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.

News That's Fit To Punt - 13/Mar/2017

Mining Bust Out West

Jeez, that election in Western Australia looked like a real rout. It's funny how the state votes in the conservatives during the years of the boom and somehow trusts them to do the right thing with it, and then when the boom turns into a bust they discover the conservatives have squandered it. It seems to be like a collective insanity that takes hold of the state. During the mining boom years, the rest of Australia had to listen to utter idiocy coming out of the WA Government thanks to the fact the recent mining boom turned  WA into a net contributor to the GST regime rather than a net recipient. Then they cried poor about it , and got very little sympathy - as they should - and now that the state finances are in ruin, the people finally vote in the ALP. When you consider that at one point the WA LNP were mouthing off about seceding from the rest of Australia, it's certainly laughable that they will be a net recipient to the GST regime once more.

I guess one shouldn't laugh at the misfortune of others, but this one was pretty predictable.

Mining booms often turn to busts. Most Australians know this, except it seems, the outgoing administration of the nation's resource-rich west. 

Western Australia's now former premier Colin Barnett bungled the bonanza, splurging windfall cash during the good times only to find the cupboard bare in the bad ones. The upshot is the state's budget deficit and debt have spiralled, the AAA rating is gone and people are fleeing, the latter at least has the advantage of containing an unemployment rate that's already the nation's highest. 

"There's an element of Dutch disease there, and the government certainly mismanaged the boom, but it also reflects the sheer size of the mining sector in WA so when it collapses it drags everything down," said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney. 

"WA didn't seem to learn any of the lessons from Australia's past mistakes during commodity cycles and now the state is effectively in recession." 

(edit)
Western Australia's Treasury was projecting the revenue windfall from mining would still be continuing in 2018-19, despite commodity prices peaking in the third quarter of 2011 and mining investment not too long after. 

As a result, the government has been trying to cut outlays in a weakening economy and there's even been talk of tax increases as gross debt is on course to surpass 20 per cent of gross state product in coming years.

It's pretty laughable when you have a long memory. So much for the notion that WA somehow had organised things differently to all the other mining boom and bust cycles in the past. Tire's a lesson in there for the fossil fuels industries too.
There's a lot more to be said bout all this, so I'll come back to this below.

100 Days Of Tesla

We live in times such that a tech billionaire tweets something and it turns into a head-to-head discussion with the Premier of SA and PM of Australia. It's weird but all of a sudden people want this project to happen - which would be nice of South Australia but also, - which would be the proper part of the renewables tech business getting a crack at the Australian electrical grid.

Tesla's Elon Musk may have put large scale battery storage on the national agenda with his offer last week to solve South Australia's power crisis for free if he did not deliver a large system with 100 days of signing a contract, but both the Prime Minister and South Australia's Premier are looking for more detail before taking him up on the offer. 

Mr Turnbull and Mr Musk spoke for an hour early Sunday afternoon, with the Prime Minister yet to form a view on the merits of power storage systems in solving South Australia's power supply woes. 

"They had an in-depth discussion on the value of storage and the future of the electricity system," a spokesman for the Prime Minister's Office said. 

Their discussion was not political in tone, but rather a discussion between two people "picking each other's brains" over the options for energy storage in Australia, one source familiar with the discussion said.

Elon Musk for his part has resumed campaigning for a shot on Twitter. You'd look an idiot if you turned him down now, wouldn't you? Of course these are people in government in Australia are people who don't mind looking like an idiot, so you have to subtract your optimism. Or is that curb your enthusiasm. In any case, the offer is there. Now begins the process of looking the gift horse in the mouth.

Time To Start Collecting Canned Food?

This link is from Pleiades.

While economists love trade, it has extremely political ramifications. And it is politics that in Every’s view is driving the world back to a 19th century style trade world. A world where after a period of free trade, high tariffs were set up and where trade became a conflict involving domination of one country over another.

And the problem is that economic conflict can quickly become real conflict.

It was a scary prospect – not only would raising trade barriers reduce our standard of living – but if the path of the next 10 years follows the path of the late 1800s and early 1900s then the world gets very dangerous very quickly.

The biggest difficulty for those selling the idea of free trade is that a soon as you start talking about things such as “comparative advantage” people quickly switch off. It’s much easier to understand trade in what is known as a mercantilist sense – the “domination” point of view, where the aim is to export more than you import.

That is certainly the view of Donald Trump and his trade advisor, Peter Navarro, who has recently argued that because GDP is made up of consumption, government spending, investment and net exports (exports minus imports) reducing the US trade deficit is a good way to grow the US economy.

The problem with that view is that in the US – as in Australia – the size of net exports pales in comparison to consumption, investment and government spending.

