The great Australian shock


Throughout this year, and much of last, I have been arguing two central political economy points. The first is that Australia is on the verge of an economic reckoning of a magnitude that few understand. By that I am referring to our post China boom adjustment. It is most commonly called the end of the “mining boom”. Or even more particularly the “capex cliff”. But it is much bigger than that. It is the end of a series of booms that have left our economy so bloated, and our real exchange rate so high, that we are unable to compete successfully in just about anything that is not buried in the ground or concreted into it. That is why this blog is called Houses and Holes.

The second point I’ve argued is that our economic mandarins of the day, Labor, Liberal, the executive and monetary authorities, would be serving the nation best by getting ahead of this adjustment. They should be preparing the nation for a generational belt-tightening; they should be talking down costs and talking up productivity; they should be enacting new policy settings ensuring that we preserve every potential dollar of export revenue available to the economy; they should have done whatever it took to lower the dollar; they should have innovated policy to ensure housing stayed in its box; they should have done what it took to ensure some diversity in our economic output; they should have given us all the reasons why it was needed, over and over again.

Instead we’ve gone on as if nothing has changed. The Gillard Government wasted years trying to talk up spending in prudent households; the ever so brief Rudd Government mentioned the challenge ahead but then gave into a wild series of thought bubble spending promises; the Abbott Government is new but so far it has accelerated the bailout mentality and promised wealth through house prices. Throughout all three governments, the Reserve Bank has plumped expectations of endless riches via the eternal mining boom, has re-inflated asset prices, and barely mentioned competitiveness (though it has discovered productivity lately). The Treasury has been just as bad, offering repeatedly absurd forecasts for growth, government revenue and surpluses (though it too has discovered productivity lately).

We have, in short, done absolutely nothing to prepare for what is coming. We have pretended it’s not happening in the hope that something will come along.

None of this is new but I wish to make two points today. First, this week has shown that despite our denial, the adjustment is accelerating. Throughout the last three years, MB has argued that we face a long and arduous period of below trend growth because of our multiple adjustments. And so it has proven to be:


Despite a brief spike in growth in 2011/12, the post GFC period has been the lowest average growth period anyone can remember. We are now growing more slowly than the supposedly broken United States. This week’s national accounts illustrated why very clearly. The terms of trade correction which is central to the adjustment is pulling down national income:


The weak nominal growth that results has implications for the Budget, which will reveal further downgrades and larger deficits next week. Lousy income growth also makes our efforts to grow out of the funk via the old sources of asset inflation and household spending unsustainable, and it means demand is not strong enough to support many businesses, and anything tradable is being dragged under by bloated cost bases, which is what we are seeing in Graincorp and Qantas.

The second point to make today is that the response to these hard facts this week has been even greater denial. The best way forward in our situation is to let markets restructure businesses to become competitive. This should be combined with an historic national program to improve competitiveness so we preserve and build on as much that we’re good at that we can and protect the vulnerable as it happens. The RBA’s efforts to “talk down” the dollar this week are an almost laughably inadequate response. Re-structuring is the only thing that we can do to sustainably preserve our standards of living. If we just prop up dying businesses they’ll bleed us dry just as surely via falling productivity growth.

The new Liberal government has led the bailout mentality this week, blocking the Graincorp buyout, mulling Qantas rescues (though the signs are better today), agreeing to extend the GST to online retail despite it costing more than it makes and generally failing to provide a narrative that explains any of it. I have no doubt that the Labor Party would be just as bad if it were in power, strongly suggested by the winks and nods coming from across the aisle, and the clear focus of comments focusing on the preservation of jobs.

But the failure is so much wider. The press hasn’t grasped the broader trend, with much conservative commentary falling in behind Liberal Party mistakes that contravene their own principles (not all!). And the liberal press tending to discuss each issue in a silo. I’ve had more furious debates on the blog this week than at any time in three years with readers defending sectional handouts. Almost nobody is talking about or wants to confront the underlying issues.

All of this has led me to conclude that we are far less prepared for what is coming than I thought. Yet this is only the thin end of the wedge. It’s going to get much harder and many more businesses will fail under similar pressures. There appears little hope that our leaders will push the nation to get ahead of it either so each issue will be dealt with on its own terms, ensuring confusion and disaffection spreads more widely, and more businesses fail than need to.

A great shock is coming to Australian entitlement in the next three years. It’s called capitalism my friends and it’s here, ready or not.


    • This is the scale of the problem for SME’s which employ a major proportion of the workforce with your open boarders policy- India’s middle class is over 30M supported by 900M impoverished workers. In every country throughout Asia these figures are comparatively replicated, there is not a country in our region that has a similar same social structure and population as ours.

      In India the population and economy is so large that there are shops that sell ONE shoe (either the left of right) which ever you need, could a SME here provide such a service, no.

