Putting the complexity of debt and deficit into simple English and exposing the hypocrisy of Joe Hockey’s references to Labor’s economic management.
(First published by The Australian Independent Media Network on Nov. 6th 2013)
Why Joe Hockey will rue the Howard Government’s fiscal mis-management.
Have you ever thought what would happen if everyone in Australia went to their bank and asked to withdraw all their money, all on the same day? Ask Joe Hockey. He will tell you the crisis such an event would kick start doesn’t bear thinking about. He’s right about that. The first customers to arrive would be successful but somewhere down the queue the rest would be told the money had run out. Surprised? No, and you shouldn’t be, but that is just the beginning. Have you ever asked why the banks could not pay out their customers’ deposits? No prizes here; the answer is relatively simple: they lend most of our money to entrepreneurs like you and me so that we can build houses, start businesses and so on. In turn, they receive interest on those loans some of which comes back to us as interest credits. All sounds good doesn’t it?
In fact, it isn’t good. It’s nothing more than a smoke screen cleverly masking something far more sinister; something that makes fools of all of us and which, if we wanted to, we could collectively act to bring undone. We won’t, of course, because in destroying this obscene arrangement we would also destroy ourselves.
Over the latter half of the 20th century the money game has become incredibly sophisticated. It has evolved to a point where, today, it is so complex and difficult to understand, only a few at the core actually know what is driving it and only those at the core know what disastrous consequences await the world should it ever be dismantled. Yet, dismantled it should be because it offers nothing but misery and uncertainty for generations to come. Why? Because today, we are living off the expected profits of future generations and they will only have to do the same when their time comes or suffer the same fate we are desperately trying to avoid. One thing is certain: it has a use-by date.
It’s all to do with debt and deficit and where the money that funds debt and deficit comes from. We call it money but it is really currency. Money is something of value, something that can be bought and sold. Coal is money. Currency is the transfer of securities posing as money. Issuing bonds to finance infrastructure, social services and wars, is currency. What we deal with today is currency. When a government wants to undertake a project that it can’t pay through taxation revenues it issues bonds that are usually snapped up by banks. Banks love bonds because they are a cash cow in ways the average man or woman on the street doesn’t understand. If they did, they would be outraged. When a bank buys government bonds it receives interest on those bonds but it also uses those bonds as collateral to receive currency from the Reserve Bank. So, it wins twice, because it calculates its asset value by including both the value of the bonds as well as the currency it receives from the Reserve Bank. That currency is then used to lend to other interest producing sources. The thing to understand here is that the Reserve Bank doesn’t have the money to do this either, so it also borrows or simply creates money by writing a cheque to finance the deal with the banks. In turn it gains interest on the deal which it uses to pay a dividend to its depositors. All along this weird currency trail, debt is building up for all the players. In fact, none of them are solvent in the true sense of the word. They are all hedging on the future. It’s a vicious cycle where each institution is receiving currency and passing it on while receiving and paying interest along the way.
None of these institutions actually has the money in their vaults to support their transactions. Their borrowings expose them in ways that make a mockery of the true value of money. This could be demonstrated easily if everyone went to their bank on the same day and withdrew their money. It would expose a flawed system that lives off credit to a point where, one day, this paper thin economy will collapse. When that collapse comes, as it most certainly will, the hammer will fall hardest on the countries who have the highest national debt levels. The US is the most vulnerable right now and the only way it can avoid total collapse is to continue borrowing and printing currency. It is gambling on future generations creating wealth, i.e. money. But those future generations are going to be so overburdened by debt inherited from what is happening today, that they will not have the capacity to create real money. They will simply opt to continue borrowing. There’s a well known saying that if I owe the bank $100,000 and I can’t pay, I’m in trouble. The bank will sell up my home. But, if I owe the bank $1,000,000 and I can’t pay and my home is not worth $1,000,000 then the bank is in trouble. Now multiply that by trillions of dollars, money that has no security to support it and what is the outcome? This, as everyone knows now, was the blueprint for the GFC. There was a time when a country’s risk value was based on its gold and silver reserves; real wealth…money. Today it is based on pure speculation of short term return. Value today, is no more than numbers in a computer. It is not backed up by hard cash.
