Dad’s Army presses the panic button

It’s hysterical stuff today at Dad’s Army. Alan Kohler reaches for the Bible:

And when I say “ever”, I mean just that, as this amazing chart from a speech last week by the Bank of England’s chief economist, Andy Haldane, demonstrates. It shows global interest rates back to 3000BC, when construction workers started building Stonehenge, Troy was founded and Djet became the fourth Pharaoh of Egypt, replacing Djer, who passed away.

150226AK1

Interest rates have never, ever been this low.

So to sum up: savers and workers are being crushed; owners of assets are big winners.

Are they? Not according to Gotti today (or Kohler the other day, for that matter):

I am not forecasting that they will lead to a recession but we are in uncharted territory.

We will start with last night’s stark warning from ANZ Banking Group that investment in resource projects is set to fall from $76 billion in 2013 and $61 billion last year to just $10 billion in 2017…

…what might fill the gap is the unprecedented investment by the Chinese in apartment development, particularly in Victoria…This Chinese-led apartment boom is now vital to Australia, given the timing.

…But the voters don’t like the Chinese/Asian ‘invasion’ so Tony Abbott, desperate to salvage his position in the opinion polls, is planning to undertake a whole series of clampdowns on foreign buying…That’s likely to really hit the one thing standing between Australia and a recession

And is keeping that spiggot open a solution, Gotti? Self-evidently, not.

It’s not the content of these ramblings that matter, it’s the tone and narrowness of the perspectives. These are clunking cogs spinning off axis in a failing machine. Commenter Pfh007 summarised it beautifully this morning:

Expect it to get very incoherent as defunct economic models (Neo-lib attitudes to trade and capital) crash into the politics of recession (worried locals).

Exhibits

1. Mr Robb signing predatory capital inflow facilitation agreements (FTAs) to assist the FIRE industries that export – capital assets, industry, land and financial claims on public and private income AT THE SAME TIME as Abbott and Kelly try to hose down the issue in relation to residential real estate.

2. Population ponzi and guest workers (457 visa) and golden ticket migrants (SIV) AT THE SAME TIME as rising unemployment.

3. Residential Asset price pumping programs (ZIRP) AT THE SAME TIME as pumping supply to try to provide some employment options in residential construction.

The ability of the politicians to ‘hide’ the very real consequences of an economic model that involves supporting a standard of living with off shore debt (public and private) – “….interest rates will always be lower….” i.e. living on debt – is starting to fail.

The day middle Australia finally gets to the OMG moment is getting closer.

Beads of sweat on the brows of Treasurers, finance ministers and RBA governors are the best index.

Joe Hockey is already sweating bullets and I reckon even Mr Morrison looked a bit twitchy on the 7.30 report last night.

That’s it with a cherry on top. We’ve seen nothing yet. As Australia’s current account deficit model slowly comes apart, all manner of hysteria will rise. Pass the popcorn.

Comments

  1. In a world where household debt has escalated to a high point it’s a natural response from regulators to transfer money from savers to borrowers to contain that debt level, via low interest rates.

    • that doesn’t really make any sense, Peter

      The natural (or sensible) response, would be to contain household debt by increasing interest rates, and then deal with the fall in demand through fiscal stimulus.

      • I’d be OK with that but do you see any governments anywhere stimulating the economy with work programs and pushing wage rises which is what is needed, so CB’s do what they can.

        I don’t have the link but there was an interesting exchange between Yellen and a republican where she told them that they were not doing their job. Worth a read.

        In Oz I actually agree with HnH that APRA will gradually put the brakes on the banks.

        It’s worth noting that when the CBA reduced interest rates this month by 0.25%, they would normally have reduced their “assessment interest rate” by the same degree, but in fact the only reduced it by 0.15%. Not sure whether that is their own prudential policy but I suspect that APRA had an influence.

        Their assessment rate for a SVR is still above the 7.00% that APRA has stated as their line in the sand.

      • Something has to replace all that dirty money Peter, hence the rub of removing it in the first order and then replacing it.

        Skippy…. just look at the Troika shezzz…. shooting ones self in the foot… only to put off the one to the head latter down the track…

      • Another response would be Piketty’s global wealth tax.

        At the root of the problem – worldwide, not just in Australia – is the dysfunctional concentration of wealth in the hands of the very, very wealthy who:

        a) have a low propensity to consume; and

        b) are reluctant to invest because there is no demand for the increased quantity/quality of what would be produced.

        It is like a game of Monopoly where one of the players has acquired all the properties. There is simply no mechanism for the game to continue without being re-started and the properties redistributed amongst the players.

        One can waive the other players’ debts as and when they fall due, and allow them to collect $200 each time they pass GO. But as long as “r > g” (in Monopoly, the rent collected on the properties is greater than the income from passing GO) the game will continue to stagnate.

