It is one of the more weird characteristics of Australian economic commentary that the Reserve Bank of Australia enjoys an untouchable position. Bank economists and economic observers all hold the central bank in very high esteem, to the point where it is borderline criminal to question the monetary authority.
The reason for this is pretty straight forward. The world of employed economists in Australia is very small and you don’t want to be marked as a trouble maker if you intend, as many do, to move between public and private offices over your career.
Which brings me to last night’s Four Corners episode that recounts the allegedly corrupt histories of the RBA subsidiaries, Securency and Note Printing Australia, as well as at the bank itself.
If you missed the program I suggest you set aside 45 minutes to watch it in the near future. It is here. I’ve been aware of most of the allegations for years but to see the entire story told from beginning to end is really something else. It is shocking.
The program describes a culture of systemic lying and greed, of economics without ethics, of total failures of governance, of group think and entitlement throughout the elite levels of the RBA’s subsidiaries and perhaps at the bank as well. I have had my faith in the institution shattered and only a full and open inquiry has any hope of restoring it.
I have no idea if anything will come of the investigation. Probably not. But the stain upon the Reserve Bank of Australia will thus be all the more indelible.
Good.
It is this blogger’s fervent hope that this scandal will prompt many more people to begin to ask questions about the RBA.
Leading, most importantly, to the question of why we permit it to exist at all.
Bookmark this post, dear reader. This is historic.
Once again, Barnaby Joyce is the first major party politician (to my knowledge) to speak truth to power concerning a(nother) vital economic parameter.
In late 2009 and early 2010 – before new Opposition Leader Tony Abbott wilted like a week-old lettuce leaf and sacked him – then Opposition Finance spokesman Barnaby warned of the dangers of Australia’s rising Federal and State government debt trajectories. Only in recent weeks, some three years later, leading economists have begun to acknowledge that Barnaby was right.
Today, 7 May 2013, appearing on radio 2GB, he is the first major party politician to state that the government can bring down the exchange rate value of the Australian dollar, and tell the plain truth about why they (the ALP, Treasury, and RBA) have not done so:
The dollar, if you actually want to, you can actually affect it. It’s not written on tablets of stone and presented from Mount Sinai. You can influence the price of the dollar down if there is real motivation and desire to do so. One of the reasons they don’t do it is because they want to be economically pure. The way we’re going at the moment we’re going to be pure in debt, economically dead, so let’s make sure we keep our industry going.
Just so.
Over the past few years, our great economic leaders – the World’s Greatest Treasurer Wayne Swan, and the Million Dollar Man, RBA Governor Glenn Stevens – have deliberately chosen a policy of not joining the global currency wars. Of deliberately allowing the AUD to rise and rise versus other currencies, and to remain at unprecedented elevated levels. Why? In order to “make room for the mining boom”.
In other words, because of the inflationary impact of the mining (investment) boom, they have chosen to let a far-too-high AUD deflate the rest of the economy … to “make room for the mining boom”.
(Yes, the same mining boom that is now ending; the one that they so confidently believed would give Australia a period of “unprecedented prosperity”, a China-funded “golden age” lasting “to 2050”, according to former Treasury Secretary Ken Henry).
They have pursued an economic policy of allowing the rest of the Australian economy to be hollowed out, white-ant style, so that their precious little (bogus) economic performance figures for “inflation” (ie, the CPI) would not get too far beyond their arbitrary boundaries of preference.
While the rest of the country (except mining and related industries) has watched countless businesses, and whole industry sectors such as manufacturing, slowly getting squeezed towards, and in a record number of cases, into bankruptcy, our ivory-towered boffins have sat back applauding themselves for their ideological purity, self-congratulating for their not acting to influence the AUD exchange rate.
Despite the fact that practically every other nation in the world who can, is.
As usual, it takes the little ol’ bush accountant to bell the cat.
Our long term “trend growth” is around 2.5% (and falling).
And yet, the RBA’s self-review shows that these elite economic forecasters only get their GDP growth forecast accurate to within about 20% … on one-in-five occasions.
I have a suggestion.
Sack the lot of them. Abolish the RBA. And replace them with a hat containing 5 slips of paper. The slips can be marked in 0.5% increments, from 1% through 3%.
The World’s Greatest Treasurer can draw one slip of paper out of the hat for the May budget. And another for the Mid Year Economic and Fiscal Outlook (MYEFO) update.
Voila!
Economic forecasting of equal accuracy to the RBA’s elite, criminallyoverpaid #JAFA’s.
Now, we learn that Stevens lied about RBA officials’ knowledge of corruption in their own ranks.
