Tag Archives: ken henry

False Profits: Confusion At RBA And Treasury

8 Mar

March 2, 2012:

RESERVE Bank of Australia board member John Edwards today said the country’s mining boom will burn bright for the next decade, but will then slow to more average rates of growth.

A decade, you say?

February 23, 2010:

[RBA Deputy Governor] Mr Battellino was uncertain about how long the current boom would last, but said past booms had lasted around 15 years.

“On this occasion, the growth potential of countries such as China and India suggests that the expansion in resource demand could continue for an extended period…

15 years, you say?

February 17, 2010:

“I am quite optimistic that story has some decades to run and that underlies much of the positives for the Australian economy,” [RBA Assistant Governor Phillip] Lowe told an economic development forum in Sydney.

“It is going to be a good 20 years for China and us,” he said.

20 years, you say?

Well, what sayeth our Treasury department, the massively overpaid public servants that teach their trained parrot, pollie Wayne Swan how to repeat his daily lines?

October 23, 2009:

[Now former] TREASURY chief Ken Henry has outlined a golden age for the Australian economy lasting to 2050 and beyond, as rapid population growth and Asian demand for resources bring a sustained surge of global investment.

“While the global financial crisis has taken some of the heat out of our export prices, we should get used to the idea that we could have structurally higher terms of trade for some time, possibly for several decades,” he said.

In a speech at the Brisbane University of Technology, Henry said Australia’s population will grow as the mining boom, fuelled by demand from China and India, will continue to bring in immigrant workers. Handled correctly, he said, this could provide a “period of unprecedented prosperity”.

Henry pointed to growth in several Asian countries, which he said will give a boost to the mining boom that will see it last for several more decades into 2050.

40 years, you say?

What sayeth the new Treasury secretary, Martin “Mini-me” Parkinson?

June 3, 2011:

New Treasury secretary Martin Parkinson says only revolutions or mass war across the globe will stop the mining boom.

…

Under questioning from WA Liberal Mathias Cormann about Budget forecasts for the terms of trade, Dr Parkinson said the Federal Treasury was being “conservative” in its assumptions of a gradual fall over the next 15 to 20 years.

The Treasury boss conceded the department had erred in not accurately predicting the pick-up in commodity prices from 2003. But the department was now convinced that a transformation was occurring that would benefit Australia in the long term.

Only a major global event could prevent prices remaining high.

Good call Martin. Had a look at the RBA’s Chart Pack, showing the +30% fall in commodity prices that began just 3 months after your “conservative” prediction?:

So, which one is it, O High and Mighty Ones?

40 years?

20 years?

15 years?

10 years?

Until there are “revolutions or a mass war across the globe”?

Or, have the benefits of the boom peaked and begun to fall already … and you have all missed it, again, in exactly the same way that you missed the pick up in commodity prices from 2003?

November 10, 2011:

THE benefits of the mining boom have peaked, with the industry no longer boosting growth or improving the lot of Australians, a new study says.

Prepared by former Reserve Bank board member Bob Gregory and Peter Sheehan, a former head of the Victorian Treasury, the report calls on the government to abandon its promise of a budget surplus next year and calls on the bank to cut interest rates several more times.

…

During its first eight years, the mining boom delivered increasing net benefits, the Victoria University study said.

The rise in the exchange rate lifted household buying power 18 per cent as the price of imported goods fell.

But the dollar had since stopped rising, removing the downward pressure on prices.

[TBI: this remains true; the AUD:USD x-rate rate has not returned to the $1.10 level reached in late July 2011]

During the first five years, mining share gains pushed up real estate prices and lifted household wealth at three times the usual rate. But share prices were now well down, house prices were falling and many of the big new mining projects are completely foreign owned. Always present, the negative impacts are now dominating. Professor Sheehan told The Age neither Treasury nor the Reserve Bank should be blamed for missing the slowdown at the time of the May budget. But circumstances had changed.

#JAFA’s.

What more can one say?

P.S. If you found this blog interesting, you may also enjoy these:

Why Would Any Sane Person Believe Treasury’s Carbon Tax Modelling When Its Budget Forecasting Record Is This Bad?

The Pricing Carbon Choir – Why Should *Any* Sane Person Trust Economists After The GFC?

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Remember When …

28 Jul

From the Australian, 27 July 2011:

Fitch Ratings today revised to negative the outlook for Queensland and warned a potential downgrade was likely if it didn’t limit the growth of its debt.

Remember when Senator Barnaby Joyce dared to suggest that not only was there a “distant but real” risk that the US could default on its debts, but that some Australian states were over-indebted too?

From the Sydney Morning Herald, 11 December 2009:

The Opposition finance spokesman, Barnaby Joyce, believes the United States government could default on its debt, triggering an ”economic Armageddon” which will make the recent global financial crisis pale into insignificance.

Senator Joyce told the Herald yesterday he did not mean to alarm the public but there needed to be a debate about Australia’s ”contingency plan” for a sovereign debt default by the US or even by a local state government.

Senator Joyce said the chances of a US debt default were distant but real and politicians were not doing the electorate a favour by refusing to acknowledge the risk.

He said the Federal Government’s debt would push up interest rates and predicted that some state Labor governments would not be able to repay their borrowings.

