From: Forrest Bishop (forrestb@ix.netcom.com)
Date: Sat Apr 13 2002 - 15:26:17 MDT
----- Original Message -----
From: Damien Broderick <d.broderick@english.unimelb.edu.au>
To: <extropians@extropy.com>
Sent: Friday, April 12, 2002 11:11 PM
Subject: private/public redux
> I'd be interested to hear the extrope (range of) reading/s of this piece on
> recent Aussie political choices:
>
> http://www.theage.com.au/articles/2002/04/03/1017206220409.html
>
> Costello's debt reduction could leave
> us all in debt
Ya'll already are in debt. Every $AU in 'existence' (a number in a bank ledger or on a piece of currency) was 'created' from thin
air as a claim on someone's assets. The underlying bank reserve 'assets' are in turn further claims on assets (e.g. US dollars &
T-bonds) which are in turn..... This is the largest pyramid scheme ever witnessed.
> By Kenneth Davidson
> April 4 2002
>
> Despite inadequate budget accounts, there is accumulating evidence
> of financial mismanagement by the Howard-Costello government.
There is *no way* to avoid financial mismanagement in a fiat-currency regime. Fiat-currency itself captures the essence of
mismanagment: spending money you don't really have. The revelation above is simply a re-evaluation of the nature of those putative
claims. Enronitis and its closely associated Andersonitis are global pandemics, the expected result of central banking.
> Between 1996 and 2001, the government reduced its debt by $48
> billion, according to the Australian Office of Financial Management
> - $38 billion from the sale of Telstra and Commonwealth Bank
> shares and $10 billion mainly from the sale of airports, property,
> railways and radio and telephone spectrum.
>
> Over the same period the government ran up a net surplus of $15
> billion, or 2.2 per cent of gross domestic product.
>
> The government is proud of this record. It was the centrepiece of
> its
> claims to superior economic management in the recent federal
> election campaign.
>
> But, really, how good a record is it?
>
> Most commentators take the
> government and financial market
> line. They compare the record of
> the Labor government in the first
> half of the 1990s (during the
> downswing in the business cycle)
> with the record of the Coalition
> government in the second half of
> the '90s (during the upswing in
> the business cycle).
>
> Prudent governments run
> surpluses during the good times,
> and this creates greater scope for running up budget deficits during
> the bad times.
Prudent people should take note.
> Thanks to a boom in housing construction, fed by low interest rates
> and $2 billion in subsidies to first home buyers, the domestic
> economy is forecast to grow 4 per cent this financial year - yet the
> cash surplus is expected to be only $500 million.
Ok, sounds like the aforementioned liquidity injections have precipitated out of the stock market and found their way in to the
mortgage market, just like in the US, fueling a real estate boom and concurrent price rise- perhaps the cause of the 9% or 12% rate
of return on property. Physical resources and human talent are being prevented from creating other kinds of capital (physical
structures of production) by being attracted to an area that is over-priced and overproducing. The result will be shortages, which
may be exacerbated by price-controls and rationing. With or without Statist coersion, there will be rapid rises in the real prices
of some goods, and falls in others (i.e. real estate). The general rise in currency-prices may or may not mask this.
> In the argot of economics, this suggests the budget is already
> running an underlying deficit of around $200 million to $300
> million, based on an underlying long-term GDP growth rate of 3 to
> 3.5 per cent.
>
> In the previous upswing in the business cycle, in the five years to
> 1990-91, the Hawke-Keating government ran up a net budget
> surplus of $12.7 billion, equal to 3.4 per cent of GDP.
>
> After allowing for the changed size of the economy, the surplus
> built up in the upturn of the last business cycle during the
> watch of
> the Hawke-Keating government was more than 50 per cent greater
> than the surplus built up in the first five fat years of the current
> business cycle.
>
> The Coalition appears to have built in a structural deficit as a
> result
> of its privatisation program in which the government has exchanged
> high-yielding assets such as airports, Telstra, the Commonwealth
> Bank and Commonwealth real estate for low-yielding or even
> loss-making assets.
>
> For instance, it appears that already this financial year the
> Australian
> Office of Financial Management has realised losses of $800 million
> on currency swaps.
Maybe Yen related? Perhaps some Argentine bonds rumaging around in the capital reserve accounts?
> (Last week your correspondent put in a series of written questions
> to the Treasury on this issue. The verbal response - that the
> questions would not be answered - I take as unofficial confirmation
> that the claim made in Treasury "Press Release No. 1" to the effect
> that so far this financial year Treasury had made gains of $43
> million on currency swaps is wrong.)
Good for you! Similar efforts in the US are running into similar walls of denial. There is no accountability.
> The former auditor-general of New South Wales, Tony Harris,
> asserted in a recent article in The Australian Financial Review that
> the Commonwealth stood to lose $4.8 billion on currency swaps.
> This has not been denied or challenged officially.
>
> Interest rates are about to rise; it is now a matter of when, not
> if.
Correcttomundo. Having dropped interest rates below the originary rate to flood the market with liquidty, you are now looking at
hyperinflation management. The aforementioned claims on assets exceed the cash price of assets available for claiming. Good luck!
> Age financial markets expert Stephen Dabkowski wrote yesterday
> that bond markets have already factored in an interest rate rise of
> 1.75 percentage points by the end of the year. This translates
> into a
> loss on the $32 billion in interest-rate swaps entered into by the
> Treasury since 1997 of $2.8 billion.
>
> These losses are all the more galling because they were unnecessary,
> given the government's announced policy of eradicating debt.
Great, so therefore they will shut down the central bank.
> The government's asset eradication program has been undertaken
> utterly heedless of the cost to the commonweal.
>
> For instance, the government decided to flog off government
> properties worth $1 billion for no better stated purpose than that
> they weren't yielding a rate of return of 15 per cent - even though
> the industry rate of return on property is 9 per cent.
This is an unsustainable real rate of return. No investment can continue to outpace the real growth of an economy. Expect to see a
new number.
> According to
> the Australian National Audit Office, 70 per cent of the properties
> were yielding a return to the government of 12 per cent or more.
> The cash from these sales was then put into buying back
> government bonds, yielding 5-6 per cent.
This would have acted to contract the money supply, a currency support measure.
> The government is now renting these properties back at exorbitant
> rents, which still manage to push most of the risks normally
> associated with property ownership on to the government.
Solution: cut the government services associated with these properties. Teach the ex-employees how to start an operate their own
businesses producing thing people will actually want to purchase without being coerced.
> The indulgent financial misadventure embarked upon by the
> Coalition government, if unchecked, will lock Australia into
> substandard, high-cost public services - which will eventually
> affect
> every taxpayer.
"Substandard, high cost public services" is a redundancy.
>
> Kenneth Davidson is a staff columnist.
> E-mail: dissentmagazine@ozemail.com.au
>
> -------------------------------------
>
> Damien Broderick
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