Quick Shots - 26/Jul/2022

The Reserve Bank Gets A Review

I guess there is some kind of informational osmosis going on. about half a decade ago I was complaining about how the Reserve Bank of Australia miscalculates inflation deliberately in order to suppress interest rates. After all, most central banks benefit from political support if they err on the side of lowering interest rates. Ben Bernanke totally missed the GFC coming his way but once it was underway, he dropped interest rates to maintain liquidity in the market and rode that to the cover of Time magazine. The next time there was a major threat to the economy, central bankers around the globe slashed interest rates and in the case of our own RBA, they made noises to the effect that they didn't see rates going up until 2024. 

Now, to be fair they didn't anticipate the Russian invasion of Ukraine, and also the supply shock of China which is still trying to fight the pandemic with a Zero Covid policy which has delivered unto the world a supply chain shock. These things combined have created the kind of inflation that not even the statistical gimmickry can hide. 

All the same it's been a solid decade of ultra-low interest rates, and house prices have gone stratospheric. In the same decade, the RBA has been struggling to see wages rise, and so there is an affordability crisis that has supplanted the Global Financial Crisis itself. You can understand that as the bill for the GFC has been handed to the Millennials and nobody is taking responsibility. And, as you know, I'm not a Millennial and even I think it kind of sucks for them.  

What really sucks in this turn of events is that the inflation in question still not a demand-driven inflation. It's not like people got massive pay rises and they've gone to spend their pay rises en masse. It's not even all the printed money of quantitative easing because the benefits of those tend to go to banking and other financial institutions and not the regular folks on Main Street. So much for the notion that the RBA wanted to wait to see wages increase before raising interest rates.  

Worse still, companies are using the inflation as cover to rase their prices exorbitantly. "oh there's inflation, our costs are up," they say and somehow they're turning in a truck load of profits in their announcements during this reporting season. It all seems like the central banks of the world rig the markets exactly so the ordinary Joe and Jane can't get ahead. It really is worth asking if the RBA really working towards making people's lives better if the outcome is out of control house prices and stagnant wages. If the exchange is that people have to lose jobs to tame inflation, you sort of wonder who exactly it is that is benefitting from this lowering of inflation through raising of interest rates. i.e. If I have to lose my job so interest rates can go up and then inflation gets beat, who is getting ahead here? 

In that light, it is unsurprising then that the ALP government has decided to review the RBA's role.  It's about damn time somebody looked into this racket. 

Russia Ukraine War Drags On Still

The dumb war without any hope of a Russian victory drags on in Ukraine. Still, the deposit in the Kremlin does not accept he doesn't  hold a hand resembling a winning hand. The world awaits for the penny to drop (maybe, maybe not), or for a coup to happen (less likely) in the Kremlin. A lot of people are needlessly getting hurt and killed all because Putin has lost touch with reality. Worse still he has insisted on his army proceeding with World War II era tactics and the casualties on the Russian side have been spectacular/ horrifying (depending on how you view it).

A basic comparison of the USSR army that invaded Afghanistan in 1978 and the Russian Army of February 2022 shows that the Russians are weaker now than then, and that they waded into a war with an opponent who is quantitatively and qualitatively much better than the Afghanis they faced in 1978. When you factor in the global first world support for Ukraine, there is not a scenario in the conventional war sense that Russia can win. 

None of this couldn't have been how the war was conceived in Moscow. Now that the Russians are finally culminating, it's worth asking if Putin actually has any kind of exit plan. Because staying on in Ukraine is going to kill a lot of young people, and Russia's demographic can't afford that. So really the only question that remains is when the hell is Putin going to realise what we've known for some time? 

I guess we're going to have to wait and see. Whoever replaces him is going to have to give up on they 'Greater Russia' horseshit just to get back to the negotiating table. 

View From The Couch - 21/Mar/2017

It's Not A Bubble If You Don't Call It That

Day after day, there's this concern about the Property Bubble. Looked through the hosing affordability prism, the bubble looks enormous, but looked through the prism of investments, housing-as- asset still looks safe to the majority of investors piling into the market. If you're hoping to get you quarter acre block and raise your kids in the manner that your parents did, in a neighbour that resembles the one in which you grew up, the likelihood has diminished to unlikely to zero chance doing it on your own.

If you're in the real estate racket, then it's in your interest to talk it down like it's not big deal.
This made me laugh:

Australia's banking regulator says the country's housing market is in an environment of "heightened risk", but he won't say there's a housing bubble. 

Australian Prudential Regulatory Authority chairman Wayne Byres told a Sydney conference that he wouldn't use "the B-word" to describe the housing market. 

"I don't use the B-word. I refuse to use the B-word. It implies a binary, that's too simplistic," Mr Byres said speaking at the Australian Securities and Investments Commission annual forum. 

"We are in an environment of heightened risk. House prices are high and particularly in this one (Sydney) they're rapidly rising," Mr Byres said.
"If everyone is not careful the risks are going to rise," Mr Byres said.

Mr Byres said APRA was watching the housing market, but he stopped short of saying the authority would bring in new curbs on investment lending.

I guess it's not a Bubble if you don't call it that. That's a bit like saying Tony Abbott isn't a dickhead because he's not called Dick Head, but Tony Abbott.

"What Bubble?" They Asked

Outside of Sydney and Melbourne, real estate pricing has not risen at the same dizzying rates. Of course, Australia's a very big place but GDP growth is concentrated in pockets. That is to say, there are only a few places in Australia worth being. You can go live in Tenterfield Queensland in a shack priced at 20k, which is the middle of nowhere, for instance, but it is days from amenities one expects of civilisation and if you didn't get your NBN connection out there, why, living conditions could approximate the 19th century more than the 21st.

Something like 8% worth of Australia's GDP's economic activity takes place in the precinct surrounding Wynyard and Town Hall stations. Think about that: 1/12.5ths of Australia's economy converges on 2 railway stations (I happen to know this because I talk to people at the UTS TRC). The whole point of Sydney is to service the 2 stations, and to that end, the public transport system has grown into radial spokes around the surrounding land all the way out to the hinterlands. It grew that way through a combination of factors, some of which included lack of vision by the NSW government; the small-ness of scope given to a precinct known as The City of Sydney which covers these two stations, but nowhere near far out enough to urban coordinate planning or transport planning; the fact that the Sydney basin as a whole had no urban planning for a good two decades in the middle of the 20th century; and general class sniping which has persisted from English Colonial times.

Unfortunately the physical need for participants in the economy to converge on the two stations is so immense it has absolutely warped the perception of value in Sydney. The CBDs of Melbourne and Brisbane also present similar problems. Combined, the central districts of the three cities would contribute to a quarter of Australia' GDP, perhaps a third -all of it sitting in a clutch of about 5-6 train stations. That's a lot of economic activity that needs to be serviced by public transport.

In a sense, it is like light. For every doubling of distance away from these hot cores of the Australian economy, the value of the land would lose by a square root. While this is common sense, the way the property prices have been growing is anything but. If Sydney's economic output as a whole is not growing by 18%, it's hard to justify 18% rises in the property - and that's just comparing like with like. If you compare the GDP output of Sydney with world cities, it is hardly worth the prices its property is fetching. I mean, Sydney's a nice-ish place to live, but it's not that nice. People are having themselves on if they're putting it up higher than NYC, London or even Santa Barbara, California.

Except perspective is very hard to come by when you've decided where you are so damn wonderful, and the market is full of these people. Do you wonder why some people think it's all going to end in tears?

Bad Ideas Still Get To Run

There's this argument going around that maybe first time home owners should be able to access their superannuation in order to put a deposit down for a house. Paul Keating thinks this is a terrible idea. Others are in favour.

The succinct summation of why it's a bad idea is here (take it away, Mr. Keating!):

The average superannuation balance of those aged between 25 and 40 hovers around $45,000. Were this to be taken from a saver's account to be employed as a housing deposit, it would effectively destroy that person's ability to compound any future sum into a meaningful retirement supplement. 

More than that, once the preservation rule has been breached, the whole investment system would be compromised as superannuation trustees were required to make provision for short-term withdrawals from an otherwise, fully preserved system. This would be completely disruptive to professional funds management.

If you look at it from a longer time frame, you'd have to say property prices will not keep going up, or even stay above their historic trend forever. it's doubtful it would stay that way over a working life. The insane price rises we're seeing are based on the delusion that these markets never go down. People are forgetting what an economic contraction looks like, what a recession looks like, and how it impacts prices of things.