      Big business are chasing pricing structure like exist in Bangladesh which could never be replicated here, so like the article from yesterday the reality for SME’s is worlds apart from big business and those like myself that seem to recoil from your apparent open boarders policy are bound by our internal circumstance.

      I’m not saying the all including SME’s will not have to pay the piper but not all of us are shinning the board chair with out b*ms and let’s put a bit of reality into our pricing structures here.

      I know you are serious about this issue when you advocate for a graduated education/infrastructure/productivity tax to spread the burden.

  1. “We have, in short, done absolutely nothing to prepare for what is coming” It becomes increasingly hard to prepare, when to do so provokes calls of “Doomsayer!” or worse. Add that to the stupidity of reinforcing the ‘she’ll be right’ mantra with false market supports, and what hope does the average Australian have of preparing, although prepared he must be, as you rightly suggest.

  2. Great post! There is no doubt it tears apart the mind of anyone who cares..(.ref your Black Hole post not the logical process)
    Re the debate we just differ on the order in which things need to happen.
    You are also correct re the calls this week from both sides on ‘jobs’ Further we really face an uphill battle when the National Broadcaster is out there distorting the argument. Last night’s 7.30 Report was a classic.

    On the other hand Garnaut is certainly out there warning about ‘Dog Days’ and that, because it is Garnaut, is getting a good run on the ABC.

    My problem with it all is that you HnH, Garnaut et al are understating the problem. My opinion, founded on 50 years of the sort of mind-tearing that you are experiencing, it that the problems are deeper and more serious than even you think and, as a result, much of what is being called for by way of reform will actually exacerbate the problem. I won’t get into details here so as not to take away from the thrust of the post but Garnaut’s call for sharp cuts in IRs is an example.

    • “My problem with it all is that you HnH, Garnaut et al are understating the problem”

      I’d agree with you fl. and with respect suggest that even for a blog that seeks to put forward an alternative straight shooting opinion there is a certain amount of ‘toe the line’ that needs to be done to not be cast off totally into the loopy basket.

      I’m ok with this and bit of reading between the lines. We always have you fl. to set the record straight 😉


  3. Jake GittesMEMBER

    This excellent post highlights that old axiom that generals fight the previous wars and that is what the leaders are doing by not facing the future. When they do eventually there will be a forced readjustment. Long overdue.

  4. All true H&H. But it is not in the character of politicians(nor their self interest) to lead their electorates.They can walk no more than a couple a steps ahead.That is why this will be a long painful process.

    • I don’t know, Terry. Not in their contemporary natures perhaps. I maintain that a clearly articulated program could rally the nation and if so it would embed a Party for a generation.

      The problem is that the current batch aren’t up to the challenge.

      • Hmmmm maybe …but how? There is no way that the average viewer of ‘The Voice’ has a span of concentration sufficient to read one of your posts. That is a problem that is getting worse with tweeting facebook etc.
        So how can we explain a complex difficult argument and get popular support for very difficult, apparently damaging, policies in the face of a hostile media (on all sides!)
        The evidence is that the current stupidity will go on until it can’t. It’s a disaster.

        Sorry! But I’ve watched this crap for far too long.

      • FWIW Hawke/Keating did not really get to many of the essential problems. This is not denigrating their efforts. They went part of the way. For those who were not economically cognisant during those times reading John Leard can be instructive.
        Real reform will cause great social dislocation. I doubt it can be done…but that’s just my opinion. Others have theirs.

      • Reform, F? Here’s reform for you! “In 1984, nearly 40% of the average New Zealand sheep and beef farmer’s gross income came from government subsidies. A year later, almost all of these subsidies were removed. New Zealand farmers were on their own…” Here is a case of waiting until it was too late , New Zealand was going, if not actually, broke. We had to do something and we had no time left to pussy-foot about. I contend that our farmers did the hard yards 30 years ago, now it’s the urban dwellers turn to do their. Because their subsidies, today, are just as unsustainable as the farmer were back then. Only then will the proper transformation of New Zealand economy be complete. It’s going to be horrible, again. But there is no other choice now left for us.

      • “We need another Keating.”

        Indeed, he did such a bang up job the first time around, let’s get the ego that walks back again. You must be enjoying ABC’s fawning Red Kerry’s series with PK. He’s still a legend in his own mind. He neatly forgets he only won 1 election- enough people woke up to the arrogant snob to thankfully boot him out in short order.

        What we need is the Left/Unions out our lives, our businesses, our Legislation , our workplaces. That’s a start. We also need to get the parasites off the Treasury teat, so freeloaders are required to earn an income as opposed to sucking the Nations wealth out of productive pockets. We also need a Govt committed enough to make all those things happen. That’s what we need.

