|IndyWatch Australian Economic News Feed Archiver|
IndyWatch Australian Economic News Feed was generated at Australian News IndyWatch.
Victoria is spending $5.5 billion building the West Gate Tunnel, another $1 billion widening CityLink, probably $10 billion on the North East Link, $11 billion on Melbourne Metro, $8 billion removing level crossings, and, if the Coalition returns, more than $3 billion on the East West Link.
NSW is spending $16 billion on WestConnex, $14 billion on Western Harbour Tunnel Beaches Link, $9 billion on the F6 Extension, $3 billion on NorthConnex, $11 billion on Sydney Metro South West, $8 billion on Sydney Metro NorthWest, $3 billion on Parramatta Light Rail, $2 billion on Sydney Light Rail, and billions more on Sydney Metro West.
It would be nice to know it was money well spent.
There's a fiction that a benefit-cost ratio above "1" means things are OK.
Here's how it works. A consultant adds up all the costs over a period of 30 or 40 years and all the benefits. If the benefits are greater than the costs, giving a ratio of, say, 1.5, it is said to be worth doing. But if they are less, say, 0.45 (which was the ratio in the first study of in the East West Link), it is said to be a waste of money.
Often the studies are never made public, sometimes they are never conducted (as was the case with the national broadband network) and very often they are conducted as an "add-on"; financial bling to be sprinkled over the project after it has been approved and announced.
Melbourne's $5.5 billion West Gate Tunnel is a case in point. Sydney's $14 billion Western Harbour Tunnel and Beaches Link is another. Internal NSW Transport emails released to me under freedom of information show an analyst complaining that his superiors had as good as completed the business case without access to the numbers.
"How something with no, repeat, no, benefit-cost analysis or traffic numbers can be construed as 80 to 90 per cent complete is beyond me," the exasperated official wrote. "The numbers tell us if the thing makes sense."
And the numbers are sometimes rigged.
A seminar in Melbourne last month on the use and abuse of cost-benefit analysis explored the ways.
One of the easiest is to hike the traffic forecasts. On some toll roads, the number of cars predicted to use them was greater than the capacity of the roads. Out of court settlements were reached between the modellers and investors in Sydney's Lane Cove Tunnel and Brisbane's M7 Clem Jones Tunnel.
Professor Jago Dodson of the RMIT Centre for Urban Research revealed that in the queue at a conference he had met one of Australia's senior transport modellers who had worked on at least one of those tunnels.
"Myself and another col...
Maybe the British Labour Party could get Nancy Pelosi to do some
stupid tweets for them as well. She is an expert at it see my blog
neoliberals masquerade as progressives. She thinks it is smart
progressive politics to post tweets criticising her political
opponents for a policy that explodes the deficit dumping debt on
every man, woman & child in America. A fallacious argument. But
moreover, a very stupid strategic argument because it fails to
educate the public on what deficits and public debt are and what
the capacities of a currency-issuing government and locks the
progressive side of politics into no-win dilemmas. When it is their
turn to govern they quickly find that they have no room to move on
government spending because their own taunts when in opposition are
thrown back at them. Same the world over. The progressive side of
politics seems to have a lame obsession with meaningless aggregates
like the size of the fiscal deficit or public debt to GDP ratio.
Pathetic is not the word.
In Australia, you still see headlines regularly like this one Our national debt blasts past half a trillion dollars which apart from the emotional language and framing that is meant to create fear immediately (blasts past) it also runs the line that:
Australias national debt has exceeded $500 billion, more than double the debt Labor added during the global crisis but in a fraction of the time, forcing the Coalition to defend its claim to be the better economic manager.
Which suggests that the conservatives (Coalition) are worse policy makers because their fiscal deficit has been higher.
The Labor Party in Australia has been demanding the Government drop its planned corporate tax cuts because they will lead to a debt blowout. Idiots.
The corporate tax cuts are bad policy but not because the deficit will rise as a consequence.
This sort of attack is mindless and doesnt advance progressive politics. In fact, it holds it back.