”The Federal Government has $115.7 billion in debt, Australian government securities, notes and bonds on issue, and the states have another $170 billion in debt.

”We have to ask whether the states have the capacity to repay that. I would say in some instances they do not, particularly Queensland.”

Remember when, a couple of months prior to those statements, Barnaby raised his concerns in Senate Estimates hearings with former Treasury secretary Ken Henry?

From The Age, 23 October 2009:

The Nationals Senate leader Barnaby Joyce is openly canvassing an economic upheaval that would dwarf the current global financial crisis, triggered by the US defaulting on its sovereign debt within the next few years.

In unusually pessimistic comments for a senior political figure, Senator Joyce said the US Government was running such large deficits and building up so much debt that it was in a similar position to Iceland or Germany before World War II.

In a Senate estimates hearing on Wednesday night, he asked Treasury secretary Ken Henry what would be the implications of an American debt default for the Australian economy.

Dr Henry warned that canvassing extreme scenarios could alarm the community.

”I don’t mind discussing hypotheticals in general … [but] one has to be careful not to discuss publicly hypotheticals that are that extreme,” Dr Henry said.

”I don’t, myself, consider that outcome to be a high probability outcome, certainly not one that I would want to say much about in a public forum.”

But Senator Joyce insisted yesterday that the dangers to the global economy from the run-up in US private and public sector debt were real and should be debated.

”It is the elephant in the room,” Senator Joyce said. ”This is a huge risk that Australia faces. What is the game plan, what happens if it comes unstuck?

Remember when former PM KRudd joined Ken Henry, Wayne Swan, and then Finance spokesman Chris Bowen, in ridiculing Barnaby day in day out for his concerns about debt, until he lost his job as Opposition Finance spokesman?

From The Age, 11 December 2009:

Joyce blasted for ‘extremist’ views on debt

Senior government figures have taken aim at Barnaby Joyce’s dire warning about a global financial meltdown if the United States government defaults on its debt. Mr Joyce also came under fire for comments about the financial health of Australian states.

”That’s shooting from the lip, making it up on the run,” Prime Minister Kevin Rudd said of the new opposition finance spokesman’s comments.

Senator Joyce is concerned that demand for Australia’s resources would ”go through the floor” if the US was not able to pay off its burgeoning foreign debt.

Senator Joyce told Fairfax Media he did not mean to alarm the public but there needed to be a debate about Australia’s ”contingency plan” for a sovereign debt default by the US or even by a local state government.

”How would Australia go forward in a position where the dynamics of the global economy are all changed,” he said on ABC Radio today.

Mr Rudd dismissed the senator’s comments, describing them as ”not responsible economic policy”.

Assistant Treasurer Chris Bowen went further saying Senator Joyce’s comments were extremist.

”His comments on the United States need to be taken with a grain of salt,” he said, adding the vast majority of economists believed US debt levels were manageable.

He accused Senator Joyce of engaging in a series of thought bubbles that were unbecoming of a senior economics spokesman from either government or opposition.

”Senator Joyce adopts very extreme positions, he is an extremist.”

States ‘rock solid’

Separately, Mr Rudd criticised comments made by Senator Joyce that some Australian state governments might not be able to repay billions of dollars in debt.

The states were carrying $170 billion in debt and rising interest rates were affecting their capacity to make repayments, Mr Joyce said.

”I would say in some instances they do not, particularly Queensland,” he told Fairfax Media.

The Prime Minister said such ”erratic and ill-considered” comments should not be made by a senior opposition spokesman.

Mr Rudd described as the ”most serious charge” the coalition’s view that state governments could default on their debt.

”It’s got to produce evidence of that,” he told Fairfax Radio Network today, adding Opposition Leader Tony Abbott and his treasury spokesman Joe Hockey needed to confirm or repudiate Senator Joyce’s claim.

Mr Rudd said any message to international financial markets about the ability of state governments to repay debt needed to take into account the national interest.

State and territory governments had some of the strongest credit ratings in the world and Australia had a ”rock-solid and robust” reputation for public finance.

”There are basic interests for Australia at stake here and responsible, calm, considered policy suggests that the sort of remark … should simply not be made,” Mr Rudd said.

”This is gross economic irresponsibility, policy on the run and shooting from the lip.”

Remember when the media pack joined the Rudd Labor government in rounding on Barnaby too?

From Economics Writer Jessica Irvine, for the Sydney Morning Herald, 11 December 2009:

Barnaby, mate, you gotta stop being a boofhead about the economy

Hark!

What’s that sound?

No, it is not the sound of abject apologies from the Labor party, the Treasury department, the RBA, and the Australian media.

Nor is it the sound of public applause for Australia’s solitary modern-day economic prophet.

No.

It is the sound of deafening silence.

Well … except for this, from the impressive John Roskam at the IPA, 25 March 2011:

We’re in debt to Barnaby

Wayne Swan and Ken Henry owe Barnaby Joyce an apology. A year ago Joyce, then the Coalition’s finance spokesman, warned of “economic Armageddon” if the United States government defaulted on its debt. He said the threat was “distant but real” and politicians should at least acknowledge the possibility of default, however remote it might be.

Treasurer Wayne Swan accused Joyce of coming from the “reactionary fringe of our economic debate”. Ken Henry, then the secretary of the Treasury Department, claimed that Joyce shouldn’t be talking about such things because it would frighten people.