      • migtronixMEMBER

        flawse/lorax: Although NEVER one to lionise politicians, re the 13 years of keating/hawke and going part of the way, it is my perception that we was robbed when we passed over Hewson for Keating and thus ensured ourselves we’d end up with a Howard.

        Hewson would have handled the GST far better, and not being as Machiavellian as Howard would have done so without the murder of an independent (sort of) political party (Australian Democrats).

        Yes flawse it will be a long road of perdition…

        P.S. This has been much more pleasant and productive week regarding the comments: problem solving and civil discussions vs mud slinging and shouting 🙂

      • It can be done but I fear it will not happen until the ALP becomes democratic internally. The existing model only worked while the union movement existed in more than just name and was not taken over by the shameless dregs of the middle class.

        Require all those who want a say in the ALP to join the party. If they don’t join they don’t get a say. Unions members should be encouraged to join – they don’t need muppets speaking for them in the party.

        This is only way more people of commitment and principle with a bit of life experience will again seek public office as ALP candidates.

        The LNP will then be forced to improve their standards to compete with the higher quality ALP candidates.

      • GSM, can you please suggest another great economic reformer who came anywhere close to what Keating achieved (mostly as Treasurer).

        I am all ears.

      • Flawse: “This involves decades of reform. NO political leader can survive it.”

        Therein lies the problem and the solution.

        Politics via massaging popular opinion enough to achieve 50.1% support so sectional interests can be served was made a fine art by Tony Blair. All parts of the political spectrum and commentariat are fully aware of this and also play the game. Leftist Noam Chomsky called it ‘Manufacturing Consent’.

        Australian politics has devolved to the point where we have very shallow politicians and a deep-thinking bureaucracy (where it matters, in the federal and state treasuries). I offer the new Abbott government as evidence of this very destructive trend.

        We cannot rely on the emergence of another Paul Keating. She might be a decade away.

        Let us learn from the (deliberate or not) blundering of Rudd/Swan around the tax reforms suggested by the Henry Review.

        The bureaucracy needs to further polish its persuasive powers in pursuit of the common weal.

        Politicians need to learn statesmanship. Political capital exists to be deployed, not husbanded for the next election.

        And the economically literate need to stalk the corridors of power shining spotlights in the dark corners where monopolists and rent-seekers lurk with fistfuls of persuasion.

        There is a big economic reset coming. We can see it. The Australian people’s capacity to manage physical drought and flood is truly awesome. I genuinely believe this national strength is transferable to economic matters, if the challenge is laid out clearly and vested interests are seen to share the burden.

        Reforming our tax bases is the single most useful thing government can do in this time. This is hard dreary work with profound and enduring benefits. Let us begin.

      • migtronixMEMBER

        David: Our bureaucracies are happy to sell us down the river (DSD giving away metadata, WTF?!?!).

      • Thanks David
        “Flawse: “This involves decades of reform. NO political leader can survive it.”

        Therein lies the problem and the solution.”

        Elect me dictator!

        Yes Mig…much more productive. 🙂

      • GSM
        The Libs need a lot of reforming to boot! A few willing to oppose the FIRE economy would be a good start. Unfortunately other than the ‘bushies’ FIRE is Liberal thinking from top to bottom.

      • You’re right GSM, what we need are more corporate Mac-Daddies like Howard, Downer, et al.

        What’s good for big business, is good for the nation, right?

      • What we need is the Left/Unions out our lives, our businesses, our Legislation , our workplaces.
        Because the last 30-off years of doing that has worked wonders !

      • “We also need a Govt committed enough to make all those things happen. That’s what we need.”

        @GSM – where do you propose that we find one?

      • @ migtronix

        Hewson handle the GST better? He couldn’t even handle the GST on a birthday cake if you remember.

      • migtronixMEMBER

        @V: Yeah sorry I was talking about implementation of it, gifting to the States etc, not winning an election on it — you’re quite right there.

  5. Absolutely fantastic piece here HnH. This is what I have been telling all my Aussie friends and family. I cant believe the politicians have not learned from Europe, Japan and the US mistakes. I get so many of my friends in Australia saying the US is going down blah blah blah. I simply reply you might want to be worried about Australia ( I am worried for the US BTW). They say” No mate Australia is booming and we are fine”. I just shake my head every time. Its a shame because you are right it could be less painful. It is just like and Alcoholic cant stop drinking until they get it in their head that they have a drinking problem.

    • Agree with all that.

      In the end it is the politicians of all persuasions that have to be convinced that the days of affluent mindlessness are over.

      Then they have to present their case to the people as a parliament with honesty…gut-wrenching truth…not treating the Australian people like children.

