The rise and rise of Australian wussonomics

Over the weekend the mainstream press finally ran an article on the disaster unfolding around QLD’s LNG industry. Not surprisingly, it came from Michael West, one of the few journalists left with a brain as well as cojones:

…It is constantly reported that the gas export terminals have ” long-term oil -inked contracts”.  But what exactly does this mean?

…Financial analyst Bruce Robertson says the huge move down in the oil price is likely to trigger contract renegotiations. “We have already seen Sinopec opt for such a renegotiation with Origin Energy’s APLNG consortium”.

…Serious doubts have arisen lately over the ability of the biggest customer for Origin Energy’s $24.7 billion liquefied natural gas project to take delivery of the gas. Market  has  had it that the Chinese buyer may seek to slow the ramp-up of production, causing a hit to Origin’s 2015-16 earnings.

As in the coal cycle, history is repeating in gas. The three major export LNG markets are Japan, Korea and China. Confounding the forecasters, demand from all three countries has declined, not rapidly risen.

…”In Asia, as in Australia, energy efficiency has also taken hold and lowered demand,” says Robertson. “This is a far cry from the scenario of ever-expanding Asian demand that was spread by the industry prior to getting their rushed approvals for their Gladstone LNG plants.”

Yes it is and as a result the $80 billion plunged into the Curtis Island white elephant is the single largest capital mis-allocation in Australian history.

But at the same time we got the following from the Australian Financial Review:

“When you do something as big and innovative and imaginative as this, don’t imagine it is going to be easy – it’s not easy,” Knox said from Santos’s Brisbane office ahead of Friday’s sailing of the first GLNG cargo from Gladstone.

“We’ve risen to that challenge, we’ve demonstrated we can do it. I think what will happen over the next 20 years people will say, well thank goodness Santos did that, it was a great outcome for the company.”

The halving of oil prices over the second half of 2014 has slashed the revenues Santos and its GLNG partners can expect to receive from initial exports, given LNG prices are directly linked to crude prices. JPMorgan energy analysts this month cited likely rates of return from GLNG at just about 6 per cent at current oil prices, about half the hurdle return rates typically used in the industry.

“If the price stayed at $US50 that would be right, but I don’t believe and I don’t think our investors believe the price will stay at $US50,” Knox says in response.

As I pointed out Friday this is factually inaccurate rubbish from a journo on a junket to Curtis Island. These are cash returns not returns on capital. Once you add the cost of building the plants and infrastructure they will make amortized losses for as far as the eye can see. Add the debt taken on to do it and the firm’s involved have all but been destroyed.

Now, before I lose you in the boring details of frigid gas let me bring you back to the point of this post. The failure to account for the unfolding LNG disaster is symptomatic of a much wider malaise in the Australian economy. It is the rise and rise and rise of outright, irredeemable and poisonous wussonomics. Let me explain.

The urban dictionary defines a “wuss” as:

A person who is physically weak and ineffectual. Often a male person with low courage factor. A person of dual sissiness. This is actually a combination word. The person this word describes is not only a wuss, he is part wimp and part puss. Originally first heard by Damone in Fast Times at Ridgemont High.

Ahh!! Your a frekin wuss!! Part wimp, part puss.

The LNG story, or non-story more to the point, is a perfect symbol of contemporary Australian wussonomics; a cowardly and skulking form of economics that unites all major Australian institutions in pathetically silent failure. Returning to the LNG story for a moment, consider the players:

  • The companies involved stuffed up enormously by leveraging into a bubble that meant that they built three LNG plants separately on the same little island, built three separate ports, three separate train systems, three separate 400km pipeline systems, three separate fracking and gas extraction operations and all for demand that is not there.
  • The guv’ment stuffed up enormously by egging it on and failing to do the most basic cost/benefit analysis on what a LNCSG industry would deliver, as well as failing to install an appropriate regulatory framework to prevent unintended consequences. This blundering was so epic that retrospective economic modelling shows that the lower the LNG price falls, and the further from profitability the LNG plants get, the greater the benefits to the eastern state economies. Yes, you read that right.
  • Quasi non-government entities such as the Reserve Bank of Australia completely bought the bubble as well and embarked on large scale operations to hollow out non-mining activity to “make room” for this economic imbroglio leaving a legacy of Dutch disease as they collapse.
  • The media is still busy kissing the butts of the architects of this capital and economic vandalism. At ORG, the CEO and Chairman are happily ensconced overseeing ever more shareholder destruction without a peep from the MSM while it delivers  STO executives ridiculous farewell panegyrics instead of running them out of town.

In short, the QLD LNG story cuts an uber-wussy swath right across the institutional structures we often point to as a part of our exceptional superiority. How can this possibly be?

I put it to you that there are four main drivers of Australian wussonomics, some deeper than others, and all of them go to the heart of the economic challenge confronting Australia’s future.

The first pillar of wussonomics is our peculiar economic structure. After a three decade run of good fortune, we are left with a massively inflated cost structure that means the only two economic activities of any magnitude that are left are shipping dirt and borrowing money to inflate house prices.  This in itself leads to Banana Republic dynamics in which two dominant rent-seeking sectors – mining and banking – control policy, and various bizarre ideologies rise to justify that concentration.

The second pillar of wussonomics is the cyclical implications of the above. As we pass through cycles, bad decisions are made over and again, and those making them become more and more compromised.

One example is the extraordinary turnover in our political leadership. As each new leader takes on the trappings of the dominant rent-seekers, wussonomics is sustained as economic narrative of the day. Our leaders celebrate dying coal not rising solar. Terrified of the household debt underpinning banks, they preen “confidence” instead of shifting funding structures to productive lending.