So on that basis Austan Goolsbee must be from the reactionary fringe too. The trouble for Swan is that Goolsbee is a professor of economics at the University of Chicago, the chairman of US President Barack Obama’s council of economic advisers and a member of the US cabinet. Presumably for Swan and Henry it’s OK when Goolsbee speculates on the US going broke, but it’s not OK when Barnaby Joyce does.

In January Goolsbee contemplated the result of the US House of Representatives, controlled by the Republican party, not allowing the US government to increase its debt. “If we hit the debt ceiling, that’s essentially defaulting on our obligations, which is totally unprecedented in American history,” he said.

The context in which Joyce and Goolsbee spoke was different. Joyce was talking generally about the sustainability of US government debt, while Goolsbee was contemplating the unlikely event of the Obama administration being unable to raise its debt ceiling. But in essence Joyce and Goolsbee were talking about the same thing – namely the US government running out of money.

In the US Goolsbee’s remark was taken as a simple statement of fact. In Australia Joyce’s remark provoked outrage from Labor politicians and economics commentators. It was one of the reasons Opposition Leader Tony Abbott subsequently removed Joyce from the fmance portfolio.

The treatment of Joyce reveals just how ignorant Australians are about the financial situation of the United States government.

It’s understandable that Swan and Henry, who presided over the biggest growth in Australian government debt since Gough Whitlam, didn’t like Joyce talking about the consequences of government debt. But it’s Australia’s policymakers – who refuse to face the facts of the long-term consequences of America’s financial situation – who are the ones being irresponsible.

Barnaby Joyce is the only politician in this nation …

… who was right.

Barnaby mockers? Be damned.

The whole damned lot of you.

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Why Would Any Sane Person Believe Treasury’s Carbon Tax Modelling When Its Budget Forecasting Record Is This Bad?

12 Jul

Adoration of the Golden Calf - Nicolas Poussin, 1629

The Treasury department is – like many false idols – placed up on a pedestal and revered as some kind of infallible authority.

An economic god.

And when it comes to our Green-Labor-Independent minority dictatorship’s newly finalised “carbon pricing mechanism”, the infinite wisdom of the Treasury department will once again be held up as the final Word.

We are talking, of course, about a government department long headed by well known green cargo cult members. True believers in the warmist cult, such as former Treasury secretary Ken Henry. And the latest appointee from among the green faithful, Martin “Mini-me” Parkinson. Previously the head of the government’s new Climate Change department.

So today, I’d like to indulge in a little “Moses” reenactment.

You know … the old Bible story.

The one where Moses smashed in pieces the golden calf that the people had taken to worshipping.

The Treasury department is our modern equivalent.  It has become a sacred cow.

I think it is high time we ritually slaughtered this sacred cow.  In much the same way as our minority dictatorship has slaughtered Aussie farmers’ cattle export industry.

It seems that we are all expected to (once again) bow and scrape to the Treasury sacred cow, when our dictators tell us that the economic modelling for their new “carbon pricing mechanism” all stacks up.

Yes indeed, we are all expected to accept in blind faith, that the Treasury department’s forecasts and predictions of the financial effects of this great new economic reform bankers’ money-go-round, are solid and sound.

Hmmmm.

Perhaps if Treasury’s forecasts and predictions as prophesied in past budgets can be shown as having been accurate, then we might have some basis, some reason, for placing our faith in them regarding this new carbon dioxide mega-scheme … right?

Well, let’s take a look at them, shall we.

And let’s keep it really simple.

Let’s not slice and dice every line item in their past Budget forecasts. Let’s just see how accurate they were with the two (2) basic, headline Totals.

1. Revenue (ie, income), and

2. Expenses.

Let’s look at the original Budget forecasts that our Treasury gods made in 2007-’08.  And especially, let’s note their “forward estimates” made back then, for the following 3 years.

After all, the Government’s “carbon pricing mechanism” plan has an initial 3 year “fixed price period”.

So, if we can see that Treasury got their Budget forecast reasonably accurate for the three years from 2007-’08, then maybe … just maybe … we can have a little confidence in their abilities, and their forecasting accuracy.

Note too, that the 2007-’08 Budget forecasts – prepared by the Ken Henry-led Treasury department – were for the Howard-Costello Government. So we are talking here, about the Treasury sacred cow’s forecasting effort for the so-called “World’s Greatest Treasurer” Peter Costello’s final budget.

Let’s get into it, shall we?

Here’s the original 2007-’08 Budget document, showing “estimates” and “projections” for Revenue:

2007-'08 Budget Paper No. 1, Statement No. 5

Ok.

So, in the May 2007-’08 Budget, Treasury “estimated” Revenue of $246.8 billion for the year 2007-’08.

And they “projected” Revenue of $260.7 billion for the year 2008-’09, and $274.6 billion for 2009-’10.

(Unfortunately, we cannot compare the forecast versus actual Revenue and Expenses for the 4th year (2010-11) of the 2007-’08 forward estimates, because the Final Budget Outcome for that year will not be released until September 2011.)

How well did our Treasury gods do on those “estimates” and “projections” for Revenue?

Let’s take a look.