      Then people at all levels have to pay a price…reasonable austerity everywhere…perhaps with this quote in mind, from James Madison, Federalist Paper No.57, 1788 :

      ” The House of Representatives …can make no law which will not have its full operation on themselves and their friends, as well as the great mass of society.This has always been deemed one of the strongest bonds by which human policy can connect the rulers and the people together.It creates between them that communion of interest, and sympathy of sentiments, of which few governments have furnished examples; but without which every government degenerates into tyranny”

  6. From a few days back, and where Australia is probably headed –
    “Nor has there been any improvement in net trade as a result of the sterling depreciation earlier in 2013… It would be nice to be able to claim that the long period with a competitive exchange rate (since 2008) is finally boosting the UK’s trade performance, but that is not apparent in either the exports or imports data. Equally disappointingly, the business investment figures have also stayed in negative territory. That, of course, leaves the consumer and housing sectors, both of which have experienced strong recoveries that are highly reminiscent of most previous UK upswings. There is no doubt that consumer spending rebounded sharply… This was not driven mainly by a recovery in real wages.. It was driven mainly by a drop in the savings ratio…That triggered a surge in pent-up demand for housing and consumer durables…Can this last? Not at the recent pace. Many analysts have criticised the unbalanced nature of this British recovery, and have pointed out that a large proportion of households would face great difficulties if interest rates were to rise sharply”

    • Janet Some of that doesn’t make sense.
      I think if you look at the stats you will find imports have been rising particularly in the last 12 months. This is consistent with a policy of low (negative RAT) interest rates. Exports have however not increased so their Trade balance deficit and CAD are growing. Again this is consistent with policies of lowering rates without real basic reform.
      It’s a path we will follow even if ‘reformists’ do gain the ascendancy.

      • I’ll take your word for that! I guess the FT has an agenda, and occasionally gets its facts wrong, but the sentiment that struck me was, firstly ” It’s not the exchange rate, stupid! It’s the economy…”. Get the economic settings right ( and mitigate H&Hs “Shock”) , and the currency looks after itself. And secondly ” Housing’s not going to do it for their/any economy”. You know my view. Only an uncontrollable disaster is going to ‘fix’ this lot, and is all so unnecessary….

      • Yes Burb

        I guess the simple stat is in there somewhere but, because it was what i could easily see, I added the EU trade and non-EU trade together.

        Re the FT I was struck by the idea that consumption had risen without a rise in imports. It didn’t seem logical. It turns out not to be correct.
        The point is that, as janet states, ‘it’s the economy’…The problem is US! In fact lowering interest rates only make the problems worse as we see both here and in the UK

  7. The self entitled and schadenfraudey like attitudes of the people is out of this world. I’m not sure I’d want to face up to them either. Easy for us to say when we’re not the ones who have to deal with them and the media. Maybe it is just better to let it crash and say “derrr, no one saw it coming”. They’re so clueless and the media so willing to hide that information they will believe that.

    We’re living in an age where taking on massive debt makes you as smart as a quant trader or something. You can’t fix stupid. You just have to let stupid get hit by the bus they’re standing in front of.

    • +10,+10. You can’t fix stupid. You just have to let stupid get hit by the bus they’re standing in front of.WW

  8. HnH, it’s also OK if you want to criticise/comment on the short-sightedness, entitled and complacent attitudes of us consumers and voters that keep both profilerating and originating a lot of these problems (the populace is a bigger problem than the system, IMHO!)

    • Precisely, Burbs!

      In the last twenty years, we have had one leader who looked us in the eye and told us effectively that we were a bunch of puerile twats, and that we needed a bloody good recession to encourage us to smell the roses.

      We got the shits with him, and turfed him out – replacing him with a far more acceptable mini-god of plenty who showered us with richly-deserved largesse.

      We do not elect leaders anymore, we elect benefactors.

      “We have seen the enemy, and he is us”


      • Nun well said.
        We have some fundamental flaws in our economic theory as well. One of the BIG problem of the Keating era was the effect that high interest rates had on the currency.
        As pfh writes we have to get some control on the capital account. In an ideal world this should not be necessary but in a world of unlimited credit creation by Banks and CB’s it is essential.
        It’s not that Laissez faire is BS. It is just there is no Laissez faire.

      • In the last twenty years, we have had one leader who looked us in the eye and told us effectively that we were a bunch of puerile twats, and that we needed a bloody good recession to encourage us to smell the roses.
        We got the shits with him, and turfed him out

        The reason we turfed him out was that horrible man Keating who ran a scare campaign against him.

  9. The new Liberal government has led the bailout mentality this week, blocking the Graincorp buyout, mulling Qantas rescues (though the signs are better today), agreeing to extend the GST to online retail despite it costing more than it makes and generally failing to provide a narrative that explains any of it.

    Have to take issue with your GST argument.

    Customs found it would cost more to collect than it brought in using ITS CURRENT COLLECTION METHOD. Anybody importing anything into Australia would realise that method is grotesquely inefficient.

