About The Glass Pyramid

http://www.theglass-pyramid.com

The end of Oz car manufacturing – “Mission Accomplished” by the LNP, RBA and APRA

So the end of Australian car manufacturing has arrived with closures of both the Toyota and Holden plants to take place by the end of October.

Next year Australians will buy close to 1,200,000 vehicles at a cost of approx $40B (assuming each car costs approx $30,000) and they will all be imported from our trade rivals like France, Germany, England, USA, Italy, Sweden, Japan, Thailand, Korea, China, Russia, Austria and all those other countries that reckon maintaining heavy industry and manufacturing skills is a very good idea.

ACBB7AA3-A440-4B9E-83A3-196C57AB8D73

The Government led by Malcolm Turnbull, the Reserve Bank of Australia and APRA can now all step forward and announce  “Mission Accomplished”.   Don’t be shy ladies and gentlemen this achievement is all about you.

Perhaps Mr Pyne could drop by with a shovel for a formal burying of the Australian car industry ceremony.  Invite Joe Hockey to fly in from Washington so he can tell us about the “hard yards” he is doing at taxpayer expense on the Washington cocktail circuit and then explain how shutting down Australian car manufacturing was his proud legacy as a Liberal Party Treasurer.

Don’t forget Barnaby Joyce, the Kiwi secret agent, is always good at explaining why failure is in the national interest.

It is worth keeping in mind that it was only a few years ago that we were exporting cars and components across the world including to places like Thailand.

But that was before the clowns at the RBA, APRA and in government decided that we should allow a mining boom and private debt boom, goosed with ZIRP capital inflows, “room” to send our exchange rate through the roof and rip the guts out of much of our export and import competing industries.

https://theglass-pyramid.com/2016/12/24/tariffs-unproductive-capital-inflows-destroying-aussie-jobs-for-decades/

We can always debate whether positive protection of specific industries is warranted and if so how much protection and for how long – the debates that our trade rivals never seem to have as they continue to protect THEIR key industries – but what should be beyond debate is that it is stupidity of the highest order to effectively impose a tariff on your industries, businesses and workers by inflating your exchange rate with unproductive capital inflows to drive a bubble in household debt and residential asset prices.

Closing down Ardmona

https://theglass-pyramid.com/2016/11/08/spc-ardmona-the-great-reverse-tariff-wall-scores-another-scalp/

How to not “Buy Australia”

https://theglass-pyramid.com/2016/12/24/dick-smith-how-to-make-buying-australian-even-easier/


As for the mining boom one need only look at what the Norwegians have done to convert a massive commodity asset like oil into a long term income producing productive investment.

But nope Australia either gave way a massive % of our mineral assets to significantly foreign owned mining companies or allowed the rapid extraction of them to drive up the exchange rate and in doing so drive present day consumption of imports.

Take a bow Australian policy makers – you really have given the feet of the nation a blast with both barrels.

Build to Let: The latest non-solution to a problem that should not exist.

The Australian Financial Review has been providing a lot of ‘supportive’ coverage for the promoters of the new  “Build to Let” housing model.

Now that it appears that Mr Scott Morrison is not keen on the ideal of handing out tax breaks to make “Build to Let” viable there have been howls of outrage from the hopeful rent seekers as their dreams turn to ashes.

To some extent the howls are understandable as Mr Morrison is usually very keen to promote asset price speculation with tax incentives like capital gains tax discounts for those mythical average “mum and dads” just trying to “get ahead”.

Build to Let” is nothing more than large corporations (profit or non-profit) owning large amounts of housing that they then rent out.    Historically this model has not existed in Australia because most Australians aspire to own their own home and there are plenty of tax incentives not available to “corporate landlords” to make it attract to do so.  And if they do rent, they rent from the army of “mum and dad” investors in investment properties who are chasing attractive tax incentives.

Apart from public housing departments there are few “corporate” suppliers of housing in Australia.

