Tue, 24 Jan 2017  |  

This article first appeared on The Guardian website at this link: 


Australia's economic malaise comes down to dreadful decisions

It’s time to be blunt about economic management in Australia.

It’s dreadful.

The proof is that economic growth is floundering despite strong global conditions, unemployment has gone from among the lowest in the industrialised world to one of the highest, and inflation is below the bottom of the Reserve Bank target yet interest rates are still high compared with similar economies.

What is going on?

One vital issue has been the collapse in mining investment which has undermined overall economic growth. But this was and is no surprise. The priority for policy makers should have been to ensure the non-mining parts of the economy were growing even faster, locking in real GDP growth at 3% or a little more and striving for an unemployment rate at 5% – or less.

One major failure on this score was the RBA. It has failed to handle monetary policy in the post-global crisis era with much acknowledgment of the crisis legacy of entrenched low inflation.

Sun, 22 Jan 2017  |  

The Mid Year Economic and Fiscal Outlook documents, released by Treasurer Scott Morrison in December, provided an interesting array of data on government finances. Here is the link 

One particularly interesting issue in the MYEFO documents is the ratio of tax to GDP. As this ratio rises, the government makes a large footprint in the economy by taking money from the private sector, through taxes, as part of its budget management.

The following table presents the 10 highest taxing governments since 1970-71 and includes the outlook in the forward estimates to 2019-20. It is an interesting collection.

Wed, 18 Jan 2017  |  

This article first appeared on the Yahoo 7 website at this address: 


Lower Smoking rates – a win for the nanny state

Smoking in Australia is in free-fall. Just 13 per cent of adults smoke daily, which is down from 28 per cent in 1989-90 and over 40 per cent in the 1960s.

There are many reasons why this is a good thing. The population will be healthier for a start, which means they will be more productive and less likely to take sick leave. It also means that the government’s health expenditure costs will be lower with fewer people presenting to the doctor and hospital for the litany of smoking related illnesses. It also means that those who do not smoke can either save or spend their cigarette money elsewhere in the economy.

There are many reasons for this quite massive change in smoking rates. I will not attempt to quantify the impact of each factor, but there is no doubt that societal awareness of the health risks from smoking is dominant.

In a triumph for the role of government in successfully managing change and a blow to those who often castigate the ‘nanny state’, government policies that have banned cigarette advertising, delivered anti-smoking campaigns, the massive hike in excise taxes, banning displays of tobacco in retail outlets, graphic health images on packets and plain packaging, have no doubt all played a part.

Fri, 13 Jan 2017  |  

After a brief lull, the Turnbull government has resumed its borrowing binge. The government’s borrowing authority, the Australian Office of Financial Management, borrowed a further $1.6 billion this week, which means that government debt today reached a new record of $466.4 billion. See 

When the Coalition won the 2013 election of a platform of paying off debt, the level of debt was just $273.1 billion. This means that in just over 3 years, it has added a thumping $193.3 billion to government debt or close to $5 billion a month. 

Thu, 12 Jan 2017  |  

A friend send through this chart which shows Steve Keen's professional judgment about the house price bubble in Australia. Steve is Professor of Economics at Kingston University in London. Kingston is ranked the 109th best univeristy in the UK -

The chart shows the ABS index of house prices from 2004 to the latest data for the September quarter 2016. Prices have been strong for many years, even with the odd period when prices flat-lined or dipped marginally in 2008-09 and then 2011-12. 

Wed, 11 Jan 2017  |  

This article first appeared on the Yahoo7 Finance website at this address: 


Is the ‘interest rate hike’ scenario coming?

2017 has kicked off with money markets starting to price in interest rate increases over the next few years. That’s right – interest rate rises.

The market appears to be focusing on the good economic news from the global economy, especially in the Eurozone which has proved to be a surprise packet with growth picking up and the unemployment rate falling. The US economy is also is a strong position with unrelenting growth in employment and the unemployment rate firmly entrenched below 5 per cent.

Add to that buoyant commodity prices and an export revenue boom in Australia and there we have the ‘interest rate hike’ scenario that the market is looking for.

As to timing, the current market pricing has a 25 basis point hike to 1.75 per cent priced in around the middle of 2018 and a further hike about six months after that.

A total of 50 basis points of interest rate rises over two or so years, if correct, would certainly take some heat out of the housing market. It would also trim the growth outlook for business investment and risk driving the Australian dollar higher.

Fri, 06 Jan 2017  |  

Here's a story about housing and snake oil.

Back in late 2009, there were two Sydney based couples looking to buy their first first home.

The median house price in Sydney in the March quarter 2010 (ABS data) was $583,000 and the standard variable mortgage interest rate was around 6.7 per cent. Each household was on a combined income of $95,000 a year, which was about average for those living in Sydney.

Couple 1 took the plunge, they had $116,600 in savings, and borrowed the $466,400 or 80% of the value of the house and moved into their median house. The repayments were solid, at $2,881 a month over a 30 year mortgage.