        The modern fixation with growth is just that: modern

        For most of human history, the economy was a stagnant system in which a few players held all the properties. Under the New Elite Consensus that is what we are returning to.

        Remember that beyond a a minimal level of penury, homo sapiens are concerned more with relative status than with absolute wealth.

        The Elite won’t care if the pile does not grow. They might not even care if it shrinks . . .

        . . . . as long as they remain at the top of it.

      • Great analogy with Monopoly Stephen, I am definitely going to use it when discussing such topics with others.

      • It is like a game of Monopoly where one of the players has acquired all the properties. There is simply no mechanism for the game to continue without being re-started and the properties redistributed amongst the players.

        Lovely! Best thing I’ve read today

      • The Traveling Wilbur

        @Stephen

        “Remember that beyond a a minimal level of penury, homo sapiens are concerned more with relative status than with absolute wealth.”

        Yup. “My tree is bigger than your tree.”, “I can fling my poo further than you can.” That is what it still comes down to after 70,000 years of ‘evolution’. “I can’t see those trees in the forest either.” seems to be the problem for CBs at this point. Except in the US, where they saw the trees, identified a plan to deal with those trees, scared the shit out of the markets a couple of times a year until they realised they couldn’t keep telling the markets that the trees were coming and not expect to scare them out of their hides, and then, when it seemed like they’d almost reached the trees, they get cut down by the Japanese, the EZ, the Germans, and then (to a minor extent) Glen Stevens. And turned into IKEA coffee tables probably. What a joke. And people are still predicting rate rises in the US in 2015… sigh. I’m going back to poo flinging. It’s just as unhealthy for you but a damn sight more fun.

      • It’s no coincidence that Monopoly (the board game) is a good analogy. The game was originally conceived to demonstrate this exact process – that as you acquire more assets you gain control and “win”. In the end money doesn’t matter other than as a unit of exchange – its the assets that matter a.k.a real stuff. In fact you don’t want to hold money too long at all (aka monopolies cause massive inflation due to lack of scarcity as well as a concentration of power)

        The sad thing is that most people who play the game don’t understand this fact or the correlation to the real world; that eventually everything will be owned by a few and then you are the “loser”. That the world economic system is actually this simple – it’s not as complicated as banks and economists make it out to be. Other factors may change this in the short term but eventually as the asset concentration moves to the rich this effect overrides all other economic effects.

        Lower interest rates are failing to stimulate; wage rises are stagnant yet asset prices are increasing. Our monetary system isn’t that old (since the 1970’s when we went off the gold standard) and yet it’s done this much damage in a short amount of time.

        At least with a board game the game ends and you can start again; very unlike real life.

    • reusachtigeMEMBER

      Right on Peter! This nation is built on debt and housing speculation and the ugly idiots who have put their money in the bank instead of prettying themselves up with housing investment deserve to take it up where it counts!

      • maybe they should go to bank tomorrow and pull their money out.

        Ultimately, the faith of the ponzi scheme is in hands of “fools” who still keep money in banks

      • @ doctorX – how much superannuation money is tied up in the supposed safety of a bank cash account? Plenty. Far too many of those chumps simply have either no awareness, or too small an account balance to make a cost effective choice thanks to compliance costs that largely protect the industry.

    • Would you mind explaining the phrase “natural response”?

      Do you know of a similar example somewhere in nature?

      If by natural you mean logical, please can you please explain that logic? (hint: pay attention to moral side of the decision and try to provide moral justification)

    • Of course, nothing to see here, move along. Just the total destruction of labour and its collective wealth. You are despicable.

    • CBs have been transferring money from savers to borrowers via asset inflation all along. This is just a more obvious form of it.

    • Peter

      Please show just one period of any significant length where lower interst rates have resulted in less dfebt!

      • flawse – See chart above. You and I have lived through times of extraordinarily high interest rates, and there is a danger that we will believe high rates to be normal, they aren’t.
        I watched business owners and farmers battle with rates of well over 20% and it killed many of them – literally – some suicided and others went into bankruptcy. I see nothing moral in high interest rates. Some ones version of normal is a judgement call by them that may or may not be correct.

        Rather than analyse from a moral perspective and finger point, I would rather work out where we are and where we are going, because I don’t get a turn at steering the ship and nor does anyone else around here.

        Taking the high moral ground is a pretty useless pastime when we don’t know where the hell we are or where we are going. In the end we can only act as individuals. Any collective action will be by chance rather than orchestrated.

      • True enough Peter, the whole “normal interest rate” thingy is quite wonky. Trying to make it – so – is even worse, but, then monetarist are like that.

        The quasi thing with QE et al is evidently even worse.