The only upside to this depressing story is that here in Australia, we have a very low debt . . . for now. But, Joe Hockey knows only too well that the present situation is going to change. By 2016 our national debt will be around $400 billion up from $244 billion as at the end of August 2013. The Treasurer acted quickly to increase the debt ceiling to $500 billion in full knowledge that forward projected revenues will not be sufficient to cover what we intend to spend. He doesn’t want to do it again, but he may well have to if China continues to take less and less of our coal. The tragedy is that it could have been a good deal less if the Howard government had been more fiscally responsible; the government in which Joe Hockey was a minister. Back then, China was our best friend generously contributing a windfall of money to our revenue stream that, had it not been wasted in unnecessary vote buying in the form of middle class welfare programs, could have been deposited in the future fund and placed us in a much stronger position than we are now. The Howard government, to its credit, did pay off our national debt, thanks to China, but had a lot left over. It opted to spend that excess to make itself look good. It rode on the wave of a private debt bubble that ended with the Global Financial Crisis. Long term management was overlooked in favour of political expediency.
Joe Hockey will be reflecting on this lost opportunity now as he grapples with the reality of having to increase national debt in the absence of a wave of private debt that kept our economy on such a firm foundation in the 1990’s and early 2000’s. And, while he will do everything in his power to convince us that Rudd and Gillard’s Labor is the culprit, it is his own former government’s actions coupled with the international abuses of real money, present and past, the constant merry-go-round of currency trading between banks and governments that must assume the guilt. When the GFC hit, private borrowing stopped and only government debt saved us from disaster. Nothing has changed. If Hockey doesn’t know this now, he will soon. Six years is no more than a blink on the horizon in currency trading.
(First published by The Australian Independent Media Network on October 23 2013)
In the highly technical and confusing world of money, a balanced budget means incoming dollars (revenue) should be the same as outgoing dollars (spending). If spending exceeds revenue then either an increase in taxes, or borrowing, or drawing down on cash reserves to cover the difference, or all of the above, is needed. It’s the same as running your own household. It’s that simple or at least it should be.
So, having viewed the recent US government shutdown from a safe distance, can our Federal government see any parallels in the way they are about to approach the problem of balancing our budget? If one listens to the far right Tea Party members of the Republican Party (TEA stands for ‘Taxed Enough Already’) you will hear them constantly resurrecting their hero Ronald Reagan and preaching Reaganomics with such fervour, it’s surprising the former president is not already the Patron Saint of America. Would they be right about Reagan’s economic credentials? No. Can anyone explain why to them? No, they won’t listen. So, should we be surprised to see that in Australia, there are already signs that we are just as stupid; that we won’t learn from history either, and that our new government is foolishly travelling down the same mad road as this ultra right wing extremist body?
Tea Party members support the principle of a balanced budget. But they go a lot further than that. They don’t think spending should ever exceed revenue. Reaganomics as interpreted by the Tea Party, or the American Taliban, as ‘Will McEvoy’ of ‘The Newsroom’ called them, means less taxes and less spending. That means the government gets less of their citizens’ money and spends less on social services and infrastructure. Technically, that makes sense. The problem with that philosophy however, is twofold. Firstly, it doesn’t work and secondly, it isn’t what President Reagan did.