Here’s the Treasury’s Final Budget Outcome for Revenue in 2007-’08:

2007-'08 Final Budget Outcome - Revenue - Part 1, Table 2

Hmmm. $303.7 billion in actual Revenue, versus the $246.8 billion they “estimated” just 1 year earlier.

An error factor of 23%.

Here’s the Treasury’s Final Budget Outcome for Revenue in 2008-’09:

2008-'09 Final Budget Outcome - Revenue - Part 1, Table 1

Hmmm. $298.9 billion in actual Revenue, versus the $260.7 billion they “projected” just 2 years earlier.

An error factor of 14.6%.

And finally (for Revenue), here’s the Treasury’s Final Budget Outcome for Revenue in 2009-’10:

2009-'10 Final Budget Outcome - Revenue - Part 1, Table 1

Hmmm. $292.8 billion in actual Revenue, versus the $274.6 billion they “projected” just 3 years earlier.

An error factor of 6.6%.

Summary – Revenue.

Treasury’s 2007-’08 Budget “estimates” and “projections” for Revenue in the following 3 years, were wrong by a factor of +23%, +14.6%, and +6.6% respectively.

Or to put it another way, in the 2007-’08 Budget the Ken Henry-led Treasury department underestimated future government revenue by a grand total of $113.3 billion over the first 3 years of their “forward estimates”.

Incredible. They actually received $113.3 billion more than they originally forecast through to EoFY 2010. And yet, these Treasury gods and their Rudd-Gillard-Goose muppets have still managed to plunge Australia into $194 billion in gross debt by mid-2011.

That probably has something to do with their out-of-control spending, right?

Indeed.

Let’s move on to Expenses.

Here’s the original 2007-’08 Budget document, showing “estimated” and “projected” Expenses:

2007-'08 - Budget Paper No. 1, Statement No. 6

Ok.

So, in the May 2007-’08 Budget, Treasury “estimated” Total Expenses of $235.6 billion for the year 2007-’08.

And they “projected” Total Expenses of $247.5 billion for the year 2008-’09, and $259.7 billion for 2009-’10.

How well did our Treasury gods do on those “estimates” and “projections” for Expenses?

Let’s take a look.

Here’s the Treasury’s Final Budget Outcome for Expenses in 2007-’08:

2007-'08 Final Budget Outcome - Expenses - Part 1, Table 3

Oops. $280.1 billion in actual Expenses, versus the $235.6 billion they “estimated” just 1 year earlier.

An error factor of 18.9%.

And don’t forget, ladies and gentlemen … the GFC had not even hit yet! That came 4 months later, in September 2008. Our new PM Kevin07 evidently got off to a treasury-emptying head start, even without a GFC as the excuse.

Here’s the Treasury’s Final Budget Outcome for 2008-’09. This is the year that included the GFC panic, from September ’08 through early 2009:

2008-'09 Final Budget Outcome - Expenses - Part 1, Table 1

Oops. $324.6 billion in actual Expenses, versus the $247.5 billion they “projected” just 2 years earlier.

An error factor of … gulp … 31.1%.

And finally (for Expenses), here’s the Treasury’s Final Budget Outcome for Expenses in 2009-’10:

2009-'10 Final Budget Outcome - Expenses - Part 1, Table 1

Oops. $339.2 billion in actual Expenses, versus the $259.7 billion they “projected” just 3 years earlier.

An error factor of … gulp … 30.6%.

Summary – Expenses.

Treasury’s 2007-’08 Budget “estimates” and “projections” for Expenses in the following 3 years, were wrong by a factor of +18.9%, +31.1%, and +30.6% respectively.

Or to put it another way, in the 2007-’08 Budget the Ken Henry-led Treasury department underestimated future government expenses (ie, spending) by a grand total of $201.1 billion over the first 3 years of their “forward estimates”.

Incredible. These Treasury gods and their Rudd-Gillard-Goose muppets spent $201.1 billion more than they originally forecast through to EoFY 2010.

Here’s another way of looking at the Treasury department’s forecasting genius.

It’s a chart showing the Treasury’s 2007-’08 Budget forecast for Revenue over the following 3 years (blue line), versus the actual Revenue in the Final Budget Outcome for each of those years (green line):

And here’s another chart, showing the Treasury’s 2007-’08 Budget forecast for Expenses over the following 3 years (blue line), versus the actual Expenses in the Final Budget Outcome for each of those years (green line):

It’s interesting to note that Treasury underestimated both Revenue, and Expenses.

Convenient. Very convenient.

After all, most citizens will take more kindly to a government Budget that “forecasts” a total tax take … and total government spending … that are 20% – 30% less than they eventually turn out to be. And the odds of getting caught out are low – how many citizens (or journalists) ever bother to check how close the Treasury/Government’s final budget results came to their original “forward estimates”?

Now, there will doubtless be those who will cry out, “But wait! What about the GFC?! The Treasury forecasts were wrong because of the GFC!”

Indeed.

Our Treasury gods, with all their degrees and PhD’s … did … not … see … the … GFC … coming.

Think about that.

Why would any sane person believe in Treasury’s economic forecasting abilities now … after they totally failed to see that one coming?

After all, it’s not as though there is any shortage of dire warning signs out there right now, alerting us to an impending GFC 2.

A “bigger Armageddon”.