      • Peter
        I note you produce no data of any kind to show that low interst rates reduce debt. that is what I asked for.
        Now my stand is not moral. It is purely practical. For you it is OK to continue on dowqn teh path we are on selling off the nation to foreigners to pay our way. it’s great! We get lots of current consumption while we eat up the income streams that should have flowed to our kids. Meanwhile we create more and more dislocation and stress even within our current community.

        ‘Monetarist’ Monetarist??? You are effing kidding right skippy. I’m the exact opposite of a monetarist. I deal with real stuff and real resources not a bloody magic pudding!
        Do you not read or learn anything other than your own narrow view in academia?

      • flawse there is plenty of evidence that lower interest rates reduce debt by allowing borrowers to reduce the principal more easily.

        http://www.economicshelp.org/blog/6775/debt/total-us-debt-public-private/

        It’s quite obvious that the household sector in the USA has taken the opportunity to delever.

        In Australia growth in real debt per person and growth in household debt has slowed considerably even with our comparatively high interest rates.

        http://www.abs.gov.au/ausstats/[email protected]/lookup/4102.0main+features202014

        Of course interest rates are not the only answer, we need less debt and wage growth, and that takes time. I guess we could veer off into Pickety here and discuss the fact that globally the poor have borrowed to enrich the wealthy, but at this hour of the day it’s probably all too philosophical, I would rather have a vino.

        I’ll pour one for you in case you drop in.

    • I agree with PF on this one.

      The question is what to do when there are no more savings to be squeezed. For example, my savings are in US equities, and thus beyond reach of the Oz government. More and more people are diversifying in this way.

      This can’t continue indefinitely.

      • “I agree with PF on this one”

        “This can’t continue indefinitely.”

        Dud

        Those two statements are mutually exclusive. Peter is arguing that, not only can it go on forever, but that teh whole scheme can be expanded forever.

      • Perhaps I misunderstood. I simply read that he was saying it was a natural response for regulators to transfer money from savers to debtors in a high-houshold-debt scenario.

        That doesn’t make it the correct thing to do, from a moral or consequential standpoint. Nor does it make is sustainable. But as experience has shown us, it is what all governments actually have done, except perhaps Iceland. So I think PF is right; it’s the ‘natural’ thing to do, as demonstrated by almost everybody doing it.

        Maybe PF said it can go on forever, but I missed where he said that in this particular thread. I think it’s doomed, but that doesn’t make it any less ‘natural’ at the time.

  2. Gosh has the word OPPORTUNITY been deleted from the dictionary?
    Overvaluation fuels the fire of opportunity, if houses are over valued then build houses, if equities are over valued then build companies, if governments are unresponsive then build revolution.

    Take your labor back under your control and with it build your future.

    • Building stuff like a future is so 1960’s CB, the ideologues have already outsourced ours. We’ll just sit by and enjoy the good times until it is delivered to us. I’m sure it will be exactly what we deserve!

      • I kinda hear what you’re saying BUT opportunity cant be out-sourced , matter of fact IMHO the process of out sourcing creates opportunity in that the mundane is outsourced however the differentiated can never be outsourced. So the economy logically shifts up the value chain when it leverages foreign labor through outsourcing, that begs the question: Do you have the right skills to recognized and capitalize these advantages?

      • @skippy
        Humans are a legacy issue
        to quote my old mate GWB that’s a “true fact” sad but true. of course in my world view its only the un-differentiated humans that have legacy issues for the rest there’s opportunities galore implementing the “new world order”

  3. That credit squeeze in 1 AD would have caused a lot of people to look at their investments and say ‘Jesus’.

    2 years earlier – they wouldn’t have know what word to use!

  4. “So to sum up: savers and workers are being crushed; owners of assets are big winners.”
    Starting to think that people who have both are the winners! As in people with savings in an IO offset account would be winning on both sides! Saving on interest,keeping cash flow and their assets appreciating

  5. Dads army got paid around 30 million dollars by rupert right .
    That i consider a success story ,the question is what is this site worth?

    • “That i consider a success story ,the question is what is this site worth?”

      Depends if you’re selling to Rupert Murdoch or someone who can even vaguely value a website.

      See MySpace.

      • No reason to believe Justin Timberlake is remotely interested in anything Australian, so zero is an option.

  6. the solution is clear. Governments must promote growth. Get the dollar down and keep it there, attract as much foreign investment as possible, simplify the system (tax, employment visas etc), eliminate the perennial current account deficit and live within its means (fiscal surpluses and rightsizing programs to match capacity to pay)…..good luck with any of this though…

    • attract as much foreign investment as possible

      eliminate the perennial current account deficit

      Those two things are at odds with each other.
      (Not knocking your post particularly but I think we need to recognise the damage this free and open capital market has done in the face of a Fed that prints in unlimited fashion and an economy that has turned itself into almost solely consumption.