An iron ore National Export Volume Auction (NEVA) is the best way to protect national income

Over the last few weeks the airwaves have been buzzing about the falling national income (and the problems for Mr Hockey’s budget) due to the rapid decline in the price of iron ore and Twiggy Forrest’s calls for restraint from BHP and RIO when it comes to delivering larger volumes of Australian iron ore into slowing international markets.

Unfortunately, the debate has lacked imagination and has tended to focus on two points,

  • whether Mr Forester or any of the junior miners are “good blokes” or “good sheilas” and deserve ‘help’ or
  • whether it is possible for any single Australian mining company /contractor to exert market power.

The later proposition has had all the ‘free market’ buffs out in force proclaiming that the market should be left to ‘sort out the problem’ as though the world is full of markets that are free and unmanipulated and thus the iron ore market should be left to run free………… like a Snowy Mountains brumby.

In all this static and distraction a fundamental point is being missed and that point is that at the present time and for some considerable period it is highly likely that AUSTRALIA will retain massive market power in the international iron ore market.

The bold capitalisation of Australia above is important because to date everyone is focused on the market power of individual mining companies/contractors rather than Australia who actually owns the iron ore.

While the Glass Pyramid has described in a number of recent posts, elements of the argument in support of and the solution to the iron ore ‘question’ from the perspective of the Australian national interest, there is some benefit in presenting the arguments and the solution again in a single post. Continue reading

Iron Ore : Stirring the pot – Collected TGP transmissions.

GLASS PYRAMID ‘EXCLUSIVE’ SEALED SECTION CONTENT

With Twiggy continuing his crusade against the big boys of Oz Iron Ore and attracting more participants to the debate day by day (the AWU joined in today), the Glass Pyramid research unit – that prefers to while away its days examining advanced market co-ordination methodologies – has been emitting a range of ‘shards’ on the topic in recent times in various forums. They are presented below for your enjoyment and possible amusement.

The Australian Iron Ore “question” seems to boil down to three alternatives depending on whether you think Australia has pricing power in the international Iron Ore market.

1.     Australia has pricing powers in the Iron Ore Market If this is the case then the most sensible approach is to adopt a national system of export volume licences so that the total volume of Australian Iron Ore entering the international market is managed.   For reasons explained below and previously on TGP this is not likely to help Twiggy but it will help Australia get the best return from the extraction and export of its mineral reserves.

2.     Australia alone does not have pricing power but it does if it works with Brazil (and Guinea and others in due course) Formation of an OIOEC (Organisation of Iron Ore Exporting Countries or “Oi”-OEC) would allow the total volumes of Iron Ore released into the international market to be managed. But with Mr Robb in a state of teenage infatuation with signing Free Trade Agreements and stitching Australia into the TPP the idea of trying to ‘manage’ a market – like most of our trade rivals do – is probably alien to him (and all the other free trade purists dominating Australian public debate).

3.    Australia alone does not have pricing power and ‘managing’ the Iron Ore market with other producers is not an option. In this situation, which many think is the reality on the basis that there is lots of iron ore lying in clumps around the planet, the only option is for Australia to extract as much return as possible from our “dirt” as the competitive international market allows and the simplest and constitutionally safest way of doing this is by increasing state royalties until the pips squeak- especially before any more excess supply enters the market.   This is superior to the theoretically splendid super profits tax (RSPT) or MRRT approach which suffers from over cleverness and being easily painted as an ALP Canberra/centrist power/tax grab.

This means that the ALP must let go of its dreams of a Canberra administered RSPT or MRRT and instead support state governments increasing royalties as high as possible. Colin Barnett will surely appreciate having the support of Bill Shorten, the mining unions and the other premiers who have been giving him a hard time of late for ‘blowing the boom’ – in fact he may need a bit of Dutch Courage as Colin seems particularly concerned about falling off a few mining company Christmas Card mailing lists. The assorted “shards” on the above appear below – with links to their original contexts on www.macrobusiness.com.au Continue reading

Don’t let the “mining booms forever” crowd off the hook.

