Mr Pascoe: Only two mistakes…….provided we don’t talk about the big one.

Columns by Mr Pascoe are always entertaining and fun to read, and when the drive to catch eye balls is in harmony with talking sense they can be powerful medicine.

In his most recent outing, Mr Pascoe took us on a trip down memory lane to pay a visit to two of his most cherished mistakes as a financial prognosticator.  Though if you read closely he barely concedes the second.

Rather than deny you the pleasure, by providing a potted summary, click this link and settle back with a cup of finest cocoa.

The article ended with

“..Keeping perspective on both the doom and boom remains a lonely pursuit – but it’s the only one worth pursuing, even with the occasional bad call….”

A double serving of LOLs please.

The problem is that Mr Pascoe rarely talks about what has driven the bubbling Australian asset prices of the last 30 years and especially since the GFC.

According to Mr Pascoe the GFC proved to be no disaster for Australia because some levers were pulled by brilliant economic wizards at the RBA, APRA and Treasury.

“… I wasn’t entirely wrong, Australia was all right. A brilliant fiscal and monetary response did kick in, helped by China hitting the stimulus button. ..”

The truth of the matter is that along with China’s economic expansion, little more than the deregulation of credit creation by our private banks and a growing dependence on external capital inflows to those banks, supported by an implicit taxpayer guarantee, has been keeping our economy bubbling since the mid 1990s.  The response to the GFC was nothing more than to double down and dish up more of the same with even more of the taxpayer’s full faith and credit on the line.

Provided that the private banks are free to create credit and direct it towards asset price speculation and we have the RBA and APRA bending over backwards to ensure that predatory ZIRP inflows from our trade rivals keep the price of that credit is as low as possible, the bubbles keep on bubbling and with the taxpayer going guarantor may bubble for some yet.   We still have a lot of real and financial assets to sell off.

Now this “brilliant” magic pudding economics applauded by Mr Pascoe is not cost free.

When the process depends on massive capital inflows from trading partners eager to manipulate exchange rates the price is a higher AUD and a loss of competitiveness…in short we are gutting the productive capacity of the economy as we pursue bubble’o’nomics.

At this point it important to note some of the other “brilliant” levers that were pulled.

Massive increases in the sale of Australian capital assets offshore, assisted by Free Trade Agreements which more accurately should be called “Sell Off Australia Fast Agreements” SOAFA, and increases in government bond sales (recorded or concealed) to foreign buyers to fund recurrent fiscal expenditure.

Remember when Rudd’s government opened the door wide to foreign buyers of existing housing just to prop up houses prices that the banking sector had inflated with hundreds of billions of household debt as simple folk chased Howard’s Capital Gains Tax discounts?  Yep that was one of those “brilliant” levers.

Remember when the Australian Office of Financial Management bought up the private Residential Mortgage Backed Security market to stop it imploding and driving down debt bloated house prices?  Yep that was another “brilliant” lever.

Mr Pascoe rarely mentions that there are real costs of asset bubbles built on borrowed offshore capital. 

It is all just ‘investment’  when #FakeInvestment is closer to the mark.

The “brilliant” thinking is that if foreign central banks want to drive cheap capital towards Australia’s taxpayer guaranteed banking system, we should grab as much as we can and as fast as we can but it is what we do with that cheap capital that really matters.

Shutting down factories and industries with a high AUD, buying imported cars and other imports and driving up existing asset prices is not the mark of a clever country.

At the moment most of the new asset construction going on in our largest cities consists of construction to support a larger population not a larger productive economy.  Nothing brilliant about that.

But on all of this Mr Pascoe is a real Silent Bob.

Why so silent Michael?

If readers feel the above is unfair and have links where Mr Pascoe explains any or all of the above ugly secrets of Australia’s “brilliant” economic management, the Glass Pyramid will be most grateful and shall give them the star billing they deserve.

Categories: Macrobusiness

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