every other CB in the world going printing gangbusters the RBAs orthodox monetary policy stance is reaching the end of its viability.

      I reckon the RBA and govt really should look at the dedicated infrastructure bonds and soak up some global demand and channel the funds straight into serious infrastructure (which provides a long term productivity stimulus) and combine that with industry policy.

  12. “and thrown its credibility behind a new space for the body politic to debate long term deficit spending. ”

    That sounds a lot like a victory speech by you HnH 😉

      • I have put my case before, you just dont agree with it. I am for LESS Govt spending and much more PRO Business policy before Govt leaps in with grand Debt spending plans. There is enormous potential in the Australian economy to be exploited with sensible tax, Govt spending and regulatory overhauls.

        That is not austerity btw. I just consider it commonsense. If that gets me banned then so be it.

      • wtf or be banned? If having a different opinion to you and taking some time to respond during a business day when I’m at work is reason enough to be banned from this site then so be it.

      • I see my post in reply was censored. That doesn’t alter the truth of it. Why don’t you ban all of us who are advocating some attention to the overall debt problems and the application of a bit of common sense.

        Then all of you on the ‘all government is beautiful as long as it is Left’ side can sit around in here and congratulate each other on how clever you are.

    • Anyone arguing against deficit spending has absolutely no concept of what the role of government is.

      The IMF and ECB has come out stated EXCPLICITLY that they were entirely wrong on austerity, while every single central bank around the world is trying desperately to use deficit spending to alleviate the financial woes of their failing economies – from USA, Japan, UK – everywhere.

      The only problem is that the deficits are being transferred to debt repayments and financial institutions instead of into productive economic activity such as green infrastructure, smart grids and in principal economically productive means.

      You should thank your lucky stars that Australia still has a relatively egalitarian and socialist bent to it, and more importantly a Labor government, in order to direct deficit spending to where it will help the economy most by injecting it into the wider economically productive community as opposed to the conservative approach which has been happening in Europe and handing it to corporates and financial institutions which has failed the economy.

      • Deficit spending is a con. Can kicking (deficit spending) delays and amplifies the pain – it is a short term solution that gives the keys of our country to bankers to repossess when we can’t pay our debt – good bye future generations, good bye Australian good life.

        Simple solution
        1. Issue debt free money – put an end to debt based money. Take away money creation from the private banks (Big Four)
        2. Abolish the RBA – they created our problems and continue to do so with easy and cheap money whilst conveniently ignoring private debt growth which enrich their private banking masters
        3. Make it illegal for governments to borrow money and commit future generations to debt without them having a say

        Debt is always popular in the evil system we currently have. The government spends without any form of personal consideration and the bankers lend knowing that they can extract wealth from our economy via interest without doing anything.

        Deficit and surplus spending are distractions. The answer to a debt bubble is not more debt.

        • Definitely agree, governments should be constitutionally required to balance budgets in all cases other than all out war requiring the mobilisation of the entire economy.

          Defecit spending just makes economic problems worse as it always has to be paid back eventually, through growth killing taxes or wealth killing inflation.

          • “LOL.. that isn’t the argument Mirage makes. But glad you agree with him.”

            Really?

            — 3. Make it illegal for governments to borrow money and commit future generations to debt without them having a say

            — “Deficit spending is a con. Can kicking (deficit spending) delays and amplifies the pain – it is a short term solution that gives the keys of our country to bankers to repossess when we can’t pay our debt”

            LOL indeed…

          • Really?

            To get to #3, you have to go past #1:

            “1. Issue debt free money – put an end to debt based money. Take away money creation from the private banks (Big Four)”

            Like Mav, I am glad you agree.

        • “To get to #3, you have to go past #1”
          Actually I’m not opposed to certain limits on fractional reserve banking.
          Although this is actually the one part of the libertarian view I tend to disagree with, that being, bring back the gold standard, which is the ultimate end of this opinion.

          And no, to get to three you don’t need to go past number one. You can easily have fractional reserve banking and defecit free government.

      • “Anyone arguing against deficit spending has absolutely no concept of what the role of government is.”

        Wrong wrong wrong. The exact opposite is true. If you argue for deficit spending to ‘alleviate’ downturns you truly have aboslutely no idea what the role of governments are, nor do you have any idea what government can actually do or where the money they use to ‘stimulate’ comes from. Actually, the following sentence is almost laughable:

        “from USA, Japan, UK – everywhere”

        And look where it’s got them? Absolultely nowhere, in fact, it’s made the problems even worse, because now they have weak economies AND massive government debts. Just because a bunch of people are doing something, doesn’t mean it’s the correct course of action.
        “instead of into productive economic activity such as green infrastructure, smart grids and in principal economically productive means.”

        Oh goodness, actually, most defecits are being caused by welfare payments and there is a ton of money going into ‘green’ nonsense, every cent of it wasted.
        “You should thank your lucky stars that Australia still has a relatively egalitarian and socialist bent to it…as opposed to the conservative approach which has been happening in Europe”

        Hahaha, I actually laughed when I read that. The ‘socialist’ Australia compared to the ‘conservative’ Europe. Honestly, really? Where do you get your news? Green left weekly? Talk about complete and utter nonsense. God help us if we become as socialist as Europe.

        • and there is a ton of money going into ‘green’ nonsense, every cent of it wasted.

          “The scale of denial is breathtaking.” –Jerry Mander

        • The United States social security is self funded for over fifty years – the deficit has occurred from UNFUNDED tax cuts and wars which have dipped into the social security war chest and depleted it.

          You need to do some “learnin”.

          • Ah, I see it’s “make things up to suit an agenda” day again.

            Have you even looked at the US government expenditure ever? Let me guess, you are just regurgitating what some leftist blog/news site told you right?