From The Age:
Some of the Reserve Bank of Australia’s most senior officials were involved in covering up extensive evidence of corruption inside the central bank’s subsidiaries, Note Printing Australia and Securency.
An investigation by The Age has found top RBA officials suppressed damaging information in 2007 and 2008 about the payment of secret commissions to middlemen hired by the RBA firms to win banknote contracts in Nepal and Malaysia.
Among the officials who knew of the serious corruption concerns are deputy governor Ric Battellino, former deputy governor Graeme Thompson and former Note Printing Australia boss Chris Ogilvy…
The evidence of the cover-ups is contained in internal documents from the RBA and the banknote firms, including many seized by the federal police after executing search warrants.
You see my problem is this:
I’m dreaming away;
Wishing that heroes, they truly exist.
I cry watching the days.
Can’t you see I’m a fool
In so many ways?
But to lose all my senses…
That is just so typically me.
Baby, oh.
Hands up all those who think yesterday’s bloodbath in global sharemarkets should inspire us with confidence that all is well here in the land of Oz?
Let’s see now … that’ll be Wayne … and his friend Glenn … oh yes, and their new mate Martin … noone else?
Interesting, is it not, how all the same clowns persist in repeating their same tired old lines.
Overwhelming weight of evidence to the contrary be damned.
Here’s our Treasurer Wayne Swan as quoted by AAP (via the Australian):
The Australian share market slumped around 4 per cent this morning following a similar drop on Wall Street over rising fears of another economic downturn and worries Europe’s debt problems will widen.
“Australians should never forget that our economic credentials are among the strongest in the developed world,” the treasurer said.
But “a proven track record of dealing with global economic uncertainty”, and “a proven track record of dealing wisely with global economic uncertainty”, are two very different animals.
What is your track record, Wayne?
“The fact is the share market in Australia is not back to levels prior to the global financial crisis and now we’re being hit by another bout of uncertainty.”
Hold the phone!
I thought you’ve been tirelessly telling us just how well you brought Australia through the GFC? Now you’re telling us the share market “is not back to levels prior to the GFC”? And it’s getting its a*** kicked again?
But but but … you had me believing that you were our Saviour, Wayne!
Please… say it ‘aint so!?
I think I did it again. I made you believe
We’re more than just friends.
Oh, baby;
It might seem like a crush,
But it doesn’t mean
That I’m serious.
‘Cause to lose all my senses…
That is just so typically me.
Oh, baby; baby.
I’m devastated!
Oh Wayne, I feel so used!!
What … what was that you said again?
Mr Swan insists Australia is in the right part of the world at the right time, as the Asia-Pacific economy remained strong.
Really?
Funny. That’s not what the latest RBA Chart Pack graphs suggest.
Here’s China and India:
Looks to me like Chindia’s GDP growth has been on a downward slide since late 2009 / early 2010, Wayne. Ever since their GFC Mk1 “stimulus” money began to dry up. Seems they didn’t get any sustainable bang-for-their-stimulus-bucks either. Both of their economies are now running at lower rates of growth than 6 years ago Wayne … that’s 2005.
Oh look … here’s our second biggest trading partner, Japan:
Oops.
Looks like Japan’s GFC “stimulus” can-kicking exercise has stopped rolling up the road too, Wayne. They’re back to 2001-02 levels of growth.
And our GDP growth chart looks even worse:
Ummmm … Wayne, ol’ son.
That approximate trendline I’ve added to the RBA’s GDP growth chart for the land of Oz looks suspiciously like a long term downward trend to me. And looking pretty ugly at the pointy end.
What was it your mate Glenn was saying just yesterday, about his RBA’s forecast tea-leaf prognostication for GDP growth?
The Reserve Bank has slashed its growth forecasts for the Australian economy while predicting inflation would remain high for longer than expected.
The reduced forecasts are greater than economists had expected. It predicts this financial year growth will be 4 per cent down from 4. 5 per cent.
Ummmm.
Not bad. If your revised prognostication turns out to be right this time – questionable, since you only made the first one a couple of months ago – then you’ll only have screwed up your first guesstimate by a measly 38.5%.
By the way.
A little tip Glenn.
Your own Chart Pack says our GDP is already sitting well below 2%. About half that, actually.
Expecting a surging “recovery” out of the bluered yonder, are we?
Got any other sage comments?
In the statement, the RBA said economic growth would be lower because of a range of domestic and overseas factors.
“Growth over 2011 has been revised downwards due to a slower than expected recovery in coal production and to a lesser extent a downward revision to consumer spending as domestic and international concerns have weighed on sentiment,” the RBA said.