So why are people talking about a model that has not existed before in Australia?

The only reason “Build to Let” is being discussed at all is that, as a consequence of failed household debt driving policies of the RBA, APRA and successive governments, we have now reached a point where housing asset prices in Australia are massively bloated and out of reach for a rapidly growing number of Australian households.

Having created a debt and increasingly out of control immigration driven bubble in house prices some believe a “solution” lies in having hundreds of thousands of Australians become tenants for life with no hope of ever owning their own home.

That creating this “solution” would require giving massive tax breaks to the new “Build to Let” property class to make it ‘worthwhile’ demonstrates what a demented solution it is.

So what is the best housing policy if “Build to Let” is a solution to a problem that has been manufactured by idiotic and highly ideological economic policy by the RBA, APRA and successive governments?

The best housing policy is one that supports owner occupied housing

The best policy is one that allows most people to own their own dwellings without turning them into debt serfs.

It is simply bull-poop of the highest order that in a country as rich and as large as Australia that there is any reason for anyone, including those on very modest incomes, who wants to own their own home, not to be able to do so.    Post World War 2 Australia was full of young people buying new and existing homes and raising a family …. mostly on a single income.   Sure the homes were modest but at least they could afford them without spending 30 years desperately trying to maintain two sources of income.

The so called “housing affordability” crisis is a completely manufactured state of affairs.

We could be churning out very low cost new housing at a rate of knots but our bone headed policy makers prefer our current radical and extremist economic, banking and monetary model that is built around inflating the price of existing residential housing assets with scads of debt.

Low cost new housing supply would simply destroy their model of driving demand for debt with asset price inflation, so they block it or ensure, by imposing heavy upfront levies and taxes, that new housing present little price competition for existing housing that has been driven up in price by tax effective highly leveraged speculation.

We proved 70 years ago that we could build lots of housing very quickly and at low cost provided we make that explicitly an objective of public policy.

It certainly does not help that a bunch of useful idiots in the ‘progressive’ middle classes generate lots of policies that do little but drive up the cost of developing new housing where people want to live.   Up front user pays for servicing costs and gold plated servicing standards that are designed to relieve other rate payers from contributing to the cost of services they themselves received the benefit of in decades past.

Policies that generally don’t affect the high minded members of the middle classes as they commandeer worker’s housing built in the 19th and early 20th centuries with publicly supplied infrastructure and swan around sipping kale latte’s congratulating themselves at how THEIR assets just keep going up and up and up.

The traditional solution to delivering lots of low cost housing to the market was for the government to buy up large tracts of farm land and service it and then sell it off at next to cost to young home buyers who wanted to raise a family.  The young home buyers would then contract for a builder to build them a house they could afford to live in with only a single household income to pay the mortgage.

The government should do so again – right up and down the east coast.  Rezone large amounts of land and deliver serviced blocks to home buyers at prices that reflect that only a percentage of the servicing costs will be recovered and over 30 years from rates.

Building transport corridors out from regional towns is a lot less expensive than spending billions digging subterranean roadways across Sydney.

At the same it can relax building restrictions for 2 km around every railway station so that all those folk who hate mowing lawns and letting the kids run around can enjoy their walk up latte lifestyles as nature intended.  Even better – start building new rail-lines out to these new developments before you need to spend a fortune building them underground.

Credit Creation Regulation is required

To reinforce the beneficial effects of building more low cost housing supply it is necessary that credit creation be regulated so that bank credit creation is directed to the construction of new housing rather than speculation on existing house prices.

That means that lending restrictions must be imposed when the security for the loan is an existing house.  Asset prices inflation in the existing housing stock will be stopped dead in its tracks without a torrent of cheap credit from the taxpayer guaranteed banks.

Meanwhile lending for the construction of new housing should be encouraged.

A solution to a problem that should not exist.

Build to Let” is nothing more than a solution to a problem that should not exist.

