#ScoMo

Open Letter to America from Australia

Dear America,

As one of your closest allies, we cherish our long term relationship. Long may it prevail. We have spilt blood together in the defence of democracy. Australia has always been the first country to sign up to support the US on the battlefield to protect freedom and liberty.

For a bit of perspective, we thought we’d subject what is going on over there to what Aussies call a “pub test.” It is a figure of speech which depicts bar patrons decide what passes as truth or fiction over a beer. After all, a drunk man speaks a sober man’s mind.

From the offset we want to declare we have absolutely no say in how any of you choose to vote. Nor do we want to have a say. Your future should be in your hands, not ours. Although we are struck by how many liberals from other nations demand you vote according to their wishes, not yours.

We hope that November 3rd can deliver a free and fair election where democracy is the only winner. We have our doubts here.

Sometimes a voice who has no say in the outcome can provide perspective. We have no skin in the game. We just hope to provide our view of things.

In Australia, we also suffer the daily musings of a left leaning mainstream media obsessed with clickbait over facts. Nothing as bad as what you have over there but the ideology behind it is the same. Steeped in identity politics and pushing woke causes.

Our journalists, like yours, believe that Twitter is an accurate representation of the majority. Nothing could be further from the truth. We often write that journalistic integrity will only return when the media loves Americans more than they hate Trump. Ours too. What used to be a profession that thrived on facts, now focuses on activism. How many obituaries of slain terrorists read like they were scholars and selfless philanthropists of the highest order?

Watching the VP debate this week, we heard Senator Kamala Harris make the absurd assertion that foreign leaders think more highly of Chinese President Xi Jinping than President Donald Trump. Really?

What many of you may have missed several months ago was that soon after our Prime Minister Scott Morrison proposed an independent investigation into China’s mishandling of COVID-19 outbreak, the Chinese Communist Party (CCP) retaliated with tariffs and one senior bureaucrat even went as far as to say Australia waschewing gum stuck to China’s shoe.

Aussies are stoic. To us that was a spit in the face. That annoyed us. We are sure it would rile Americans too. We maybe a small nation but we aren’t a bunch of pushovers.

Unfortunately, up to that date, our political class had long kowtowed to China because of the relatively huge size of the trading relationship with Australia. Expediency was put ahead of principle.

Since coronavirus, many Aussies, including our law makers, have come around to the same philosophy of Trump. All bets are off when it comes to China now. We’ve had enough. We don’t trust the CCP. No one wants to be insulted without reason.

Look, we understand President Trump has an unorthodox style to say the least. He can be petulant at times. He is prone to exaggeration and has a glass jaw. But he gets things done which is ultimately the main aim of his role, no?

Trump must be the only politician in living memory to be condemned for actually keeping his promises.

You don’t have to like Trump. After all who looks to their politicians for moral or spiritual guidance? Yet he is mercilessly attacked every single day by the media which often finds itself peddling false narratives. It seldom apologizes but surely American citizens must be growing tired of story after story about how the orange man is bad.

To us he is a breath of fresh air. No massaged or nuanced comments. Full blunt force. He doesn’t care who he offends. He only looks forward. We totally get that he ruffles feathers. Yet after decades of failed administrations, isn’t he a monster of their own creation? Didn’t they give birth to him? Had they executed on behalf of the American people, Donald Trump would never seen the light of day in the Oval Office.

We post a legitimate question. Can you honestly say that the Left side of politics in America has made a sound argument to the voting public as to why it considers itself the sensible, credible and morally superior alternative via its actions?

The Russia hoax – which now looks like a hit job which goes all the way to the top of the Obama administration – has revealed the sinister side of the establishment.

If this were Australia, no matter which party affiliation one supported, few if any would blindly accept such blatant collusion courtesy of taxpayer funded agencies seeking to pervert the course of democracy. We would demand those responsible be brought to justice and punish the party that indulged in the duplicitous behaviour.

You can be absolutely sure if Biden prevails, #Obamagate will be dead and buried forever. That is the sincere hope for the guilty parties. Who doesn’t delete their phone records by entering their password incorrectly? Who doesn’t take out indemnity insurance if they are following the letter of the law? Is it any wonder Obama is campaigning so hard for a man he took forever to endorse?!