We have been documenting these warning signs coming from all over the world – and from here in Australia too – right here on this blog.

If the impact of the GFC is your excuse for the Treasury’s abject failure to get within a bull’s roar of predicting the Budget revenue and expenses for 3 years ahead of time … that they only got it so very, very wrong because they did not see that impact on the Budget coming … then I rest my case.

By your own words … and their own data … they stand condemned.

(And by the words of Macquarie Economic Research too. Click here to see what they had to say about the “truly extraordinary” Treasury modelling underpinning the recent May budget)

UPDATE:

A late thought that just occurred to me.

At precisely the time that Peter Costello was handing down the Treasury department’s 2007-’08 Budget “forward estimates” that we have just examined – in early May 2007 – your humble blogger was commanding his superannuation fund manager (contrary to strenuous “expert” financial advice) to put all his super into cash –

Why?

Because thanks to the clear evidences already coming out of America and elsewhere in the world, even I could see that a GFC was bearing down on us.

The overpaid, tea leaf reading numpties led by former Treasury secretary Ken Henry … could not see it.

UPDATE 2:

Feb 7, 2012

Reader and Twitter follower @Ayeshavit asked me to update this post to capture the Final Budget Outcome for 2010-11 … the last year of the 2007-08 “forward estimates” by the Treasury genii.

Recapping – way back in the (Coalition’s last) May 2007-’08 Budget, Treasury “estimated” Revenue of $287.3 billion for the year 2010-’11.

And they “projected” Expenses of $272.7 billion for the year 2010-’11.

Now, from the 2010-11 Final Budget Outcome, here’s what the Labor government actually achieved in 2011-’11:

Final Budget Outcome 2010-11, Part 1, Table 1

Oops.

$302.0 billion in actual Revenue, versus the $287.3 billion they “projected” just 4 years earlier. An error factor of 5.1%.

And ‘Payments’ (ie, Expenses)?

Double Oops.

$346.1 billion in actual Expenses, versus the $272.7 billion they “projected” just 4 years earlier. An error factor of 27%.

Yup. The Labor Government spent more than one-quarter more money in 2010-’11, than Treasury had “projected” in 2007-’08.

Isn’t it interesting how the Treasury department’s “forward estimates” actually turn out?

What a shame for all Australians, that the lamestream financial and economic commentariat never bother to go back and compare what Treasury originally said, versus the reality of what actually happens.

Instead, sheep-like, they lap up and bleat on to the public whatever nonsense “projections” the Treasury puts out on Budget night … as though it has actually happened.

When as you can see, the Treasury’s “forecasts” are not worth the paper they are printed on.

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The Pricing Carbon Choir – Why Should *Any* Sane Person Trust Economists After The GFC?

2 Jul

There’s a little faux furore doing the rounds in the last 24 hours.

Allegedly, that awful Tony Abbott doesn’t trust economists.

In particular, he does not trust their judgement over their “popular” position on the proposed carbon “X”.

From The Australian:

Opposition Leader Tony Abbott defies economists on carbon tax

Tony Abbott today slapped down economists who were backing a price on carbon to deal with climate change, accusing the numbers men of getting it wrong.

The Opposition Leader urged economists vocally calling for a carbon tax or emissions trading scheme to examine their thinking.

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.

“Maybe that’s a comment on the quality of our economists.’’

Indeed.

Consider.

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.

Proof?

Here’s a paper referencing the thirteen international economists who all predicted and forewarned of the GFC for years in advance, and propounded cogent analyses as to why a GFC was coming. Including Australia’s own Dr Steve Keen, who won an award voted on by his international economic peers for having done so:

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.

Is it any wonder then, that our much-ridiculed accountant in the Parliament, Senator Barnaby Joyce, is always the only one on the ball when it comes to correctly predicting the risks of what is 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?

Strewth found him in a reflective mood.

“Maybe they will retract their pillaging of me and hand back the shadow finance portfolio as the sun is blotted out with the return of the migrating pigs,” Joyce mused.

“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.

Quelle surprise!

By Saul’s Own Words They Stand Condemned.

The sector of the economy that stands to benefit the most from “pricing carbon”, is the financial sector.

Banks.

And banksters.

And their many minions.

Including Malcolm Turnbull, whose balls are owned by international carbon-trading-pushers Goldman Sachs, after their “confidential settlement” to keep him out of court in the half a billion dollar lawsuit over the HIH collapse, in which Mr Turnbull was a named defendant.

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.

The “Pricing Carbon” Choir.

Blithering Idiots, and Liars all.

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Deutsche Bank Agrees – Barnaby Was Right

24 Apr

Will Goose, Henry, Stevens, and Co. now step up and apologise to Barnaby for mocking his warning about US debt levels?

US finances are in almost as troubled a state as the worst-hit members of the euro zone, economists say, underscoring the pressing need for Washington to reach agreement on how to reduce the deficit.

A gauge of “sovereign risk” from economists at Deutsche Bank placed the United States just behind Greece, Ireland and Portugal among 14 advanced economies.

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46 US States In Debt Crisis

29 Jun

46 out of 50 US state governments are now technically bankrupt.  To understand how bad that is for the global economy – including Australia – consider the fact that California alone has an economy that is larger than that of Russia.