It's kind of crazy to pull your money out of diversified funds and stick it into one asset. Not one asset class, but one asset. And then you assume that one asset will keep going up enough that you could liquidate it at the time of your retirement to fund your retirement. If you believe that, I have a bridge I want to sell you. 

Quick Shots - 14/Mar/2017

Arrival

This got a lot of good reviews so I was really looking forward to it. I have to say its a bit naff and maybe even condescending. I did have an odd idea as I watched it, that maybe the reason we don't hear from other alien races in space is because no other sentient species wants to traverse to distance to find another sentient race. That maybe earthlings - homo sapiens - is somehow the crazy species in the galaxy that keeps on imagining scenarios of alien encounters that essentially hinge on paranoid violence.

Maybe it's not quite what i thought it would be, while some of it looked like a parallel text to 'Independence Day' without the out and out spectacle of cities getting destroyed. It also seems to owe a debt to 'Close Encounters of the Third Kind'. Clearly this is about the fifth or sixth kind.




Sarajevo

A little perdue piece about the aftermath of the Grand Duke Ferdinand getting assassinated in Sarajevo which of course triggered World War I. An oddly depressing topic, tackled with some amount compassion and intrigue.

Below is the only relevant clip I could find. It gives you a sense of the understated nature of the drama.



The main contention of the film is that the assassination of Franz Ferdinand was a false flag operation perpetrated by the Australian military who were champing at the bit to fight what became World War I. Had they any amount of foresight, they might have avoided such moves at all costs.

The RBA Fears Apartment Price Collapses

Just following on from the previous day's entry about the RBA and its seeming indifference to the property bubble, it turns outfit is a little worried about the apartment glut they think is going to happen in Brisbane and Melbourne.  They think Sydney should be fine, but then, it's not the prices as such that worries them but the systemic impact on the banking sector such a shock would have:

"It is about whether or not they are adequately provisioned, whether their lending standards are adequate, and if there is an oversupply and falling prices, whether they end up under water or wearing larger losses than they expected because they hadn't anticipated this. 

"Have households purchased these apartments in the expectation of rising rents and rising prices, and with a glut may not be able to rent them out and may not be able to get the price they paid for them?"

Although the Prudential Regulation Authority instructed banks to tighten lending standards for investors in 2014 and succeeding in bringing the growth in investor lending down below 10 per cent, "everyone would be aware that more recently investor housing growth has started to speed up again". 

Between October and January, the annual growth in lending to property investors jumped from 9 per cent to 27 per cent. Investors borrowed $13.8 billion in January, more than the $13.6 billion that was lent to owner-occupiers. Of the $13.8 billion, only $1.2 billion was for building new homes. 

"We are watching it because investors can be the first ones to get out if things turn down," she said, warning that a rush for the doors could make a slump "much bigger than it would otherwise be". 

Invited to repeat an assurance by Treasurer Scott Morrison on Monday that rapidly climbing house prices in Sydney and Melbourne were "not the function of any sort of investor credit bubble or anything like this", Ms Bullock declined, saying: "I would not like to speculate on what is a bubble and what is not, personally".

That's a funny response. When you ad this scenario to the stranded housing assets out in WA in the wake of the mining bust, the apartment glut would be a classic case of supply arriving in time to rebalance the market. After all, all the politicians have been saying there's no bubble, merely a shortage in supply. If the system can't handle the arrival of supply, it raises serious questions as to just what the fuck is going on with the price rises.

In any case governments are moving to readjust some policies on the edge to "make housing more affordable" - which is semaphore for deflating the bubble slowly. Nobody seriously disputes that this is necessary; there's even bipartisan support for it in NSW - but of course the vested interests are already howling.

The property industry slammed the move to increase the surcharge as ill-conceived, cynically populist and counter-productive. 

Developer lobby group the Urban Taskforce said it would put the brakes on supply at a time when Sydney was still delivering new homes at below the Department of Planning's target rate of 40,000 a year. 

Chris Johnson from the group said "lifting the surcharge on foreign investors will obviously slow down to some extent that market which provides homes for renters in Sydney. Throttling down supply is not a good move." 

Glenn Byres from the Property Council said foreign investment funded large scale developments and boosted pre-sales. 

"Adding more taxes to foreign investment would actually hurt supply, particular at a time when lending conditions are more stringent on offshore income," he said.

Premier Gladys Berejiklian has repeatedly said that boosting supply was the key government response to the housing affordability crisis.

Steven Mann from the Urban Development Institute of Australia NSW said foreign buyers were an easy target.

"By targeting a group of people that are unable to vote our politicians are showing a predilection to winning votes rather than obtaining the best outcome for the greater good," he said.

NSW Treasury calculations released in a call for papers after the 2016 budget showed that the government's own modelling predicted foreign buyers would be discouraged from the NSW market by the 4 per cent foreign investor levy.
Treasury estimated a modest decrease of about $30 million a year in its stamp duty collection from foreign buyers for 2016-17 after the levy was imposed.

Labor pointed to this as evidence that increasing the surcharge would improve housing affordability. 

So, there's that. All those people want the Bubble tontine for as long as possible, but they don't seem to have an exit clause for themselves so naturally you have to question their judgment if not sanity. The RBA and State governments as well as the opposition is moving to rein in the Bubble. Screaming against it only makes you look out of step. 

More On That Vested Interest Thing, Part 1008

The mining lobby went pretty hard against Kevin Rudd because of the Mining Rent Resources Tax. Julia Gillard took the opportunity presented by the fall in his polls to assume the Prime Ministership, and wound back the tax so it hardly hurt the mining companies. By the time Tony Abbott became Prime Minister, it became a target for repeal, much like the ETS, and so the mining lobby got away with murder. I know, that's not nice language to describe it but their campaigns killed the tax, which deprived money for the Australian government that would have been spent on health and education amongst other things, so it stands to reason that in some chain of events, the austerity of the Abbott Government would have killed somebody, and that blood belongs on the mining lobby's hands. It's not hyperbole, it's logic.

So, naturally, it's interesting to see the mining lobby went after WA National Party leader who said there should be a mining tax.

West Australian Nationals leader Brendon Grylls has conceded defeat in his seat of Pilbara, following a $2 million campaign against him by the mining industry angry at his iron ore tax proposal. 

Mr Grylls said he had contacted Labor's candidate Kevin Michel to congratulate him on his victory. 

The ABC's election computer no longer lists Pilbara as a seat in doubt, putting Mr Michel more than 500 votes ahead and declaring the seat for him. 

"It's quite clear that I can't catch up in preferences now," Mr Grylls said.
"The Nationals remain strong in the West Australian parliament and just like I replaced a leader, I'll be replaced and they'll get on with the job.

Just in case you're wondering just how much our democracy is being fucked with by lobbies, and how our government can't get its proverbial shit together to enact sensible laws  like having an ETS, or having a mining tax, there it is in black and white.

Politicians might be dumb, but they know enough that political necessity forces solutions. Sometimes they are against their own side of politics. After all a great leader can only be measured by their willingness to whack their own to make deals stick. It's eminently understandable why Mr. Grylls might want to propose an iron ore tax, given the parlous state of WA's affairs. Therefore, it's interesting to see the mining lobby is entirely happy to whack their own - and by extension we can see who wears the pants in conservative politics. It's the vested interests, all the time, all the way. The actual politicians are just sock puppets.

So Which Is It?

The Banks Say There's No Bubble

This is getting to be like a game.
The banks believe, or at least want us to believe that there is no bubble going on in the Australian property market.

Testifying at the parliamentary inquiry into banking this week, the chief executives of National Australia Bank, Westpac and Commonwealth Bank all said that while they are worried about elements of the housing market, prices aren't over-inflated.

"I would draw the distinction between a speculative bubble in prices and prices beyond what fundamentals would justify," Westpac's Brian Hartzer told the parliamentary committee on Wednesday. A bubble isn't occurring in Sydney or Melbourne, where house prices have risen the most, he said.

"There are increasing risks, but I still believe the answer is no," National Australia Bank's Andrew Thorburn said when asked if houses in Sydney and Melbourne are overpriced.
Commonwealth Bank, which is the nation's largest mortgage lender, is seeing "lending at levels we are comfortable with" across Australia, Chief Executive Officer Ian Narev told the committee when he testified on Tuesday.

Funnily enough that reminds me of the scene in 'The Big Short' where a market bull tells Steve Carrell's character that he's going to buy more shares in a bank that is about to get smashed. If history is any guide, it's going to look perfectly fine until the moment it isn't.