Like so many events throughout history, the re telling of Reagan’s economic credentials, of what he did, generates an exponential growth in embellishment, distortion and deliberate misrepresentation as one side or the other quotes what they think they know when trying to win a few points. Reagan did reduce taxes in 1981 the first year of his presidency, but over the next seven years he raised taxes, particularly on incomes below $50000. He did this no fewer than eleven times, either directly or by closing tax loopholes and limiting allowable tax deductions. During this same period he reduced corporate taxes but did not reduce spending, rather he increased it, particularly in the area of defence. His administration was thus forced to borrow heavily both domestically and abroad to cover ongoing budget deficits. His management of the economy was helped somewhat by a period of relative peace; America was not at war. But even allowing for that, his economics made America the world’s largest debtor nation owing nearly $3 trillion dollars by 1987. Because he was highly selective with the various revenue streams where he applied his increases and cuts, the chief economic indicators for growth, unemployment, poverty, tax revenues and deficits for that period varied wildly across a spectrum of highs and lows. This meant anyone who came after him (i.e. Republican presidential hopefuls) could cherry pick figures and quote percentages for any given period of his presidency and use them to emphasise their own economic plans. In reality, however, their claims were meaningless and could not seriously be applied to present day economic rationalism. In the main, Reagan’s economic reforms favoured big business and the wealthy at the expense of middle and low income workers.
And that brings us to the Tea Party of today. They want less regulation, lower taxes and froth at the mouth whenever the Affordable Care Act (Obamacare) is mentioned. They want policies that essentially place the burden of revenue raising on the less well off, while rewarding the wealthy for being, just that. Sound familiar?
So, how does Reaganomics impact on Australia? Essentially, while not saying it, the Coalition’s approach to economics is a broad version of Reaganomics; not what Reagan did, but the myth of what he did, i.e. lower taxes, having less government regulation, reducing waste and where possible, reducing welfare payments. Our Treasurer, Joe Hockey has made it clear that the age of entitlement is over, that we must learn to live within our means. No argument there. The problem is that Joe Hockey had us thinking originally that he could do this and return a surplus budget. He can’t and he knows it. He knows that our current net debt of $284 billion will increase to almost $400 billion by 2016 when we next go to the polls. That is unavoidable. That is why he is now flagging an increase in our debt ceiling to a staggering $500 billion. This he claims is Labor’s legacy. Really?
Hockey made a lot of noise about the state of the economy before and during the election suggesting that we were facing a national emergency. He has now had time to appreciate the truth of the matter and his rhetoric has noticeably subsided. Prime Minister, Tony Abbott also made a great deal of noise about reducing debt and deficit. The recently announced Commission of Audit is the process by which the new government will determine what stays and what goes. Declining revenues will play a big part in determining the choices available, and the dismantling of the carbon tax will only add to Hockey’s woes. This could hardly be called Labor’s legacy, certainly not in the way Hockey was referring. Dismantling the carbon price will reduce revenue making all of the coalition’s promises that much harder to keep. Those promises include a paid parental leave scheme and a ‘Direct Action’ policy to tackle climate change, the Coalition’s replacement policy for the carbon tax, which will involve paying big polluters to reduce their carbon emissions. Yet, Hockey insists those promises will be met. We can expect the Treasurer to be talking a lot about Labor’s legacy in the coming months. But in reality, the program he is laying the groundwork for, will be very much the Coalition’s legacy. The Commission of Audit report to be completed by March 2014 will show that forward projections of revenues will not accommodate their promises even with their intended budget cuts. Hockey’s options will be a hard pill to swallow and involve raising taxes, borrowing and, heaven forbid, possibly even raiding the future fund. Either way, raising the debt ceiling will be essential. Better to do it now while nobody’s looking. But given the Prime Minister’s attitude to climate change, the greatest temptation for Hockey and Abbott will be to simply dump ‘Direct Action’. It will most likely be delayed, like, forever! The next three years are not going to be pretty for the coalition or the country and the end result will give Labor plenty of ammunition come 2016 when the government will have to explain why the national debt jumped from the present $284 billion to probably in excess of $400 billion in just three years with no plans to combat climate change. Funny how the theory of Reaganomics looks so good on paper, but when applied in practice, will work the same way here as it did in the US.
First published by The Australian Independent Media Network (21/10/2013).