We know that there is a matching public debt issuance for the on-going deficits. So under those redundant institutional arrangements (more later), it is obvious that if the government is running a deficit then its debt will rise $-for-$.
To merely rehearse the line that if a government with lower public debt is doing a better job than one with higher public debt, which is basically the argument the journalist seeks to make in this case, is an exercise in ignorance or deliberate deception.
It might be true that the policies that are in place which deliver a higher fi...
A couple of months ago, I wrote a post making some observations on the closely related ideas of a Universal Basic Income or Guaranteed Minimum Income. The most important was
Observation 1: Any UBI scheme can be replicated by a GBI with the same effective marginal tax rates, and vice versa
I meant to follow up with a more detailed exploration of financing issues, but all sorts of other things intervened. However, Ive now prepared a draft, which is over the fold.
Comments and criticism much appreciated
How could a UBI/GBI be financed along with the other activities government must undertake? Ill assume that that final government expenditure, excluding transfer payments, amounts to 20 per cent of national income, and that revenue from sources other than income tax amounts to 10 per cent of national income. Thats fairly accurate for Australia.
By thinking about the UBI case, its easy to work out the required tax rate. Keeping things simple, Ill assume a single rate of taxation for all income above the threshold of 20 per cent of the average, For a UBI of 40 per cent and a net financing requirement of 10 per cent, the required revenue is 50 per cent of national income. If 20 per cent of income is untaxed, the required tax rate would 62.5 per cent. However, since those in the lowest quintile have incomes below the threshold, the proportion of untaxed income is a little lower and the required tax rate is approximately 61 per cent.
The UBI can be replicated as a GBI with the same effective
marginal tax rate (EMTR). In this case, the net revenue requirement
is equal to 27.6 per cent of national income, derived as the cost
of the GBI (17.6 per cent), plus the net financing requirement for
final government expenditure 10 per cent.
The outcomes are shown in Table 2. Column 2 shows tax paid by those in equal quintile and the total revenue expressed as a proportion of national income. The revenue from income tax is 27.6 per cent of national income, which is approximately equal to the financing requirement. Column 3 shows the average rate of taxation for each quintile. Column 4 shows disposable income, taking account of taxes other than income tax, which are assumed to be a combination of fixed charges (equal for all households) and proportiona...
By Jesse Hermans Amid recent GST distribution cuts of $400m p.a. (about 12% of revenue) and a flagging property market, the Northern Territory Government is facing severe fiscal challenges. The NT is the most stamp duty reliant government in the federation, and has been hard hit an inevitable correction in its housing market. Annual dwelling 
The first two weeks of Crypterium ICO, which started on October 31, 2017, saw lively and robust trade, with customers flocking to the sale from all over the world. Fifteen thousand users from 143 countries have taken part in the CRPT token sale to date, helping the project reach its soft cap within the first 5 hours. Crypterium, a revolutionary cryptobank, is gearing up to create an integrated service that utilizes the most advanced blockchain features to bring cryptocurrency payment options to the real world. The funds collected through the ICO will be used to create the service, which will go live in late January.
What makes the early results particularly remarkable is the fact that the CRPT token sale attracted the attention of token-buyers from every corner of the world. Users from Russia, USA, Brazil, United Kingdom, Indonesia, Japan, Malaysia, South Africa, India, Nigeria, Australia, South Africa, and many other countries showed their support of the project by becoming its token holders. Although the highest number of token holders came from Russia and the United States 21.40% and 20.74%, respectively, neither of these two countries demonstrated the highest average token spending so far. The leadership in this category belongs to South Korea: an average user from this country spent nearly $2,037 on CRPT tokens. The Top Ten average purchases also included customers from the Czech Republic, Switzerland, United Kingdom, Japan, Australia, Belgium, Turkey, Malaysia, and Netherlands, whose users spent an average of $600-1200 to acquire their tokens.