GLASS PYRAMID ‘EXCLUSIVE’ SEALED SECTION CONTENT

Note:  An earlier version of this edition referred to “cretins”. That was unkind to the cretin community. References have been replaced with “snake oil merchants”. Apologies in advance to law abiding and legitimate merchants dealing in that fluid.

Now that the end of the mining boom is rapidly moving to the realm of undeniable fact it is important that the snake oil merchants who promoted the idea of a mining boom that would last for decades are held responsible.

We are talking about those who said that a balanced economy should be thrown overboard to accommodate a land of ‘sweeping mine holes’.  Those who said that Australia’s fate was to be a destination for off-shore predatory capital – like some colony who never grew up.  Those who said manufacturing was for the birds and we should just leave that to our “currency warrior” capital exporting trading partners.

Care must be taken not to fall for the line / nonsense, that the snake oil merchants are already preparing, and that is to blame the victims who swallowed the BS hook line and sinker.  Who are the victims? All those individuals and small and medium sized businesses who made the mistake of accepting as reliable all the rubbish spouted by the mainstream press, over lobbied pollies, policy wonks and “pet economists” of the FIRE sector .

The lines run will be along the following lines “..no one was forcing them to borrow”,  “..we did not think anyone would take us seriously”, “..people are adults and able to make their own decisions…”, “…It should have been obvious we were all self-interested spruikers or as clueless as the next guy…”.  Basically the sort of stuff the tobacco industry and fast food industry rolls out when their products of addiction and disease cause injury.

The snake oil merchants know that by blaming the victim and “spreading the blame” it is more likely that they will be able to sneak away without censure or penalty. They also know it is more likely that the taxpayer will be called in to make their victims good rather than themselves be held to account.

Even worse we will get even more claims by people like Mr Robb Continue reading

IMF Watch: RBA told to give the Debt Machine more juice!!

GLASS PYRAMID ‘EXCLUSIVE’ SEALED SECTION CONTENT

As regular receivers of Glass Pyramid transmissions would be aware, the RBA and its Debt Machine maintenance techniques are a regular source of wonder and amusement to those of us who live in glass pointy things.

According to one of the remaining bits of the Sydney Morning Herald () devoted to real news, the IMF has been wagging its finger at the Reserve Bank of Australia for shirking its Debt Machine duties recently.

The Reserve Bank has been warned it may have to keep cutting already historically low interest rates to prevent Australians from becoming fearful of falling wages and weaker employment prospects.

Most shocking of all is the news that some group called “private economists” are worried. One wonders if “private economist” is some new euphemism for “economists paid by the private banks to say what suits their business model”.

The stark message, delivered overnight by the International Monetary Fund, will put more pressure on the RBA which is already being questioned by private economists for its recent interest rate decisions, with some accusing the bank of behaving unpredictably.

Unfortunately the article is lacking a clear explanation of what the IMF is really asking the RBA to do.  Rather than simply state that the IMF wants the RBA to:

  • further lower the existing “bait rates” to drive even more punters (but largely wealthy speculators) into the warm embrace of debt merchants and even larger debt loads.
  • and by doing so hope that some fraction of this freshly baked private bank ‘endogenous money’ when driven into asset prices might leak out into the broader economy via crumbs from the speculators tables (wealth effect) or from wages/ fees / slices of the action paid to renovators, spruikers, lawyers, finance brokers, real estate agents, house fluffers, reality TV show producers etc.

Continue reading

Iceland shows Australia how to fix a broken Monetary System

GLASS PYRAMID ‘EXCLUSIVE’ SEALED SECTION CONTENT

It seems that Iceland remains determined to be the only country that is prepared to chart an independent  course in a world of high finance and private and public debt gone mad.

In March 2015 the government of Iceland received a report from its own members of parliament proposing that control of the money supply be taken away from private banks and returned to public control.

The reason being that the Icelanders have recognised that allowing private banks to control the money supply has a long, long  track record of causing booms, busts, inflations, devaluations and massive amounts of unproductive debt secured by rapidly inflating asset prices.