Ruh roh!
The Greens want to shut down the coal industry. Preferably within 10 years, they say.
And you’re saying, Glenn, that the main reason why your original economic growth forecast has been revised within a couple of months by a whopping 38.5%, is due to a “slower than expected recovery in coal production”?!?
Anything else to add Glenn?
“The medium-term outlook continues to be characterised by the significant pipeline of resource sector investment with a number of large projects already underway and by strong growth in resource exports.”
You’re always banging on trying to make out that our “public debt” is “low” compared to basket case “developed” economies abroad.
You remember. Europe, the UK, the USA. Those “developed” economies. Hardly a big claim to fame to say our public debt is lower than these paragons of fiscal prudence (/sarc).
But what about our Net Foreign Liabilities, Wayne?
Ummmm.
Wayne.
Net Foreign Liabilities at nearly 60% of GDP?
I had a little look in the RBA’s data, Wayne. Takes about 20 seconds.
Our Net Foreign Liabilities of nearly 60% of GDP?
In real numbers (not this “% of GDP” nonsense) … that’s $780.57 Billion at March 2011 (RBA Statistics, H5.xls).
Oops!
Wayne … you’ve done it again.
You’ve confirmed your official title, and your legacy for the history books.
Speaking at the The Australian-Melbourne Institute Growth Challenge conference in Melbourne, Mr Abbott said economists should not be taken in by Labor’s use of the term “market-based mechanisms’’.
“It may well be, as you say, that most Australian economists think that the carbon tax or emissions trading scheme is the way to go,’’ he said.
Not one of these economists who are calling for a carbon “X”, saw the GFC coming.
Not one.
Australians lost billions from their retirement savings.
Our country was plunged, unprepared, into a massive Labor and greenie-Ken Henry-inspired monster debt-a-thon.
Why?
Because NOT ONE of these #JAFA’s saw the GFC coming.
Including the latest #JAFA economist to be given charge over the Australian economy – and your future – the new Treasury Secretary, former student of “Helicopter Ben” Bernanke, Martin Mini-me Parkinson.
Only one (1) Australian economist did see it coming.
Dr Steve Keen –
And only twelve other economists, worldwide, along with him.
This paper presents evidence that accounting (or flow-of-fund) macroeconomic models helped anticipate the credit crisis and economic recession. Equilibrium models ubiquitous in mainstream policy and research did not.
Note that well.
It was only those rare economists who shun the kind of modelling that is “ubiquitous in mainstream policy”, and instead use “accounting” models, that got it right.
In other words, it was only the few economists worldwide who think like accountants, who were able to see the GFC coming.
REMEMBER back in 2009 when Barnaby Joyce pondered aloud the possibility of the US defaulting on its debt?
Just to recap in the concisest way, things went badly for Joyce. We found ourselves pondering this yesterday as we listened to the dulcet tones of the ABC’s Eleanor Hall on The World Today: “. . . the [US] Treasury has warned that Congress has only until August 2 to come up with a compromise to lift the $US14 trillion debt ceiling or risk a default and a default would have drastic consequences, not just for the US but for the global economy”.
Is the time approaching where Joyce must be acknowledged as a clear-eyed prophet?
“Alas, Cassandras are rarely enjoyable company in any party. It was hardly the greatest feat of the prefrontal cortex amygdala [utilised for intuition, he explains] to foresee that one, but politically it had to wait for the economic karaoke to bravely sing all together prompted by the big bouncing cheque.”
Amen.
But wait, dear reader.
There’s another outstanding reason why no sane person should trust the “leading” “mainstream” economists’ opinions about “pricing carbon”.
The majority of these economists you are hearing from on the subject, have a massive conflict-of-interest.
They are owned.
By banks.
Take a look at this little online stoush that I had right here on barnabyisright.com, with “leading” #JAFA economist Saul Eslake.
He objected to my portrayal of his and his fellow dozen economists’ Open Letter in support of “pricing carbon”, as being a Banksters’ Glee Club.
Then under return fire, he foolishly conceded that, as far as he knows, 77% of those economists (including himself) are current and/or former employees of banks.
Mr Eslake himself being former chief economist of the ANZ Bank, and now employed by BHP Billiton (who stand to make a killing from “pricing carbon” – really!), and the Australian Government via the “independent” Grattan Institute.
Tony Abbott – who has an economics degree himself – is actually demonstrating both brains and balls, by defying the “mainstream wisdom” of economists over the carbon “X”.
No sane person should trust economists at all after the GFC.