From Bloomberg:

California, tied with Illinois for the lowest credit rating of any state, is diverting a rising portion of tax revenue to service debt, Bloomberg Markets magazine reports in its August issue.

Far from rebounding, the Golden State, with a $1.8 trillion economy that’s larger than Russia’s, is sinking deeper into its financial funk. And it’s not alone.

Even as the U.S. appears to be on the mend — gross domestic product has climbed three straight quarters — finances in Arizona, Illinois, New Jersey, New York and other states show few signs of improvement. Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities, a Washington research institution.

State budget woes are a worsening drag on growth as the federal government tries to wean the economy from two years of extraordinary support. By Jan. 1, funds from the $787 billion federal stimulus bill will dry up. That money from Washington has helped cushion state budgets as tax revenue has plunged.

State leaders won’t be able to ride out this cycle the way they have in the past. The budget holes are too large.

What will the US do when nearly every state government is facing Greek-style deficits?

According to an RBS note to its clients, prepare for unprecedented money printing.

From the UK’s Telegraph:

As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve.

Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on “monster” quantitative easing (QE)”.

“We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable,” he said in a note to investors.

Societe Generale’s uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the “stinking fiscal mess” across the developed world. “The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant,” he said.

Barnaby Joyce began warning about a bigger GFC in October last year. No one wanted to listen.

He was roundly ridiculed by the “experts” – such as the genius academic who designed the controversial RSPT, Treasury secretary Ken Henry – for suggesting the possibility that the USA could default on its massive debts.

The simple fact is this.  The USA is defaulting on its debts.

Printing money (euphemistically called “Quantitative Easing”) is technically a form of sovereign default.  When you cannot pay your debts, printing money devalues your currency, and makes it easier to pay back your debts.

It also means high inflation.  Possibly hyperinflation.  Think Weimar Germany in the 1920’s.  Or Zimbabwe today.

Barnaby is right.

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Henry “Dumb”, “Completely Mad”, “Naïve Greenie”

24 Jun

In the wake – literally – of former PM Kevin Rudd, Mike Mangan at Business Spectator predicts the death knell for the RSPT:

The Labor leadership spill ensures the resources super profits tax is dead. While the RSPT started as an investment theme, it’s now just politics…

This (the RSPT) would have to rate as one of the dumbest political moves since Chifley tried to nationalise the banks 60 odd years ago. Labor nick-named Mark Latham “crazy brave”. But I doubt even Latham would have tried this one on…

Happily, Mangan goes on to join the rumblings (that were started right here on this blog back in February) calling for the sacking of Treasury secretary Ken Henry:

Former Labor senator Graham Richardson said earlier this week the miners are now spending a million a week advertising the stupidity of this “super tax on profits”. And he concludes “their ads are 50 times more effective than the government’s ads”. What was Rudd thinking? Who was advising him?

Enter stage left: Ken Henry.

Although Rudd has since rejected the idea, on Monday Rudd’s Treasury Secretary helpfully suggested the RSPT should be extended to all industries, especially banks and retailers. I think there are three possibilities here. Ken Henry is either politically dumb, gone completely mad or he is a secret admirer of Tony Abbott. Surely Kevin Rudd had enough enemies without adding two of Australia’s largest industries to that ever growing list. There is another possibility. Henry is just a naïve greenie. Reportedly he partly drafted his tax review while caring for northern hairy-nosed wombats in central Queensland. Too bad wombats don’t vote.

The spill result is great news for investors, because the mayhem Rudd unleashed over the last six or so months will cease and the RSPT in particular will be consigned to the history books with him. And I strongly suspect Secretary Henry won’t be too far behind.

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McKibbin For PM 2010

23 Jun

Long something of an outsider – the lone outspoken voice of reason and commonsense on the otherwise “reserved” board of the Reserve Bank – Warwick McKibbin has again spoken out.  He has accused Rudd of panicking, and wasting huge sums of taxpayer money.

Who’d have thought!

From the Sydney Morning Herald:

A prominent university economist and member of the Reserve Bank board has delivered a scathing critique of Kevin Rudd’s response to the global financial crisis, saying his government ”panicked” and ”rammed through” decisions fraught with risk.

Warwick McKibbin, of the Australian National University, accused the government of overspending on its stimulus package, and then coming up with ”a really badly designed resource tax” to try to compensate.

And he described the government’s planned $43 billion national broadband network as ”a gigantic white elephant waiting to happen”.

It gets better.

McKibbin also attacks Treasury secretary Ken Henry.

Readers of this blog will know our scathing views of Henry’s “performance” before, during, and after the GFC.  We have been calling for him to be sacked… a call that is only now just beginning to resonate in the Opposition ranks.  And in the economic commentariat too. Highly esteemed business leader and commentator Robert Gottliebsen recently said this:

The position of Ken Henry as the head of Treasury is not sustainable.

Here’s what Professor McKibbin had to say about Henry:

Professor McKibbin also took aim at fellow Reserve Bank board member and Treasury secretary Ken Henry, accusing him of not only failing to consult experts on economic issues, but of trying to silence them…

(Professor McKibbin)… has told The Age he was stunned by Dr Henry’s call this week for academics to ”put down their weapons” and stop nitpicking over government proposals such at the emissions trading scheme.