A second example is the RBA which went from over-egging a commodity bubble and setting policy to let it run and, when its first bubble popped, shifting to over-egging a housing bubble and setting policy to let it run. Each blunder begets another as institutions and their leaders sink further and further into arse-covering over national interest. Then, one after another, these same leaders are torn down by a disaffected polity because wussonomics only makes things worse by entrenching the economic vandals while promising the world.

The third pillar of wussonomics is a really sick media. The timing here is unfortunate in that media is undergoing huge disruption that has bereft it of its traditional business model. That has killed vigorous journalism as cost cuts destroy corporate memory and talent, and as advertising becomes advertorial because managers are afraid to upset a narrowing set of business clients, that tend again to be in the dominant rent seeking sectors. One needs only to observe the centrality of real estate and banks to media profit growth to see this.

The fourth pillar of wussonomics is older and deeper. It is Australia’s unique sub-altern identity, it’s long term inferiority complex, a mind set that over-celebrates achievements and buries failures, which leaves Australians at constant peril of psychological colonisation.

As our great reckoning gathers pace, it is these four pillars of wussonomics that are preventing the nation from taking the measures needed to head off a collapse of some sort and/or to rebuild most effectively. We need the courage to take on rent-seekers and to describe our real circumstances, as well as shift policy so that we turn the ship slowly in another direction; the insight to hold our failed leaders to account so we can create from destruction, and the fortitude to admit it when we’re wrong.

Australia has natural endowment, brilliant innovators, a huge capital pile and perfect Asian proximity yet instead of turning these features into the dynamic investment and trade gateway to Asia we’ve transformed into a bloated, backward and rapidly declining economic wuss.

Comments

    • The only one who has been on it for a long-time. Took a while to come to tuition, but from now on will be nothing short of brutal.

      Well done H&H

      PS – don’t like the greedy look at “capital pile” – which is controlled by us. Its our pie, and innovation in Australia is almost non-existent. And probably that is the natural way of things. Have a look at the US – our capital pie is not even a crumb compared to theirs, and their thirst for innovation unbelievable. They don’t manufacture much stuff anymore, they innovate. How? The markets. Thats he source of innovation. Truth be told H&H, our capital pile is far too small. our markets are too small…

      • The market doesn’t innovate, people innovate… And it’s not always good.

        Seriously, how can you still be a free market salesman as global wealth has shifted relentlessly to the 0.1%.

      • Aj – I know you are not good with numbers, but let me remind you that US medium income is $52k pa (mean is $55k pa) – some 25% higher than that of Germany and <40% higher than Europe as a whole.

        The 0.1% by definition innovate – and they should be rewarded. Compare US with Europe, one innovates, one protects!

        The point you simply don't get is that the 0.1% occur everywhere, even in N. Korea, it is whether the population overall benefits. Capitalism is not perfect, but it is the best form of income distribution we have found.

        Challenges remain, the era of robotics will make many obsolete. But does that mean we should just keep with the present?

        You have to think outside the box Aj, your are too linear.

      • let me remind you that US medium income is $52k pa (mean is $55k pa)

        Also wrong. Not surprised, since all yr comments on climate are wrong too. Your new name: NoResearchTime.

      • “The point you simply don’t get is that the 0.1% occur everywhere, even in N. Korea, it is whether the population overall benefits. Capitalism is not perfect, but it is the best form of income distribution we have found.”

        Jesus Christ you talk SHIT.

        The 0.1% owns 50% of the worlds wealth – therefore capitalism is the very worst form of income distribution. Capitalism – by default – is monopolistic. The only way we prevent capitalism from becoming monopolistic and as always tending to self destruct we have MARKET interventions to prevent monopolies. Those market interventions are precisely socialist.

        Further we have socialist interventions to deliberately redistribute wealth away from the rent seeking monopoly industries – which is again, socialist. That’s what taxation is. That’s what nation building is. And how does the .01% create its wealth ? How ? By capturing the public utilities, public services and privatising them and then rent seeking on those monopolies. All the infrastructure built with public money around the world – from universities, airports, trains, electrical grids, water, sewerage has all been captured by private wealth in a vast transfer from public to private.

        The ENTIRE FUCKING PRIVATE WEALTH is from the public. Even the military. Oil companies and resources companies are bleeding the sovereign national wealth from countries – the public purse – and transferring it into private foreign hands.

        That is not innovative – that is state sanctioned theft.

        Not from innovation – that is ALWAYS from the poor, lower, middle class start ups – Microsoft, Google, Apple, Tesla were not all started by mega rich 0.1% – they were started by poor people in their garage, in their university dorm room.

        You are consistently and overwhelmingly the dumbest person on this forum.

        There is a name for people who are exceptionally confident in their own opinion, beliefs and knowledge which is a result of them being TOO STUPID to realise how dumb they are – Dunning Kruger – YOU.

      • In answer to the above – numbers are correct R2M. Have a look.

        AB – that is exactly what I am getting at, have a look at the wealthy in the US, with the exception of Buffett, there are virtually no wealthily financiers in the 0.1% To make it big you have to create a business… its too hard, the market is too unpredictable.

        Max W – you back up exactly what I was getting at. Innovation and business are hand in hand.

      • Stewie GriffinMEMBER

        Always with the mindless defence of the pure free markets ResearchTime, but then you are always so intent at being seen to be “thinking outside the box” that you’ll proudly waffle on about some BS while standing next to a triangle.

        Could you be so caught up in your own insights (yet again) that you have mistaken HnH use of the word “capital” to mean the narrow definition of ‘capital’ gleaned from some economic text, that preoccupies your view of the world?

        Or could HnH be referring to a broader concept of capital, including social as well as economic capital? Australia’s strong rule of law and lack of institutionalised corruption (at least until recently) is something that will always count in our favour compared to other nations with the sort of capital that you are so obsessed over – a contract is a contract is a contract, under the law we inherited from the UK legal system, unless of course you have a contract in China or Russia.