But what makes this ICO truly remarkable is the overall relatively low average spending: not counting major institutional buyers, an average token holder spent just a bit over $500 to buy CRPT tokens. All this indicates that the product offered by Cryptonomos found great resonance with the public at large people are very interested in being able to use their funds in cryptocurrencies to pay for their everyday purchases.
We are extremely pleased with the early results, says Vladimir Gorbunov, Crypterium CCO and co-founder. We set out to create a product that could be useful to just about every family, and people responded. I think that both the geography and the average spending weve seen so far show that the wider blockchain community approves of what we are doing.
Crypterium is working to incorporate the decentralized cryptocurrency ecosystem into daily life. This requires, above all, creating a tool that would allow the use of cryptocurrencies to make instant payments for peoples routine everyday purchases paying the bills, dinner in a restaurant, or buying bus tickets. The projects open-source platform will also feature an innovative system to enable the acquisition of cryptocurrencies by businesses (i...
November 23, 2017: GetUp! has produced a video about the zombie TPP now back from the dead.
The TPP-11 talks have only been salvaged by an agreement to rename the deal, suspend some of its most controversial clauses and to have further talks over several months on issues raised by Canada and other governments.
Its not a done deal yet. But as the video explains
Turnbull wants to rush the deal through secretly within months. Theyre hoping you wont notice and wont act. But we wont let them get away with it.
We have prepared a message here so that people can write to Trade Minister Steve Ciobo & say no to the zombie TPP. We also provide in-depth and up to date coverage of trade negotiations and agreements, including the TPP-11 negotiations, in our monthly newsletter. You can sign up for free here.
The shape of the next Labor government is becoming clearer.
This week we learnt that it will end the practice of signing Australia up to trade agreements that haven't survived a benefit-cost analysis.
Seriously. Korea, Japan, China. None of the three big agreements boasted about by Tony Abbott and Malcolm Turnbull has been subjected to an independent assessment of its benefits and costs. And nor has the far bigger, 5600-page, Trans-Pacific Partnership agreement signed by trade minister Andrew Robb shortly before he resigned and took up a position with the Chinese investor that runs the Port of Darwin.
Nor have any of Australia's agreements ever had to face official scrutiny after the event. "Not that I am aware of," were the words used by a foreign affairs official at a parliamentary hearing.
The US-Australia free trade agreement at least faced an unofficial analysis about the time of its 10th birthday in 2015. An economic modeller from the Australian National University applied the framework developed by the Productivity Commission and found it had cut rather than boosted trade between Australia and the US and the rest of world. Trade between Australia and the US also slid, but for other reasons.
It's easy to see why it cut trade with the rest of the world. Like most exclusive agreements it gave special access to exports from its members. Here's how it would have worked with the 12-nation Trans-Pacific Partnership (had Donald Trump not pulled the pin): Vietnam would have been a member but Thailand would not have been. The US-based Peterson Institute for International Economics has found that Vietnam would have exported more to Australia (which would have boosted its economy) in place of Thailand, which would have exported less (which would have harmed its economy).
And Australia would have had to change the way it made things, cutting inputs from countries such as Thailand and Indonesia under complex "rules of origin" if it wanted special access to the US, even where that meant much higher costs. The Korea-Australia agreement included 5200 rules of origin.
It's little wonder that the business organisation closest to the action, the Australian Chamber of Commerce and Industry, finds its members less than keen to use the agreements trumpeted by the Coalition. Only 15 per cent use and understand the Austr...
In the final week of the Queensland election campaign, Ive been busy trying to do what I can to influence the result. Ive put out a couple of opinion pieces about the choice between coal and renewable energy. This one, in The Guardian, focuses on the central role of the culture war in motivating rightwing opposition to renewable energy. In The Conversation, I look at the economics and business aspects and debunk the idea that ultrasupercritical technology makes coal-fired power a high efficiency, low emissions technology
Also, in New Matilda, Im collaborating with Morgan Brigg and Kristen Lyons of the Global Change Institute to produce a five-part series on Adani and the resistance to the project by the Wangan and Jagalingou people.
