Month: May 2010

IMF: more debt = less growth. Eco Hist 101

Posted by Chief Blogger – 21 May, 2010

The IMF’s Fiscal Monitor report released this month had this to say about debt:

There is a negative relationship between initial government debt and subsequent per capita GDP growth. The fitted line (OLS) of a scatter plot of initial debt against subsequent growth over five-year periods shows a coefficient of initial debt of -0.025 (Figure 1). Taken at face value, this suggests that a 10 percentage point of GDP increase in initial debt is associated with a slowdown in per capita GDP growth of 0.25 percentage points. This magnitude is consistent with that obtained using econometric estimation (see below). Second, the average growth rate during periods of rising debt is lower than that during the periods of falling debt (Figure 2). 

The graphs are revealing, accessed through the link on page 63 of the report. They obliterate Rudd’s tax-spend-debt agenda.

A recent article in the WSJ by Allan Meltzer, professor of economics at Carnegie Mellon University makes much the same point:

Keynesians who think reducing public spending during a recession is a disastrous error should recall that they warned British Prime Minister Margaret Thatcher in 1981 that Britain would never recover if she continued with her tight fiscal and monetary policy during Britain’s deep recession. Mrs. Thatcher declined to take their advice. Expectations about Britain’s future changed for the better, and a long, productive recovery began soon after.

Greece’s government should take heart from her example. The new government in Britain might remember this as well. And so might the Keynesians in the Obama administration.

More historical background here. Peter Costello outlined in his book that he was given much the same warning when he took the Treasury reigns, and look what happened to the economy and budget.

Who supports and opposes Rudd’s mining tax?

Posted by Chief Blogger – 20 May, 2010

Support:

Any person associated with a militant left-wing union, environmental fascists, the ABC commentariat, communists, the bludgerstan community and a range of foreign governments.

Oppose:

Every single mining company including its workers and their direct and indirect shareholders, virtually every single financial and investment company including banks, hedge and superannuation funds, the Federal government’s own sovereign fund – the Future Fund, four state governments including NSW, WA, SA and QLD, hundreds of regional and remote communities, mining sub-contractors, virtually all of talk-back radio, Murdoch news outlets including the Wall Street Journal and about half of Fairfax news outlets. Most of Australia’s electricity suppliers, any quarry and by association general builders, construction firms and potential home-buyers, the agricultural sector and universities dependent upon grants from the mining industry. Is there anyone left?

You think we have it bad with Rudd

Posted by Chief Blogger – 20 May, 2010

David Cameron in the UK – a nominal conservative – is turning into an unmitigated disaster. Virtually every conservative policy is being put in the dust bin in favour of more left-wing policies of failure and mediocrity. A headline from the Telegraph:

Only a Tory without principles would demonise the Right. David Cameron’s coalition will stop at nothing to smear those who believe in traditional values.

Even though the UK economy and finances are completely and utterly in a shambles, its society broken with soft totalitarian types running rampant over people’s freedoms and the continuing anti-democratic attacks of the much hated EU, Cameron still couldn’t deliever an election victory.

Mr Cameron and those modernisers from the Conservative benches who have gone laughing into coalition with him do not want a debate that would expose so many illusions and betrayals. They fear their party will realise the truth sooner or later, and end up splitting; that would be inconvenient for those for whom power is not so much an aphrodisiac as an addiction.

The Daily Mail has a revealing take on the Cameron’s capitulation on getting rid of the Human Rights Act. Probably the most perverse piece of legislation in the UK. For instance:

Only yesterday, a court ruled that two men who plotted to kill thousands of Britons in a terrorist atrocity could not be sent home because it would infringe their human rights…

It has been blamed for hampering searches for foreign prisoners wrongly released by the Government because police were fearful that ‘Wanted’ posters would contravene the ‘right to respect for private and family life’.

Attempts to seize the assets of major criminals have been thwarted by legal challenges brought under the Act.

And rapist Anthony Rice was wrongly freed to murder because officials were concerned he might sue them for breaching human rights.