John Hewson Says The Risks Are Greater Than The GFC

Former Opposition Leader and famous driver of Ferraris as well as a note economics academic John Hewson thinks there is a problem. He closes his column like this:

However, our whole system is at risk of a significant drop in house prices as, indeed, was the US/global financial system in the run up to the global financial crisis, where the mountain of debt was built on a US sub-prime housing loan, which was simply a punt on house prices not falling. 

Our banks are, today, heavily exposed, having become essentially building societies that also issue credit cards. These exposures are over and above their considerable climate exposures – not just to mortgages on coastal properties, and to fossil fuels, but more broadly. 

The risks being run actually dwarf those of the GFC. If it goes bad, the government will be called on to intervene.

I imagine John Hewson's kids have grown up and suddenly he's had to have a closer look at this housing affordability for his kids. That must have led him to believe there is a problem brewing. Certainly the OECD's warning wouldn't be falling on deaf ears with him. 

What The OECD Thinks Of All This

The OECD were pretty rosy aboutAustralia except this property bubble thing. 

The survey says in real terms house prices have climbed to 250 per cent their level in the 1990s, with much of the increase taking place in the past few years, "straining affordability, especially for first-time buyers in Sydney". 

"A continued rise of the market, fuelled by both investor and owner-occupier demand, may end in a significant downward correction that spreads to the rest of the economy," it warns. 

(edit)

Sydney house prices climbed another 4.5 per cent in the three months to February to be up 18.4 per cent over the year. Melbourne prices climbed 5.5 per cent to be up 13.1 per cent. Australia's ratio of household debt to GDP has climbed to 123 per cent, an all-time high and the third-highest in the world. 

The OECD report argues that it is mainly local investors and owner-occupiers, rather than foreign buyers, that are pushing prices high. It says the markets are vulnerable to a sudden rush for the doors should prices start to falter and investors believe capital gains are no longer to be certain.

I was talking to an old friend who said to me he had $400k to put towards a house. He could get a loan for $400k. If his spouse does the same, it comes roughly to about $1.6m which is the price of a house in Sydney, with nothing left over. There's no money for innovation or investing in other things. 

It's astronomical money for a house in Sydney when you consider what you can get for that money in other parts of the world. As we were driving around the inner city, he pointed to arrow of tiny workers' cottages and said they were all going for well over a million. He's probably right because he's been looking. I told him "it's not really sustainable, given how low wages growth are and how more and more people are getting forced out of full time employment." 

"So it has to all end in tears, right?" he asked. 

The rational part of my thinking says absolutely. But then I've been writing that for like a decade now and it keeps going on, so maybe those banks are right. And yetI can't help but think of 'The Big Short' and just how much people must be stretched to take out million dollar mortgages. The economy's growth is sluggish because any amount of discretionary spending goes towards paying off the mortgage, so effectively the low interest rate thing doesn't help the consumer one bit. It only helps baks that get to make out the silly-money loans. 

News That's Fit To Punt - 08/Feb/2017

That John Alexander?

Long time readers know of my immensely low pinion of John Alexander as tennis commentator. He was simply terrible, in as much as he offered no technical insight and often ascribe bad motives to the characters of the players, much like an armchair psychology buff. A typical line of John Alexander commentary would be that a player X missed a shot because he has a bad character. It drove me away from watching tennis on channel 7.

Anyway, it has been the big surprise of his time in politics that he backs building a high speed rail network in this country, and all for the right reasons. He is still continuing his push, and even getting called a crusader for it.

Crusading Turnbull government MP John Alexander, who has supported a debate about negative gearing, said vision and innovation needed to replace the "debilitating political argument" about housing. 

A bipartisan committee chaired by Mr Alexander backed his vision for high-speed rail, recommending the government seek proposals for a link between the two major cities, and evaluate ways to raise private capital through value capture. 

Under that model, previously trumpeted by Prime Minister Malcolm Turnbull, major infrastructure is privately funded by the increase in land values that accompanies the creation of new or larger cities made possible by that infrastructure.

(edit) 

"It would appear there's a perfect storm of opportunity to liberate [regional] cities through high-speed rail," Mr Alexander previously told Fairfax Media. "You will push up prices enormously around Goulburn; people will be delighted." 

But he warned on Tuesday the report's ambitious goals were only achievable if all three levels of government co-operated and were "willing to forgo individual revenues to ultimately maximise total revenues". 

Mr Turnbull and the new assistant minister to the treasurer, Michael Sukkar, have promised the government will say more about housing affordability this year, as Labor continues to push for negative gearing reform.

It's kind of crazy that the only person in government making any bloody sense is John Alexander.

About That Housing Situation...

Turns out the record private sector debt is now sitting at about a trillion dollars, and the cracks are beginning to show. Don't be fooled by the price rises in Sydney and Melbourne, there's substantial pressure on the housing bubble right now.

Homeowners, consumers and property investors around Australia are making more calls to financial helplines as three warning signs back up the spike in demand: mortgage arrears are creeping up, lenders' bad debt provisions have increased and personal insolvencies are near an all-time high.

"It's steadily out of control -- I don't know of too many financial counselling services where demand doesn't exceed supply," said Fiona Guthrie, chief executive officer of Financial Counselling Australia, who says the biggest increase in calls is from people suffering mortgage stress. "There are more people who have got mortgages that they can't afford to pay."

(edit) 

"There's so much household debt that a couple of rate hikes here would completely knock the wind out of the housing market, and a lot of people would be impacted by it," said Gareth Aird, economist at Commonwealth Bank.That's partly why he doesn't think the RBA will lift rates until 2018 at the earliest. 

While most borrowers in Sydney have plenty of equity in their homes as prices keep rising, that's not the case elsewhere. In the mining state of Western Australia, which is struggling to cope with the end of an investment boom, more than 10 per cent of mortgage holders have little or no equity buffer, according to a Roy Morgan report last week. In South Australia and Queensland, 8 per cent and 7.2 per cent of borrowers respectively are in negative equity. 

That may not matter if you're a homeowner with a secure job and comfortably servicing your mortgage. But Australia's labour market is far from solid, with the RBA citing it as one of the economy's biggest uncertainties. The jobless rate rose for the second straight month in December to 5.8 per cent, while underemployment -- the number of workers wanting more hours -- is near an all-time high. At the same time, wages growth is the lowest on record.

It's notably unaffordable, everybody's been so eager to get into it, there are signs of housing being over-bought everywhere. It's okay in the main but the fracture lines are running elsewhere. Hmmm...

The truth is that the RBA sort of glommed into this problem by keeping rates low for such a long time, and because nobody's ever had the negative signal for the market, there's a profound belief that it only goes in one direction, up. All the while they invited the other parts of the economy needed the low interest rates, but also, by under-measuring inflation they've given themselves even more reasons to keep the rates low. If the average household debt is 187% of income, you know it's not sustainable - but all the while they've not really addressed the irrational exuberance.  

Politics being what is, its practitioners like to emphasise different parts of problems instead of talking about the private sector debt for what it is, and despite the more-than-abundant evidence that there's a  property bubble in progress, the politicians have sought to characterise all this as a 'housing affordability' problem. Implicit in this shifting of focus is the idea that the problem isn't with the property bubble, it's with the people who can't afford to get in on the same RBA-funded gravy train investment. Even more pernicious in that shifty little manoeuvre is the idea that they want to keep the asset price gains, and to that end - all the politicians are property owners and investors, as well as the big wigs at the RBA - these people will do and say anything to talk down the bubble. A simple cui bono examination explains how the interest rates stay low in a bid to keep the asset prices inflated.

As somebody who dabbles in the equities market, I find the utter lack of caution for the bubble to be quite absurd. Markets by their very nature are meant to go upend down. The fact that the housing market in Australia hasn't fallen to historic norms in a very long time, can only mean there's long way to fall when the perfect storm will hit.

Housing never falls, right? We all love housing. In case you're wondering how this all shows up in our political rhetoric, have a look at this next one:

"I've Got Mine, You Can't Have Yours" Says Malcolm Turnbull

This is pretty ugly.

Prime Minister Malcolm Turnbull has unleashed a blistering attack on Opposition Leader Bill Shorten, slamming him as a "simpering sycophant" and a "parasite" who yearns for his own harbourside mansion. 

The energetic end to Question Time came after Mr Shorten launched his own barbs at the Prime Minister, accusing him of attacking families, attacking standards of living, of being tough on pensioners and soft on banks. 

