Bank Watch: Will they feel any pain if homeowners go bust?

“….how long can the banks afford to hold onto empty houses?….”

A long time – they are underwritten by the taxpayer and their debt products are supported with great devotion by RBA and APRA.

Plus if they find that being a giant rental mgmt company is too stressful they will simply bundle up all those sick mortgages and sell them for much more than they are worth to the govt who will ‘print’ some accounting entries to pay for them. The banks will then be free of their stinky loan books.

The govt can then do what it likes, leave the owners in them chained to their debts on super extended terms or trim the amount outstanding and let the debt serfs pay what they can.

QE for Debtors in other words. Continue reading

RBA/APRA Watch: The Puppet Masters still hold the strings

“….both Sydney and Melbourne are primed for a painful correction as soon as the domestic and foreign specufestor interest wanes….”

That raises the question of when does the interest of a specufestor wane?

If a specufestor’s interest is not really driven by fundamentals (and years of sensible commentary on Macrobusiness has demonstrated this beyond doubt) that leaves the availability of credit as the key motivating force. That suggests that their interest is unlikely to wane while they perceive that the RBA and APRA remain committed to adjusting the price of credit downwards and facilitating its supply.

In other words, specufestors are chasing capital gains and they see those as mostly the product of the amount of credit available to be pumped into the asset class. Continue reading

RBA Watch: Is Debt Deflation “war gaming” a thing?

It would be very useful to find out what ‘war gaming’ exercises RBA and APRA have conducted to assess what they would do if the demand for debt dropped sufficiently to produce a 50% fall in house prices.

The thing that is overlooked in the ZIRP forever approach is that while the RBA can set the target rate and that will influence the mortgage rates, it cannot FORCE people to take out loans and buy property.

So what do they plan to do if fear strikes the herd and people simply refuse to borrow anything like the amounts of money they have been borrowing to date – regardless of how low the interest rates are. Continue reading

Brazil Watch: What tips on economic management can Australia give?

There is a lot of talk at the moment about the economic difficulties facing Brazil

Brazil needs to read more mainstream Australian economic commentary and worry less. If they did they would realise that the only reason they need interest rates at 14% is because they are xenophobes who are not willing to transfer ownership of their assets off shore fast enough. Continue reading

Capital Flows: Capital flow purists are damaging the National Interest.

One of the “beliefs” of capital free flow purists is that capital flows are like the wind and if they get in the mood to move there is nothing that man nor government can do to stop them.

For the purist regulating the movement of capital is unnatural and doomed to fail because like the ‘wind’ capital just wants to flow and bring joy to all mankind.

This of course is just one more bit of hogwash where a defective and damaging state of affairs is characterized as the natural order to deflect proper discussion of why and how the situation should be fixed.

The links above show that ‘capital flows’ can be regulated without much difficulty if a country is minded to do so. China is sticking plugs in the ‘capital flow’ conduits faster than a small Dutch boy can plug a few dykes.

It is not as though there is any lack of understanding of the measures that are employed to shift capital illegally.

http://www.bloomberg.com/news/features/2015-11-02/china-s-money-exodus

If capital flows could not be ‘managed’ then we would not have the problem of mercantalism where one country seeks to manipulate their relative exchange rate by exporting more capital than they import. Mercantalism simply would not work if the country exporting capital had no ability to regulate the capital inflows that would otherwise neutralise the capital export currency manipulation strategy.

The last forty years and the business models of Japan, Germany, Korea, etc etc demonstrate that managing capital flows is a doddle.

Locally it looks like there may be room for Penny Wong to back off from her wrong headed desire to wedge the witless Mr Robb from the right (and poke a stick at the Nationals) and argue for even faster unproductive exchange rate manipulating capital inflows.