    The UK shows conclusively it can be done efficiently using the couriers to collect payment (there are only 5 or 6 who import all air and air mail items). The fact only a portion of items are checked there is irrelevant. If penalties are high enough the vast bulk of Australian consumers will comply.

    • That’s heresy around here OC.

      Heck, I spent 10 years collecting GST on digital goods sold to Australian customers, which according to everyone here is “impossible”. I guess I could have just not done it — our payment provider was based overseas — but it was the law, so I did it. Maybe, just maybe, most businesses are law abiding, and if they want to sell into Australia they’ll do what the law requires?

      • Heck, I spent 10 years collecting GST on digital goods sold to Australian customers, which according to everyone here is “impossible”.
        No-one here has said anything of the sort. Stop peddling this absurd and dishonest straw man.

        What they have said is that _foreign_ retailers have no obligation – nor probably avenue – to collect GST, and that requiring them to would be impractical, if not impossible.

        How much sales tax did you collect on behalf of state and federal Governments in the USA for customers you had there ? VAT for European customers ? Those are the honest comparisons.

    • That’s fine OC, but still what’s stopping me from taking a $1000 digital camera, chucking it into a box and slapping a ‘Gift, value: $100’ declaration on the box? Couriers accept parcels and definitely don’t inspect them, the most realistic thing to expect of them is to charge GST on the delivery service.

      Go ahead and impose your system as you wish, some money might be collected sure, but it won’t stop dodgy operators from skirting the law and getting away with it. What’s the compliance rate in the UK?

      Then you’ve got the current legal standing of GST. It’s the responsibility of the seller to levy GST. Would you shift this responsibility to the buyer? How does this work with overseas businesses who don’t collect more than $75,000? Do you eliminate the $75,000 earnings threshold as well? Lots of questions to be answered.

      • Then you’ve got the current legal standing of GST. It’s the responsibility of the seller to levy GST. Would you shift this responsibility to the buyer?.

        Errr, that’s how it works now for physical goods over the $1000 threshold.
        Goods arrive, assessed by customs, freight forwarder collects GST and other charges from receiver. It works just fine.
        Most courier companies do the freight forwarding stuff in house so it is theoretically possible to administer it for lower value goods. Obviously there’s the question of fake low value invoices but that happens already. Random spot checks would help to mitigate that a bit.

        The efficiency of administering, holding and warehousing all of this stuff is another matter of course as shown by the Productivity Commission report.

        However, regardless of how efficient (or not) it is, I still feel there is a question of fairness. If an Australian retailer DOES go to all the effort of setting up a super lean online distribution channel, they are still at a 10% disadvantage to imports.
        What incentive is there for them to even bother?

      • Random spot checks…

        You should look into the international agreements regarding mail sometime (Universal Postal Union), opening up someone elses mail can land you in jail for a very long time.
        Now if you’re stupid enough to agree to be spot checked well…

      • That’s fine OC, but still what’s stopping me from taking a $1000 digital camera, chucking it into a box and slapping a ‘Gift, value: $100′ declaration on the box?
        Firstly, “gifts” are not exempt from GST.
        Secondly, the thing that would concern me is a $1000 camera going missing during shipment and me having no way of recovering that loss through an insurance claim.

      • That’s fine OC, but still what’s stopping me from taking a $1000 digital camera, chucking it into a box and slapping a ‘Gift, value: $100′ declaration on the box?
        Firstly, “gifts” are not exempt from GST.
        Secondly, the thing that would concern me is a $1000 camera going missing during shipment and me having no way of recovering that loss through an insurance claim.

      • What incentive is there for them to even bother?
        I’d be prepared to pay 10-15% more for the convenience and security of purchasing from a local retailer seller.

  10. Anybody out there working in the technology development industry ? I work in contract development for clients, and have friends with design businesses. Sounds weird, but everybody I speak to has been really busy (including me) for the last 18 months, with lots in the pipeline. Probably anecdotal evidence, but I can point to several instances of investors in mining switching to technology some time ago. The Vic govt is also giving great support to biotechs. Hence, I’m not sure “we’re doomed” yet. Green shoots?

    • Hi Retnuhb,

      There are plenty of green shoots however a lot of them are killed for lack of water (capital).

      There is some pretty amazing stuff being developed, unfortunately there is a huge lack of risk capital to develop these businesses so a lot of them go off shore or just close up shop. I know this is not new, however given the situation we find ourselves, changing our attitudes towards investment takes on a new urgency.

      My partners and I are receiving some incredible options however we can’t invest in them all. I’d like to see some of the badly allocated Super money and debt funding passed onto these technological advances. We could be in the forefront of sustainable technologies, however for reasons that have been described many times on this blog, this will be stifled by political and investor decisions that are quite frankly baffling.