Let’s not forget that Barack Obama even took to using John Lewis’ funeral as an opportunity to make a campaign speech during his eulogy. Crass. Michelle Obama has hardly graced herself talking about her “low grade depression” from her $15m Martha’s Vineyard mansion.

Even if you hate Trump, having him serve four more years to bring corrupt officials in public agencies to heel is the cheapest insurance policy Americans can pay. Failure to do so will mean that you openly authorize federal agencies to defraud you at will to remain in power. Jim Comey and friends never thought they needed to worry about their actions until Hillary Clinton lost 2016. His recent testimony was unbelievable.

We watched the Kavanaugh Senate confirmation circus in disgust. An accomplished man was besmirched in much the same fashion of Clarence Thomas in the 1990s. It was a farce.

The impeachment clown show led by Nancy Pelosi, who grinned her way through the ‘sombre occasion’, was a national embarrassment. Member of Congress, Rep Rashida Tlaib, promised to “impeach the mother f*cker!” What a disgrace to the office. She smiled on her way to cast her vote as if it was some sort of big joke. Recall the embarrassing moment where Adam Schiff chased after Jerry Nadler who stormed the podium to make his own closing remarks. Officials behaving like unruly teenagers.

Perhaps the biggest revelation to come from COVID-19 is not so much the virus but the overt display of power drunk Democrat mayors and governors. They have been borderline despotic and utterly hypocritical. These politicians live by the creed “rules for thee, but not for me!

Most recently, Nancy Pelosi got caught unmasked in a hair salon. Instead of accepting the double standard, she claimed she was set up and sought to legally ruin the business. True colours. Pelosi also showed how out of touch she is by revealing her $20,000 freezer full of boutique ice cream during lockdown when her district is in such squalor.

Who could forget Oregon Gov Kate Brown ordering child protective services on a hair salon owner who wanted to feed her family? What was the connection?

Or LA Mayor Eric Garcetti threatening to cut off the utilities of businesses defying lockdown. How pleased we were to see Californians let off July 4th fireworks in defiance of the order not to.

Or Seattle Mayor Jenny Durkan calling CHAZ a “summer of love” until it affected her personally. How we laughed at these protestors demanding supplies from the functional democracy they sought to overthrow.

Perhaps the most disgraceful episode of COVID-19 was the vile reaction from the left wishing death on Trump. Argue all you want about his handling of the pandemic but the Left’s derangement and unsuitability has been on full display. Do people that wish death on others show all the hallmark qualities of leaders capable of uniting a nation?

Never mind the actions of NY Governor Cuomo stuffing nursing homes with infected patients or then NYC Health Commissioner Oxiris Barbot cheerleading identity politics and encouraging people to reject Trump’s xenophobia instead of falling back on her own medical expertise. Orange man bad.

Then came the BLM protests.

The George Floyd incident united a nation. The majority of the public were well on side in fighting for justice and equality right up to the point where they ended up being attacked by the mob in restaurants, neighbourhoods, cars or even protecting their homes.

Peaceful protests gave way to looting, arson, carjackings, assault, shootings and violence. Statues were pulled down. Public and private property destroyed and defaced. Were Nancy Pelosi’s “people will do what they do” comments acceptable? Was talking 100 days after the violence started to condemn it when the polls started to swing sincere? Of course not.

How we felt sorry for struggling businesses under the jackboot of draconian lockdowns having to suffer a further kick to the guts, despite being innocent bystanders. The damage will be lasting. Sure BLM leaders might scream that insurance will pay for the looting now but they overlook the reality that premium hikes will all but guarantee they can’t reopen.

Cities that have been run by Democrats for half a century or more ordered their police to stand down. Is it any wonder that wrapping law enforcement in red tape has dire consequences? The fools sitting on the Minneapolis City Council gave us front row seats to witness how crime flourishes when liberal policies are applied. Who knew they’d be forced to reexamine their own self-inflicted wound?

Then liberals want to tell you that Senator Kamala Harris is a credible candidate. She openly sponsored and supported the MFF which has bailed out felons charged with rape, battery and sexually assaulting an 8-yo child. She even praised career felon Jacob Blake and his family, including his anti-Semitic father. That’s right, criminals are now the innocent victims in the minds of Democrats. It is your fault they stole your wallet.