            – Total cost of all wars over their life- $1.2T (one years defecit now)

            – Tax cuts actually saw revenue from the highest bracket INCREASE (google the Laffer curve)

            The biggest expenditure cost on the US federal budget? Welfare, followed by healthcare. Both of which have been increased dramatically in the last 5 years. In fact, if you count unfunded government pensions on the balance sheet the debt is more like $70T (slightly more than the ‘official’ $16T).

            Someone certainly does need to do some ‘learnin’.

          • “The second Iraq war cost $3 trillion”

            Wrong, $1.2T is the number for BOTH wars.

            The estimates of “$3T” are what it ‘could’ cost ‘maybe’ if they put in a bunch of assumptions and estimates and things that may or may not be correct. In direct cost to the government bottom line, as in the cost that can actually be measured, is what I have already stated.

          • False.

            The direct cost to the governments bottom line includes payments to veterans of the war,including disability, pensions, medical bills, etc.

            This does not include opportunity cost, reconstruction, aid etc which is all very, very accountable.

            Here is a very conservative estimate from Reuters

            http://www.reuters.com/article/2011/06/29/us-usa-war-idUSTRE75S25320110629

            Here are more on the true cost of the Iraq war –

            Nobel Prize winning Economist – iraq war to cost $3 trillion

            http://www.guardian.co.uk/world/2008/feb/28/iraq.afghanistan

            Washington post

            http://www.washingtonpost.com/wp-dyn/content/article/2010/09/03/AR2010090302200.html

            Etc, etc…

            http://www.vanityfair.com/politics/features/2008/04/stiglitz200804

          • Hellenomania,

            All you have done is provide links to left leaning News website’s. This is evidence of nothing.

            http://usgovinfo.about.com/library/weekly/aairaqwarcost.htm

            Direct from the US congressional budget office $9b per month. So about $1.4T since it started (so I was a little wrong, meh).

            Like I said, the studies those news (left leaning) sources use make a whole bunch of assumptions. You could always say that the wars actually increased security, kept Oil prices below what they could have been, etc etc… to show that the cost was even less.

            Hard numbers say it’s $1.4 over it’s life so far. Hard numbers win.

          • Your sources, as your sources ADMIT IN THEIR OWN DOCUMENTATION – leave out all expenditure related to areas such as pensions, medical and everything else highlighted in my links – these can not be ignored – the link I provided include data from the most respected Universities in the United States – including the worlds most respected Economist on the issue having published several works on the specific subject of the Iraq war ONLY –

            Your figure is akin to pricing the cost of owning and running an auto-mobile and insisting that the only cost in purchasing that car is the initial manufacturing cost and REFUSING to add dealer fees, license, registration, insurance, petrol, service, repairs, tolls and everything else directly and specifically associated with running that car – it is insidiously stupid.

            Your claim sets you up as an absolute idiot if you pursue your line of arguing – totally inept.

            You can attempt to portray every single journal, newspaper, academic, journalist, specialist on earth as a left leaning pundit in order to discredit them in your OWN EYES in order to appear to justify your argument to no one other than yourself- however that is all you are achieving – self affirmation of your own delusion – to any other person looking onto this discussion you look like a moron for attempting to utilise figures which themselves ADMIT ARE NOT WHOLE AND COMPLETE and figures which the issuers have THEMSELVES ADMIT does not cover the entire cost of the war – how utterly intellectually irresponsible can you become ?

            The mind boggles and the level of total denial of history, facts, and abrogation of all mental faculties as you strive to soothe the inner apoplexy.

      • “The IMF and ECB has come out stated EXCPLICITLY that they were entirely wrong on austerity,”

        You diodn’t actually read that IMF paper did you?

        “Anyone arguing against deficit spending has absolutely no concept of what the role of government is.”
        I think we understand government perfectly. It just happens to be different to your concept of what government ought to be. Extremist statments like that are pretty typical where people don’t want to follow the argument through.

        Hellenomania
        January 24, 2013 at 8:39 am

        Anyone arguing against deficit spending has absolutely no concept of what the role of government is.

        The IMF and ECB has come out stated EXCPLICITLY that they were entirely wrong on austerity, while every single central bank around the world is trying desperately to use deficit spending to alleviate the financial woes of their failing economies – from USA, Japan, UK – everywhere.

        The only problem is that the deficits are being transferred to debt repayments and financial institutions instead of into productive economic activity such as green infrastructure, smart grids and in principal economically productive means.

        “You should thank your lucky stars…etc

        For goodness sake none of the Govt largesse of all these years would have been possible without the amazing gift of natural resources assets that we have been prepared to sell off to fund the resultant over-consumption of all this deficit spending.

      • every single central bank around the world is trying desperately to use deficit spending to alleviate the financial woes of their failing economies – from USA, Japan, UK – everywhere.

        I recall from one of MB’s educational posts over 12 months ago that, at an international level, the books must balance. So one country’s debt must be balanced by another’s savings.
        Therefore, how can every single central bank around the world be spending into deficit?
        Wouldn’t that require the lender central banks – i.e. those that have lent money to indebted countries – to repatriate money home, i.e. call in loans?
        Or are the savers – who are funding every single central bank’s deficit – not central banks? Are they Arab sheikhs, Chinese kleptocrats, drug lords etc?

  13. General Disarray

    I don’t have a problem with some infrastructure spending when it comes to the high return projects, ports, rail, roads, etc. It would be nice if these projects were partially funded by getting rid of the middle/upper class pork.

    On the education front I think we need a huge rethink as to how we deliver classes but that’s a topic for another day.

    • ” It would be nice if these projects were partially funded by getting rid of the middle/upper class pork.”

      This, fund it by cutting middle class and corporate welfare, not by creating even MORE debt.

      • General Disarray

        It would require adults in government that decide this is so important that they make it a bipartisan issue. Probablility of that happening .00001%

        • GD It also requires a population ready to put up with a bit of limitation on its indulgence. The problem is us.