    • Jake GittesMEMBER

      Quite small in Australia and tech industry likes to see itself on a par with US but it’s not by a long way. Grattan did a good study about two years ago on tech deficit in Australia and it tends to underperform for many reasons which I will not paraphrase here. Looking to tech as a hope out is not going to work because the other underpinnings such as associated elements like manufacturing and tax concessions, gvt strategy besides giving money for shop window activities are not present here as they are in US or in Korea.

    • State Government grants are not going to be around forever, especially as their budgets continue to get shredded.

      As another guy said, in the start-up space we simply don’t have the capital. While there are one or two incubators in Sydney, VCs are definitely hard to come by which is incredibly strange in a country with over $1 trillion funds under management.

      Then there’s the taxation system – taxing options at point of issue rather than exercise or sale, makes it cost a significant sum to award options to employees. This takes away the only method start-ups have to attract talent they desperately need to grow.

  11. Australia has not prepared. For interest look at the state of Victoria -it has a trade deficit of about $40 billion a year and the car industry could close making this worse. Still migration is booming and this will exacerbate the deficit. This is reminiscent of Spain 2005 say. All the governments can think of is a $14b road/tunnel with borrowed money.
    Here one has to watch the 10 year bond rate (80%owned by foreigners) for what the world really thinks. This is at a new 12 month high in interest rate and hit 4.42%.
    I for one did prepare in my business and personally. When Gillard and Parkinson told me that the dollar would stay high for ever I bought euros at 0.84, pounds at 0.69 and USD at 1.08. I covered my business forex for 12 months and cut our costs to the very bone and paid off all debt.

  12. Well put H&H.
    What we have now is crony capitalism, a opposed to a real capitalism alluded to.
    Real capitalism is the other side of a revolution in intelligence.
    Real capitalism will appear when those in power get an understanding that policies should be progressive, fair and for the benefit of most – not the few.
    I see most of our political leaders, although inept at the level of identifying courses of action that would serve the greater good, are perfectly suited to falling for self-serving advices dished up by lobby groups.
    The more powerful lobby groups are effective puppet-masters of our leaders. This costs us all a soundly functioning socio-economy. Our local lobby groups are incarnations of their international brethren, including the one that interfaces with the RBA, namely BIS – a façade for FIRE.
    Agree that all the pieces are in place for a fall from grace. Aust is the richest country in the world as measured by mineral wealth divided per head of population. But what do we have to show for it? Propped up industries and foreign debt to fund the RE ponzi is world-beating, waiting for the time-bomb of exchange rates to detonate. RBA takes its orders from BIS, yet we expect it to save us while macro-prudential resets would save the day.
    An intelligent society would be searching the world for the best way to handle industry, education, health, environment.
    We need new leaders and an educated public.

    • Yep.. just look at the latest spying scandal with East Timor.

      Alexander Downer ordered ASIS to spy on the East Timorese cabinet in order to get the inside scoop on negotiations they were doing with Australia (who was negotiating on behalf of Woodside).

      Surprise surprise, after retiring from parliament Downer is now on the payroll of Woodside.

      Then you’ve got the new Libs’ Himmler (Brandis) doing everything he can to interfere with the case brought by East Timor against Australia (thanks to an ASIS whistleblower) at the International Tribunal in The Hague.

      Simply disgusting, and yet how much real playtime will it get in the major media? Crony capitalism at its finest.

      • I was going to point Downer out also so thanks, I’ll just then point out Downer’s predecessor, the bearded one, Gareth Evans who now works for International Crisis Group doing such great work as fomenting the Syrian war.

        Good grief we really do deserve everything that’s coming to us.

      • Gotta say that while my assessment of what Abbott was doing, re apologising to the Indos, was reasonably accurate it looks like he was being advised not to apologise because there would be no end to it!
        We don’t seem to be holding any pair of Kings!

        What the hell runs through all their brains? The expenses rorts, the diplomatic screw-ups, the insanity of the economy! Everyone in politics, and the accompanying bureaucracies, are just totally removed from the reality of ordinary people.
        I guess they all believe their own BS.

      • It’s called Canberraitis flawse; A chronic and acute inflammation of the ego that is often fatal to those not immediately around the person 😉

  13. Superb!

    The challenge is immense but it is not insurmountable.

    Just a shame that the country won’t believe it is on fire until it smells burning flesh.

    The key to waking the sleepers is winding down the supply of cheap off shore money and easy options like selling off capital assets and non-renewable resources.

    That will produce an exchange rate that better reflects our real performance and enterprise.

    That will wake people up that reform is not a life option.

    Easy money and selling off silverware is what is keeping the bronzed Aussie snoozing on the sand as the King Tide rolls in.