Australians should spend an hour or two and read this clear and persuasive document for one simple reason – the monetary system in Australia is essentially exactly the same as the one the Icelanders have decided is fundamentally broken and in the next few years we are going to have to choose between simple and sensible reforms like the ones the Icelanders are considering or entering a recession / depression as our current monetary system breaks down.

In short the problems with the current Australian Monetary system can be summarised Continue reading

RBA Watch: Finally the spotlight is turning towards the RBA

GLASS PYRAMID ‘EXCLUSIVE’ SEALED SECTION CONTENT

An issue of long standing concern to the Glass Pyramid is the role of the RBA within the Australian structure of economic management.

It is great to see one of the superior writers at Business Spectator and a former employee of the RBA show signs of really warming to this topic.  In an interesting post Callam Pickering discusses the recent speech made by the Governor contrasting the US and Australian economies and ruminates on whether the RBA may have a culture problem.

“…I know from personal experience that the RBA is rarely open to counter-views; unless you hold a management position your opinions are neither sought out nor taken seriously. The bank also rarely hires externally, creating a sense of group-think within lower and middle management.

 

The RBA is awash with talented people with towering intellects — economists who were more than capable of recognising the structural shifts at play across the Australian economy. Rather than playing the ‘human nature’ card, perhaps Stevens should be looking at how the internal culture at the RBA undermined monetary policy…”

 

The Glass Pyramid, always eager to help out anyone who is drawing attention to fundamental problems in our economy, offered some support Continue reading

Selling Australia: Toll – Another $6.5B worth of Oz Assets sold

GLASS PYRAMID ‘EXCLUSIVE’ SEALED SECTION CONTENT

Mr Hockey announced on Thursday that he had given a big green tick to the $6.5B transfer of ownership of Toll Holdings to Japan Post (a Japanese government company).

This deal has been in the pipeline for a few weeks and The Australian gave the negotiations a nice bit of swoony Mills and Boon coverage back in February.

“..But by the third week of January, the Toll board had received a non-binding indicative offer which contained the magical number which became music to Horsburgh, Kruger and the board’s ears…”

No doubt Mr Robb supports this deal as he can barely rest between stitching up capital flow facilitation deals (aka FTAs) that make it even easier for our trade rivals to export capital , acquire ownership of Australian assets and in doing so inflate the relative exchange rates and maintain their competitive trade advantage in their relationship with Australia.

Why capital flow facilitation deals?

The misleading description given to these agreements is Free Trade Agreement and it is misleading because Continue reading

The Oz Economy – The future is bright if……….

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

While the woeful performance of the Treasurer (Q&A Monday Exhibit 1), the generally incoherent ramblings from the government on economics and the often opportunistic “small target” mutterings of the ALP, are a major cause of despair for anyone with an interest in the economic future of Australia, there are some reasons to remain on the sunny side of the street .

The Glass Pyramid remains optimistic for the future and it does not involve the government picking winners or fortune tellers looking for the next ‘big thing’ in the remains of a pot of Earl Grey.   Continue reading

Peter Martin gives Hockey an undeserved break on unlocking super for housing

GLASS PYRAMID ‘EXCLUSIVE’ SEALED SECTION CONTENT

In a strange article, the usually pretty reliable Peter Martin, gives Joe a break over the plan that has been floated, and to varying degrees supported by Mr Hockey, to allow home buyers to access some of their super to buy their dream.

Mr Martin says it is a good idea because private home ownership is a good thing (and it is).  He even goes so far as to state Continue reading

NSW Election Special – Assets from the Attic

GLASS PYRAMID ‘EXCLUSIVE’ SEALED SECTION CONTENT

The NSW election is in full swing!

It is getting hard to control excitement levels in the glorious Emerald City as the buzz of the democratic process infects everyone with dazed expressions of what might be bliss. Citizens when shopping, catching a bus or cleaning their teeth barely go a minute without assessing the policies and competing promises of the candidates for high office.

One of the issues that is proving to be a soft spot for the ever congenial Premier Mike Baird is the assurance that all the goodies he is promising to dispense will cost the taxpayer nothing  – beyond flogging off some dusty uncool public assets he found in the attic.

Poor Mike is perturbed to find  that a fair chunk of the public are starting to wise Continue reading