Mr Robb like any good ideological obsessive (and his former leader) is out on the hustings, clanking his neo-liberal chains and whinging that the government is showing some signs of reconsidering his massive nation wide “garage sale” of Australian assets to our trade rivals.

http://www.smh.com.au/federal-politics/political-news/kidman-cattle-stations-andrew-robb-criticises-scott-morrisons-political-decision-to-block-sale-20151120-gl3vkb.html

Take the hint Penny – the last thing the ALP needs is to participate in a bidding war in Mr Robb’s nutty and clueless neo-liberal ideological obsessions.

To read the original version of this comment in the original context atMacrobusiness.com.au click this link. (link maybe locked – but there is a free trial available).

Robb Watch: Handy Andy tries to save Senator Wong

There is still some hope for the ALP even though PM Turnbull is treading very carefully and producing sky high approval ratings.

The hope comes from the increasingly vigorous re-emergence of policy zombies from the Abbott government.  First there was the former PM spraying op-eds in every direction this week explaining how the AEF “Abbott Expeditionary Force” to Syria was the required bold measure that PM Turnbull could not stomach.

Now we have the Minster for National Asset Garage Sales, Mr Andrew Robb, firing spit balls at the Treasurer, Mr Morrison for displaying some wisps of common sense when it comes to flogging assetKidmans off shore to our eager currency manipulating trade rivals desperate to “export capital” to Australia.

The SMH does an excellent job of recording Mr Robb’s dissembling (click to read) on the topic.

So what are Mr Robb’s contributions to the debate?

  1.  The issue is ‘political’.  No kidding Mr Robb.  The national economy and the ownership of assets is inherently political and it is only in your fantasy world where economics is some apolitical ‘science’, Mr Robb is dangerous in the Trade portfolio simply because for ALL our trade rivals –  trade policies are intensely political and they eat ‘economics is a science‘ saps like Mr Robb for breakfast.
  2. “..always depended on foreign investment for agriculture, because no bugger here will put money into the sector…”  First, selling off local assets is not investment. It is merely a transfer of ownership. Secondly, there is no shortage of capital in Australia with $2T in super savings alone.  Thirdly, if Mr Robb is concerned about the preference of Australians to pour hundreds of billions of dollars into unproductive investments in bidding up the price of existing housing, he needs to look at the tax and other policies that Mr Howard and subsequent governments (yep Rudd-Gillard) introduced that made speculating on rising house prices the preferred ‘investment’ strategy of millions of Australians.  We have so much spare capital that we can seemingly afford to piss most of it up against the wall of the house price ponzi scheme – promoted by the FIRE sector ideological pals of Mr Robb.
  3. “I’ve heard about selling Australia forever. I just haven’t seen a farm leave the country yet.”   Who is writing your lines Comical Andy?  Sure the land cannot be shifted off shore but the profits can be shifted off shore quick smart (or through the joys of transfer pricing – never exist in Australia at all).  Plus Mr Robb is desperate to encourage fly in fly out foreign work forces so not even the wages will stay here.   Mr Robb’s lame jokes will leave the nation lame.
  4. “Mr Robb did not personally criticise Mr Morrison, but said: “We have to carry people with us….”   There is a reason for that Mr Robb, the only people who will buy the tosh you are peddling are the comatose.

With Mr Robb back on the scene trying to explain why Australians should applaud his efforts to accelerate the efforts of our trade rivals to acquire our asset base in their attempts to manipulate exchange rates via unproductive capital exports to Australia, it should be happy days for the ALP and Senator Wong.   She can back off the wrong headed campaign she launched last week and instead leave Mr Robb and his broken neo-liberal capital flow obsessions to swing in the breeze as the wind changes direction.

But unfortunately, the ALP cannot get too excited about taking advantage of the return of Mr Robb and his policy zombies as the Labor agriculture spokesman Joel Fitzgibbon is still pressing on regardless and floundering around playing the xenophobe/race card (i.e. he thinks it is discriminatory not to allow all our trade rivals exactly the same ability to “acquire” our agricultural assets and manipulate the exchange rate) and repeating the same daft idea that Australia is somehow short of the capital required to develop our agriculture industries.