Even worse this has led to a string of activist DAs across America who want to prosecute innocent parties before evidence is even heard. Think of the sinister behaviour of Fulton County DA Paul Howard who is covering up his own unethical behavior by framing cops who acted in the scope of the law he outlined during the arrest of Rayshard Brooks. Never mind that he was drunk, resisting arrest and fired a taser at the police because he knew he was going straight back to prison. No wonder the police unions are supporting Trump.

Think of Jake Gardner who was acquitted of murder in an act of self defence. Soon after an activist DA folded to mob pressure and prosecuted him with manslaughter, Gardner committed suicide.

Then the public was subjected to woke displays by the sporting codes. The NFL, NBA, MLB and others all joined in ramming politics down the throats of fans who had just paid hard earned money to distract themselves from the grind of life. How surprising that the NBA has just realised that lecturing fans is a bad idea and will remove overt displays in the locker room?

Oh to be lectured by Colin Kapernick who openly celebrated July 4th under Obama but lambasted it as a glorification of white supremacy this year. And Disney is going to give this serial victim a contract to produce a docuseries. Don’t even get us started o the hypocrisy of Alyssa Milano.

We don’t pretend that racism doesn’t exist. However when people like Jussie Smollett, Jonathan Lopez and Sabrina Belcher stage hate crime hoaxes we feel that the fight for equality is closer than it has been for decades of people are forced to conjure it. Hate crimes are a fraction of what they were 30 years ago.

Just look at Congresswoman Ilhan Omar who has pledged to dismantle the system. You know, the very system that rescued her from a Kenyan refugee camp and delivered her to the highest levels of government office. Hardly held back by systemic racism, wouldn’t you say?

When Joe Biden says “#YouAintBlack“, “poor kids are just as smart as white kids“, described blacks as “superpredators” in the 1994 crime bill, told Hispanics that their community is far more diverse than blacks or letting you know he is surviving lockdown because a black woman is restacking the grocery shelves, who is the racist? Trump has denounced white supremacy countless times. Listen for yourself.

We could go on and on with countless more examples including Nancy Pelosi’s recent wish to invoke the 25th Amendment. These people will stop at absolutely nothing to gain power. They care not one jot for you. Don’t forget that Nancy Pelosi felt so deeply for the loss of George Floyd that she called him George Kirby. Senator Chuck Schumer got it wrong too and guess what, YouTube has removed the video!

Yet another issue where Trump is 100% correct. Do you want some biased tech giant in control of what it deems you can consume? If these open platforms are taking on editorial decisions on what you are allowed to see, they should lose sanctuary status from prosecution. Surely you should have 100% control of what you view, read or hear without some apparatchik arbitrarily deciding for you.

As the debates have revealed, Joe Biden is a Trojan horse for a radically left agenda.

Your taxes will be raised, the Supreme Court will be packed and the GND is a formality. The Obamagate investigation will be buried and you can be assured the Democrats will embark on a 4-yr revenge fest based on their own.

We aren’t saying Trump is perfect. Far from it. Yet he hasn’t started a war, he’s got NATO to reach into their wallets, signed historic peace deals people like John Kerry said would never happen. He achieved record low unemployment rates for blacks, Hispanics and women. He is about to get pharma prices slashed 90% and is the only candidate that will hold China to account.

This is your country at stake. Ultimately we think that ‘lived experience’ will prevail. We think that Americans want their livelihoods back. They want the streets to be safe. They want honest cops. But they want honest politicians even moreso. They want prosperity. They want to have pride. They don’t want to be made to feel guilty for crimes they didn’t commit to people that didn’t suffer.

Say what you like about Trump, but from 10,000 miles away, none of you should expect a NY property developer to be the cleanest shirt. However the last four years of Democrat derangement have shown they are absolutely unfit to lead. Double standards, hoaxes and scandals backed by a hysteric cheerleading mainstream media.

Like Aussies, we know deep down Americans are a parochial and patriotic bunch. You have so much to be proud of and the last thing you need is to be lectured to by power mad career politicians with so little to show for other than lining their own pockets.

Do you want to die standing on your feet, or live on your knees. Because that is what is on the ballot.