"The Prime Minister is seriously the most out-of-touch personality to ever hold this great office of Prime Minister," Mr Shorten said. 

Mr Turnbull's response, which led to the rare display of Coalition members thumping their desks, was brutal and an effort to counter attacks on his personal wealth just days after he revealed his $1.7 million donation to the Liberal Party. 

Mr Turnbull said Mr Shorten was a "would-be tribune of the people" and accused him of rising to prominence by networking with prominent Melbourne businessmen like Richard Pratt. 

"There was never a union leader in Melbourne that tucked his knees under more billionaire's tables than the Leader of the Opposition," he said. 

"He lapped it up, yes, he lapped it up." 

The Prime Minister accused Mr Shorten of "knocking back Dick Pratt's Cristal" and looking forward to living at the personal expense of taxpayers. 

"This sycophant, blowing hard in the House of Representatives, sucking hard in the living rooms of Melbourne, what a hypocrite," Mr Turnbull said.
"They call themselves the Labor Party; well Mr Speaker, manual labour is a Mexican band as far as they are concerned. Most of them have never done a day's work in their lives."

If you are an egalitarian liberal as Malcolm Turnbull claims he is, how can he begrudge his fellow citizen for wanting a Harbourside Mansion when he has one himself? I mean, what's wrong with that aspiration if it's good enough for himself? 

How can Bill Shorten be a parasite just because he has had career benefactors, when Malcolm Turnbull himself had a career benefactor in Kerry Packer? People need a break here and there. What is so morally objectionable about that reality? 

It's really weird how the conservatives have a thing about harbourside mansions. Barnaby Joyce recently said people should move out of Sydney because not everybody can afford a harbour views. If you notice, its only the coalition talking about harbourside mansions. It's not as if the ALP's in Parliament screaming everybody needs a harbourside mansion. 

You'd think these people never watched 'The Castle'. 

 

View From The Couch - 25/Jan/2017

The Hollowing Out Of Cities

This is something generational and likely going to freak some people out, but the ageing population situation in Tokyo is creating holes in the urban landscape. As old people pass away, they leave behind apartments in which they dwelled, and because of the age of the buildings, have little resale value. This is creating a problem because the buildings start accelerating in their decrepitude as more people die and fewer people are there to support the body corporate sinking funds.

The thing about this is that a lifetime is spent paying off loans for a box in space and then the box loses value. That's the first problem. The second problem is that there is no real way to redevelop these buildings without public monies. It's beginning to turn into a spiral in Tokyo. This is instructive about what happens when a property bubble keeps out a generation of people from buying in and having kids. In a sense, the collapse of a younger population in Tokyo is a direct reflection of the property Bubble of the 1980s.

Not to say this is whites going happen to Australia's major cities. For one, our cities are not built to such densities, and for another, majority of the high density apartments are relatively new and so will not be spiralling down so soon. It takes a good 50 years for that to take place and that would be four decades away. The more problematic area might be that the ageing population will mean a higher burden on the fewer working generation who will be working from outside the major city centres while the inner city becomes predominantly grey.

It's weird but you can see it already in Sydney, where the people buying into the higher density closer to the city aren't first time buyers because they can't afford it. it's older couples downsizing or investing, and Sydney's urban metropolitan heart is already looking kind of grey.

Sydney's Housing Un-Affordability

Anyway... just how bad is Sydney?

The Harbour City's eye-watering house prices were trumped by only Hong Kong in the Annual Demographia International Housing Affordability Survey, which examined more than 400 cities in nine countries including the United States, United Kingdom, Australia and Canada. 

After being sworn in as New South Wales Premier yesterday, Gladys Berejiklian used her first press conference to put the spotlight on housing affordability. 

The report ranked middle-income housing affordability using a "median multiple" score, which is calculated by dividing the average house price by the average household income. 

Anything with a score of 5.1 and over is dubbed "severely unaffordable", so let's break it down:

Rank: Least affordable City - Median multiple

1. Hong Kong ..................18.1
2. Sydney, NSW ..............12.2
3. Vancouver, Canada ......11.8
4. Santa Cruz, USA .........11.6
5. Santa Barbara, USA.....11.3
6. Auckland, NZ ..............10
7. Wingcaribbee, NSW .....9.8
8. Tweed Heads, NSW .....9.7
9. San Jose, USA ..............9.6
10. Melbourne, VIC ...........9.5

Hmmm. That looks far more insane than any chart I've seen up to this point. We know Hong Kong is nuts because it's essentially an island and a point and lots of land reclamation going on in the attempt to make more Hong Kong than God intended (so to speak). But Sydney to be leading the second pack of cities with multiples at roughly12 is pretty gaudy when London, New York, Tokyo, Paris, Rome and Berlin are entirely missing in the top 10. That's some list. The fact that Wingcaribbee and Tweed Heads makes the list tells you that something stupid is going on. 

Our banks are lending money to people who want to have these multiples, just to live in these places. It has no bearing to the reality of any other real estate market on the planet except maybe Hong Kong,and so you have to say that Australian property owners and investors are collectively bidding up the numbers with no concern of the downside to the market, - which of course is a sign of a bubble.

Of course, Mark Latham has a radical plan to deal with this issue. He says, cut immigration.

“[Housing affordability] is all about supply and demand. It’s not rocket science. The problem with extra supply in Sydney is the urban sprawl, the lack of infrastructure, the wretched traffic jams a million miles from the city centre, people struggling to get anywhere near for their schools, shops their employment. So, supply has the problem of sprawl”. 

“[But] you’ve got to do something about demand. And whether we like it or not – and the two parties have got consensus about a Big Australia – the driver of housing demand in Sydney is immigration. The 200,000 a year plus immigration program – add to that the refugee program – that’s the driver of demand. And unless you address that, you can have all of the housing bonds, press conferences and forums that you like – and sort of puffy stuff in the media – and you won’t get a solution. So, break the consensus about Big Australia, slash the immigration program, drive down demand, and finally you will have a sensible solution to housing affordability”. 

“You won’t have to spend as much on infrastructure funding because the place is not sprawling as much. And the other benefit you get is environmental sustainability. It’s something The Greens used to talk about, but now they talk about 50,000 to 100,000 refugees – they are Big Australia as well”. 

“So, there is real room here for a sensible solution based on cuts to immigration”.

That sounds like an oversimplification, but it's certainly one different view to add to the mix.
Anyway, I just thought all that was interesting in light of yesterday's Berejiklian notion that supply would fix housing affordability. It most likely won't, and the longer they leave it, the worse the problem is going to be down the track.


To Un-Fuck The Goat Brexit

Things are getting a little convoluted with this Brexit thing. The Supreme court in the UK has just told the UK Government that Article 50 definitely can't be started by the government alone, it has to be put to the vote both houses.

Lord Neuberger said the judgment was not about the referendum result or a comment on the merits of leaving or staying in the EU. 

"The referendum is of great political significance, but the Act of Parliament authorising it did not say what would happen afterwards," Lord Neuberger said, meaning any action taken now must be in keeping with the UK’s constitution.
The Independent reported today that ministers are likely to be ready to publish the Bill that MPs will vote on by the end of the week. 

After the judgement, Attorney General Jeremy Wright said the Government was "disappointed" by the final decision in its historic battle over who has the right to authorise the start of Brexit. 

He added: "The Government will comply with the judgement of the court and do all that is necessary to implement it." 

It is unclear what would happen legally if MPs vote against such a bill, as much of the constitutional law related to Brexit remains as yet untested, although Jeremy Corbyn has "asked" his MPs to vote not to obstruct it. 

The judges' ruling is a victory for Gina Miller, a philanthropist and banker, who brought the case against the Government. She was also backed by a crowd-funded group called The Peoples' Challenge, who described themselves as a group of "concerned EU citizens". 

Although the Government lost the challenge, the justices unanimously ruled that there was need to consult with the devolved powers in Scotland, Wales and Northern Ireland.
In a statement released immediately after the ruling, Labour leader Jeremy Corbyn said his party would not "frustrate the process for invoking Article 50" but would seek to amend the Government.

Well that's a surprise and a half. Last we knew, 70% of MPs didn't want a Brexit, so this actually offers them a second bite at the cherry. Now, Jeremy Corbyn says he won't frustrate the government over invoking Article 50, but what if enough MPs banded together block it in the House of Commons? Or even if it passes there, what happens if the House of Lords shoots it down?