        Despite it’s many flaws we still have a great educational system, that encourages free thinking and the challenging of pre-existing ideas. Our maths students may be beaten by the Koreans, but I would put money on the fact that our matheticians are more likely to think outside the box (in the genuine meaning of the phrase as opposed to your interpretation of it) and come up with more novel interpretations, than they ever will.

        Australia is not bereft of capital, it is amply endowed with the sort of capital that should enable the economy to flourish, all that is required is a good prune away of dead thinking – including the idea that unfettered free markets always deliver an optimal outcome.

      • RT, you are holding up the USA as a definition of a free market, yet is couldn’t be further from the truth. In a TRUE free market, post the GFC those distressed banks and companies, even those that pose systemic risk would not be bailed out – they would be allowed to fail. Liquidation would occur and the remaining viable assets would be bought for cents in the dollar. That is actual capitalism.

      • This is no-Research talking – consistently wrong on every pick – from housing to stocks… Confidence doesn’t make you right, but it does help you tell lies to yourself haha

      • Aj – I know you are not good with numbers, but let me remind you that US medium income is $52k pa (mean is $55k pa) – some 25% higher than that of Germany and <40% higher than Europe as a whole.

        It’s “median” and “>”.

        One also needs to account for things those US households have to pay for that the European ones do not, for example healthcare and higher education.

      • I am not sure if its naivety or what people are criticising what I have written? To build businesses you need banking and lost of capital because of the failure rate. I am simply listing the US as a good example of innovation. Its their turn I guess,it could be Chinas in twenty years… been in and around thousands of smaller companies and startups.

        The lack of knowledge is frightening. The innovation coming out of the US is second to none – arguably they will have a crash soon. But before you jump on that band-wagon, that too is unavoidable. There need to be more perspective among some of the pundits IMHO.

      • There’s something in the Australian psyche that can’t recognize anything positive about the US. It’s like a special kind of mental illness.

      • There’s something in the Australian psyche that can’t recognize anything positive about the US. It’s like a special kind of mental illness.

        Bwahahaha.

        Australia as a society has been desperately trying to recreate America on its shores for thirty-odd years. Every Government is all but duty-bound to swoon for US interests.

        Can’t recognise anything positive about the US ? You’d struggle to convince most people in this country there was anything _bad_ about the US (other than maybe its gun laws). Bogan pride is replacing the Holden badge on your car with a Chevy one, FFS (superb top-shelf irony in that as well, given we export them there).

        You, OTOH, exhibit the quintessential American response to any suggestion the good ol’ US of A is not the pinnacle of human achievement in every way. The kind of reaction “proud Australians” are also aping from Americans.

      • Uh, no. I’m quite aware of the USA’s shortcomings given the amount of time that I spent living there. But people here seem to mock what they don’t really understand. You have an obsessive-compulsive reaction to disclaim anything positive about the place. It’s pathological. You’re in good company on this board, though.

      • I haven’t the slightest problem acknowledging things the US does well.

        Its wealth distribution and rigged markets, however, are not things it does well.

  1. Me thinks the only way we’ll learn from this, is to be burnt VERY badly. Otherwise this farce will keep on chugging…

  2. Great piece. I would only add to the pile the dismal advice provided to politicians by many of the country’s public servants. The healthy budgets of the past two decades have rendered a senior echelon incapable of thinking clearly or offering advice that challenges the status quo. Most senior public servants are employed on a contract basis, meaning their advice is compromised. Frank and fearless is history. Yet they enjoy remarkably little scrutiny. Many of the bureaucracies they ‘lead’ are beset with problems and in cases corrupt. And salaries continue to soar.

    Some of the public scandels of recent years have gone mostly unoticed, the shambles of the air warfare destroyer project, the contract for the victorian desal plant, huge infrastructure spending in all states often unplanned and undisciplined and the tidal wave of payments ahead for many of the states for the disgrace of public private partnerships over the past decade. Billions upon billions of spending.

    All of these examples have been driven or supported by a craven public service that has chosen to forget its role is to serve in the public interest.

    • Only partly true Leighton – I think HnH is more on the money with his culprits.

      You do have a good point with short term contracts (generally 3 years long at senior levels).
      As for the rest, we don’t really know what advice senior public servants are giving politicians.

      Many of the problems you identify, such as infrastructure capital misallocation, are due to politicians ignoring the advice of public servants. Remember, it was public servants who said that East West Link would destroy value, and politicians who ignored and tried to hide that advice. As for PPPs – these are the result of the lobbying of the rentiers in the Oz economy that HnH derides. Public servants pushing for PPPs and further outsourcing is like turkeys voting for Christmas – the impetus here is political and ideological and comes from the politicians.

      You are right that senior bureaucrats are not as frank and fearless as they should be, however the constant talk of incredibly high salaries for public servants here on MB makes me pretty sure you guys don’t work in the public service 🙂 There is no part of the public service where salaries approach those of the private sector.

      Disclosure: I’ve worked in the public service in the past and will likely do so again in the future.
      But blaming the public service is disingenuous. We keep electing the idiots who are really responsible, and nothing will change until that changes.

      • ++ politicians, voted for by us, destroyed our public service. But this was what we were told to do, as Thatcher and Reagan and the new breed of free-market politicians were twisted around the little finger of capital.

        Voters is stupid.

      • You are right that senior bureaucrats are not as frank and fearless as they should be, however the constant talk of incredibly high salaries for public servants here on MB makes me pretty sure you guys don’t work in the public service 🙂 There is no part of the public service where salaries approach those of the private sector.

        The pay is not ‘bad’, sure it’s probably not in the top area of the salary range for comparable private sector jobs but the entitlements the public sector gets are quite unreal. Things like 9 day fortnights, 17% superannuation, ability to take leave at half pay (so you can take leave twice as long)…

      • Stewie GriffinMEMBER

        Wussenomics is the economic dovetail and inevitable outcome of the rise of the Boomerocracy.