And if some people don’t like the spread of suburban housing up and down the coast their options for action are clear.

  1. Slow rapid population growth – especially when driven by the very high rates of Australian immigration currently being pursued by a coalition of big business and rootless “open border” cosmopolitans.
  2. Move out of their own detached or semi-detached housing immediately and move to a sky-box wrapped in napalm-cladding as quickly as possible so that they are ‘walking their high rise talk”.  If living in a skybox is such a great lifestyle option let them the lead the way.    Too often the biggest spruikers of the hi-density lifestyle don’t actually live it themselves.

Is Australia becoming a colony again? And who is the coloniser?

Colonialism is often in the news and as a ‘former’ colony Australians might have some sympathy for the Indian perspective presented by Shashi Tharoor for the affirmative side of this debate “Does Britain owe reparations”.

Or do we feel that although Australia was a colony of Britain for over one hundred years between 1788 and 1900 it was not like the other British colonies.

It could be argued that Australians need to think again, and that Australia might find a lot of food for thought in this short speech having regard to the enthusiasm of both major parties – even ALP ‘Left Wingers’ like Penny Wong – for supporting and allowing massive levels of barely regulated control and influence over Australian infrastructure, industries, assets, workers AND the political and policy class to pass into foreign hands.

https://theglass-pyramid.com/2015/11/08/alp-watch-alp-wants-to-sell-off-australia-even-faster-than-mr-robb-or-is-it-simply-losing-the-plot/

https://theglass-pyramid.com/2015/11/21/robb-watch-handy-andy-tries-to-save-sen-wong/

https://theglass-pyramid.com/2016/04/30/oz-sell-out-watch-mr-morrison-gets-something-right/

https://theglass-pyramid.com/2017/04/09/foreign-debt-gittins-gets-it-wrong-again/

When foreigners increasingly control or effectively control your companies, your infrastructure, your land, your housing, your mineral resources and the volume of workers and the conditions under which they work can you honestly still claim that you are not on a slippery slope to colony status?

If the politicians in both major parties insist that we should allow massive amounts of foreign control over our economy as they accept massive donations from foreign (or local branch offices) of foreign companies, individuals and governments can we honestly claim that we can resist the process of foreign colonisation.

As a consequence of the speech above ‘going viral’  the speaker recently completed a book “Inglorious Empire” that details the ‘colonial’ experience of India and that is well worth a read by all Australians.

While we may have not experienced the worst of the Indian experience we should not take our status as a sovereign independent nation for granted.

Modern colonialism may not involve a single country or corporation marching down your streets and running their flag up your poles but it can still rob your wallet and without you even realising what is happening.

APRA and credit creation regulation: Economic secret business

It is that day of the month when the RBA board meets to pluck some wings off bats, boil them with eyes of newt and distil the resulting mixture down to an interest rate decision.

Across the nation thousands pay close attention to every aspect of the

20170905_102103_resized3

deliberations and complete secrecy is maintained to ensure that everyone gets the news at exactly the same time.

But what about APRA and its regulation of credit creation by the Australian Banking sector?

Good question because while the RBA has a spotlight on every action it takes, APRA engages in regulation of economic activity, that has equally important effects on the Australian economy, in almost complete darkness.

The regulation of credit creation by the private banks is one of the most important economic levers in the economy and yet it is conducted effectively in secret.  When it comes to APRA, economic commentators often have no idea whether APRA has changed credit creation regulations,  what those changes were and whether the changes are being enforced.  If APRA feels like it, they sometimes release copies of the ‘letters’ they sent to ADI /Bank credit creators or give hints in speeches of what they discussed in private meetings with their banking sector ‘clients’.

Why is APRA allowed to issue instructions and write private letters, on the hush hush and the QT, to those with banking licenses i.e. the privilege to create credit that is treated as if it were issued by the public sector?