After the referendum, it sure didn't look like there was an opening for overturning the result, but suddenly there's a puncher's chance of Brexit getting de-railed in Parliament. And if it did, well, would that really be a bad thing after all the sloppy lies that got it over the line?

It would be rather interesting should things come to pass that Brexit couldn't get up because Article 50 couldn't be triggered? They'll laugh in Europe; they'll probably even swear. David Cameron sure would. Of course, the MPs may well rubber stamp the thing to just let it through and out of their hair. after all who would want the furore that would follow a scuttled Brexit?

News That's Fit To Punt - 24/Jan/2017

New Premier, Same Old Song

Gladys Berejiklian is our new Premier in NSW. The most interesting thing she said today might have been the fact that she considers housing affordability to be her top priority but she's not willing to consider replacing Stamp Duty with a Land Tax, and that her principle method of making housing  more affordable was to increase supply. It sounded like somebody insisting that flapping their arms harder will accomplish flight.

The best thing about Berejiklian becoming Premier might be that Alan Jones didn't want it "in a million light years". I guess that's already happened twelve parsecs ago.

More On (Moron?) Housing Affordability

SWTE Scott Morrison is off to London of all places to see what he can learn about making housing affordable. It's a bit like a heroin addict visiting a crack addict how to beat addiction.

Asking the Liberal Party to tackle this problem is a little like asking arsonists to join the fire department because they understand fires really well. The Liberal Party represents the investor class more than anybody else, and so they're hardly likely going to be able to bring themselves to do anything that would put the investors at a disadvantage. For the same reason Gladys Berejiklian won't look at replacing the Stamp Duty with a Land Tax, Scott Morrison isn't going to wind back Negative Gearing.

It's all very strange how this is likely to turn out because it's already slowing down comic growth because people can't spend money on anything other than their mortgages and rent. The rent-seeking in the real estate market has basically maxed out to capacity and nobody seems able to claw back down from the stand-off.

In the mean time, there is all this private sector debt that's waiting to go off like a time bomb and the Treasurer is more worried about finding bandaid solutions.

If The Russians Love Their Spanking Too

Here's a weird one. The Russians want to 'legalise domestic violence'.

Russia's parliament is this week expected to take a step closer toward decriminalising domestic violence that falls short of serious bodily harm or rape. 

Battery is a criminal offence in Russia, but nearly 20 per cent of Russians openly say they think it is sometimes OK to hit a spouse or a child. 

In a bid to accommodate conservative voters, deputies in the lower house of parliament have given initial approval to a bill eliminating criminal liability for such violence. 

If the measure passes its second reading in the Duma on Wednesday, when the draft can be changed, approval in the third and final reading would be a foregone conclusion.

It's hard to imagine it anywhere else but Russia.  I guess that partially answers Sting's rhetorical question in his lyric whether the Russians love their children too. It appears yes they do, but not quite as much as we do.  

"Alternative Facts"

Great scot, it's only been three days of Trump in da White House and it's been a non-stop parade ridiculous assertions and factually challenged statements. Kellyanne Conway has come forward with an eyebrow-raising explanation that the Trump Administration is in possession of "alternative facts". 

Still more chilling was when the White House senior adviser Kellyanne Conway appeared on “Meet the Press” on Sunday to assert that Mr. Spicer’s falsehoods were simply “alternative facts.” 

Ms. Conway made no bones about what she thought of the news media’s ability to debunk those “alternative facts” in a way Americans — especially Trump-loving Americans — would believe. 

“You want to talk provable facts?” she said to the moderator, Chuck Todd. “Look — you’ve got a 14 percent approval rating in the media, that you’ve earned. You want to push back on us?” (She appeared to be referring to a Gallup poll figure related to Republicans’ views.) 

And really, there it was: an apparent animating principle of Mr. Trump’s news media strategy since he first began campaigning. That strategy has consistently presumed that low public opinion of mainstream journalism (which Mr. Trump has been only too happy to help stoke) creates an opening to sell the Trump version of reality, no matter its adherence to the facts. 

As Mr. Trump and his supporters regularly note, whatever he did during the campaign, it was successful: He won. His most ardent supporters loved the news media bashing. And the complaints and aggressive fact-checking by the news media played right into his hands. He portrayed it as just so much whining and opposition from yet another overprivileged constituency of the Washington establishment. 

But will tactics that worked in the campaign work in the White House? History is littered with examples of new administrations that quickly found that the techniques that served them well in campaigns did not work well in government. 

And if they do work, what are the long-term costs to government credibility from tactical “wins” that are achieved through the aggressive use of falsehoods? Whatever they are, Mr. Trump should realize that it could hurt his agenda more than anything else.

It's going to be a long 4 years. 

View From The Couch - 31/Jul/2016

Frontier Gaol For Juvies Goes Guantanamo (And People Wonder Why)

I finally caught up with the Four Corners program about the juvenile detention in Northern Territory. It was as bad as the media has been carrying on about. The footage of youths in 'restraining chairs' looked like something straight out of Abu Ghraib. The images that have been leaked clearly show the full effects of Dr. Phil Zimbardo's experiment prison guards in real life. The Scottish born lawyer in the Four Corners presentation likens the handling to Guantanamo Bay - a kind of torturer's wonderland without much legal oversight. It certainly looks that way from the images we're shown.

What's really surprising is that people think that it would have gone any other way. Even after everything we know in this day and age, you have from our Prime Minister down, human rights people and children's welfare people, all holding public office wondering how on earth this could be happening in our very own 'civilised' country. Yet, lately I've been wondering if the kind prison system we have is anything remotely civilised. Let's not forget this nation was founded as a penal colony. The whole premise of this civilisation was founded on incarceration.

This must be the year for this discussion because I keep watching programs about incarceration one way or another. There's 'Orange Is The New Black' which anatomises the experience of US inmates in minimum security correctional; there's The Stanford Prison Experiment' which shows how guards come to behave the way they do because it is what they imagine the job means; 'Suits' Season 6 where Mike is in a white collar criminal prison and he is still vulnerable to corruption of guards; 'The Boss' where Melissa McCarthy's titular character goes to prison; all of them feature the prison experience well enough. In all of them, it is clear that guards behave badly but have the full backing of the state to do so, and so in a positive feedback of compounding moral hazard, they continue to find ways of behaving badly. And while that is all American content, there is nothing fundamentally different in the working structure of those prisons to ours. Our prisons are mostly doing the same stuff. Ours are equally brutal and overly focused on punishment.

Now, I'm not going to go and become some advocate for prison reform, but it has to be said there's something deeply wrong about the structure of the prison system whereby juvenile detention ends up looking like the Abu Ghraib - and we all know there was nothing right about what went on at Abu Ghraib. It was beyond the pail that Abu Ghraib happened in Iraq under our watch. For the exact same thing to be going on in peacetime Australia, directed at indigenous youths? We're rightfully scandalised, but where is the rational analysis? Why can't our politicians put two and two together?

The Royal Commission that has been announced appears to have very limited terms of reference. It is getting soundly rebuked by the Aboriginal community for its choice of commissioner, and it looks like it won't really do much that might be politically damaging. This suggests that Malcolm Turnbull knows that this isn't an isolated problem - after all, why would he limit the scope to the degree that he has, if he didn't want other things dug up. The obvious answer to that rhetorical question is that the Federal Government itself has children in custody, incarcerated in Nauru and Manus. And anybody with half a brain and education would be well familiar with the ramification of Dr. Philip Zimbardo's findings that more likely than not, the Federal Government has rogue 'prison guards' fully possessed by the jobs they have, bullying and torturing people in the name of the Australian people.

Yet our political ranks fear no hypocrisy when it comes to wagging its fingers at other nations on the planet when it comes to how they run their prisons, whether be Indonesia or Lebanon.
We're the civilised people, we love to claim. You can just tell the Royal Commission is going to do sweet fuck-all to curtail the institutional racism that layers itself over the Northern Territory prison system, nor will it have single suggestion on how to abate the 'prison guard' effect that turns otherwise normal people into institutional sadists. It's not like this is rocket science - it's just practical psychology - but because the Coalition government is socially conservative to the core it won't countenance any notion as to rethink the entire prison system from the top down. What will happen is that there will be a lot of crying testimonies and media carry-on but in a quarter of a century's time be all forgotten.

Brace yourselves for malarkey is coming.

The Bubble That Won't Pop

A couple items popped up this week about the property bubble. The first was over at the ABC where they interviewed Prof. Steve Keen.