The head of the Australian Prudential Regulation Authority
(APRA), which was created in 1998 as part of the sham to separate
regulation from policy and pretend the Reserve Bank of Australia
was independent, gave a speech in Sydney yesterday (November 21,
Housing The importance of solid foundations. The reason the
speech is important is because it demonstrates the disconnect in
policy making and the failure of key policy makers and regulators
to connect macroeconomic dots. Australia like the rest of the world
needs politicians and officials who understand how the
macroeconomic aggregates are connected. One cannot have a
conversation about household debt without recognising that it is,
in part, directly related to the fiscal position of the government
and the nations external position. While the APRA boss is correct
to highlight the precarious nature of household balance sheets
given the record and increasing debt levels being borne by
households who are experiencing a wages squeeze and a government
intent on austerity cuts, he should be educating the public on the
broader context. Then there would be more acceptance of expanding
discretionary fiscal deficits and a wages policy designed to bring
real wages growth back into line with productivity growth. If that
was the case, much of the idiotic conversations some masquerading
as research results would disappear.
The Speech was delivered to the so-called Australian Securitisation Forum 2017, which in itself is a problem. Banks should be prevented from securitising its housing loans and taking them off their balance sheets.
A progressive reform process would certainly see banks being required by the regulators to hold all their assets and liabilities on their balance sheets so that the owners bore full responsibility for the decisions made by the organisation.
A more progressive reform would just nationalise banking and be done with it.
The message in the Speech was that the housing sector in Australia is now in a risky position due to the record levels of debt being carried by Australian households.
He talked about heightened risk arising from an erosion in lending quality just at a time when standards should be going in the other direction.
Just last week we learned that one of the big 4 banks in Australia:
has sacked 20 bankers and disciplined another 32 over the selling of mortgages without accurate customer information and documentation about 2,300 home loans sold since 2013 that were likely to contain inaccurate information.
For more details on that, see the ABC News story (November 16, 2017) ....
Markets are holding their collective breath.
Not much is happening.
But the potential for huge moves has not been greater since late 2015.
The euro is meandering between $1.16 and $1.17
Gold is going sideways between $1,270 and $1,295 per ounce
The yen is trading around 113 to the dollar
The yield to maturity on a 10-year Treasury note is stuck around 2.35% with just small moves on a daily basis.
If you had positions in these global macro markets two weeks ago and spent those two weeks in a submarine without surface communications, you would have emerged from undersea to find nothing had changed. Its as if you were never away.
Of course, the mother of all complacency metrics is volatility in the stock market.
Its near all-time lows and has been stuck there for an unprecedented period of time.
No worries here its all good.
Why are markets moving sideways in a complacent, almost zombie-like state?
The reason is that the world is waiting for the Fed
The Feds FOMC meets 13 December to make a decision on interest rate policy.
This is the second key date I talked about with James Woodburn in our exclusive interview.
Near to no one is watching this. Or they are looking the wrong way.
And thats too bad
Its too bad that so many so-called free markets are in thrall to the Fed. That means theyre not really free at all.
Markets are creatures of manipulation by Fed policy changes, statements, forward guidance and the other prestidigitation of modern central banks.
Thats what you get after 10 years of ZIRP, QE, tapering, QT, forward guidance, currency wars and musings about NIRP.
The Fed has painted itself into a corner and theres no way to escape the room.
Get ready for a shock on 13 December
The market is in an asymmetric unstable equilibrium.
Right now markets are giving odds of a Fed rate hike in December at close to 100%.
This is what I mean when I say people are looking at this in the wrong way.
This means that markets have priced in 100% of the impact of that policy choice.
It also means that if the Fed does not hike rates, markets are in for a shock and will have to re-price violently.
My estimate of the odds of a Fed rate hike in December is about 35%.
The physical fundamentals are stronger than ever for gold. Russia and China continue to be huge buyers. China bans export of its 450 tons per year of physical production.
Gold refiners are working around the clock and cannot meet demand. Gold refiners are also having difficulty finding gold to refine as mining output, official bullion sales and scrap inflows all remain weak.