        In a normal aged pyramid style society, where the young outnumber the old, there is a continuous process of transitioning from generation to generation, and hence a continuous process of renewal, as the accumulated cultural heritage is transferred to new generations.

        In a normally functioning society, tension arises as young people appropriate that heritage, but being young, want to interpret the world afresh and shape it differently, change occurs and the stifling ideas of the previous regime, which may have been effective at dealing with the prior cultural transition, but having served their purpose and now unable to deal with the new cultural circumstance, can be challenged and replaced.

        Younger generations tend to be either more aware of the need to re-invent, or naive enough to at least aspire for change and something greater, and consequently refuse to accept the status quo at face value. While it is older generations who cling to the reorientation that they are most familiar with, i.e. the drama and reinterpretation of society from the previous cycle in their youth.

        With the rise of the Boomerocracy, this dynamic has beenbroken – there is no renewal in society, progress is replaced with maintance.

        Like the increasingly overgrown gardens of the elderly, pruning and replanting cease and the gardens of ideas become overgrown with ideas that were in fashion 20 summers ago, yet which have now crowded out all the light for new ideas and growth.

        The great virtue of youth is that they are make fresh starts possible – but take a look at all our economic policy, where is the fresh start? All policy at the moment is aimed with the preservation of the status quo.

        QE and low interest are not stimulatory, they’re a tax on productive economy by allowing non-productive sectors NOT to fail. They inflate input costs for productive elements of the economy by allowing the unproductive to continue to compete with the productive for factors of production eg by inflating land, and crowd out the productive. QE and low interest rates prevent the creative destruction of the past, and instead, like the garden of your 80yr old neighbour, they allow the rent seeking weeds to flourish.

        There is no creative destruction, there is no new wealth creation, there is only wealth preservation.

      • Aussie hate authority which is why politicians overule advisors. If you have risen to be a minister in a particular area then their is a good chance that trait will be amplified by ego.

      • Just a response to Jason above – 9 day fortnights! You’ve got to be kidding me 🙂

        Worked in a Victorian Public Sector job within in last two years. Senior Lawyers regularly appearing in Magistrates and County courts on 70-85 grand a year. Manager of Legal Services on approx 100,000 – responsible for 30 direct reports.
        38 hour fortnight, 9% super like everyone else (17% is only for Feds, not sure about other states…)

        Also it is right that pollies have final say – advisers are unelected. If only pollies listened and made good decisions!

    • In these pages we saw what happened to the QLD editor that questioned the QLD Government. Murdoch visited and the editor was gone within months. The same applies to Senior Public Servants. Incoming Abbott sacked four straight off. Two were some of the finest we had. One of the best left was moved to Agriculture to ‘mind’ the Minister, who then ‘lost confidence’ in him. The Secretary went, not the Minister. Public Servants aren’t stupid. No one spoke up for them. Our best administrators can be sacked for trying to apply good governance and there is no, absolutely no support for them. If you didn’t go out and support them then, you have no basis to complain now. We have trained the Public Service well to be what we deserve.

      • Yup, Dept Secretaries used to be largely protected unless they were clearly incompetent. These days however, if the secretary doesn’t go along with the ideological agenda they quickly find themselves marginalised and exiled.

    • The healthy budgets of the past two decades have rendered a senior echelon incapable of thinking clearly or offering advice that challenges the status quo.
      do you think private sector is much different?

  3. And now we are headed towards the Pauline Cafferkey Effect – “relapse tears up everything doctors regulators/economists/politicians/banks thought they knew”. In Australia’s case, the country caught financial ebola, brought on by decades of monetary promiscuity; the dominant global trend of our times. In the absence of a cure unconventional means were used to fix the problem, and just like the unfortunate nurse, they appeared to work, but the disease lingered; untreated, and has struck again. Death may the the final result, in her and Australia’s case, because the time to find a cure was when the disease was first diagnosed – perhaps as far back as 1973, ironically in both cases, but certainly in ’87 and definitely in ’99.
    At the risk of banging my ageing, bruised head against the same interest rate wall, more of the same to cure what may now be incurable, is not the answer….
    (Just for the headline – http://www.theguardian.com/world/2015/oct/16/how-pauline-cafferkeys-ebola-relapse-tears-up-everything-doctors-thought-they-knew )

    • The ebola virus re-emergence thing is very interesting, but shouldn’t be so surprising, considering that even the flu virus can go dormant and re-emerge a month or so later, as many people who have had a nasty flu bug mysteriously return after an apparent recovery can testify.

      • The dis interest virus which has affected your web site is terminal. Not surprising considering the trash you post as information.

      • My “trash” (all of which is backed by impeccable sources) versus your cryptofascist twaddle? No contest.

        … your web site …

        BTW, do I have a website now? What’s the URL; I need to take occupancy asap!

        lol

  4. Discovery number 1 (for many) is that the FED and RBA do not ‘control’ interest rates!

    The unwinding of sovereign foreign currency holdings particularly in EM and ‘petrodollar’ zones is a serious challenge to borrowers of long term debt to roll over cheaply.

    I am not sure of the mechanics of this unwind but I ‘feel’ is to be deflationary as the accounts kept count the cash at least twice perhaps three times.

    Comments or corrections are welcome. 🙂

    • They do as long as they are willing to tolerate consequent fluctuations in the value of the dollar?