Now that the dust has settled and Tony Abbott is our Prime Minister, there is renewed interest in his relationship with the Archbishop of Sydney, Cardinal George Pell and some speculation as to how that relationship will develop given that Pell is the man Tony Abbott regards as his spiritual advisor. It is entirely reasonable to suggest that Cardinal Pell would regard Abbott as a supporter of Catholic dogma and willing to uphold Catholic teaching across a range of sensitive, social issues. It is therefore reasonable to ask how we, the voters, can be assured that Cardinal Pell is not going to become a silent partner in running the country and that Tony Abbott won’t become his lapdog.
The Church in Australia is desperate to regain some of its dwindling influence. Sixty years ago, in pre Vatican II times, 75% of Catholics attended church regularly. Today, that figure has slumped to just 13%. Today, just 5% of Australians are practicing Catholics. That figure renders Cardinal Pell’s job of placing Catholic teaching high on the list of political issues almost impossible. Issues such as contraception, euthanasia and gay marriage are a matter of non-negotiable Catholic dogma, contrasting starkly with an increasingly secular Australia which has long since moved in the opposite direction. The forum of public opinion would suggest these issues are private and best decided by those involved. The Church, however, would have government uphold what it regards as Catholic teaching. Tony Abbott is a practicing Catholic and heavily influenced by Cardinal Pell. So where does this leave Abbott?
Cardinal George Pell has clear and concise alternatives to the preferences of an increasingly secular world but he struggles to present then in a way that is palatable. His policies which come from the Vatican are not the policies that most Australians would tolerate. While we know Abbott takes political advice from another mentor, John Howard, what we don’t know, is how much spiritual advice he takes from George Pell. We accept that the advice he receives from John Howard is specific to the issues of political success. We can make a considered judgement about that. What we don’t know and therefore are unable to judge, is whether the advice he receives from George Pell is specific to our interests or to the temporal interests of the Catholic Church and the success of George Pell’s agenda for Australia.
Lately, Cardinal George Pell is showing all the signs of a man who just doesn’t get it. His press conference on November 15th 2012 following the announcement by former Prime Minister Julia Gillard of a Royal Commission into child sexual abuse was ample evidence of a man who had lost touch with reality. Pell’s main concern seemed to be that the Catholic Church was a victim of a media smear campaign. He seems to think that claims against paedophile priests are exaggerated. (Ref 6). His performance at that press conference was arrogant and half hearted to say the least.
Pell also has his detractors inside the church. Retired Bishop, Geoffrey Robinson recently said of him, “He’s not a team player, he never has been.” On the question of priests breaking the confessional seal to expose child sex abuse, Robinson added, “On this subject too, he’s not consulting with anyone else; he’s simply doing his own thing. I have to say, that on this subject, he’s a great embarrassment to me and to a lot of good Catholic people” (Ref 3). To his credit, Abbott distanced himself from Pell on the issue of the confessional seal when he made his position clear on priests’ responsibilities in this matter. “If they become aware of sexual offences against children, those legal requirements must be adhered to. The law is no respecter of persons, everyone has to obey the law, regardless of what job they are doing, what position they hold,” he said. (Ref 6)
But now that Abbott is prime minister we are entitled to know on what side of the spiritual fence he sits. To say he is highly conservative and would not support gay marriage or drug law reform is obvious. But on what grounds does he not support these issues? To what extent are his views subject to Catholic teaching? His plagiarising of old hat references such as Sir Robert Menzies’ “faceless men” and John Howard’s “ticker” and “who do you trust” and his call for the now Labor opposition to “repent” on the issue of the carbon tax demonstrate his lack of originality and his attachment, even reliance, on those he sees as his mentors and those to whom he looks for advice. Cardinal Pell is one such mentor. Pell’s conservative Catholic views are well known, not so Abbott’s. We are entitled to know what might be behind some of his policy preferences and in what way Pell has influence over him. When one looks closely one can detect some behavioural aspects that give us some clues.