Even senior Labour Party figure Jack Straw once described it as ‘a villain’s charter’. Of course the left in Australia wanted something similar though Rudd backed down on the move. It will be interesting to see how long Cameron and the Conservative Party lasts.

UPDATE

Only a nation completely perverted with post-modernist dogma would come up with Olympic mascots as incomprehensible as the following two:

Hey Abbott, harden up!

Posted by Chief Blogger – 19 May, 2010

Unless you have been living under a mat, Abbott’s little confession moment on the 730 Report about how sometimes he exaggerates the truth when not scripted isn’t exactly going down well with the main stream media. A media pack that is thirsty for his blood to resurrect Rudd’s political fortunes. So my message to Abbott is: 730 Report isn’t confession time – stick to message and toughen up!

BHP is toughening up:

The mining giant plans to hold shareholder meetings across Australia “to warn investors of the impact” of the proposed tax, according to the report. BHP Billiton has been flooded with shareholder complaints and letters regarding the 40% tax, the report said.

So Abbott get on board and don’t make you the issue. This is the issue: Rudd is hanging his budget hat on the mining industry to get us back into surplus. An industry facing significant risks, and not just in Rudd’s tax regime.

The new pricing scheme replaces the annual-price benchmarking system, begun in the 1960s and used more or less universally up until March — a process, typified by long negotiations, in which miners and their steel-mill clients set a single price for an annual contract. The new system was seen as a benefit to miners in the short term, so long as commodities continued to rise.

The problem for BHP, Rio Tinto and others, is that the system has the opposite effect on their revenue during commodity downturns, and more generally, exposes them to unexpected shocks of the kind that some analysts believe are now brewing in China’s housing market.

Chinese housing prices fall – decline in net household wealth – economic slowdown – decreasing demand for commodities – decrease in  mining profits – less Rudd ‘super-tax’ revenue – deficit gets bigger.

Russell Crowe’s politics

Posted by Chief Blogger – 15 May, 2010

The Washington Post hates the new Robin Hood, so it must be a good movie then:

Dark and polemic, Ridley Scott’s “Robin Hood” is less about a band of merry men than a whole country of really angry ones. At times, it feels like a political attack ad paid for by the tea party movement, circa 1199.

Oh yeah, bring it!

Set in an England that has been bankrupted by years of war in the Middle East — in this case, the Crusades — it’s the story of a people who are being taxed to death by a corrupt government, under an upstart ruler who’s running the country into the ground. It asks: What’s a man of principle to do?

If you said, “Steal from the rich, and give to the poor,” you must be thinking of the old Robin Hood. The correct answer here is: “Don’t retreat, reload.” There are more arrows flying every which way than you’ve ever seen — through the face, the neck, the chest, the back. It’s a pincushion of a movie.

Keeps on getting better.

The Post claims the movie has been politicised because it is not socialist. Figure that logic. If this turns out to be the case then that makes two very conservative movies that Crowe has starred in. The other being Master and Commander, which if I recall correctly, the NYT called one of the most conservative  movies in recent times. Combined with Crowe’s support for Australia’s constitutional monarchy, he can’t be considered a pin up for the loony left. I never saw him at Rudd’s ridiculous 2020 Summit, unlike some other Australian movie stars, so he has some good sense. Apparently he gave money to a mate running as a Green Party candidate – which may say more about his generosity than his politics. No, Russell is a conservative. The Australian Republic is the litmus test for any left-winger and Russell fails is badly. Well done.

ABC word play

Posted by Chief Blogger – 15 May, 2010

Noticed that the ABC is referring to Rudd’s mining tax as the super profits tax on mining companies without quotation marks to indicate that the word ‘super profit’ is highly contentious and is a political claim, not a title. Small point, but there it is.

Ken Henry confirms: tax payers to subsidise failure

Posted by Chief Blogger – 14 May, 2010

Is this fair for taxpayers? Is it good for the economy?