  5. GunnamattaMEMBER

    Beautifully put……

    Australia’s institutions are still pumping out the wrong prescriptions now – we are still not even trying to sort out an obvious economic obsolescence descending upon us. The reason we arent is because the politicians are generally wedded to the old ‘you say this I say that’ model, which is perfectly reflected by a press which has been corrupted (and desperate for cash to feed that) which beams the message into a population which was told to be relaxed and comfortable a generation ago and has never heard another message. Those who heard the message then (and agreed to become R&C) hold the assets (such as they are) or they have sold them off to fund a CAD – and they want subsequent generations to be the ones to not be relaxed and comfortable, but first and foremost so those not being relaxed and comfortable can fund the debts and retirement aspirations of those who want to continue to be relaxed and comfortable. The subalterns are expecting the new recruits to solve their problems for them…….

    and the banks….we shouldnt forget the banks

    Banks have outsourcing down to a fine art

    http://www.theage.com.au/business/comment-and-analysis/michael-west-banks-have-outsourcing-down-to-a-fine-art-20151018-gkbuax.html#ixzz3owwXTTT0

    Michael West notes that they too expect others to do the adjusting – they have an entitlement to be a succubus on Australia’s economic future. They wont change until they are forced by policy.

    ….and for all the bien etre that has accompanied Malcolm to the PMship I am still not seeing him, the new batch of Ministers or the opposition coming up with a narrative which genuinely articulates the problems and proposes policy to do something about economic obsolescence.

    • Good summary Gunna but you’re missing the part where they told a lot of seriously skilled young Aussies to @#$%-off we dont need no @#$%en smart ass engineers and scientists tellen us we’re [email protected]#$%-off .the lot-a-ya! @#$% you idiots don’t even own a house……how smart can you possibly be you stupid @#$%ers didn’t have the brains or the balls to buy a house so now you’ve gotta rent mine ….and the new rent is $XXXX (I’ve gotta pay the mortgage you know)
      From what I’ve seen in the US many many very skilled Aussies didn’t need to be told twice…they took the none-to-gentle hint and sought their fortune in the land of the free, most aren’t going back least ways not before the whole place crashes and burns, seriously I’ve heard many comments from other expat Aussies that make Lord-Dudley’s musings seem restrained.

      Their was a time when meeting another Aussie engineer working in Germany was incredibly rear, these days it has become common..

      ……it’s all Australia’s loss, you’ve mapped out a path to become the smartstupid country and you’re executing the plan with manic zeal….can’t imagine what could possibly go wrong.

    • Well said Gunna!!!! You’ve also managed to highlight the REAL foundation of ‘wussonomics’

      HnH – Not sure if this is a watershed moment in the perception of economics in this country but it ought to be. Certainly the title needs to be spread far and wide.
      Just this part… “I put it to you that there are four main drivers of Australian wussonomics,”

      Nope! You left out the most important driver which is the complete and utter stupidity and incompetence of Australian academic economists. As I’ve often remarked this crap started over 60 years ago and just got reinforced by almost every academic ever since. Common sense was lost in a never -ending drive to be counter-intuitive so as to appear ‘original’ and so advance one’s academic credentials.
      The very essence of ‘wussonomics’ was the notion that ‘CAD’s don’t matter’ Associated with that automatically means foreign debt, indeed debt generally, doesn’t matter and the sale of all our core businesses, resources and farms to foreigners somehow, somewhere around the mid-70’s, became a desirable thing. What matters in wussonomics is more restaurants and shopping malls (out of respect for some present I won’t mention coffee shops! 🙂 ) Production and productivity doesn’t mater. In fact productivity is a negative in wussonomics.
      Of course any attempt to correct the mistakes made, post about 1956, would always lead to a temporary reduction in overall living standard while the economy readjusted. What was worse was that the economic distortions were causing a fundamental distortion in the distribution and employment of the population in general. This makes the process irreversible.
      It’s notable that nobody, no media, no politicians, no economists, gave a RA about the sale of anything and everything ,and the negative effects this had on a large sector of Australian society, to fund consumption until it started to affect Sydney house prices. Now we have some great xenophobic outcry.It’s not a new awakening. It’s the same old crap that everything is somebody else’s fault and we deserve to live in fantasyland forever.Nothing will change until it is forced on us.
      The answers lie back in time.

  6. Well said, I don’t know why everyone thinks government finances will hold up as this unwinds. I took a drive across Brisbane yesterday for family reasons using the old roads.

    There are at least twice as many construction cranes up in Brisbane as have ever been before, at least 80% of them are building residential unit blocks. The very character of Brisbane is being changed. Old Joh would be chuckling in his grave. This is the biggest building boom in Brisbane’s history by a long way.

    There is hardly anything else happening here except residential construction and some shops. When this boom ends and the Gladstone people are let go, with the drought on top of it all, plus the mining downturn, the shock to Queensland will be worse than what happens in South Australia.

    • It’s pretty much the only manufacturing that hasn’t been off-shored and it’s been juiced to inconceivable levels. The mad unfettered population growth that’s needed for this mess to be even remotely viable has destroyed our beautiful places for ever.

      I don’t know how people look at this and not be sad, they must have hearts of stone.

    • Its not sad it’s feckin disgusting. A large number are fully foreign financed. Or jv with land owner foreign capital. At least render is not flammable

    • nyleta
      Heard a good one on the radio on Saturday. Some RE spruike. My quote is very very close at least.
      “Demand for Gold Coast apartments is very very strong as evidenced by the large number of cranes on the skyline”
      When I’m dictator I will sentence the bloke to be put in stocks at the local shopping centre with the quote written above his head and a cane handy for any passing body who feels like giving him a flogging.

  7. I find in my discussions with my workmates that most of them have any idea of whats ahead.
    They honestly beleive house prices will keep rising and very good paying jobs will still be available for ever and ever.
    I have a few starting to think differently now after i quote some of the figures i read from here at Macro.
    Some times i see the look of fear.
    Most times i see the “your f***ing crazy mate” look 🙂
    I did have some success, 2 bloke are putting off buying investment properties.
    It is going to be very painful for a lot of fellow Australians.
    Thanks MB, the best subscription i have ever bought.