Abbott’s callous comment ‘shit happens’ in reference to soldiers dying in Afghanistan (Ref 5) tells its own story. It demonstrates a lack of empathy with those about whom he makes such a reference. Let us not forget that he did it once before in reference to the now deceased champion of the James Hardie asbestos campaign, Bernie Banton (Ref 4). The Catholic Church displays a staggering lack of empathy across a range of social issues, not the least of which has been its attitude to the victims of sexual abuse by the clergy and to the use of condoms in AIDS ravaged Africa.
In Parliament Abbott attempts to sound scholarly as does Pell when speaking from the pulpit, but when in the arena of the real world, Pell struggles when constantly interrupted and Abbott sounds robotic when reduced to the fifteen second time bite. He succumbs to metaphors and superficial comments that lack any real substance or meaning. Interestingly, both platforms have seen Abbott uttering some frightful gaffes about women.
Tony Abbott adds to the dilemma with his seemingly confused understanding of what is and is not, Christian. In one blunder concerning the boat people, Abbott said:
“I don’t think it’s a very Christian thing to come in by the back door rather than the front door . . . I think the people we accept should be coming the right way and not the wrong way . . . If you pay a people-smuggler, if you jump the queue, if you take yourself and your family on a leaky boat, that’s doing the wrong thing, not the right thing, and we shouldn’t encourage it.”
Human Rights activist, Julian Burnside commented:
“It is not surprising that Mr Abbott has a view about the moral dimension of refugee issues.
What is striking is that Mr Abbott could get the matter so spectacularly wrong, both as to the facts and as to the moral equation” (Ref 7).
Abbott’s comments that we are rolling out the red carpet for asylum seekers by releasing them into community detention (2), sends us a mixed message. Such comments appear, on the surface, to fly in the face of Christian compassion, therefore we can assume it is a political ploy; a vote winner. One might have thought that a devout Christian like Abbott would be more sympathetic. He conveniently fails to acknowledge the financial benefits that come with such a policy and appears to have no regard for the psychological damage done to those who remain in detention centres. However, all of that is secondary, it would seem, to the image that “rolling out the red carpet” conjures up in the minds of those who have been paralysed by the fear campaign his mentor John Howard began. Metaphorically speaking, the Catholic Church likes locking up people too; not their bodies but their minds. Their idea of a perfect world is to have everyone faithfully observing the teachings of ‘the one true church.’ One wonders if Tony Abbott’s liking for mandatory detention is the manifestation of a similar theology.
On the treatment of women there are other behavioural signs. It is easy to think the church has a fear of women especially if you were raised Catholic. Over many centuries of a male dominated hierarchy within the church, certain attitudes of superiority over women developed which church leaders conveniently allowed to be incorporated within its plethora of Mysteries. This eliminated the need for a detailed explanation. For them, the threat of women ever usurping the dominance of the male role was countered by excluding them, then de-valuing them. One could argue that they did this because they were afraid of them.
Tony Abbott’s foot-in-mouth tendency, his apparent brain-snap comments when dealing with women’s issues, might easily be accounted for when one factors in his close association with, and commitment to, Catholic Church teaching. The Church doesn’t teach fear of women, but it is implied in much of its dogma. It’s refusal to ordain women as priests and its refusal to permit priests to marry (unless you’re a married Anglican priest and want to defect to Rome) betray its attitude to women quite clearly. Its insistence that all sexual intercourse must be open to the creation of life is another put-down teaching that places the primary role of women as child bearers before anything else. Abbott’s foot-in-mouth comment about the previous Labor government’s lack of experience in raising children (Ref 8) also betrays this Catholic Church mindset.
So what is Tony Abbott’s theology? And what has shaped his Machiavellian view and perhaps we should ask who is encouraging him? Each one of us, particularly that twenty five percent of Australians who claim to be Atheist (Ref 1) need to know what drives him when deciding how his values and particularly his religious convictions will impact upon us. And, should we also ask: does he view his own agenda within the corridors of power as more important than that of serving the best interests of the citizens of Australia.
2. Canberra Times, 18/02/2012, Kirsty Needham.