"We have borrowed ourselves so much to the hilt that we are now dependent on that continuing to rise over time and it simply won't," he told the ABC's The Business. 

Many believe the Reserve Bank has been a steady guiding hand to the Australian economy in the years since the GFC, but Professor Keen believes it has guided the economy "straight toward the shoals" by encouraging households to borrow with low rates which has led to asset bubbles. 

"They don't know what they're doing," he said. 

"Our debt level according to the Bank of International Settlements, private debt level, has gone from 150 per cent of GDP to 210 per cent of GDP." 

He argued that means a large part of the growth that Australia has enjoyed since the GFC, while many other countries plunged into recession, has been fuelled by a 60 per cent rise in household debt. 

"Ireland did the same thing when they called themselves the Celtic Tiger and they don't call themselves that anymore," he said. 

"Spain was doing the same thing during its housing bubble and we've replicated the same mistakes.

I like the bit where he flat out says the RBA doesn't know what it's doing. He may even be right. If the Private sector debt has blown out to the level as described, it could only have happened under the watch of the RBA which has bee cutting interest rates steadily. And because the RBA is doing so on a mistaken logical principle they will end up at ZIRP, just like other central banks have done in the developed world.

There's an interesting phenomenon about banking that we're seeing whereby in pursuit of yield banks have devised the casino capitalism we see today. In a sense the banks became casinos, betting on houses as it issued mortgage bonds. When the subprime crisis hit American banks, it effectively meant the "bank" was wiped out, in the same ways some people bust casinos. So the US government of the day bailed out the banks using tax payers' money but has pretended that the bank never went bust ever since. In order keep up this facade so thereon't be a run on the banks, the US Fed has printed money by buying up all the bad debt and putting them into a kind of moratorium limbo - an in so doing kit asset prices up.

And that is how Australia's property bubble never quite popped, even during the GFC. The kind of stimulus spending and quantitative easing has nickname in Japan where these methods have been tied for two decades: PKO as in 'Price-Keeping Operation'. The central purpose of a PKO is not to let asset prices drop because that leads to a market rout right across the economy and that way lies the great depression.

And so the RBA, like all the other central banks keeps lining out money for very little interest and most people can't think of anything better to do than to stick it into the real estate market, which brings us to the Crikey article about the property bubble.

The main driver of housing prices remains the taxpayer-backed big four banks, whose balance sheets are so overloaded with housing debt that they have no choice but to keep the charade going as long as possible. Bank executives are paid based on profitability and shareholder return — short-term profitability, that is. The fact that a chunk of the loans being made are based on prices that bear no real semblance to a discounted cash flow valuation is seemingly unimportant. Eventually the music will stop, but by then, bank CEOs will have been paid $50 million and the clueless directors who allowed it all will be frantically checking the terms of the indemnity insurance. 

House prices are no longer a function of value but rather of how much people are prepared to pay. That in turn is determined by how much banks are willing to lend. And that amount continues to rise. Before the current boom started in 1997, the ratio of household debt to GDP was around 40% — it’s now more than 100 percent (it’s the same story for household income to household debt). In short, the banks are lending Australians a whole load of cash, and we’re using that cash to bid up the price of an unproductive asset (established housing).

It's really strange how anybody who looks at the structure of our economy can spot this, but Domain's still printing stories about houses being bought at high prices.
Yet there are people still out there busily buying into the Australian property market as an investment. It's not even making sense as an investment according to the article:

CoreLogic found that Australian dwellings increased in price by 10 percent in the past year. In Sydney and Melbourne the price rises were even more significant, with Sydney increasing by 13% and Melbourne by 13.9%. If the market had any degree of rationality, given the market is already expensive, rentals would have needed to rise by around 20% during the year to justify those price increases. However, CoreLogic also reported that Sydney rents were up a mere 0.4% and Melbourne up by 1.7% (both well below the inflation rate). 

That means if the market was insane a year ago, it’s even worse now. Already overprice property is increasing, in Sydney’s case, 20 times as fast as underlying income.
The problem is no one seems to care what the banks do (least of all the government, even though taxpayers are on the hook if any of the big banks fall over, which if the history of banking is anything to go by is a virtual certainty at some point). Moreover, successive governments’ taxation policies (negative gearing, no capital gains tax, minimal land tax) serve to exacerbate the insanity.

In a way, this massive property bubble is the price of keeping our asset prices up in things like our Superannuation accounts which, by rights should have been wiped out into oblivion in 2008. We all have some assets of some worth, some more than others, all held by banks. The RBA is doing its best to make sure we get to keep our winnings, big and small in the casino of world banking. But it would be crazy to think that the current LIRP environment on the road to ZIRP is anything but kicking the can down the road. One of these days the reckoning is going to come, probably from China having its day of reckoning. We don't even know how the Australian property market would respond in light of a recession because we haven't had one in like 25years. One of these days we'll find out. As Warren Buffett says, when the tide goes out, you get to find out who is not wearing any garments.

From The Pleiades Mailbag - 16/May/2016

Home Ownership Is A Class Thing Now

Here's something from Pleaides. It turns out homeownership as a percentage is declining in Australia, and it's not even a gentle decline.

Worryingly, the relatively modest declines recorded in successive censuses mask a much larger decline among significant segments of the Australian population over the past two decades. In particular, as Chart 2 shows, the home ownership rate among households headed by people aged twenty-five to thirty-four dropped by 9 percentage points (from 56 per cent to 47 per cent) between 1991 and 2011; among households headed by people aged thirty-five to forty-four it dropped by 11 points (from 75 per cent to 64 per cent); and among households headed by people aged forty-five to fifty-four it dropped by 8 points (from 81 per cent to 73 per cent). 

The impact of these quite sharp declines among young adult and middle-aged households on the overall home ownership rate has been largely offset by households headed by people aged fifty-five and over, which now make up a larger proportion of the population. In that age group, home ownership rates are much higher, and have fallen by much less since the 1991 census.

The decline among households headed by young and middle-aged adults since the early 1990s is particularly striking given that mortgage interest rates during this period have been roughly half what they were over the previous fifteen or so years – and also given that federal and state governments have spent billions of dollars during this period on programs ostensibly directed towards promoting home ownership, such as first home owner grants and stamp duty concessions.

The ramification of this decline is listed in great detail, and it doesn't make for encouraging reading. It paints the picture whereby the decline in home ownership eats into future economic growth in more ways than one, and together, will amount to a significant reduction in the health of the economy in the years to come.

Of course, the thing about both the LNP Coalition and the ALP is that they're both wedded to policies that try and sustain asset prices so whatever they might say or do isn't exactly going to impact on the affordability for some time until it becomes the most pressing social problem. There are signs that the environment might be in the front seat, relegating the housing issue to the backseat for some time. 

The World Thinks We're Stupid

It's because we've cut into our science research so significantly, and on ideological grounds. 

ALMOST 3000 SCIENTISTS from more than 60 countries have condemned Australia’s key government science agency over plans that would “decimate” its climate change research capabilities.

The open letter, delivered to Prime Minister Malcolm Turnbull and his ministers on Thursday evening, warns the cuts would leave the Southern Hemisphere

Since news of the cuts at the Commonwealth Scientific and Industrial Research Organisation (CSIRO) emerged last week, leading scientists and institutions from across the world have attacked the plans. 

CSIRO chief executive Larry Marshall told staff in an email, that the agency wanted to shift the focus of its Oceans and Atmosphere division away from climate change monitoring and modelling because the science of climate change was now 'proved'.

His claimed justification for the cuts have been roundly criticised by current and former CSIRO staff members.

If ideology gets you flying square in the face of facts only to get pulverised, then maybe one shouldn't be sticking to ideology so hard. Still, you get the feeling that with this government, this adherence to climate change denialism and retaining negative gearing and babbling on with trickle-down economics of the Thatcherite variety are the threadbare positions that substitute for actual thinking about where we are in history and what problems actually beset our nation.

There's really not much else to be said about all this except we need to vote out this government.

Helen Razer Thinks The Greens Are Suspect Too

It's not that I'm contrarian, more so that the algorithm that describes me in Vote Compass is somehow tone-deaf to my nuanced distrust of the Greens that it amuses me when it tells me my best political match is with the Greens. I guess, you would think that it might be true if you ignored  recent history.

Anyway, Pleiades sent me an email with one of Helen Razer's Cirkey columns, and she too goes through why Vote Compass is ridiculous in suggesting she should vote for the Greens given her position on things.