    • I’ve given up discussing things with people as well.
      I’ve realised that it is like I’m talking algebra whereas they are still on arithmetic.
      It isn’t because I’m any smarter than a lot of these folk, it is just that I’m now more informed than they are.
      The hardest part is not making a scene when something that has been discussed on a website like MB for yonks finally creeps across to the MSM and all of a sudden it is a talking point of the wise and informed.
      (Note that my partner tries to keep me to a two glass limit of red when out an about to minimise ranting when said scene begins.)

      • 🙂 The eff3ect of red wine is strange – maybe it’s an age thing. When younger it set me, like fs, on a course to reform the world starting with those in the immediate vicinity. Now I use it to just deaden the pain of watching the inevitable train wreck unfold.
        Don’t get me wrong – I’m not immune to the train-wreck and current low IIR policies exacerbate that problem by keeping a whole lot of lying cheating reckless bastards in business in competition.

  8. Very good! There is something about Mary….Good to see in words the gist of many a frustrated sunrise coffee crew discussion….

  9. Well if Australia has natural endowment, brilliant innovators, a huge capital pile and perfect Asian proximity how about some ideas on to marshall those opportunities. That is where the rubber needs to meet the road.
    My call is that the joint has to collapse so that we kill off the old breed of thinking. But, robotics, How about RIO’s robot controlled trucks for a start. The new future is not going to require half as many workers. What then for all these immigrants we have just welcomed?

    • Thanks WW Re the huge pile of capital – I forgot that bit in my rants above. Where is this huge pile of capital? We’ve had to sell off everything, mines, farms, businesses and now houses, to fund our over-consumption/lack of production. We have truly massive international debts for the size of our economy. So where is the huge pile of capital? In shopping centres? Bloody beauty! Does anyone thing shopping centres aren’y going to become worth a whole lot less as this comes down? Can we somehow magically turn the money tied up in them by Super Funds into foreign exchange to buy the capital goods we will need to import to reorient the economy?
      There is no Magic Pudding! There is no pile of capital that has grown magically despite our eating our childrens’ future!

      • Fl, you are correct. Any money offered by VC is money borrowed from say the USA at nominally 3.5% and loaned on the back of a promissory note to Aussies at say 8.5 percent. With all sorts of riders.
        and you can have as much as you want, the more they loan the more their commission, and the more to slosh around on their mates. Once these vultures realise one has money, you cant get rid of them.
        I’m keen to see how Turnstile runs with this innovation thing.
        His mate Jack Cowin, just made a billion from his investment in Dominoes, Turnstile must be pissed off over that.
        But to all you young punters, if Dominoes can go it, so can you, Dont give up cos its hard.

  10. 60 Minutes and News Corp have solved our problems, DLS. The answer, apparently, is cattle export to Asia’s meat-hungry masses. Oh, frabjous day! Problems solved!

    Please nobody mention to them that:
    cattle are one of the biggest source of methane (a potent GHG, 23 times more powerful than carbon dioxide) on earth
    ► Australia’s inland areas are predicted to become much drier in the years to come, dooming livestock operations
    ► livestock export is a fossil fuel intensive operation

    Wouldn’t want to spoil the feelgood moment, with the idiot Charles Wooley-brained smacking his meaty mouth over the potential profits with glee, now would we?

  11. We were talking about the looming LNG catastrophe 2 or 3 years ago at MB. 3d was in full denial mode, posting lots of stuff about locked in contracts etc.

    • You can almost track the final hollowing out and destruction of the productive economy with 3ds comments. But then, he was never paid to win, he was paid to obfuscate and drag out reform until the cycle ended and all the boom profits of our 85% foreign owned mining sector were slung out through Singapore.

      • The hollowing out of this economy was well in train long before MB or 3d. In fact MB itself is a great promoter of the real source of the hollowing out of the economy. It’s an issue MB absolutely refuses to address and it is actually an example of wussonomics.

    • Let’s stick to facts Lorax. Three years ago the only collapse you were pining for was that of the Chinese economy. I considered such an event to be a calamity, for everyone, particularly resource based economies. There were mutterings by HnH that Oz LNG would be wiped out by US LNG that was to flood the world. US LNG was to flood the world as $100 dollar a barrel oil made developing US shale an attractive proposition, US gas pricing linked to HH, not JCC as Oz LNG.

      A lot has happened. Especially oil. Which no one predicted and which absolutely pressures LNG markets. And China has slowed.

      Oz LNG is 75-95% contracted. Fact. Projects of ths magnitude cannot get off the drawing board without without sales contracts secured, impossible to secure complex financing necessary. Clauses exist within contracts for renegotiation in particular events. Require contracted parties to reach agreement before alteration, significant legal ramification may arise (defined penalties) should contracts be broken. Our biggest customers, Japan and South Korea, are good customers. They understand the requirement for reliable orderly LNG supply over two or three decades per contract. They understand variables exist – we can see how rapidly conditions can change (for periods of months or perhaps longer) but their view is far longer term than a MichaelWest headline 😉

      LNG is in a state of flux. No one knows exactly what changes will ensue. Probably shorter contracts combined with greater reliance on the spot market. However, the big users are cognisant that these projects are massive in scale, costly to develop and form part of the price of ongoing reliable supply. Over reliance on spot can lead to a raft of problems peculiar to such markets including price spiking should sufficient LNG not be freely available (gluts come and go in resource markets).

      Finally, as I remind all the armchair economists at MB, decisions to develop major resource projects are years in the making. Risks always exist. That said, most Oz resource projects produce over many many years, long after the critics have moved on to their next point score.

      http://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/02/NG-81.pdf

      Ps. Chanos is down on LNG, US and Canadian prospects. Most hedge funds are long oil and gas.

    • Locus of ControlMEMBER

      I concur. Excellent analysis! Thank you for taking the time and effort to do this day after day.

  12. Damone probably said “you’re”.

    Why are gas contracts inked in oil? That’s a rather ostentatious use of oil.