And especially, no sane person should ever trust those “leading” mainstream economists who are now out there publicly singing for their supper, on behalf of the bankstering industry.
According to a recent report by Goldman Sachs chief economist, Tim Toohey, household debt levels in Australia now stand at an elevated level, both in relation to historic norms, and compared to other countries. For instance, Australia’s debt to household income ratio is higher than in the United States and Spain, and stands at a similar level to the United Kingdom.
Toohey has written a perceptive report on the Australian housing market, in which he argues that housing prices are between 25-35 per cent overvalued. As a result, he says, we run the risk that Australia’s house prices could drop sharply if a sharp decline in Chinese growth prompted a steep drop in our export earnings.
Interestingly, it appears that Reserve Bank officials are the keenest investors in rental properties. “We are not sure whether to be relieved or concerned that of the five central bankers who were brave enough to note their occupation on their tax form, all five had an investment property!”, the report says. “Of the 200 occupations classified by the Australian Tax Office, the employees at the Reserve Bank topped the list with respect to their investment property exposure.”
There’s more than one way to look at this very interesting revelation.
1. The “independent” RBA has a vested interest in fuelling Australia’s property bubble – which helps to explain the low interest rate policies of the early 2000’s that so helped to encourage excessive borrowing and real estate speculation.
2. The “independent” RBA has a vested interest in keeping the property bubble afloat – so that RBA officials do not suffer capital losses on their existing property portfolios.
3. My favourite. The “independent” RBA has a vested interest in first fuelling a property bubble with low interest rates – meaning officials make profits on the way up – and then, collapsing the property bubble at a time of their choosing (by raising interest rates), so that officials can buy in to the property market again (and buy up even more), after prices have fallen dramatically.
One can only wonder about the investments of “independent” RBA Governor, Glenn “$234k Pay Rise At GFC Peak” Stevens. Has he profited from his Board’s decisions on interest rates? Will he personally profit by (again) raising interest rates into the teeth of an onrushing GFC 2.0?
Next time you hear an RBA official like Stevens talking about interest rates, or the housing market, just remember this article.
And remember that, whatever happens to the housing market, it is those same “independent” RBA officials who know what is going to happen… before you do.
Now, conclusive proof that our Guv’na … who earns $1.05 million per annum, including a $234,000 pay rise at the peak of the GFC … is an ignorant, incompetent, ivory-towered #JAFA who should be sacked immediately, if not sooner.
From the RBA’s own website, behold! Stevens’ official speech to the Australian Business Economists Annual Dinner, Sydney, 9 December 2008. That’s right around the time that you, dear reader, were cr@pping yourself about the imploding global sharemarket … and he was enjoying a $234,000 pay rise.
Let’s see what he had to say about the Global Financial Crisis, and the events leading to it (emphasis added):
Many people have said to me recently that the times are ‘interesting’. My response has been that they are, perhaps, a little too interesting. I need not remind this audience of the international financial turmoil through which we have lived over the past almost year and a half, nor of the intensity of the events since mid September this year, in particular.
I do not know anyone who predicted this course of events. This should give us cause to reflect on how hard a job it is to make genuinely useful forecasts. What we have seen is truly a ‘tail’ outcome – the kind of outcome that the routine forecasting process never predicts.
This paper presents evidence that accounting (or flow-of-fund) macroeconomic models helped anticipate the credit crisis and economic recession. Equilibrium models ubiquitous in mainstream policy and research did not.
Indeed, here’s Dr Keen on our national broadcaster’s premier political program, The 7:30 Report, way back in November 2007 – 10 months before the Lehman Bro’s collapse kicked off the GFC main event – talking about the RBA’s latest interest rate increase, and warning of the dangers of high household debt levels:
So right there is one prominent Australian economist, who was loudly and very publicly forewarning of a coming GFC. For 3 years prior!
Indeed, lots of other, ordinary people like me saw the GFC coming too, and so were able to protect themselves from the financial devastation.
Devastation that you, Mr Stevens, somehow could not see coming.
You say, “I do not know anyone who predicted this course of events”.
Well mate, our taxes say it’s your #&^%! $1.05 million job to know!
Millions of good, decent, trusting Aussies lost hundreds of billions from their retirement savings, thanks to a GFC that jumped-up, mainstream-theory-blinkered imbeciles like you couldn’t see coming. When so many others – little people, with simple commonsense – did.
You are a national disgrace. And your Million Dollar Man salary, a despicable waste of taxpayers money.
From the Sunday Telegraph (sorry, no link), Finance Writer Nick Gardner dares to say the unspeakable:
Rates To Trigger Recession
Australia is on the verge of a recession.