“The [2012] Greener Pastures report tells us that to meet our aspirations we will need $600 billion in investment in agriculture by 2050, and as an island nation with a small population, by definition much of that will need to come from foreign sources.”

Wake up Joel, wake up Penny, wake up the ALP or you may as well set your alarm clocks and hope the Australian public gets bored of Mr Turnbull / Mr Morrison in a decade or so.

 

LNP NSW Sell Off – Hurlstone Ag ‘harvested’ by Mr Baird

The great NSW LNP “garage sale” continues with news that the state government plans to continue its “asset recycling” program by flogging off land in South Western Sydney to undertake new capital works.

Hurlstone

According to Mr Baird’s economic neo-liberal “religious” beliefs there is a limit to the assets that can be owned by the public and once that ceiling has been reached, when a new asset is required an existing asset must be sold.

Yes – as nutty as it sounds.

Even nuttier is the idea that open land close to existing and extensive future residential areas in South Western Sydney is somehow “excess to requirements”.  With the likes of Mr Baird roaming parliament in earlier times Centennial Park and many of the large urban parklands and state and national parks would be buried under concrete as “excess to requirements”.

Hurlstone2

If Mr Baird wishes to build new infrastructure and assets, and that is definitely something that should keep him out of mischief, he needs to show some leadership and explain to the current generation that they need to contribute to their construction and not simplify pilfer from the stock of assets paid for by previous generations.

A State Infrastructure Contribution “SIC” is the fairest way to do so and it should be introduced immediately as an additional levy on the quarterly council rate notices.  The Local Council can collect the SIC and remit it to State Treasury.

The features of the SIC will be simple and as follows:

  • Like rates it will be levied by reference to the unimproved value of the land.
  • It will apply to all land including owner occupied housing.
  • It will only apply to land above a threshold value per meter.  That will protect very low value land – which is usually owned by low income people.
  • The value threshold will be indexed to CPI or some other suitable measure.
  • To protect those who have retired and have limited incomes any SIC that is due on land they own may accrue as a charge against the title of land and will be recovered on disposal of the asset (i.e from the estate of the owner)
  • It will initially be a very small charge – approx $150 per quarter for the average home owner of land above the threshold.
  • The total amount raised across the state and by regional will be published along with the assets constructed with it so that the land owners paying the SIC can see the benefits.
  • If Mr Baird or later leaders wish to build more assets than the current SIC can fund they can then make a clear argument to the public – if you want more worthwhile assets like better roads, better public transport, better hospitals, more parks etc the SIC may need to rise to pay for them.
  • As infrastructure assets like better roads and better schools etc add to the value of land the SIC levied will rise, thereby creating a direct link between the value created by new public assets and the SIC payments made by the owners of land that benefits.

Mr Foley and the Greens are sure to support the measure as both of those parties will be keen to support an increase in the stock of public assets in a way that is fair and reasonable and paid for largely by the owners of the land that will benefit from them.

Mr Baird, if you wish to be remembered as a leader and a builder you need to do more than promise that the people of Sydney can get something for nothing by living off the sale of assets built by earlier generations.

If you don’t – just like the Cheshire Cat you will be remembered for little more than your lovely smile.

 

 

 

 

 

ALP Watch: ALP wants to sell off Australia even faster than Mr Robb – or is it simply losing the plot.

According to a report in the Canberra Times by the talented Mr Mark Kenny , the ALP intend to try to outflank Mr Robb from the economic neo-liberal ideological fringes with an even more permissive policy on unproductive foreign capital inflows spiced up with a bizarre “PC” politically correct “Say No – to Xenophobia” rationale.

Yet another brainiac “political wedgie” attempt that will simply confirm in the minds of voters that the ALP remains lost in the social democratic policy wilderness.

Unproductive capital inflows are damaging whether or not they come from Germany, Europe, the UK, the USA or the local region as a result of FTA agreements signed by Mr Robb.  The race card is being played hard by the “sell off Australia” supporters to deflect genuine discussion of policies that are not in the national interest. Continue reading