Modelling prepared for Treasury shows the tax would increase the size of the mining sector, boost investment and push up the dollar because the tax arrangements help subsidise unprofitable mining projects.

So the tax will drive out the most profitable mining companies and result in the government footing the bill for a bunch of mediocre mining operations.

Abbott’s reply

Posted by Chief Blogger – 14 May, 2010

Great budget reply speech by Tony Abbott, however I don’t agree with the following:

To rein in spending, the Coalition will introduce a two year recruitment freeze to reduce public servant numbers through natural attrition. The freeze will apply on an agency-by-agency basis but uniformed and frontline service positions including, for example, the federal police, customs and quarantine, the Australian Defence Force and Centrelink customer service staff will be excluded.

No problems with the staff freeze, but since when have Centrelink staff ranked in importance along side the Police and Defence Force? Dole checks along side bullets.

What’s in store for Rudd at election time

Posted by Chief Blogger – 13 May, 2010

Warning, some bad language:

Lenore Taylor’s freedom hating socialist fantasy collapsing – gets angry!

Posted by Chief Blogger – 13 May, 2010

Fairfax political reporter Lenore Taylor is angry, really angry. At least that has been the tone of her more recent articles in the SMH. It is astounding that anyone takes her seriously and that she gets so much air time on the ABC.

The Coalition’s basic argument against the budget is that the mining tax will not deliver enough tax revenue to put the budget back into surplus. It will drive investment away and reduce tax revenue across the board and tax-payers will be hit by loss making projects – liable up to 40 per cent. Taylor either does not know or understand this last point:

….the idea that companies with existing projects will pack their bags and leave our shores, or that no one will invest in Australian mining when very handy profits are still there to made, is a nonsense.

More marginal projects will be more likely to go ahead under the new rules.

When virtually every mining company in the world, investment experts, foreign governments, international press and three state governments are saying the same thing about the continued prospects of mining in Australia, Taylor decides to ignore it all and believe the mutterings of a former minor union official that just happens to be the Federal Treasurer. That’s credible? Did someone say consensus? Quick, call the UN.

The following little details seem lost on Taylor. Yes, more marginal projects will go online.  That’s because tax-payers will have to pick up the tab for 40 per cent of the losses, meaning less Federal R-E-V-E-N-U-E. Also, what type of profit can a mining company be expected to make when the tax take is at 58 per cent? There are many examples of mining companies either stopping exploration or reconsidering current and future investment. Rio Tinto is currently doing just that while BHP has cast doubt over the viability of the $20 billion Olympic Dam mine, hence why the ALP South Australian government sent a small delegation to Canberra to find out what exactly is going on. The QLD ALP government is also getting cold feat on the mining tax because it will damage their bid to reclaim QLD’s AAA credit rating.

Abbott says the government’s surplus is based on revenue from the super profits tax. It isn’t. But a bunch of spending policies are, including the company tax cut and concessions for small business and tax breaks on savings, so he will need also to explain his stance on those as he outlines his own savings measures.

Oh boy, Taylor is mixing revenue measures with spending measures. She does not understand how the budget is put together. How do spending policiesbuild a surplus? When you spend money you consume resources from R-E-V-E-N-U-E, meaning less money for a surplus. And how is a cut in company tax a spending measure. The government never had the money to begin with. In the same sentence she describes the company tax cut as both a spending policy and savings measure. It is a poorly constructed sentence born out of Taylor’s visible ignorance of budgetary matters and anger that the ALP’s electoral prospects are falling.

In Taylor’s socialist paradise, all money must come from the government.

WAYNE SWAN’S budget seriously blunted the Coalition’s debt’n'deficit attack.

Ah, um, what, with a $56 billion deficit over the next two years? Swan’s budget and his phantom surpluses have done nothing of the sort.

UPDATE

Noticed that Taylor has a new book coming out about the great and marvelous Kevin Rudd and how he stared down the global financial crisis. It is charmingly entitled ‘Shitstorm’.  Clearly not a book for the kiddies.