          • Well, as the famous quote goes, “democracies can only last until the majority of the population realise they can vote themselves the largesse of the treasury”. Can’t remember who said that, but they were spot on.

          • Matt

            Basically it was Socrates as reported by Plato in ‘The Republic’
            The words are not exact to your quote but Socrates had democracy pretty well pegged from the start!

  14. “Success from now on would “take substantial investment in factories, offices and mines, roads, bridges, ports, railways, broadband and, above all, in education and training.””

    Right, so the ‘solution’ to a slowing economy is, wait for it, even MORE government spending. Have we not learned from history? How is this ‘sound’ economic policy? This is pure Keynesian voodoo nonsense.

    The first three things are all the realm of the private sector anyway. Australia already spends ridiculous amounts on education and training compared to the rest of the world (for little added benefit), including massively funded tertiary education (which has done nothing but devalue it’s worth). Broadband has already been well and truly ‘invested’ in (for a massively bloated cost). Which leaves roads, bridges and ports, all to be funded by defecits, rather than cuts to idiotic green schemes, welfare, public sector bureaucracy and other waste.

    Government spending does not create prosperity. Spending is not the cause of prosperity, it is the RESULT of it. There is no connection between government spending and economic growth other than to limit it.

    Where is the talk of cutting red (and Green, especially green) tape? What about cutting taxes? De-regulating the monstrosity that is our IR system? Bringing back the incentives to invest here or set up a business that creates wealth for the nation rather than ever more debt? Where is the call to de-regulate land development restrictions?

    Where are the calls to implement policies that have actually been empirically proven to create economic growth? Absent it seems.

    Heather Ridout is nothing but a partisan hack. She is pro-ALP all the way and her ‘advice’ should be taken with that in mind at all times.

    • Come on MattR, why bother with all that sensible policy stuff. Its much easier to just borrow the money. Seems to be the MB way

      • Indeed, why think about an issue when you can simply say “economy go down? Must spend more, Keynes say so!” 😀

      • “why bother with all that sensible policy stuff. Its much easier to just borrow the money. ”

        And THAT is the heart of it. It is now, worldwide, TOO EASY to swipe the taxpayers credit card to bail out a poorly structured, Govt dominated ( as in Europe and soon the US) economy. Rather than do the hard yards of restructuring economies and waening people off Debt, swipe the Taxpayer card and kick the can.

        Freedoms and future prosperity are being confiscated from citizens as this takes place under our very noses as intrventionist Govt , under the “Progressive” banner, enslave populations into more and deeper Debt. Go for it guys. Let’s just go for it and blow a few Trillion and feel REALLY good, eh?

        Btw, I have yet to see 1 single plausible argument from the “Progressives” that measures how long and how much cost it woould be involved in paying down this prayed for Debt. Silence. I do wonder why.

        • “And THAT is the heart of it. It is now, worldwide, TOO EASY to swipe the taxpayers credit card to bail out a poorly structured, Govt dominated ( as in Europe and soon the US) economy. Rather than do the hard yards of restructuring economies and waening people off Debt, swipe the Taxpayer card and kick the can.”

          OK, so at least your are getting a bit closer to accepting responsibility for your views which, ironically, are all about taking responsibility.

          Yes, you are right, the alternative path is hard. It’s recession.

          As I’ve said, that has its appeals. But the evidence is that when you have giant private sector debt pile it also doesn’t work.

          Why? Because the rise in unemployment pushes more folks into the attitude of repairing their balance sheets. You end up with more private sector retrenchment, more unemployment and the debt burden gets bigger, not smaller.

          This is the case of Europe and although we are different in that we have our own currency, our household debt is much higher than Spain, Italy or France so we are more vulnerable to the dynamic.

          You will eventually get the reset you are after, sure, but the path forward is quite unlikely to result in higher national wealth than the alternative, which is to make appropriate public investments in productivity enhancing infrastructure to help you grow out of the debt.

          Of course that comes with the danger of pork. So what. The world is not perfect.

          • “Yes, you are right, the alternative path is hard”

            Been saying it forever, you aren’t paying attention.

            “It’s recession”….. Just your opinion. It need not necessarily be so.

            HnH, we are in fundamental disagreement. I have zero faith that Govt , especially this Govt, has any ability whatsoever to deliver the rosy Debt induced scenario you are pushing. History shows the odds are that it is almost certain to end in a disaster.

          • No, we don’t disagree. You ignore mine and everyone else’s arguments in favour of an ideological and/or political viewpoint that can’t be challenged because to you it’s self-evidently true.

            No more time wasted on you, my man.

    • Actually most of the economic prosperity throughout history has come through government spending – be it on research and development of Airlines (almost all of which were government funded research and development), infrastructure for functioning economies, navies for the British to expand and become the global super power they were, similar with the US, almost all the research and development on earth up until the late 1980’s via universities and, computers, electronics etc, etc, etc.

      The fact is business rides off the back of government funding and driving healthy economies –

      Where there is not massive government expenditure, and governments fail to spend the money required to have a healthy functioning economy you have failed states like Sierra Leone, Somalia, Yemen, Senegal – all with highly limited government intervention and classic examples of the wild west of unfettered capitalism…

      • “Actually most of the economic prosperity throughout history has come through government spending ”

        Breathtaking, truly breathtaking. In this case, why not just tax everyone 100% and let the government control the entire economy? Surely if, as you say, the government are the main source wealth growth, then if the government was simply the entire economy we’d all be staggeringly wealthy right?

        Wait a minute, haven’t they tried this before? I’m pretty sure they’ve tried this before… lol.

        “The fact is business rides off the back of government funding and driving healthy economies –”

        How is this utter nonsense even open for discussion any more? Words cannot describe just how wrong (and potentially damaging) this opinion is. Government is paid for 100% by the private sector and individuals creating goods and services. The government facilitates this by upholding the rule of law, but at the end of the day an industrial economy is built on the back on entrapaneurs and workers in the private sector.