Vote Compass gets me. I should not simply be a Greens voter but a lifetime Greens member with a Samoan-inspired tattoo of Bob Brown etched on her arse. 

But I’m not. And this is not entirely due to the current possibility that the Greens will trade preferences with the Libs or that they may have done so in state elections of the past. This is not entirely due to the Greens support for their deal with the government on pensions, their stubbornness and myopia on the ETS and the fact that Larissa Waters is a cultural totalitarian who will not rest until all evidence of gender is purged from the shelves of our toy stores. It’s not my revulsion for fashionably named children or the tastefully rustic surrounds in which their Green-voting parents raise them. It’s not even the reclaimed ladder bookshelf; it’s more the Piketty that rests upon it, whether read or unread.

It's a good summation of the things that vex me about the Greens as well. Why in the hell did they behave in the their-way-or-the-highway during the discussions about the ETS? What good did that position do for the environment?

The problem is that the left splinters off into many hues of differences. This might include trenchant marxists through to regressive left social justice warriors (*ugh* vomit) and somewhere in there are the people trying to protect the environment through available policy channels (and let's not forget the regressive types who go with Sea Shepherd - vomit once more). The reason why the Greens are highly suspect is because as Razer points out:

The Greens say “inequality is really, really bad” and speak urgently of change. But they provide no real prescription for the big shift they say, and I agree, is needed. The optimistic leftist might choose to believe that this is because they are cleverly concealing their red flesh. This pessimist believes they are honeydew melons: a mild shade of green right through. Even those who came to the party by way of classical Marxism seem to have paled, believing only the most convenient and optimistic bits about an innovative new era of production. 

It’s true that the Greens provide, for some of us, a refreshing enticement. On the issue of offshore processing, for example, it’s tempting for some of us to throw a protest vote their way. But so long as they choose not to disturb our social and economic organisation, there will always be a group as maligned as asylum seekers. Inequality is really, really bad. It’s also inevitable if you don’t take a hammer to its foundation.
And they don’t. The Greens’ focus is not on constituting our base differently. It’s about reflecting it more favourably. It’s about taking “gendered” toys off shelves, lighting compassionate candles and generally moralising about those who won’t publicly agree that inequality is really, really bad. 

It’s communism. But without the caffeine, or the communism.

I did a quick survey of my friends who want to vote Greens and it turns out they're disgusted with the policy position of the ALP; would never vote for the Liberals let alone Nationals, and ultimately want to land somewhere on the left that is not-the-ALP. And thus the hue of compromise is given to a vote for the Greens. I'm inclined to agree with Helen Razer and say to hell with that.

One could do worse than voting for the Australian Sex Party.

More On Interns In Australia

There didn't used to be this Intern thing in Australia except the medical profession. After doing your 5 or 6 years course in medicine, you would've gone to do a year as an intern at some hospital of their choosing. The relative desirability of hospital assignment depended on your grades as a medical student but in any case, once you finished your last exam at med school, you were sent off to do your internship where 48 hour shifts awaited you.

I imagine this practice still continues because occasionally I read articles about young doctors and their terrible, long shifts. The baseline assumption about young graduates was that they knew enough to be dangerous so they needed seasoning. How being borderline dangerous mixes well with insanely long shifts is anybody's guess but that was the custom and probably still is. I have friends who are nurses who swear and tell me that the intern at the end of one of those crazy shifts is far too dangerous to let near any patients. I've even asked a doctor friend what he remembers of his intern year and he said not much.

But that's how interns are treated by the medical profession. They do however get paid something.
I know I've said this before but the paying bit is important. In my previous job as a Line Producer at the events lighting company, I would get enquiries from people who anted to intern at the firm. I would tell them to come in and have a chat about a real job instead, and if they were willing, I'd sign them up as crew. Many of these young people who simply wanted a foot in the door and thought working for nothing would do the trick. Given our labour laws, I didn't see the bit where it was defensible to hire such people and throw them out there with the crew for no money. It would've been unconscionable.

When I briefly taught at a video production course I was asked about internships. I told the Australian students that if they worked, they should get paid and there was no place for anything so grey and unaccountable as internships in Australia. The point is, I feel strongly about this, as I do about the work-for-the-dole being an exploitative crackpot policy.

If it's real work, then the person doing that work should be paid properly. If they are doing work experience, then they should value the experience they are getting for when they go back to their courses. And intern is worst of both worlds.

Deflation Shock?

What They Mean By Deflation

Where do we start with the news that we saw deflation in Australia in the last quarter? We haven't seen deflation since 2009 when markets were at their nadir after the GFC broke.

The surprise drop in the price of a wider-than-usual range of items drove the Australian dollar down more than 1.5 per cent and could force the Reserve Bank of Australia to cut the cash rate as soon as next Tuesday, say economists. 

The Australian Bureau of Statistics said on Wednesday the consumer price index (CPI) contracted 0.2 per cent in the three months to the end of March, taking the annual rate to 1.3 per cent, compared with 1.7 per cent at the end of December. 

More importantly, the core annual rate, after lopping off or re-weighting volatile items such as fuel, came in at 1.55 per cent, well below the bottom of the Reserve Bank of Australia's target band of 2 per cent to 3 per cent. National Australia Bank described the core inflation rate as "the lowest ever".

And so we are led to believe that interest rates will be cut soon. 

I know it's contrarian of me to say this, but the inflation rate has been under-reported since the ABS changed the way it measures inflation rate. Given that it is prone to (or rather, intended to) under-report the inflation, it's not surprising that a few commodities dropping below trend would give rise to such figures. In particular it's notable that health, insurance and education still went up. In an overall sense, things are not getting cheaper  in the cost-of-living stakes as the deflationary figures would have you believe. It's not even certain that the deflation would persist into the next quarter. 

Still, the cheated inflation rate has led to a very big tendency towards looser monetary policy which has fed the Property Bubble through low interest rates. In a way it is a self-defeating feedback cycle where, as inflation is cheated downwards it creates conditions for lower interest rates, which in turn create conditions that results in a Property Bubble forming because there is nowhere else for the money to go. As more and more money is tied up in Property and Financial instruments, the less money is spent in the economy so there is even more pressure downwards on inflation figures but not necessarily inflation itself. We know there must be heavy duty inflation going on somewhere because the very definition of inflation is too much money chasing too few assets, and Australia for all its riches isn't that rich in assets beyond housing and mining and banking.

What should be galling to the Government if not the RBA is how all the money that's flowed into the market through low interest rates is finding a way not into industrial capital investment but into housing and property. Given the lowered interest rates there should be a lot of money going around but somehow it all finds its way to the big four banks who then don't invest in anything because, well, there's nothing of note into which to invest. While the mining boom was going on, there were any number of things in which to invest, but the post Mining Boom economy has shown just how hollowed out Australia's economy has become. 

Let's face it, the most glaring problem might be that even at 2% official interest rates, there is only anaemic economic growth in a country that cannot be described as mature industrial. It's not like wages are rising rapidly. It's not like the government has a plan beyond being excited and wanting to be agile. It sounds as hollow as the economy when the same government spent enormous political capital crippling the NBN. Should our country be in the sort of economic-figure-doldrums like Japan, Germany or France? 

From TwIRP Towards ZIRP

Of course, the markets are factoring in a couple of rate cuts this year. If they do cut 0.25% in May and the another 0.25% by the end of the year, we'll be a lot closer to ZIRP than ever before. 

I don't know if the Property Bubble is starting to affect people's spending, not so much through debt being a problem, but more in line with the fact that lots of Millennials are staying at home. They probably won't be buying whitewoods for a start but they are also restricted as to just how much stuff they can buy if they're still dwelling in their parents' house. There's a lot of demand right there that's essentially blocked by the very physicality of the economy. Even if people had money to spend, they can't buy things because they have nowhere to put them. They can't spend on services because in most part they are met easily by living at home. The only things they do buy are gadgets like smart phones. 

Indeed, one of the interesting things about the Property Bubble in Australia is that has been going on for so long that it hasn't needed to pop to significantly hinder economic growth. The low interest rates that continue to fuel extraordinary valuations has led to record profits for banks, and that's no accident. The post-GFC economy might be hard on primary and secondary industries but the financial sector has been doing really well on the back of all the easing.