Clearly, if the benefits of trade are not doled out to the public but instead, accrues to a small percentage, as has happened in the last 30years, the public becomes less enamoured of free trade; and so we must wonder if we've hit that point where the public has decided it won't back free trade any more. It would explain the shift toward  parochial kind of anti-tradepolitics as seen in the Brexit debate/debacle as well as the rise of Trump-ism (devoid of any coherent ideological framework, it does seem to to be a cry against free trade).

A Scary Passage From Crikey

Also from Pleiades was Crikey's entry about the WA election, which I think deserves a long quote.

They have to do something. They should have done something before. When the red dust settles and the tallying’s done, the verdict on the mining boom in WA will be a harsh one. No Norwegian-style social fund was established — Norway now has a trillion dollars under management from North Sea oil and gas, and the whole country could retire — and much of the money that did come in served principally to inflate prices to, well, Norwegian levels. FIFO was imposed on people who wanted settled jobs, and no government stepped in to oblige the companies to give their workers more options. Men and women of modest skills and earning capacities were suddenly pulling in huge wages, with little advice as to how to invest it. Many bought houses in regional FIFO towns at prices approaching capital city levels — and then saw them halve in value as the boom died away. Meanwhile, the towns that became FIFO bases — from Singleton in NSW’s Hunter Valley to Kalgoorlie to Bunbury — were drained of the communal stability that makes life possible. “How can you organise a footy team? How can you even get a picnic going,” a woman had said to me in Singleton, two years ago, “when you never know who’s going to be here? The shops are empty, the town’s bled dry.” Two days ago, someone said the same thing, near word for word, in Kalgoorlie. In both towns, and many others, the miner’s mansions have “for sale” signs in front of them, directed at a market that isn’t there. 

Some didn’t even make it to the bad-investment stage. A lot of people were drawn to FIFO by the idea that it would allow them to make big bank, on the simple principle that once you’re in camp, there’s nothing to spend your money on. But that scheme misses the effect of 14-day, 21-day, 28-day stints of 12-hour shifts on the human psyche. Beyond a certain point of such punishing, inhuman labour, it is all but impossible for most people not to blow their money in the first days off, especially if they’re young. Everyone who’s done night shifts, continuous shifts, back-to-backs knows this. The money spends itself, burns its way out of your pocket. Potlatch, the old tribal custom of wanton destruction, takes over. You stride into a bar and fuck it, you’re not going to drink beer, or Red Label, you’re going to drink Chivas! A double! Chivas for everyone! For some people who just came to do a couple of years in the mines and party up, that’s probably no great tragedy. Others have worked years at grinding, dirty, dangerous work and have nothing to show, a fact that must be part-cause of the suicides, depression, domestic violence and addiction that has broken through FIFO communities like a long wave. 

Given a free kick by 4 billion years of geology, and a chance to reinvest, Western Australia appears to have created a situation in which Wake in Fright and The Unknown Industrial Prisoner serve not as dystopian warnings, but as HR manuals. Now a state that has spent a decade chipping bits of itself off and floating it northward for silly-money prices cannot pay for its most basic services, pay down its debt, and is proposing taxes that should have been being levied since the 1990s and scrambling to fill the gap with infrastructure projects it can’t afford to start. Services cut include those to Aboriginal people, which in turn has produced unwilling population movements, pressure on centralised and reduced services, and a resultant and distinct fraying of white-black community relations in a range of towns, a fall away from such detente and mutual understanding as has been achieved in recent years. What looks like a racial political issue, is, in reality, a product of the state’s fiscal crisis, and its panicked efforts to plug the gap.

That's pretty bleak reading. It turned out they needed a mining tax but realised it after they campaigned hard to get rid of it. Oops. What do you do with this kind of collective hubris and stupidity? It doesn't end well:

The gap has been plugged, instead, with meth, a drug that has boomed out of control in WA, simply because it has become so cheap, easily made from base chemicals, in suburban labs springing up in every city and town. Those looking to explain its reach in WA by its occult power to turn people into speedfreak zombies are ironbarking up the wrong tree — meth hit the big time when it became cheaper than dope. Its popularity is a product not of addled obliviousness, but of the judicious application of rational choice theory by substance abusers, looking to maximise their investment. It’d make the Institute of Public Affairs proud.

All that, in overlapping bits and pieces is the conversations you get into across the state — with everyone. Miners, ex-miners, civic boosters, NGO officers, emergency services, journos, snappers. In WA, everyone’s become an amateur political sociologist, hot on the trail of where it all went wrong, and what the solution might be.
Whatever happens on Saturday, the state’s dilemma concentrates the mind wonderfully. Kalgoorlie stands as a metonym for Western Australia; Western Australia for Australia itself. We are all aware that we have not stored away for the lean years, and the fat years come to an end. The prospect, delicious for pundits, less for the public, is that either major party will fall short of a majority, and have to cobble together government in both houses of Parliament. Looked at clear-eyed, this often delivers good government, but the public rarely thinks so, and the golden west exemplifies the decay of political legitimacy and effectiveness in Australia, and if that occurs here, it may not be too long before the state is back at the polls once more. 