        You then finish up with a few highly selective examples of so called ‘free-markets’ whilst ignoring the tribal, cultural, and political situations of each. Funny how you ignore examples like Hong Kong, Taiwan, Singapore and other small government economies that have absolutely boomed. Funny how you ignore the fact that 19th century Britain ruled the world when it’s government expenditure was below 10% of it’s economy.

        Funny how easy facts are to ignore when you have maxist nonsense to push isn’t it?

        • Breathtaking, truly breathtaking. In this case, why not just tax everyone 100% and let the government control the entire economy?

          Because Government spending is not the same thing as a centrally planned economy.

          Are you even capable of constructing an argument that isn’t a logical fallacy ?

          Funny how you ignore examples like Hong Kong, Taiwan, Singapore and other small government economies that have absolutely boomed.

          So oppressive Governments running countries with world-leading levels of inequality are your ideals to strive for ?

          Funny how you ignore the fact that 19th century Britain ruled the world when it’s government expenditure was below 10% of it’s economy.

          And what was quality of life like for the average person in the 19th century British Empire compared to contemporary Australia ?

          • “Because Government spending is not the same thing as a centrally planned economy.”

            OK, so let’s just tax everyone 100% and let the free-market rule. Same result, try using some basic common sense, just once. Your comment in no way invalidates my arguments, nor is my argument a ‘logical fallacy’.

            “So oppressive Governments running countries with world-leading levels of inequality are your ideals to strive for ?”

            Hong Kong and Taiwan are oppressive are they? Hong Kong was one of the freest places on Earth before China took over and is still right up there. Singapore is the quintessential nanny state yes, but in terms of economic freedom, it’s right alongside Hong Kong.

            Would you rather be twice as rich but at the bottom of a very ‘unequal’ society or twice as poor but at the top of an ‘equal’ society? Arguments about inequality are strawmen as they focus on income alone, not on lifestyle which, by all objective measures, becomes more equal the richer a society gets.

            “And what was quality of life like for the average person in the 19th century British Empire compared to contemporary Australia ?”

            Much better than it was in Asia, Africa, continental Europe or even America at the time. Now let’s try a like for like comparison: How much better is it for the poorest in Singapore than the poorest in oil rich, socialist, Venezuela?

          • OK, so let’s just tax everyone 100% and let the free-market rule.

            This is a straw man fallacy.

            Same result, try using some basic common sense, just once. Your comment in no way invalidates my arguments, nor is my argument a ‘logical fallacy’.

            Your “arguments” are, almost exclusively, logical fallacies. Generally straw men, non-sequiturs, and false dilemmas.

            Would you rather be twice as rich but at the bottom of a very ‘unequal’ society or twice as poor but at the top of an ‘equal’ society?

            This is a False Dilemma fallacy.

            Would you rather be twice as rich but at the bottom of a very ‘unequal’ society or twice as poor but at the top of an ‘equal’ society? Arguments about inequality are strawmen as they focus on income alone, not on lifestyle which, by all objective measures, becomes more equal the richer a society gets.

            You have that backwards. The more equal a society becomes, the richer it becomes. Wealth is created from the bottom up.

            How much better is it for the poorest in Singapore than the poorest in oil rich, socialist, Venezuela?

            This is another False Dilemma fallacy.

          • “This is a straw man fallacy”

            Nonsense, it’s taking the ridiculous logic that governments create wealth to it’s logical conclusion. You are claiming a strawman because you cannot provide any counter. In short, I am right, you are not.

            “Your “arguments” are, almost exclusively, logical fallacies. Generally straw men, non-sequiturs, and false dilemmas.”

            Wrong, my arguments are from logic, common sense, economic knowledge and basic reality.

            “This is a False Dilemma fallacy”

            No it’s not, you are deliberately avoiding the question because you don’t like the answer.

            “You have that backwards. The more equal a society becomes, the richer it becomes. ”

            Really? Pretty sure tribes in the Amazon are extremely ‘equal’ in terms of weath. How wealthy are they? The more ‘equality’ a government tries to enforce, the less equal and the less wealthy a society becomes.

            “This is another False Dilemma fallacy”

            This is the question you asked – “And what was quality of life like for the average person in the 19th century British Empire compared to contemporary Australia ?

            I answered, you respond by basically claiming ‘unfair’. I guess that means you have no response. Great.

        • Actually government is the representation of the public, the same public who pay taxes from their income. In other words, the government is not some externality, the government is society, the people and the economy, it is how we regulate ourselves and create a system which is constantly being improved for economic activity.

          Hong Kong is a communist country, while Singapore is the most regulated government controlled country of any western capitalist democracy out of anything you could mention – you clearly have no idea just how regulated Singapore is in order for it to be so successful. Taiwan, like South Korea and Japan are also highly regulated states which collude with stringent government oversight of the companies in order for them to prosper, these companies are treated like huge socialist institutions.

          Back to Britain – you are lambasting government intervention – and yet, the British Commonwealth – the government – was the greatest empire ever built, by GOVERNMENT generating huge wealth.

          In fact the Merchantilist agreements set out by the British government, which were contracts for private companies to operate on the governments behalf, were operating so poorly that the government had to step in and retake control of them which was the foundation for the greatest well spring of British Wealth ever generated.

          However the initial point was to demonstrate that the British almost bakrupted themselves entirely as the state spent the entire treasury on building up it’s fleet and creating the greatest navy in history (at the time) and it was this naval expenditure by the state which facilitated the great wealth of the British.

          The same can also be said of the United States and the rise of the navy and vast expenditure on it in response to the Barbary Wars, which was always resisted as costing too much both in initial expenditure and flow on as a business cost – however as it turned out this massive government expenditure and intervention turned out to be one of the greatest well springs of wealth the US ever saw.