”The ETS was a flawed scheme. Had the government got it through it would be dead by now because of the financial crisis,” Professor McKibbin said. ”I have enormous respect for Ken Henry, but he can’t believe that you should have consensus because it is better to have bad policy that everyone agrees with than eventually get good policy that will work.”

Enough of Henry. Really … enough!

Back to Rudd / Henry’s rushed and bungled “economic stimulus”:

And in a damning assessment of the government’s stimulus package, he (McKibbin) said: ”It wasn’t evidence-based policy, they panicked. They put the money into school buildings, they put it in insulation, they put it in stuff they could never reverse.

”The government rammed those decisions through the economy even though they were fraught with risk,” Professor McKibbin said. ”No one was consulted about an alternative view, and if you did say anything you were attacked by the Treasurer and the Prime Minister in public.”

He also accused the government of overspending on the stimulus package and then deciding that ”because of politics they had to get their spending back so they could claim they had fiscal surplus – for which there is no economic basis, by the way.

”So they come up with a really badly designed resource tax to try and get the position to look good three years from now and, in the middle of a sovereign risk crisis, exposed the economy to a reassessment of sovereign risk.”

Warwick, we need you in politics.  You have my vote.

McKibbin For PM 2010!

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Barnaby: The Economic Illuminati

9 Jun

Opinion piece for The Punch – Senator Barnaby Joyce, 7 June 2010:

The Mining Tax:  Treasury’s Own Love Formula

Every now and then, a select group from the economic illuminati retire to their monastic study and devise a splendid idea to try and pay off their previous splendid idea.

Splendid idea number one was to borrow so much money that we put ourselves in more strife than the early settlers in our desire to adorn the nation with an eclectic mix of rubbish that apparently was going to save us from Asia ceasing to purchase our minerals. The relationship between our stimulus and mineral exports was as clear as mud, but there was an emphatic defence of this fantastic proposition by Labor.

The Treasury corruption of the graphs depicting the relationship between our and other nations’ fiscal stimulus packages and the effect on their respective economies shows that when the graphs were corrected the relationship was hardly apparent. We really were sold a lemon on Labor’s “go hard, go early, go household strategy” in response to the North American and European financial crisis and are currently lumbered with in excess of $144 billion gross federal debt while on our merry way to in excess of $220 billion gross federal debt.

The next chapter in the Labor Party Magnus Opus was called “massive debt” and the next problem for Treasury was “how do we pay it off?” The Labor Party thought to increase their revenue stream in the most politically parochial way. They explained to Australia that the big miners are morally lacking, are exploiting the workers, and they as a government, Robin Hood – like, would restore the balance of fiscal morality. It would mean the partial nationalisation of our whole mining sector, however. They had it on good advice from the Secretary of the Treasury, that he had studied a theorem at high school that no matter how you flog this mining sector, it’s going to hang around and continue to support you.

The sobering reality is this, despite the Secretary of the Treasury stating that you can put taxes up in the mining sector and not affect the investment profile, he is wrong on this occasion. If taxes go up at an exponential rate to where they formerly were, people will make the logical decision to go where the taxes are less. If the Secretary of the Treasury tells you that a new tax will assist in cooling the planet, you really have to ask yourself if this is necessarily so. If you surround yourself with hedges of economic theorems and carpets of policy papers and spend your nights fanatically trying to turn human emotion into predictable mathematical models, and don’t recognise what is yelled to you as common sense by the peak industry groups, you will come unstuck when you find that your models don’t match their experience.

During Estimates one can get quite frustrated with well meaning pontificating by well paid bureaucrats about a perfect world they have created and what happens in it. This world has created a Newtonian expectation of preciseness to economics as required to match government policy desires. It supposes that gravity and economics are the same and that people’s actions are as predictable as other items of physics- like a mathematical model for love. Commonsense expectations on actions and reactions are put aside for superb anodyne reflections on economic issues. The basic premise that must be first applied when analysing the RSPT is this – if a miner can make more money in another venue, then to that other venue they will go. Unfortunately it appears that this statement of the bleeding obvious, that one cannot predict the economic speed of sound, has meant that a realistic gut instinct of what happens when you put a 40% tax on mining has not been followed.

The reality of the RSPT, which was blatantly obvious to virtually everyone, has now of course come to be in the actions of such companies as Xstrata in the reduction of their investment decisions in Australia. How can we believe the Labor Party’s lauding of their so-called management of the GFC and take for granted their endorsement that it was their school halls program that saved us from a recession, when it is the same Labor Government inspired brains trust that is creating this stuff up?

Dr Henry, in answer to my question at the Economics References Committee Inquiry earlier this week, stated that it didn’t matter whether the RSPT tax was at 40, 60 or 70 percent, as to how it would affect investment in Australia. I was left no choice but to believe that he was correct in his description of a theory but had completely departed from reality as to what was actually going to happen.

This new tax will not only be a bombshell to such mining areas as Gladstone, Townsville, Wollongong Newcastle and Mackay and the whole of WA, but ultimately it will affect those other big coastal towns such as Brisbane, Melbourne and Sydney as they come to the startling reality that these Labor Party splendid ideas are going to have dire consequences to the investment and export structure of our nation.