What WA needs is the Unflux, the many nations in one — a party with a realistic and integrated program to deal with the reality of resources-led states, not the fantasies they offer. As goes the state, so goes the nation.

Everybody's got 20-20 hindsight it appears. Right now, it's hard not to think of all those mortgages underwater in Western Australia and what that's doing to the banks' bottom line.  It all went crazy out there with the low interest rates and the seemingly low inflation as 'measured'y the RBA. If the reality was in fact significant inflation, then clearly Western Australia was not served well at all by the RBA's policies in the last decade. You can start to see the whole thing start to unravel. You have to wonder just how long will it be before it hits the East Coast?

GST Problem? We Don't Think So

Colin Barnett Should STFU

Pleiades set me a heads up about something in the AFR about Colin Barnett and theLNPmanagement of Western Australia. but before i get to that I need to set the stage a little.

At the recent COAG meeting, the premiers of states not called 'Western' were hostile to Colin Barnett's suggestion the GST distribution rules should be rewritten. It turns out the abrupt end to the mining boom has put a huge dent in the WA government's revenues. Worse still, the GST take for WA is going towrope from 38cents for every GST dollar collected, to less than 30cents. Which sounds rough, but here's the thing - WA was the chief beneficiary of an once-in-a-century commodity boom as it sat on top of one the great mining booms. And the other premiers lined up to let him know whether thought:

Premiers arriving in Canberra on Friday morning called for WA to accept the decision of the Commonwealth Grants Commission, which allocates GST revenue. 

"The Grants Commission made their ruling, not everybody's happy with that, but the notion that you would change the rules, that you'd get rid of of the umpire because you didn't like the decision and politicians are going to sit around a table and carve up the GST state by state, territory by territory, that's not going to happen," Mr Andrews said. 

NSW Premier Mike Baird said there should not be any "knee jerk" changes to the GST and said the most pressing issue was future health and education funding shortfalls.

"You shouldn't change the whole system for those single issues and certainly they have got the capacity to deal with it," Mr Baird said. 

"The biggest issue here is the health funding, the health and education funding. That quite frankly makes the GST debate that we are talking about right now look like a pimple to the size of a pumpkin." 

Queensland Premier Annastacia Palaszczuk said Mr Barnett's Black Saturday comments were "offensive" and that he should move on. 

"I just say to Colin Barnett, accept the independent umpire," she said.
"This is what the decision has been, no-one has gone against it for 30 years and there is absolutely no reason whatsoever to go against it. There's no way I'm going to cop Queensland losing $556 million."

That's pretty black and white. But here's the bit Pleiades sent from the AFR that's pretty damning:

So, how could WA manage to make it through a once in a century commodity price spike and still not manage to deliver a surplus? Easy. They spent a fortune subsidising the mining industry. 

Just last year the WA Treasury wrote to the commonwealth to explain how expensive it was to host the mining industry. Among other gems they wrote that "the cost of Western Australia's assistance to the North West Shelf project – e.g. payment of subsidies to the state's power utility to help cover the losses it initially incurred under crucial 'take or pay' gas contracts – is estimated to be around $8 billion." 

The WA Treasury goes on to criticise the Commonwealth Grants Commission for dividing up the GST revenues between states on the basis that "it fails to equalise many state expenditures that support resource development, particularly provision of infrastructure". They openly describe government decisions to pay for much of the mining industry's infrastructure as "a significant subsidy cost". 

The WA government has spent a fortune subsidising some of the world's biggest companies in the middle of a mining boom. Their own state budget papers show the cost to be around $6.2 billion over the past six years and their own Treasury calls such payments a subsidy. 

WA's tantrum at COAG, combined with Tony Abbott's tenuous grip on power, has reportedly delivered a $600 million windfall to Western Australia. Just imagine if Jay Wetherill or Daniel Andrews spent a few billion dollars subsidising the car industry. Would their industry policy decisions be cross-subsidised by the other states, or by the Commonwealth?

Ouch. Kind of shows how badly 'managed' (and I use the term very loosely) the whole mining boom was in WA. Basically, Colin Barnett took the mining revenues and gave it right back to the mining industry even though there was no reason to subsidise a booming industry. Instead of subsidising something that needed support during a time of a high dollar an over-dominant mining industry, Colin Barnett and his WA government went and doubled-down on the mining industry and effectively doubled-down on the Dutch Disease. Now that the moment has arrived, he's complaining his state has no income stream other than mining. You sort of wonder how he lives with himself.

The other state premiers are no saints either - they're simply talking along their lines of interests as is their prerogative; which is also true of Colin Barnett. But if you're an outsider of the process looking in, it's pretty obvious that Colin Barnett contributed greatly to his own states' predicament.