          Similar can be said of US government expenditure on R and D into Aerospace, military hardware, military incursions etc – consider Guatemala and United Fruit ! Consider the CIA protecting the US business interests around the world, consider all the markets from Indonesia, Saudi Arabia, South America, China (Boxer / Tea wars), that government expenditure has realised for business interests.

          You don’t do much reading do you.

          • Yes, Hong Kong, not Kong Kong, was payment to Britain as a price for losing the wars of aggression against China known as the Opium Wars, or Tea Wars in the west. Hong Kong was returned to China in 1997 as it was a 100 year lease – do you know anything about history, even recent history champ ?

            The British Empire was NOT a free market mate – quite a remarkably uninformed assertion – it was an Empire primarily created under the rule of the Crown at its zenith under Queen Victoria and administered by the British government and bureaucracy – the East India company which had a charter of operation in India was failing miserably and was taken over by the government which created what is known as the RAJ.

          • Oh, deleted ….responding to myself – probably for the better, history lesson was getting mundane.

          • “Yes, Hong Kong, not Kong Kong, was payment to Britain as a price for losing the wars of aggression against China known as the Opium Wars”

            Thanks for telling me what I already knew (seeing as I lived there for 7 years), The situation around Hong Kongs creation are an irrelevant strawman. The fact is, it is the perfect example of why free-markets and limited government are good and what you push is horrible for economies.

            “The British Empire was NOT a free market mate – quite a remarkably uninformed assertion”

            You are joking right? So the fact that they were so vocally proud of the system of free-enterprise that they created was all for show? The fact that the government was a mere 10% of the economy means nothing simply because there were a couple of government companies around? Are you for real?

            You really need to educate yourself, I’m afraid you have been horribly misinformed. Facts don’t change simply because someone told you they do.

          • “Oh, deleted ….responding to myself – probably for the better, history lesson was getting mundane.”

            Ah, debate is easy when you have moderators deleting comments that absolutely tear your arguments to shreds I guess. Lol…

          • No truly, anyone reading through these comments would be blown away by your grasp of history, international relations and economic theory – I doubt anyone would think you are being reactionst who is recasting modern history and revamping reality to suit your agenda…..

            Anyone who attempts to claim that the British Empire was not of government making, support and driven in order to facilitate wider economic benefits to society and business, but was instead entirely driven by private business with government only having a very specific, highly imaginative, unsubstantiated 10% involvement in the greatest empire to ever exist, is always going to have the support, unwavering belief total commitment of even the most asinine readers yet alone the more educated.

            Yes, your robust, well formed totally believable arguments have won me over – the British Empire was the result of small business with almost no government involvement – Kudos to you – well done.

            .

          • “No truly, anyone reading through these comments would be blown away by your grasp of history, international relations and economic theory –”

            I guess if they had been brought up to believe in the doctrine’s of Marx, I could certainly see this. If they understood what creates wealth, how it’s grown and how it’s lost they would certainly agree with me.
            “Anyone who attempts to claim that the British Empire was not of government making”

            Really? I have claimed that the government didn’t make it? Please feel free to point out where I say the government didn’t have any role at all. The point I am making is that it was paid for by trade and free markets. In fact, the entire empire was a trade empire. The government protected trade routes yes, but overall it was a triumph of small government and free-markets.

            In fact, as you point out, the wars they fought were in Asia were exclusively around protecting trade routes.

            You see this as “the government created it” I see this as “free-markets made it, governments facilitated”. History and reality agree with me, the USSR I’m sure agrees with you.

            I’m glad you finally agree though, good to know.

          • Nonsense, it’s taking the ridiculous logic that governments create wealth to it’s logical conclusion.

            No, it’s not.

            As I stated before, there is a difference between “Government spending can create prosperity” and “only Government spending can create prosperity”.

            You are, in your typical absolutist and extremist fashion, jumping immediately to the latter, despite no-one actually even suggesting that, let alone arguing it.

            Or, in simpler terms, you are attacking a straw man.

            Wrong, my arguments are from logic, common sense, economic knowledge and basic reality.

            I don’t think I’ve seen you present a single statement that’s reflected in reality. Ever. Lots of Libertarian-faith-based rhetoric, though.

            No it’s not, you are deliberately avoiding the question because you don’t like the answer.

            Yes, it is. You are presenting two options to choose from, as if those are the only two options possible. Ie: a False Dilemma.

            Really? Pretty sure tribes in the Amazon are extremely ‘equal’ in terms of weath. How wealthy are they?

            Compared to those with strictly hierarchical structures and access to the same resources ? Substantially more, I would imagine.

            The more ‘equality’ a government tries to enforce, the less equal and the less wealthy a society becomes.

            So a law that, say, prevents workers from being discriminated against (ie: fired or not hired) because of their skin colour or gender would actually result in more equality and more wealth ?

            Or in your world publicly-funded education actually leads to less equality and less wealth ?

            Or in your world laws against monopolisation, price-fixing or fraud lead to less equality and less wealth ?

            Wow. Libertarian Opposites World, indeed.

    • Government spending does not create prosperity. Spending is not the cause of prosperity, it is the RESULT of it. There is no connection between government spending and economic growth other than to limit it.

      I see in Libertarian Opposites World no prosperity comes from things like high levels of education (from public education), improved health and lifespan (from public healthcare and public utilities), roads, communications and electricity.

      http://www.youtube.com/watch?v=ExWfh6sGyso

  15. Instead of deficit spending, how about fixing up the monetary system so that the government doesn’t have to resort to deficit spending?

    • I’m in for that one. Why can’t this whole blog be devoted to our monetary system. All the issues written about seem to divide the readership and distract them from the real problem. Divide and conquer is one of the most popular strategies of bankers.