When APRA decides to send a private communication to “Club Bank” or specific members of “Club Bank” telling them to cut the supply of credit to particular industries or APRA relaxes previously issued instructions those decisions have real and significant impacts right throughout the economy.

APRA even has a special word “suasion” to describe how it conducts its economic “secret business”.

Why is credit creation regulation allowed to be conducted in secret when great efforts are taken to ensure that RBA interest rate regulation is conducted absolutely in the public eye?

APRA does not even call it credit creation regulation.

Instead they use the vague and obscure (to the general public) term – Macroprudential regulation.

Macroprudential regulation sounds fancy but basically it boils down to regulation that restricts when, how and to whom the Authorised Deposit taking Institutions (aka banks) can create credit.

It is likely that the term macroprudential has been adopted because calling it what it really is – credit creation regulation – would be a big flashing light drawing attention to one of the great failures of neoliberal economics.

Time to stop the secrecy and come clean APRA

Both the RBA and APRA have the capacity to significantly affect the economy and the value of assets in the economy.

  • RBA fixes the prices of a specific interest rate that has an impact on a raft of other interest rates and thereby the demand for credit
  • APRA regulates when, why and how the banking sector responds to the demand for credit

Effective immediately APRA should be made subject to a similar regime as that which applies to RBA interest rate announcements.

EVERY change that APRA makes to the regulations and rules regarding ADI / bank credit creation should be released by a public announcement so that everyone has equal access to the information and can adjust their affairs and investment decisions accordingly.

Changes to credit regulation by APRA that have the effect of limiting credit to particular industries or particular borrowers or particular regions would be available to all members of the Australian community at the same time rather just some select banking sector insiders.

So why is it secret anyway?

One explanation as to why APRA works in such a stealthy manner is that enforcing a regime similar to that which applies to the RBA interest rate decisions would alert the public to the significance of “credit creation” regulation as a tool of economic policy.

If the public were so alerted they might start asking questions about the nature of “credit creation” by the banking sector and what makes it special.  They might then start asking why APRA is regulating credit creation when the government is usually expected to take responsibility for the regulations that apply to different sectors of the Australian economy.  They might expect those regulations and changes to them be the subject of political debate and discussion so the costs and benefits can be assessed.

More importantly they might start asking question about how the power of private bank credit creation is currently exercised.    They might start asking why that massive economic lever has been allowed to be directed to pumping up a massive bubble in the prices of the existing housing stock rather than expanding the productive capacity of the economy in the form of new housing, new infrastructure, new schools, hospitals and other public assets that are in short supply.

As it is the actual explanation for APRA’s secretive ways when it comes to credit creation regulation is fairly simple.  Accordingly to neoliberal economic ‘theory’ APRA should not be interfering in the credit creation decisions of private banks at all as a ‘deregulated’ banking sector will allocate credit to only the best and most productive purposes.     One need only read some of the RBA and APRA speeches over the last few years to see that this ‘belief’ is almost holy writ in both institutions.

The problem for the RBA and APRA ideologues and their obsessions with “deregulated credit creation” is that the GFC demonstrated beyond doubt that their theories are a complete failure and what actually happens, most of the time, is that “deregulated credit creation” results in speculation and asset price bubble blowing on a massive a scale and crumbling rates of productive investment.

Slowly but surely over the last few years we have been listening to APRA and even the RBA retreat from the ideological extremes they inhabited, regarding the need for credit creation regulation.  Which of course is a good thing but it is time to start talking about the political decisions that are inherent in credit creation regulation and how they are made.

Credit creation by the private banks is the dirty little secret of Australian economic management and it is about time a big bright spotlight was turned on it and those responsible for it – APRA and the Reserve Bank of Australia.

Further reading

For an excellent read on the significance of credit creation by Professor Richard Werner see the link below.