  13. Another factor which goes along way to explaining dumb investment decisions in this country from the Treasury secretary, to the CEO, to the man in the street, is a lack of understanding of risk and return.
    – housing is consider a safe asset, and so yields pretty much the same return as the 10yr bond.
    – banks are consider good investments for low risk “yield”. So the nations retirement savings gets caught up in them. How stupid is that? Tell somebody in any other country that and they would laugh. It doesn’t matter how much market power they have, because of the leverage, small changes in the earning power of assets have large effects on book value and even larger effects on market value, when idiots think the bank should trade at such a high premium to book value.
    – “balanced” portfolios for retirement include a weighting > 50% equities
    – risking the economy on an all in bet on the management skills of the Chinese communist party is considered prudent.

  14. “The fourth pillar of wussonomics is older and deeper. It is Australia’s unique sub-altern identity, it’s long term inferiority complex, a mind set that over-celebrates achievements and buries failures, which leaves Australians at constant peril of psychological colonisation.”

    Yes, national character lies at the heart of all of the above. The character of modern Australians is perfectly reflected in our commercial media – from the smugness of Seven’s Sunrise in the morning to the vacuousness and narcissism of The Voice and The Block in the evenings, as well as the increasingly lame offerings from ABC and SBS. Some dismiss this simply as the ‘Americanisation’ of Australia – the psychological colonisation mentioned above – which is true to an extent. But America has an enormous and robust foundation of serious thought and research against which to buffer its more flippant side. It’s harmless to watch The Bachelor to unwind at night if the next day you (or your neighbour) drive off to Google and work on new ways to provide web access to sub-Saharan Africa. It’s more destructive if your day job is as vacuous and pointless as your downtime. Australians report some of the highest job dissatisfaction levels in the world – many of us would admit in a candid moment that our jobs are primarily pointless games of busy-bragging and politicking. And we pay ourselves obscenely to play these games. Of course not all Americans are working for Google or the NIH, but many do important and stimulating work that provides long-term benefit to the wider community – buttressing the dumbing-down of reality TV. The same cannot be said of Australia, and while nurses or teachers may read a comment like this and roll their eyes, it still stands that there is no bedrock of serious, future-oriented thinkers in this country with access to funding to further their work – and there never was. These problems of lacking vision and risk-aversion have always plagued us. But in the past we didn’t pay ourselves obscene salaries to do fuck all while we tell everyone how busy and important we are. In the past we didn’t borrow millions to live the life we think we deserve. Now we do.

    • MM exactly!.
      So now, how do we turn it around?
      Ever tried to train a Pekingese to be a Cattle Dog.? You will destroy yourself trying

    • I have a hard time calling it Americanization when it was never this bad in the USA itself. If the USA had 20+ years without a recession, then maybe. This is triple-distilled self-congratulation.

    • It’s not Americanisation. America is too large and diverse, sure they’ve got a lot of dumb ill-informed people but they also harbour some of the smartest and most innovative minds the world has ever seen. True they’re the home of reality TV, but how much of it makes up the prime-time viewing like it does here in Australia?

      What we’re seeing in Australia is stupefaction. The active and concerted push to marginalise intellectualism and embrace luxury boganism. All products have unnecessary adjectives to make themselves sound fancy (saw an ice cream the other day ‘Murray River salted caramel’, also ‘smashed’ avocado in restaurants wtf?), aspiration to wealth is not towards innovative ideas but by sitting back and watching land rise in value as foreigners with money pour into the country.

      That’s why I miss the ‘thingsboganslike’ blog. They did a great satire of this slow transformation that has been unfolding over the last ten years.

      • “The active and concerted push to marginalise intellectualism and embrace luxury boganism.”
        Beautifully put!
        Just my doubt I’m not sure the sort of intellectual, that we recognise as such, is really the answer to our problems Most I hear are products of, and advocates of, the current errors.
        Luxury boganism….Exactly!

      • Locus of ControlMEMBER

        “The active and concerted push to marginalise intellectualism and embrace luxury boganism.”

        ^^This!!

        And yes, ‘Things Bogans LIke’ was an excellent dissemination of popular discourse back in the day. I’m dismayed they’ve wound down now too.

      • I’m not a fan of the term bogan – it’s too easily misread by yuppies and Young Liberals to make themselves feel superior. I preferred the ‘Stuff White People Like’ blog which skewered yuppy self-aggrandising that is so prevalent today (the post on Banksy being a personal favourite). Murray River Salted Caramel would fit right in.

      • mm I’d have leaned the other way and label most of the young Lib RE/Lawyer oriented lot bogan!
        Maybe there should be another term that just means ‘Australian stupid!”

  15. I’m totes with you HnH.

    Australia’s … ” it’s long term inferiority complex”…

    That we are happy to adorn our national flag with the flag of another nation says it all…

    We have all the swagger of an insignificant backwater, but we are from from it – our GDP is larger than that of Spain and South Korea and the GDP of Russia, a country that looms massively on the global stage is only 27% larger that ours – despite having 6 times many people. Our GDP is 3 times that of Sweden, a country with ~10 global brands, vs our zero. Yes they are close to the EU market – but we are 3 times bigger and close to Asia….

    Here’s proof. We have the largest surface mining sector on the planet, but other high cost, first world countries have the bulk the equipment supply.

    Those who work for big staid companies where nothing happens, denigrate and and fail to value an industry an industry where significant change is delivered continuously, by local skill – a sector that had 30% exports and built a smaller car and had then developed diverse platform capability, only as the dollar spiked – the auto sector…

    Here we sit, next to Asia, with plenty of cash, a very well educated populous, endowed with spectacular resources both mineral, beauty, space, agricultural and natural and yet as a nation, we utterly lack swagger.

    Turnbull is right – the world is changing and the opportunities for a country like ours – should be huge.