And lets face it, the Central Banks of the world are most likely swayed by the opinions of bankers so it comes as no surprise that banks have made out like bandits under these loose monetary policies. Pretty soon all the bankers are going to be telling the Reserve Bank how 'deflation' is killing asset prices and make it like there's a major crisis going on out there in the various markets. If the deflation goes two or three quarters, it will be a clamouring of bankers knocking on Glenn Stevens' door. You have to wonder then how long the RBA is going to take before it gets down to Zero Interest Rate Policy. When we get there, we'll understand the wealthy have locked in their advantage, and that Australia is officially 'post-industrial' like Japan and European countries with low interest rates, low inflation, and low growth. The joke would be that we were hardly industrial before we got there - we put the money into housing and the road came to an end.

John Howard Did Us No Favours

I guess you have to go back in time a bit to the Howard Government to see where the number-fiddling started. Unemployment in the second half of the 80s and first half of the 90s was a big thing. The figures were such that it was part of John Howard's pitch that he would bring these figures down together with the high interest rates. It was under the Howard Government that welfare was cut and privatised, while pushing people off unemployment benefits and on to things like disability pensions. It was an attempt to recategorised the people who couldn't easily find employment so that they wouldn't all show up as unemployed. They no longer showed up as unemployed so it looked like the Government was finding people jobs.

Similarly the under-reporting of inflation started during the Howard Government. When governments talk about inflation rates of the 80s and 90s as if those figures can be compared directly, they're being mightily disingenuous. Back then the inflation rate and cost-of-living figures were in line and almost interchangeable. Today, there is a huge blow out in the difference between the inflation rate and cost-of-living, so much so nobody's even talking about it any more.

So if part of the Howard Government's big achievements were lowering unemployment figures and interest rates then it did so by cheating on the numbers. By cheating so hard it set up this decade for the inherent contradiction of its claims to surface. The economic growth figures are so low because the Howard Government didn't make proper investments in its time - it chose to fiddle numbers and created the conditions for the Property Bubble to manifest instead. Now it's time for the subsequent Coalition government to clean up the mess but it's flying blind because the numbers are phoney. All thanks to the Howard Government.

But hey, we kept our AAA ratings!

News That's Fit To Punt - 16/Apr/2016

When Governments Suck This Hard

Several people sent me this link yesterday. It obviously hit its mark because lots more were posting it upon Facebook. It's a veritable talking point sort of article, obviously because it sums up what most people have thought and continue to think of this sorry government.

How to explain the trainwreck that is the last three years of the federal government? The debacle poses a challenge that will dog journalists, policy wonks and historians for decades to come. The explanations for its dysfunction and sustained under-achievement are complex, but there are at least two distinct theories worth considering.

In Malcolm Turnbull’s second ministerial reshuffle in February, Alex Hawke was promoted to the office of assistant minister to the treasurer. In 2005, the then young Liberal office holder prophesied that conservative politics in Australia would move increasingly towards an American model. Hawke explained that: “The two greatest forces for good in human history are capitalism and Christianity, and when they’re blended it’s a very powerful duo.” 

Can the relentless incoherence and incompetence of the current government be attributed to a particular blend of capitalism and religion that has found favour in the US? Perhaps. British author Will Hutton argues that a malaise has swept the political right throughout the west and that it has given up on the Enlightenment and in doing so has rejected “tolerance, reason, democratic argument, progress and the drive for social betterment as cornerstones of society.”

If there is a serious contest about capitalism being waged in Australian politics, it is invisible to most of us. To the extent that there is a debate, it focuses on neoliberal capitalism. Perhaps Hawke’s invocation of capitalism is another way of expressing an opposition deep within the modern Australian conservative; an opposition to taxes and to government itself. Despite the rhetoric, the recent experience of conservative governments including the current government is that they levy more tax than their Labor counterparts.

And so on it follows. Anybody with a modicum of education and a sense of fairness would find this unsurprising. Yes our government is unrelentingly crass and incoherent, and it's totally impossible to work out what exactly they came to power to do given their contradictory (mostly self-contradictory) positions on things.

China Boom Is Over,  She Says (She's Probably Right)

Here's even more confirmation Australia is headed for economic turbulence. 

The slowdown in China's rapid economic expansion and "rebalancing" away from resource-intensive construction activity towards domestic consumption has dramatic ramifications for Australia's quarter century of uninterrupted economic growth.
In the official lingo, Australia is being forced to "transition" away from the mining boom. But to what? 

Julia Gillard began grappling with the "challenges and opportunities" presented by China's maturing economic development in 2012 when she released Treasury's 'Australia in the Asian Century' white paper. 

It too extolled the opportunities that would flow for Australia to replace record iron ore exports with shipments of health and financial services, meat, wine and dairy.
Add to this list cherries from Tasmania and crayfish from Geraldton, Mr Turnbull this week told a "gala lunch", while extolling the virtues of the recently signed China Australia free trade agreement. "The early export gains have been extraordinary," he claimed. 

Of course Ms. Irvine goes on to argue that services exports from Australia are nowhere near lucrative or competitive as to what our mining exports were able to do during the Mining Boom.

It's a special kind of mess when a Liberal Government can't point at its own record to make the point that the people are better under their economic care. It's also sad that short of thinning exports, was we have to offer Chinaware primary produce - things that are well and truly the part of the commodity trade and where prices are always in deflation.

This probably doesn't need a refresher but the problem with the Gillard Government was that without a solution it opted to double down on the Property Bubble; which, if you think about is no solution at all because it pays no attention to the economy on the other side when ultimately property prices recede back to historic norms, and there's still no industry to replace the mining boom.

The clear and obvious idea lay in the value-add that Australia could provide, so science and technology would be your front line areas to secure an industrial future for Australia beyond the Mining Boom. But of course there aren't any typical union jobs in the ranks of science and technology so the ALP in its worst moments of self-interest would not pursue such a path (And frankly I can't think of any other motive).

The subsequent Coalition Government has been worse in that it helped shut down car manufacturing Australia (because those jobs are unionised) and managed to gut a good portion of the secondary industry while wielding a budgetary axe to science and technology as well as compromising the NBN. So just in case you're wondering, Malcolm Turnbull hasn't been a panacea for the extreme Stupid which befell the Coalition Government under Tony Abbott, any more than an ALP victory might be of any help if they should squeeze past this terrible government at the next election.

Why Pay Tax When You Can Do This?

Glory be. How in God's Green Earth do these big companies get away with not paying tax?
In case you've wondered ho, here is the explanation:

Once upon a time, multinationals had proper 'bodies corporate'. Typically, they had six or eight directors who made decisions in the interest of their Australian entities, a director's duty. 

Shell Australia for instance used to be called Shell Australia. It had a full board, board meetings were generally attended. After every year end, the company would produce a glossy annual report, its financials there for all to see. A press conference, though meagrely attended, would be held. 

Now the Anglo-Dutch giant refers to itself as "Shell in Australia". Its statutory financial statements are nowhere to be seen. If you fork out $38 a pop to the Australian Securities & Investments Commission (ASIC) you can find them. Net, they have paid no corporate income tax on $60 billion in revenue in three years. 

Shell is a big one but the pattern is clear. Thanks to tricky financial structuring, multinationals regard paying income tax as optional. "Leakage" they call it in the land of tax lawyers. 

ASX companies, such as Woodside, Shell's peer on the North West Shelf, are bound to file their accounts publicly, and free of charge. They are visible, and they are filed – unlike Clive Palmer's accounts of yore – on time each year. 

Compliance, generally, has been in freefall over the past decade. Even the Business Council of Australia, which pontificates to government on good business practise, has only managed to get its accounts in on time in eight of the past 16 years. 

The question needs to be asked of multinationals: what is the economic reality?
Is Shell a little piece of London, and Chevron a little piece of America, which has been given carte blanche to plunder Australia's resources, pay little (in royalties in the case of Chevron) for them and bank all the proceeds of their sale in foreign head office bank accounts? 

Once Chevron has paid the money it pays to real Australians (during construction Gorgon & Wheatstone), there is not much in the way of ongoing economic benefits for Australians. 

Are these really Australian exporters? Multinationals used to run subsidiary companies and the money earned by those companies was banked in Australia and circulated in the Australian economy while the parent waited patiently for a dividend.

What a joke. The kind of money being discussed seems to be the kind of money needed to properly fund the NDIS and the Gonski Reforms and a whole lot more. It's not that these things are unaffordable, it's that our government both ALP and LNP has let their corporate donors run roughshod over the tax office. What we want is for the ATO to start going after these multinationals. That should be the platform parties run on if they want us to take them seriously about things like the budget deficit.