          • I do sympathise with your view. Much of the analysis on MB only takes into account the current monetary system (which has a brief 40 year history). I would like to see some serious criticism of the monetary system and ways it could be changed for a sustainable future, rather than nitpicking about the best way forward in the existing (broken) system.

            MB is too heavy on the politics (I don’t recall this being the case when the site was first launched?), which is less relevant, do we really think a Liberal or Labor government would make much difference in the grand scheme of things?

            But still the whole blog can’t be dedicated to the monetary system as it wouldn’t conform to the sites goal:

            “No nonsense analysis of the Australian and global economy and the effects on your assets and business.”

            We don’t know how long things will last as they are so it’s important to criticise the current paradigm as well as work out how we muddle through with it in the meantime…

          • Yes – it deserves some close attention. Judging from a lot of the comments people are assuming that printing money is some lefty plot.

            I can see how it can be used as part of the process of ridding the economic system of the banking system tumours / debts and the banking systems completely illegitimate ability to manipulate the money supply.

            Combined with inflation targeting it could be a very effective strategy.

            As for the role of the govt as a source of demand and the level of its involvement / interference that is a quite separate issue.

            Apart major public works and infrastructure I feel government should be kept on a short lead.

            Power tends to nasty in even the kindest of hands.

  16. Unusual that some RBA members have felt compelled to comment publicly in support of the Gillard governmernt’s volte-face on achieving surplus?

    Ordinarily yes, but in this election year closet supporters are stepping out. Ridout and Edwards (former Labor adviser) are both political appointees by Swan, debts of gratitude and all that.

    Ridout was a washout at AIG funny so many are getting excited by her gibberings now? Edwards I see as following simply political line and both in the year of Gonski manage to throw in the education furphy.

    Too early in the election year to get excited about this and overkill to suggest it puts a nail in the Libs. See it for what it is then move on.

    • In the world of the astroturfer it might make sense that everyone is a political hack but I struggle to see it in these two.

      Why trash your own credibility in such a way? and threaten the credibility of your institution as well?

      If you’re right I will be very upset. For now, I’ll stick to my interpretation.

      • My point is this is an election year – expect many calls/demands/covert supports from connected parties under the guise of impartial economic advice.

        My first reaction would be to treat each call with a pinch of reality/insight and proceed from there – this goes for each side of political divide.

      • So all the Leftist Public Servants in here advocating more, even unlimited, government are not ‘astroturfing’?

          • “People vote, corporates lobby and buy off pollies”
            The Union hierarchy sits comfortably amongst the group ‘corporates’?

          • Yes. they are a hybrid labor-corporate monster :). They represent a lot of individuals, but the few individuals at the top are corrupt.

          • The Union hierarchy sits comfortably amongst the group ‘corporates’?

            Certainly not comfortably, since Unions at least make a token gesture at representing the best interests of their constituents.

            But no, Unions should no more be able to lobby as an entity than corporations.

    • Ridout was a washout at AIG funny

      LOL, given your new-found low opinion of corporate lobbyists, what do you make of Jennifer Westacott, current CEO of the BCA?

      She is a former state planning dept bureaucrat (@NSW no less – the land of the fixers like Obeids and Medich!) and later climate change “consultant” at E&Y

      PS: I can envisage some stern letters being written from AiG/BCA to the MCA, to rein in their in-house astrobot. 🙂

  17. “shale oil discovery” I haven’t had time to read much about this today (too busy posting in this thread amongst other things lol), but it seems way too early to be making any conclusions about this discovery…

    “Now the company has to find someone with the cash to fund exploration to make those estimations into something real, from which point appraisals can be drawn up.”
    http://www.businessspectator.com.au/bs.nsf/Article/Linc-Energy-Peter-Bond-Discovery-Metals-Cathay-For-pd20130124-48RMD?OpenDocument&src=sph

    Let’s not pin our economic/monetary decisions on the dreams of a single company who is probably ramping up the news in order to minimalise dilution (to fund exploration of the discovery).

  18. Good article HnH. I mainly agree with you.

    Social Infrastructure.

    On the housing front I believe we need an agressive ramp up in public housing, in all states, supported by all levels-federal, state and local. Rents are screwing the poor, lower income groups and pensioners/retirees.

    And not just in the boonies-across the board development in public housing. (Pre-fab?)

    A crack at the housing investor/ rentier mini-mes from the bottom up.

    Under no circumstances should the housing boom (price) monster be re awakened with infrastructure buildout-ports, rail. etc.

      • I don’t know.

        Think if we simply end land banking which is cornering the market and should be illegal as a form of market manipulation, and end negative gearing would see a well functioning reasonably priced housing market.

        No need to go thermobaric. It’s all about balance – business and society. Not one or the other.

    • Policy area #1 – tax

      Scrap the 125 inefficient taxes and leave just a broad based land tax, the GST and income/corporate (at lower levels).

      Policy area #2 – infra

      Scrap the $10bn ARENA funding and roll it into a high speed rail network from Melb->Can->Syd->Newcastle->Coffs->GC->Brissy, get Vic/Qld to contribute a small amount (not sure how) and get NSW to privatise its electricity transmission and distribution assets and roll the full ~$20-25bn proceeds into the project. Ensure land supply focused and pro-development planning rules along the whole route of the rail network and lay parallel track for normal speed trains from major hub stations. Push to develop GC/Newcastle/Albury/Coffs and other towns along the route into proper cities.

      We get rid of dead weight losses from inefficient taxes and open up a 2000km development axis right through the heart of our most populous regions without Governments taking out too much extra debt whilst nuking the property bubble and its potential return for a couple of generations.

      • Stormy You’ve connected the capital cities. What for? The production this nation needs as a basis for everything else occurs far away from capital cities. Capital cities are blood suckers of the productive body of Australia. Why do we keep pouring inordinate amounts of money, one form and another, into them?
        Again the earlier slight discussion on ‘democracy’ is relevant.