    The problem is not our home market size or our distance from the EU or the US the problem is with our culture and lack of leadership, vision, insight and swagger.

    My company has just delivered on what was thought to be ambitious with an unrealistic schedule on hard to access, big dangerous kit – it was hard sure and we’re a couple of months late – but all it took was aggression if you will, confidence and determination and a collection of very talented local people. We now look at a range of technologies and say – well, we can just do that too. Why wouldn’t we? … and I’m not even that talented!

    Our ‘kkn national inferiority complex drives me dingbats!

    • Inferiority complex be damned!!!!!!!!! Mate you should have heard the Holden Utes on my mountain over the weekend. This morning the roads are covered in skid marks. We don’t lack ‘swagger’ mate. We’ve got it all and we know it all!

  16. Nice summary. The conformity and group think in Australia coupled with a hope/denial of future conditions is a special characteristic.

    AEP looking at Russia has some echoes for Straya:

    Russia has pockets of excellence – currently on display in the Syrian theatre – but the engineering and industrial base of the Soviet era has largely been hollowed out by an overvalued rouble during the commodity boom. It has been a textbook case of the Dutch Disease. Many of the best engineers and technicians have emigrated in a chronic brain-drain. Russian economists say it is far from clear whether the country can suddenly pirouette and manufacture the machines itself.

    http://www.telegraph.co.uk/finance/economics/11937348/Russia-retreats-to-autarky-as-poverty-looms.html

  17. Interesting. But I can’t see what developing resources projects has with wussonomics. Good grief, these take all the swagger in the world to get to production. Paeans to what we can do, not what we can’t.

    • I’m not so sure 3d.

      How large a set of cojones does it take to use other peoples money to develop the worlds best ore bodies supported by the worlds best infrastructure. Don’t get me wrong – I’m proud to be an Australian when I’m out there internationally in the resources sector – I’m proud of BHP and Rio.

      But we do have the largest surface mining sector and that’s driven by the worlds lowest best deposits and the big end of town – not ballsy WA prospectors.

      But with the worlds largest surface mining sector – with no disadvantage of scale or distance from market – at least one of Caterpillar, Komatsu, Liebherr, P&H, Hitachi etc etc etc should be Australian. heck Atlas Copco is bloody Swedish.

      I’m proud of BHP and Rio – but there’re not exactly ballsy and innovative like Tesla or SpaceX are they … Rio is bit innovative, very, slowly and err BHP, is quite characteristically, proudly, not innovative.

      • HR and 3d – you are both right.
        We SHOULD have developed industries allied with the mining sector.
        We SHOULD have saved and invested in our own country and owned our own mines.
        We CHOSE to do neither so that we could all live comfortably on the Eastern seaboard with all its facilities, shopping malls, Television choices etc etc.
        Neither BHP nor RIO are ‘Australian’ companies.

      • The iron ore boom saw a lot of local activity – FMG Atlas etc, keen Midwest magnetite propenents etc. BHP and Rio iron ore pretty much driven by locals! What has been achieved is magnificant. Then check out Gorgan and Wheatstone! Even the multitude here at MB who despise mining would be impressed.

        Mining is an international game. I have no problems with that. Mining is a global godsend – Miners globally should operate on tax free status with access availability wherever substantial mineral desposits exist. The world needs minerals, the world needs miners. They should be exempt from being playthings of traders…

        And yes, I agree, ideally we should have been at the forefront of global mining equipment supply, but history (or wussonomics) has denied is this path – I reckon there are very few long term investors in Oz (apart from miners) with most wanting a house flipping style return within two years. Just read the investor comments here at MB.

        We need foreign capital to get the projects running – Australian banks are only interested cafes and condos.

        Would have been my dream to build this here (on land at JPP of course, but this is a very nice runner-up).
        https://m.youtube.com/watch?v=pqREfZNFGDc

      • 3d – Sorry – Yes, I missed Twiggy – he’s ballsy – so were? Atlas.

        Flawse – BHP & Rio feel very OZ. It’s like News corp – there is a pervasive Australian mafia ….

      • HR Yes I wasn’t knocking the people who work in the companies – just the multi-decades of economic policy that have resulted in these icons of Aus being pretty much foreign owned.

  18. sorry, but how does this affect Australia? all the profits/losses are on Shell now, we were always pawns in this anyway. P.S. Leith, you are completely wrong on (long) LNG, it will be one of our greatest success stories – you’ll just have to wait a decade or so…

  19. robert2013MEMBER

    With >40% of our population born overseas or having a parent from overseas, it’s fair to say that Australia is barely Australian at all. No wonder decisions aren’t made in the best interests of this country.

  20. Let me do a Skippy and lift some excerpt from nakedcapitalism.com, that kinda applies to strayans.

    By a quirk of historical bad luck, the American Left has gone two generations without understanding finance, or even caring to understand. It was the hippies who decided half a century ago that finance was beneath them, so they happily ceded the entire field—finance, business, economics, money—otherwise known as “political power”—to the other side. Walking away from the finance struggle was like that hitchhiker handing the gun back to the Manson Family. There’s a great line from Charles Portis’s anti-hippie novel, “Dog of the South” that captures the Boomers’ self-righteous disdain for “figures”:

    He would always say—boast, the way those people do—that he had no head for figures and couldn’t do things with his hands, slyly suggesting the presence of finer qualities.

    That part about the hands—that would refer to the hippies’ other great failure, turning their backs on Labor, because Labor didn’t groove with the Hippies’ Culture War. So the Left finds itself, fifty years later, dealing with the consequences of all those years of ruinous neglect of finance and labor—the consequences being powerlessness and political impotence.

    Mav..hope Skippy donated generously to NC, given that he has borrowed so much of his comments from there.

    • Mav Thanks
      the consequences being powerlessness and political impotence.

      The Western world is really going to find out all about that over the next couple of decades.