Towards a new monetary paradigm: a quantity theorem of disaggregated credit, with evidence from Japan

https://eprints.soton.ac.uk/36569/

And for those that prefer the visual – a documentary based on Professor Werner’s book the “Princes of the Yen”

https://theglass-pyramid.com/2015/09/07/film-night-at-tgp-central-banking-from-the-black-lagoon/

Australia’s sick housing markets: Why we need a vacancy rate target of 4-5%

The latest “instant noodle” solution to Australia’s housing affordability crisis is “Build to rent”.

Rather than have “normal” people be able to buy a block of land in one of the largest and emptiest nations in the world and build their dream home, the new plan is to have mega corporations build cramped and congested skyboxes and rent them out.

A life time of renting for most Australians simply because our policy makers and politicians prefer that approach to actually trying to fix our demented and throughly broken banking and monetary system.

Whatever will they think of next?  Continue reading

Ending the era of speculation – An economic reform plan for the ALP and Australia

So the Turnbull government is blowing itself up day by day and poll by poll.

It seems as though fanatics in the government cannot wait for the policy ‘purity’ opportunities of being in opposition and are keen to accelerate the process of getting there.

large_its-time1

However, although the ALP have made some of the right noises in recent times and are doing well in the polls,  they are still a long way from capturing the zeitgeist and turning a growing dissatisfaction with the government into a definite preference for the ALP. The ALP are getting ‘warmer,warmer’ but run the risk of veering off into “stop – you are getting colder” territory at any moment.

The ALP are looking better but mostly because the LNP are looking so woeful.  A bit less chaos from the government and things (including polls) could turn around. Continue reading

Population Pressures: Why isn’t decentralisation working in Australia?

Decentralisation is only a pipe dream whilst we are running an economic model and strategy that has centralisation baked in.

Bernard Salt and George Megalogenous continually ignore what is driving the population concentration, beyond noting that immigrants seem to be voting with their feet.


Their lack of curiosity is remarkable considering the traditional,driver of concentration – labour intensive manufacturing has been on decline for decades and we have been retreating to an economic model based on minerals / agriculture with loads of real and financial asset sales. Not much of that particularly requires population concentrations in Sydney and Melbourne. Continue reading

Fed Watch:  Asset Swap myths, legends and other bulldust

A report in Bloomberg states that there is talk that the US Federal Reserve ‘might’ start reducing its $7 Trillion dollar mountain of mortgage backed securities.

This rumour concerns one of the biggest myths of the Federal Reserve response to the GFC / Great Recession.  That the Federal Reserve’s QE interventions in a range of markets were nothing more than an “asset swap”.


The modern banking and monetary apologists loved to roll out that myth “it’s just an asset swap” to justify why having an ‘independent’ Central Bank wade out into the market to ‘support’ its banking franchisees and the private-public monetary model was nothing for anyone to worry about. Continue reading

APRA Watch:  Bank regulation by smoke and mirrors

Today on Macrobusiness.com.au another excellent Deep T journey down through the house of mirrors that is APRA’s regulation of Australian private bank credit creation.

Unquestionably absurd.

If a casual observer thought this APRA regulatory stuff was impenetrable and made their head hurt it would be for good reason.

Source of the problem

The problems arise the moment that you accept that the IOUs or promises of a group of private organisations should be given a privileged or protected status that has real value. The moment you do that you have created an incentive for those organisations to create as many of those IOUs or promises as possible or they can get away with.

Gaming the regulations that apply to the privilege is core business for private banks. Continue reading

Balanced Budgets: What drives that mania?

The “balanced budget paradox” is an interesting paradox as the implications of it are obvious but many remain oblivious to them.

It would seem that hiding in plain sight remains an excellent strategy for our private banks.

img_1059

First off – a balanced budget ‘objective’ means that the government tries to tax as much as it spends. In other words for every dollar it pumps out into the economy by spending it extracts it back again by taxing. That raises an important question. If

the government succeeds in taxing back every dollar it spends what is left out in the wallets and bank accounts of the wider population? Continue reading