    • ” winding down the supply of cheap off shore money and easy options like selling off capital assets and non-renewable resources”
      This is the nub of the debate! Why will nobody except a few in here touch it? Glen? Treasury? Evans? Eslake? even Garnaut? HnH?

      • Yes, it is baffling.

        The moment you go anywhere near that issue – you are either ignored or accused of calling for the apocalypse.

        All that is required are some mild restrictions that encourage us to fund consumption with some effort and application.

        Some limits on the rate of non-renewable resource extraction.

        Some limits on govt borrowing off shore

        Some limits on some types of private off- shore borrowing – wholesale for mortgages etc

        Some limits on what major capital assets are sold off-shore.

        Some combination of the above will rouse the sleeping nation from its slumbers.

      • winding down the supply of cheap offshore money and easy options like selling off capital assets and non-renewable resources

        I’ll put it as the negative:

        Until we spin up the supply of credit to productive enterprises at rational LVRs such that we have an internal capacity to purchase our own capital assets and develop non-renewable resources into finished products for both endogenous and exogenous consumption.

        Put that way we can see the solution, not just the problem

      • mig…you going to pick some winners?
        As per pfh i think we have to set the macro settings correctly, sort out some of the monopoly issues, and let enterprise sort itself out.
        Having said that we are too far gone. The current powerful would just bury all the rest.

  14. Isn’t falling income in developed countries an expected consequence of globalisation and easier access to cheaper workforce overseas. I understand this reduces costs but it could also reduce household spending in the local economy. Why is this a surprise? My naive understanding is, business costs will drop, but so will sales.

    • Logically true Al. The problem you refer to is exacerbated by the FIRE economy grabbing most of the benefits. Real business sees next to none.

    • Jumping jack flash

      +1 Al,

      Continue that line of thinking and you get yourself into all kinds of “trouble”. 😉

      Consider the debt service requirement of the average punter. Hovering around 40-50% of *household* income with record low interest rates, can anyone afford proper wage reform to make Australia more globally competitive?

      It would not be allowed, and if it was so much as hinted at, as Howard did in his latter days with Workchoices, they’d be out on their proverbial.

  15. Well writ HnH. Can’t say I agree about selling off Graincorp in exchange for cheap American dollars, but agree with the drift. Subsidising American car companies at the behest of unions, to churn out inflated 2nd rate product will be a good start, but like most posters here today, I don’t think Australians generally will bite the bullet. Been on the teat too long. The arguments about global warming, rets, recs, carbon credit trading etc. has me thinking that too many out there believe in fairies at the bottom of the garden and that real money grows on trees.

  16. It appears that we might soon see whehter the Libs understand what can be done with a fiat currency in times of almost certain high unemployment.

    There will be two choices:
    1. Monetary policy to ZIRP and QE which will do nothing for unemployment but will make many shareholders richer as PE’s increase and earnings are saved by falls in interst costs. This allow substantial unemployment to develop.
    2. Infrastructure renewal and expansion with borrowed money, possibly “printing” by selling goverment bonds which are then bought by RBA to reliquefy the banks. This will stave off the unemployment problem for some years but leave us with higher public.

    • Explorer (note not trying to teach my parent’s mother how to extract the embryo juices of the bird by suction)
      We aren’t the Reserve currency. That little loop you outline can only be sustained by ever increasing sales of assets to foreigners to cover the CAD so generated.
      Rooot me boot! No matter how you look at it you come up against a hard place. It’s just such a disaster it blows your mind thinking about it.

      Here we are all stressing! Glen has gone off to work whistling as happy tune! Parko has probably been picked up in the Limo this morning and thinks summer in Canberra is quite nice. His sec has brought him his expensive coffee from the expensive coffee machine. Gail is considering what beautiful things she can buy with her unspendable amount of salary and bonus. Other bank execs are all pondering what expensive toy they can buy next. The lawyers are all looking forward to getting away to the beachfront condo. The RE agents simply can’t believe the money they are no earning! etc etc

      What the hell are we doing here giving ourselves grief over this s..t!!!!!!! Nobody else gives a RA!

      • interested party

        Flawse mate………….change will come in due time. It will take the pain threshold of the general population to be breached in a serious way to open up minds and attitudes to a better way of doing things. While this pain threshold is not touched, it will be business as usual with plenty of fits and starts in the mix. While we have our version of the free shit army to vote these clowns in, nothing will change…….until it does, And it won’t be pretty.

  17. I see Australia’s future like Cuba before Castro. It will be the holiday island for Chinese elite, which will enjoy the endless beaches, expensive services and exciting gambling. When they need resources, they would just run their own resources companies (sold to them after the mining boom) to higher capacity, they can feed their elite with fresh produce from their farms (sold to them after the mining boom) and they will have plenty of servants in their mac-mansions for maintenance during their business work in China.