Couple 2 also had $116,600 in savings in 2010 but saw a series of high profile stories from economist Steve Keen, who was warning about a 30 or 40% fall in house prices as the Australian property bubble burst. He reckoned unemployment would exceed 20% and something akin to a Great Depression was almost unavoidable. Couple 2 continued to rent and put their savings in term deposits, fearful of their job prospects and waiting hopefully for the collapse in house prices before buying.

Wed, 04 Jan 2017  |  

This article first appeared on the SMH website: It is Michael Pascoe’s take on the Roberts “sell everything” fiasco. 


The unending game of bulls v bears

Remember the biggest market scare headline from January 2016: The Royal Bank of Scotland's "sell everything!" alarm? And the $10,000 bet Steven Koukoulas tried to make against the RBS analyst? Well now the tables have turned and "The Kouk" is the bear.

Funny thing about the RBS analyst who made the "edge of a cataclysm" call – he seems to have disappeared. After advising RBS clients they should sell everything except high-quality government bonds, Andrew Roberts hasn't turned up on a Google search since. I've gone through several pages of searches but there's been nothing fresh from Mr Roberts since that headline-grabbing advice.

Arguably the world’s biggest bear at this time last year seems to have disappeared, but the bull who most publicly called him out has himself turned into a bear. Michael Pascoe comments.
If he was out to get publicity, he was certainly successful, featuring in stories around the world. Embarrassingly, much of the coverage was uncritical or even barely sceptical. Hey, fear sells.

But not everyone was unquestioning. Stephen Koukoulas of Market Economics, alias The Kouk, went a step further than expressing doubt by immediately calling Roberts out, prepared to bet 10 grand that at least six of 11 markets Roberts indicated as losers would in fact rise.

Tue, 03 Jan 2017  |  

You can teach an old dog new tricks, or at least an old dog with an open mind, some understanding of markets and a desire to make money.

As an investment, I think gold has no fundamental underpinnings. I have written about my dislike of the shiny dirt as a means of investment and there are many reasons why I reckon it is still a dog. Here is my take on gold from a few years ago 

That said, even dirty dogs can get cheap and present a trading opportunity.

And so it appears with gold.

Mon, 02 Jan 2017  |  

I am not sure if Andrew Roberts, the RBS markets guru who famously kicked off 2016 with a recommendation to clients to “sell everything” still has a job, but anyone who followed his prognostication would have lost a lot of money. An aweful lot.

At the time Roberts’ started grabbing global attention with his extraordinary, ill founded, irrational and illogical forecast, I offered him some ‘skin in the game’ in the form of a A$10,000 bet that he would be wrong - that many of the markets he identified as a "sell" were in fact a "buy". The link to that offer is here 

As noted previously, it was a very generous offer on my part – Roberts only had to have the price of 6 of the 11 categories offered to fall to win – ie, not ‘everything’.

Suffice to say, Roberts did not return my email, which is a pity. That $10,000 would have been handy beer and HSP money for 2017.

Anyway, to the facts.


Why don’t governments deliver policies that are good for the electorate?

Mon, 21 Aug 2017

This article first appeared on The Adelaide Review site at this link: 


Paying Their Fair Share

It’s the age-old question: why don’t governments deliver policies that are good for the electorate? Well, the answers are numerous.

Politics and policymaking should be simple. After all, being in government and delivering what voters want — making them happy in other words — and increasing the chances of re-election seems to be the proverbial win-win scenario.

Which begs the question, why don’t political parties do it?

Why don’t they deliver policies that are good for the electorate and good for their re-election chances?

Let’s cut to what the voters, in general, want.

A policy framework where each person who wants a job gets a job is key. In addition, access to quality and affordable health care and education, from kindergarten to university to trades training is fundamental. There are other issues that are basic, simple and fair.

Voters want the government to provide aged-care services that treat the older members of society with dignity. We want decent infrastructure, especially pubic transport and roads. We want people who are doing it tough to be supported by a welfare safety net — a decent rate of pension, unemployment benefits and disability support.

So far, so good.

Australia has given up on solving unemployment

Sun, 20 Aug 2017

This article first appeared on The New Daily website at this link: 


Australia has given up on solving unemployment

 It is a sad state of affairs to realise that the current crop of Australian policy-makers have effectively given up on reducing unemployment.

Treasury reckons that the lowest the unemployment rate can go without there being a wages and inflation breakout is around 5.25 per cent.

The Reserve Bank of Australia notes something similar, forecasting that even when the economy is growing strongly at an above-trend pace, the unemployment rate will hover between 5 and 6 per cent.
The current unemployment rate is 5.6 per cent or some 728,100 people – enough to fill the Melbourne Cricket Ground about seven times.

Given the Treasury and RBA estimates, it looks like Australia will never see fewer than about 700,000 people unemployed – no matter what kind of improvement we see in the latest jobless figures on Thursday.
It seems to be a peculiarly Australian issue. In the US, the unemployment rate is 4.3 per cent, in the UK it is 4.5 per cent, in Japan it is 2.8 per cent while in Germany, the unemployment rate is 3.9 per cent. And none of these countries is experiencing a wage/inflation problem. Indeed, even with the very low unemployment rate in Japan, wages are actually falling.