        • You’ve connected the capital cities. What for? The production this nation needs as a basis for everything else occurs far away from capital cities

          The product has to go somewhere….

          I presume the (regional) production centres you talk about will create a surplus?

        • That’s just farcical. Cities and urbanisation are the main drivers of innovation and long term growth. More and more studies are showing a supralinear relationship between urban density and innovation/wealth, such as:

          http://math.lanl.gov/~lmbett/Publications/bettencourt-2006-invention.shtml

          http://www.pnas.org/content/104/17/7301.full

          It’s pretty simple. Get rid of crappy taxes, link a whole bunch of people up and give them access to cheap land to live on and to develop businesses on. Try to fund it with a decent chunk of equity rather than all debt. Get out of the way.

        • “Why do we keep pouring inordinate amounts of money, one form and another, into them?”

          Because the vast majority of people live in them? And those that do pay the vast majority of tax? Or are you advocating government redistribution now?

  19. Infrastructure spending is all well and good, but what’s the point in trying to grow out of it if we don’t fix the banks. They’re a serious problem right now, and as far as I can see (from my limited perch in the industry) are starting to go gang busters. They have a ‘push credit in to every nook and cranny’ attitude that must be addressed if we are to do any meaningful restructuring as a country.

    The people that need to deleverage the most are the ones who are not financially literate, they’re just as likely to relever. Theyre also the ones megabank are really setting on.

  20. Not sure of the wisdom of posting into this raging debate, but anyway…

    Does anyone actually believe “investing in key urban projects would unlock a new cycle of productivity”? Building another bloody road is not going to make any difference to anything. Surely we are smarter than this!

    Really clever manufacturing and smarts should need bugger all transport infrastructure, I would hope we are aiming for something we can sell for way more than $100/tonne, despite the backstop that does provide us.

    • Does anyone actually believe “investing in key urban projects would unlock a new cycle of productivity”?

      Yeah, to me it seems like the Dunning-Kruger effect is big in the policy making class.

      Infrastructure carte-blanche worked before, thus it must work again, and with fiscal markers in our favour, now is the time.

      To me capital investment is what has been lacking, in terms of soft skills and hard machine items to bosst productivity…not the transit corridors (exceptt for ports).

      But I will state here again what is the malaise, we have rewarded to rent seeker too much in Australia.

      It is so easy to becoming the parasitic mortgage broker, instead of the struggle to become the design engineer.

      The reward is essentially underwritten by the taxpayer and the young of this country for the parasitic child-abuser, and the fixed costs such as land and utilities for the intellectual entrereneur are close to the worlds highest, if not the worlds highest.

      An 18 year old picks which course to try and claim their riches??

      Building another bloody road is not going to make any difference to anything. Surely we are smarter than this!

      This is Australia, why would you make that assumption?

      That is what Donald Horne’s ‘lucky country’ is about.

      We aren’t that clever, yet we are still rich. if we are rewarded as much as we are, why put ourselves thruogh greater hardship?

      Really clever manufacturing and smarts should need bugger all transport infrastructure, I would hope we are aiming for something we can sell for way more than $100/tonne, despite the backstop that does provide us.

      When 80% of that surplus left over from 100/tonne goes offshore, and those offshore interests will pay their 30 pieces of silver to the likes of 3″d1k so that doesn’t change… and the populace eats it up, I would perhaps recalibrate your hopes if i were you.

      • “The reward is essentially underwritten by the taxpayer and the young of this country for the parasitic child-abuser…”

        What the hell does that mean. Don’t tell me you are going to follow down the path of the idiocies you so admired a few threads ago. Don’t.

        • Don’t.

          Pfft, I don’t know where you get that misplaced sense of authority, your character was thoroughly aired in that piece.

          However, my reference is that the property market we have today is an scheme intended to transfer wealth from young to old.

          Fiscal abuse of our young.

          The structure of this is underwritten by policies such as the FHOG and planning laws.

          As I stated in the ‘NZ property becoming a political issue’, the free market salvation that prospective buyers were waiting for, was denied by intervention.

          Hence underwriting.

          The fiscal abuse our young suffer is underwritten by policy decision… all so some parasite can get their 0.1% annual trailing commission.

          Now be gone, this issue is too complex to be understood by the likes of you, be grateful for the 30 peices of silver your foreign puppet masters give you for selling out this country.

          • It is a sense of civility my friend.

            I continue be surprised by the number of disaffected who choose MB as a forum. I am over the extreme language and ridiculous analogies. I call it as I see it.

            If you meant “fiscal abuse of our young’ say it. Absurdities detract from your comment.

            And yes, I came out of ‘that’ thread well. Same cannot be said of some others, can it?

          • When I state “parasitic child-abuser” in place of “Fiscal abuse of our young” .. I am guilty of ambiguity, nothing more.

            Any sensitivity you have towards that, especially when I make mention of (the) “parasitic mortgage broker” is misplaced cognisance on your behalf.

            And i would say you came out looking appalling, with your hypocrasy and faux-outrage revealed at dramatic lengths.

          • Just work on the clarity and you’ll do fine.

            Note: my outrage was not ‘faux’, still simmering – I have a long memory. Some things are best served cold!

          • Just work on the clarity and you’ll do fine.

            Or ignore your recommendation outright… and _I_ will still be fine.

            Note: my outrage was not ‘faux’, still simmering – I have a long memory. Some things are best served cold!

            😀

            Fear the (A)ggreived(A)nonymous(A)vatar ehh?

          • Not you! Anyway your mate claims avatar users are robots – I advised him I adhered to Langford’s Third Law:

            “A robot will guard its own existence with lethal antipersonnel weaponry, because a robot is bloody expensive.”

          • I have a long memory. Some things are best served cold!