In the town of Wandoan, there are some farmers who are happy today due to the fact that a major mine is not going ahead and yes we should not be mining prime agricultural land because this is the ultimate non renewable resource. This Labor Party package was not to protect prime agricultural land but to prop up Treasury with a new tax. In fact the Labor Party hoped the mining would go ahead in Wandoan. However, there are some other families who were hoping that the income from the mine will increase their standard of living, and they are very unhappy, because Labor Party hopes are not their reality.

There were people who were going to build a $1 billion railway line from Wandoan to Banana and they are unhappy today as they are not going to build it anymore. There was supposed to be the development of a massive income stream to support lots of shops, chemists, school teachers, nurses, contractors, metal fabricators, diesel fitters and they are all going to miss out. They are all very unhappy. They are all unhappy because some group of individuals in Canberra decided that they were beyond questioning and resolute in a desire to inflict on the Australian economy what would have to be the most incongruous economic policy since the 1949 desire by the Labor government to nationalise the banking industry.

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Joyce: ‘More Modelling Than Naomi Campbell’

3 Jun

Barnaby Joyce accuses Labor of using dodgy statistics in its propaganda for its Orwellian-named “Resource Super-Profits Tax” (RSPT).

From The Australian:

The Federal Government has more modelling “than Naomi Campbell” on its proposed mining tax, but none of it makes any sense, Nationals Senate leader Barnaby Joyce says.

He has accused the Government of hiding behind questionable statistics in its push to implement a 40 per cent tax on the super profits of mining companies.

“They’ve got more modelling than Naomi Campbell, but it’s all wrong,” Senator Joyce said today.

Indeed, the modelling is all wrong.

Professor Steve Keen, winner of the Revere Award for being the international economist who first and most cogently forewarned of the coming GFC, has demonstrated that Treasury’s modelling is based on economic fallacies and “a gaping hole in logic“, in a series of articles for Business Spectator.  They can also be found on Professor Keen’s DebtWatch blog.

Returning to Barnaby:

He took special aim at Treasury over pie charts Treasurer Wayne Swan used to back the Government’s argument miners have been paying half the tax they were paying a decade ago.

Respected business commentator and ABC TV’s Finance presenter, Alan Kohler, today checked the numbers for himself in a column for Business Spectator titled, “The Government’s RSPT Spin Is A Disgrace”:

Another big accounting firm, Deloittes, has gone through ATO data and demonstrated that the effective tax rate for Australian mining companies (company tax plus royalties) is 41.3 per cent, compared with the average across all sectors of 27.18 per cent. I went into the ATO website and did the same calculation: it’s true.

In one of its taxpayer-funded advertisements, the government says: “Before the last boom Australia got 1 in every 3 dollars of mining profits in royalties and resource charges, we now receive just 1 in every 7 dollars.”

This statement is a disgrace, even leaving aside the fact that we are paying for it.

Back to Barnaby:

Senator Joyce wants to see the figures Treasury used to formulate the charts, but Departmental officials have opted to stall at a series of Senate estimates hearings this week.

“The pie charts don’t make any sense,” he said.

“They’ve had four days to explain two pie charts and they can’t do it.”

Indeed, according to mining magnate Andrew ‘Twiggy’ Forrest today, the head of the Treasury department Ken Henry – the architect of the now infamous Henry Tax Review – can’t even explain it himself:

Mr Forrest said Dr Henry had effectively conceded at a lunch with leading economists late last month that he was uncertain how financiers would view the rebate.

“When asked … he (Dr Henry) said, `I’m sure some clever banker is going to find out how to make it work’,” Mr Forrest said.

“What he’s saying to the Australian people is that he doesn’t know.

“Ken Henry doesn’t have the answers and what I know with absolute certainty is that he didn’t consult with the banking industry, like he didn’t consult with the mining industry.

As this blog has highlighted many times, Treasury secretary Ken Henry is not fit to hold his position, and should be sacked.  The huge controversy over the RSPT only serves to confirm this view.

Yesterday Andrew Forrest revealed details of his own private conversations with Ken Henry over the RSPT, during which Henry admitted that the “logic” of his RSPT all rests on one critical assumption.  The fact that this assumption is dead wrong, further proves Henry’s ivory-towered, disconnected-from-economic-reality incompetence:

“Ken has described to me how the tax works and it relies on a critical assumption, that the so-called guarantee of 40 per cent of losses in bankruptcy actually has a value to financiers,” Mr Forrest told ABC Radio.

“If it doesn’t, then in Ken Henry’s own words, the logic of the entire tax collapses and this is just a 40 per cent take, which of course will then damage the industry.”

Mr Forrest said he had told Mr Henry that the 40 per cent tax credit guarantee on losses would be worthless to the mining industry as it would not be worth anything to financiers when they decided on loans.

“It theoretically works for economists in textbooks, it doesn’t work in the real world.”

Which is exactly what contrarian economist Steve Keen says is true about almost all mainstream economic thought, in his brilliant book “Debunking Economics“.

UPDATE:

From The Australian:

One of Australia’s most respected economic forecasters, Chris Richardson, has demolished the intellectual and economic modelling behind the government’s resource super-profits tax, effectively telling Treasury it got it badly wrong..

The assault on the fundamental logic of the tax will seriously embarrass the government and the architect of the tax, Treasury secretary Ken Henry, given their repeated claims that their model will not deter investment and the mining industry is merely running a fear campaign.

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