    Australia is loosing its own future and nothing will stop the process, because more than 80% of the population, happy bogans, are excited by the idea to sell their overpriced homes to the wealthy Chinese, who have the highest math score in the world. Obviously they will do better math than local bogans when time comes.

    Good luck Australia

    • But don’t mention reforming education whatever you do! That would be discriminatory to the morons who can name all the members of the Kardashian(?) clan but not the number the set ordinal of those members equates to (or even be able to follow that sentence to know that I’m asking how many kardashians are there)…

      Western societies have been corrupted by PC to the point that grammar is no longer admissible and argumentation irrelevant. Whatever you feel must be the right thing to!

      • I have only heard recently about Kardashian clan, I don’t know them and don’t care who they are, because they don’t appear on the websites and in the books I am interested in. But obviously what you say about them, being popular among morons, is more than enough to not even be curious to Google their name.

      • Oh trust me Lori DONT!!! I only know of that nonsense through aquaintances (female) who obsess on that garbage.

        Leave it well alone is my advice — a conclusion you’ve already reached with good reason 🙂

        Edit: Before I start to get blasted by the PC crowd male acquaintances who obsess on football and cricket to the exclusion of reality I find equally pathetic.

      • “Western societies have been corrupted by PC to the point that grammar is no longer admissible and argumentation irrelevant. Whatever you feel must be the right thing to!”


  18. Great, insightful post. Seems to me that the investment attention has been turned away from market-based profit making for so long, that the spectre of the saviour welfare-warfare state has taken centre stage – a generalisation, of course.

    If the bulk of businesses in this great land are SMEs employ the greater proportion of workers, then nothing is stopping them from being created. Entrepreneurs know how to make a buck. Then why is new investment not growing at a sustainable pace? Opportunity cost! If it is just as easy to plonk you money into non-producing assets like equities (20 to 25% return) and property than risk it on new, risker enterprise, there is the problem.

    For my money it is what has not been happening that is of greater concern. When the state appears to offer salvation via subsidies and interest rates, then it distorts prices on markets, and the structure of production is nobbled.

    It is fine having a mining boom but not an engineered equity and property boom. This wealth effect caper is stupid, so is the Keynesian notions of dissaving. Without more capital starting and continuing new and existing projects we will suffer economic retrogression, as HnH noted in his comment on below trend GDP growth.

    We need statesmen, with vision, and a healthy understanding of the policy impacts of interventionist Neokeynesian promises of nirvana but end where we are now – below trend. There are free market economists still around but many in academic economics departments trot out the same tired old interventionist tripe. Probably not one among them has had to stump up for a payroll.

    More capital investment by entrepreneurs is the key (as well as the commitant reduction in prohibitive policy that forestalls that – red tape).

  19. A great post. We lack innovation and a can do attitude in this country, as well as our lingering general apathy as explained by the “she’ll be right mate” mentality. Well it won’t be right and unfortunately it will disproportionately affect the Gen Y’s and millenials.

    The complete and utter failure of successive governments to grasp the changes going on globally borders on criminal neglect. This along with being the most over governed country in the world – 3 levels of govt for 23 million people – a joke.

    The only way out I see if to return opportunity to small business and entrepreneurs without regulating them to death – but it won’t happen, so for me its time for plan B, move some assets offshore.

    • interested party

      “move some assets offshore.”

      Interesting concept but I reckon the rest of the world is in a worse spot than us…….it’s like we are the last turd down the toilet!

  20. Where is the sovereign wealth fund? Where is the rebalancing of the economy? Where is the cogent plan? The answer to all three questions is that they do not exist. I’m afraid we have gorged ourselves in the time of plenty with no thought for tomorrow, and guess what tomorrow is fast approaching.

    High dollar, high wages, employment costs, red-tape, educational sub-performance, entitlement culture – we need to be on a war-footing to fight these evils. The longer we delay the decisions the more painful this is going to be.

  21. The problem is simple. Australians in general are paid far too much given their productivity. The reason they need to be paid this amount is to afford to buy grossly (50%) over-valued houses.
    Successive Governments have allowed the illusion to continue. We are about to learn what a recession feels like.

      • Depends on whether you’re talking recession or depression.

        We have far, far more private debt than we did during the 1880s and it took around fifty or sixty years from then for house prices to recover in real terms.

  22. Nothing will change until we break the financial oligarchy that is blocking essential reform. In the meantime the patient will be given all the anesthetic required to saw his own limbs off.

  23. Great post, great comments.

    My view remains the same – the usual bubble dynamics is in play and there is nothing that indicates that this time is different.

  24. +1 take away the noise and it’s more of the same.

    The only people that don’t know this are those getting sold a leveraged product (in some form). It’s amazing how quickly people forget.