Economists warn the economy will almost certainly be in recession later in the year as the Reserve Bank raises rates to avoid excessive inflation.
The forecast comes as most of the domestic economy continues to shrink in the face of weak consumer spending and a record-breaking strong dollar.
The economy contracted by 1.2 per cent in the March quarter, exaggerated by damage to our iron ore and coal exports because of natural disasters. And last week the ABS released jobs data showing the economy has lost 80,000 full-time jobs in the past two months. However, we are likely to skirt a recession this month.
“Miners are now having to work double time to fill not only the orders they would normally be catering for this quarter but also the coal they did not deliver in the previous three months because of the weather disruption,” said Steve Keen, professor of economics at the University of Western Sydney.
“That is likely to produce a pronounced bounce in the volumes this quarter, so we’ll probably have mildly positive growth by the end of June.
“However, after those orders have been filled, we’ll be back to our normal levels of exports and that’s when I think we will hit the skids and our growth will turn negative again for the last six months of the year.”
Shane Oliver, chief economist at AMP Capital, agrees.
“It’s later in the year we have to worry, especially if the RBA raises rates. It risks bringing the entire economy outside of resources to a standstill.”
The Australian Industry Group said the manufacturing, construction, and services sectors all shrank in May. Its indices, where 50 indicates an expanding sector and below 50 a contracting sector, showed manufacturing reached 47.7, services hit 49.9, and construction hit 39.6 – its 12th straight month of contraction.
In the lead up to the recent May budget, Treasurer Wayne “Goose” Swan was loudly propagandising that the coming budget would be all about “jobs jobs jobs”. Indeed, he claimed that Labor has “created 750,000 jobs” since coming to power. No proof, of course. And noone in the lamestream media asked for any either. Or bothered to try and check if Wayne’s claim was true.
Now, according to the ABS, we learn that “the economy lost 80,000 full-time jobs“ in the very same two month period that he was loudly parrotting his BS, unchecked by the media and “expert” commentators.
Off to another brilliant start on that “half a million more” jobs pledge, aren’t you Wayne.
The value of the bank’s foreign exchange reserves has plunged since the end of the last financial year as the Australian dollar has emerged as one of the strongest currencies in the world.
The losses threaten to wipe out the bank’s $6.1bn reserve fund, which the board said last year was already below a level they thought “desirable”.
Although government sources indicated yesterday that Treasury did not expect it would be required to make a capital injection, the losses will slash more than half the bank’s capital base.
The commonwealth budget has traditionally relied upon about $1.4bn a year in dividend payments from the Reserve Bank.
The Reserve Bank flagged that after it made a $2.2bn loss last year, dividends would be reduced while its reserve fund was rebuilt, but it is unlikely now that there will be any dividends across the budget forward estimates.
Great.
Another multi-billion dollar black hole in the government’s “forward estimates”.
The “independent” RBA is worshipped by our politicians and the media – and thus, by average Australians too – as some kind of ultimate authority on our economy. In particular, the RBA is regarded as the final authority on what is the “right setting” for interest rates.
The reality is, the RBA robs us by stealth. For decades, the RBA has utterly failed to achieve their very first legal duty to the Australian people.
The RBA kept raising interest rates month after month in 2007-08. Right into the teeth of the GFC storm. Despite clear warning signs out of the USA for well over a year prior.
It could also be argued that the RBA’s actions directly contributed to a change of government, thanks to an unprecedented interest rate rise in the middle of the 2007 election campaign.
Stevens is by far the highest paid “public servant” in Australia. Conveniently for him, the RBA Board has the power to decide their own salaries:
So, why do we continue to prostrate ourselves at the Altar of the Reserve Bank?
The RBA has been robbing Australia blind for decades.
They have proven themselves unable to foresee clear economic warning signs.
They did not disclose to anyone that they borrowed US$53 Billion from the Federal Reserve. It took a US Supreme Court action forcing the US Fed to reveal information about its actions during the GFC, for us to learn about the RBA’s secret emergency loans.
And despite being supposed “experts” on interest rates and currencies, they’ve now managed to blow $6 billion in foreign exchange losses.
How is this possible?
Our main street banks manage to hedge against foreign exchange rate volatility through purchasing Foreign Exchange Swaps & Forwards. Is the RBA too incompetent to manage FX risk, in the same way the Big 4 banks manage to do?
The RBA Board of “experts” are hugely overpaid, demonstrated failures.
Worse, as an “independent” body, they are effectively unaccountable to the Australian people for anything they do.
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