            Here’s hoping Kevin Rudd has similar qualities :P. One down already due to a case of corporate suicide (Tom Albanese).

            PS: Don’t worry, astrobots must be somewhere way down the list.

      • We would all like a diversified and anti-fragile economy. Some of us recognise that, at least in the interim, in terms of exports and assuming China demand continues, that it is our mining sector most likely to deliver the backstop required to transition to this new utopian-economy.

        The transition is in no way guaranteed. Perhaps we’d better hope the euphoria around the Linc announcement is justified.

      • RP, I don’t dispute that we’ve made some dumb choices, but I’ve got some hope that things will change, albeit glacially. Step back and see how the debate has changed over the past year or two, things are moving and people/pollies are being called out.

        Most people always take the path of least resistance, we need to make sure we have the structures in place to decrease the friction. And I mean engineer the friction out, not lubricate it.

  21. I ran a thought analysis (like a physicist’s thought experiment) with something I found more comprehensible than Govt debt.
    I thought about how, around 2000, we (local community) debated what the local Council should do with our ageing library – knock it over and start again, update it, expand it ….
    Update and expand won the day.
    Council borrowed to fund the redevelopment.
    Being frugal, I thought Council should have had a policy of saving for infrastructure expenses (a Future Fund), and thus been in a position to pay without borrowing.
    Council borrowed, we have a nice library and – I think – Council has repaid the loan.
    Interest rates were relatively low through the period of repayment.

    Hmmm I don’t think I’m any the wiser.

    Try again ….

    Scenario #2
    I notice something strange growing in a petri dish.
    I spend $100,000 to investigate this perplexing discovery.
    I have to sell assets (cash in bank + shares) to fund the investigation.

    Outcome 1.
    The unusual growth turns out to be an antibacterial mould, which is new to science.
    Wow. My deficit spending paid back big time!

    Outcome 2.
    After burning through $100,000 the results are unclear. More investigation needed.
    Maybe I can convince a drug company to buy the incomplete project.
    If they pay > $100,000 I’m in the black, < $100,000 leaves me in the red.

    Outcome 3.
    It is identified as common slimy mould.
    Damn … I have reduced my assets and income for no return.

    I have three options:

    1. Austerity prevails while I recoup the loss by increasing saving (from 10% of income) to 15% of income until the $100,000 is recouped.

    2. I permanently adjust my lifestyle to accommodate a lower annual income (from my assets).

    3. I maintain my current standard of living by borrowing (from relatives and friends) to make up the shortfall in income each year.
    I wonder how long my friends and relies will put up with me?

    Is this what deficit-funded recovery is like?
    Risky business?

  22. Perhaps we ought to wait until we’ve witnessed the denouement of the China Experiment before we rush headlong into our own credit-fuelled infrastructure binge (foreign-funded, in this case). Australia already has one of the worst net international investment positions on Earth. We are going to have to repair our national balance sheet at some point.

    Firstly, it bears reiterating that it is a mistake to consider public and private debt independently. Our private debt is a public liability when we are this reliant on foreign funding. In particular we should be considering our total external liabilities, irrespective of whether they are public or private. I strongly believe that they must be reduced as they massively amplify the risks of serious a downturn in commodity prices, as our debt service ratio on foreign liabilities would rise significantly.

    Australia was handed what may have been a unique gift after the financial crisis. An historically unprecedented credit bubble burst in the North Atlantic, which briefly looked as though it would bring to a close our own debt fiesta. But as chance would have it, our primary export partner immediately embarked on its own colossal credit binge, which from my inquiries looks to have been the most rapid in history.

    This would have been an opportune time to aggressively deleverage at the national level. The government should absolutely have run ‘pro-cyclical’ surpluses over that period in conjunction with private sector saving, as the pain of Australia deleveraging was being lessened by massive borrowing and public spending by our trading partner.

    By the need to survive and in keeping with the prevailing international policy paradigm (and understandable in context), the government instead opted for public spending programmes. No serious observer disputes that this raised growth, held down unemployment, increased interest rates and increased the value of our currency. Alas, we have seen merely the absence of additional private sector borrowing (relative to GDP), and an uptick in public borrowing. We have not seen true deleveraging, despite the gift of massive credit growth in China that provided the ideal lubricant to smooth the adjustment.

    A committed drive to meaningful public surpluses would have weakened the labour market and killed inflation, thus allowing the RBA to cut harder and earlier, lowering demand for AUD. It would have also pushed the balance of payments into deficit, and thus created further downward pressure on the exchange rate. Lower interest rates could certainly have had the effect of stimulating borrowing, but provided the fiscal retrenchment was deep enough, there would likely have been sufficient pain spread across the economy to dampen credit demand. I fully agree that politically this would have been near-impossible, but with an opposition so noisy about fiscal responsibility, the government could have deflected much of the criticism.

    I realize this is now retrospective, but one should always have a clear picture of the recent past when evaluating the present, especially when there is room for dispute in the narrative, as I believe there is.

    As I see it, an unfortunate choice presents itself: We can take steps to reduce our debt burden now, granted it will be more painful than it would have been 3 years ago, or we can double down and commit to a permanent credit-driven economic model (ie, “long-term deficit spending”), with the associated balance of payments composition. I don’t deny that infrastructure spending has productivity benefits, and if we are borrowing at all, I would gladly take it over private sector housing speculation. But the immediate intention and impact is a boost to demand by adding debt. In the same way, I do not deny that (most of!) China’s infrastructure projects will eventually be utilized, rather I wonder whether they are borrowing excessively in too short a space of time to stave off a debt crisis. So the question is not whether we would like or need the infrastructure spending being mulled, but rather whether Australia’s overall balance sheet is healthy enough to sustain it today.

    Perhaps it is; I for one remain wary.

  23. “…we’re looking at decades if not a century of prosperity.”

    I love it. House prices to the moon and beyond!