Private bullion continues to migrate from bank vaults at UBS and Credit Suisse into nonbank vaults at Brinks and Loomis, thus reducing the floating supply available for bank unallocated gold sales.
In other words, the physical supply situation has been tight as a drum
The countdown to war is on
The problem, of course, is unlimited selling in paper gold markets such as the Comex gold futures and similar instruments.
One of the flash crashes this year was precipitated by the instantaneous sale of gold futures contracts equal in underlying amount to 60 tons of physical gold. The largest bullion banks in the world could not source 60 tons of physical gold if they had months to do it.
Theres just not that much gold available. But in the paper gold market, theres no limit on size, so anything goes.
Theres no sense complaining about this situation. It is what it is, and it wont be broken up anytime soon.
The main source of comfort is knowing that fundamentals always win in the long run even if there are temporary reversals. What you need to do is be patient, stay the course and buy strategically when the drawdowns emerge.
Where do we go from here?
There are many compelling reasons why gold should outperform over the coming months.
Deteriorating relations between the U.S. and Russia will only accelerate Russias efforts to diversify its reserves away from dollar assets (which can be frozen by the U.S. on a moments notice) to gold assets, which are immune to asset freezes and seizures.
The countdown to war with North Korea is underway, as Ive explained repeatedly in these pages. A U.S. attack on the North Korean nuclear and missile weapons programs is likely by mid-2018.
Finally, we have to deal with our friends at the Fed.
Good jobs numbers have given life to the view that the Fed will raise interest rates next month. The standard answer is that rate hikes make the dollar stronger and are a head wind for the dollar price of gold.
But I remain sceptical about a December hike. As I explained above, the market is looking in the wrong places for clues to Fed policy. Jobs reports are irrelevant; that was mission accomplished for the Fed years ago.
The key data are dis...
Youve read about the War on Cash here the Daily Reckoning for years now. The idea has sprouted all sorts of variations and books around the world. Today Ill show you why its a false lead.
I think the world is in for a War for Cash, not a War on Cash. Well see a cash grab, not the abolition of paper money. Itll be a mad rush for cold hard currency the physical kind.
In the age of digitalisation, electronic payments using only someones phone number, and cryptocurrencies, this sounds a little odd. The thing is, we live in a real, tangible world. For now, anyway. And that means theres a gap between your life and the digital payments system. One that can widen into a chasm without any warning. Except the one youre reading now.
Many years ago, I moved to Melbourne for my first real job. (Flying trapeze gigs are more of a hobby.) To secure a flat, I had to come up with a bank cheque to pay the deposit. But my bank refused to give me one because my bank account was with their stockbroker division. The stockbroker account had all the benefits of a bank account for free and with higher interest. All the benefits except allowing bank cheques, that is.
If it hadnt been for a large wad of cash from an unexpected source, whom many of you know as a former editor of The Daily Reckoning, I wouldve missed out on the flat. Cash saved me when the digital banking system failed me.
Then came the great Australian bank failures. You might remember them. One after the other over a course of months, Australian banks had tech glitches that led to their ATM cash machines going down. People couldnt get money for a few hours each time. It caused quite a mess, especially for elderly people without updated payment cards.
This happened in a country thats very advanced when it comes to digital banking. And that was precisely the problem. Our overreliance on digital payment systems working.
Speaking of which, in India, the turmoil caused by going cashless was all over the newspapers. Vox summarised the mess:
One study, from the All India Manufacturers Organization, found that micro and small-scale industries showed a whopping 35 percent job loss and a 50 percent decline in revenue in just the first 34 days since the policy went into effect, and that those numbers are likely to continue to increase in coming months. Earlier this month, the International Monetary Fund said that Modis policy had caused India to lose its title as the worlds fastest-growing economy, after shaving a percentage point off its projection for Indias growth in 2016. Many of Indias small businesses that handle all their transactions in cash have facing crippling blows to their business.
The New York Times loo...
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