God Bless America.

Regards,

FNF Media

Power to enter your home without a warrant?

Paul Murray sensibly summarizes Premier Dan Andrews proposed 12 month lockdown and calls out the disgraceful media response to it.

It is shocking to see that a government with no Plan B thinks it should have the right to detain people and enter their homes without a warrant.

Victorians voted in Andrews despite the many scandals attached to him ahead of the election last year. Shame on the coalition for not defeating such a flawed candidate but there can be no question that buyer’s remorse is sinking in. Although not for all.

We encourage people to look at Dan Andrews Facebook page to see how many still compliment him for his unparalleled insight into the crisis. It is so effusive in praise that even Kim Jong-un would blush.

We pray the Gov’t makes more $60bn mistakes!

Can the media and shadow politicians get a grip? Since when should taxpayers complain when the government makes a huge error in our favour? We can pretty much stake our lives on the fact that 99% of government programs end up way more expensive than initially budgeted for. French Submarines anyone? NBN? We should be looking at the JobKeeper revision as a massive positive.

The federal government estimated that the JobKeeper program would initially cost $130 billion. Now it appears they overestimated it by $60 billion. That was driven by the idiosyncrasies of who would be eligible at the employer end – from the self-employed to big business and everything in between.

Given the limited time window, forgive the Treasury and Tax Office for not landing estimates on target. It is ridiculous to expect they could estimate such a fluid piece of legislation.

The unwelcome arrival of COVID19 and the sudden stay-at-home orders that ensued hardly gave a generous window of opportunity to apply Japanese level precision engineering to the process.

Our only criticism lies with the drip feed approach to restarting the hibernating economy. As we mentioned yesterday with respect to the 50 US states, so many appear to be copying each other rather than making bold data driven decisions based on facts not consensus.

The reality is that the Treasury will need to make many more multi billion dollar mistakes in the spirit of JobKeeper to help mitigate the damage caused by the looking trillion dollar deficits.

Perhaps the $60 billion saving can be redeployed to building a bullet train from Sydney to Melbourne. A 20-yr project that is just the type of infrastructure spending which ticks so many boxes – relieving pressure on the state capitol cities, housing, assist a growing population and provide lots of jobs.

Sheepishly downloading the COVIDSafe app is a warning for all of us

NSA raises significant concern to Government abattoir proposal ...

We have no problem with people individually choosing to sign up to the COVIDSafe application launched yesterday. After all, it is voluntary and we believe in personal freedom. However, we are perplexed why so many people feel compelled to post their newfound compliance on social media feeds. It is this blind obedience that worries us.

It is hard to see such self-promotion on social media as anything more than the same virtue-signalling mindset of those who drape their social media avatars with the flag of the country where innocent people were slain by terrorists. Comments such as “I’m doing my bit” reign supreme. Why do people so sheepishly comply to sign up to this when the data is seriously unconvincing to warrant its introduction? Should we report our friends who haven’t publicly declared their status? Admitting one has signed up to COVIDSafe is borderline accepting to become a slave.

The most important point people need to consider is that there is absolutely zero downside for the government during and after this crisis. Remember that number – ZERO. If the economy goes into a prolonged recession or depression, our politicians can simply play the “we did it to save lives” card and tell us it was all for our own good. They can claim they couldn’t have done anything else. Unfortunately, we bear all the risk no matter what the outcome. That is a bad equation in any language. Why would anyone willingly sign up to it?

Indeed, saving lives should be congratulated, not censured. Still, at what point will we realise that the draconian measures put in place are leaving a disproportionate drag on the economy? As we wrote yesterday, if we take the JobKeeper support package alone, it presently costs $1.5 billion per death. Or $19.5 million per infection. The $130bn JobKeeper program is almost as much as the annual federal expenditure on education, healthcare and defence spend combined, three of the four largest budget items. Is this sustainable? If we stay in lockdown beyond the date of the package, this universal income will undoubtedly be extended.

There is a snowball’s chance in hell that we will have a V-shaped recovery. Our central bank might send us comforting lies to maintain the illusion that they are competent but it simply won’t happen.

Our authorities have suggested that the domestic economy comprises 75% of GDP which will provide a great cushion but on what planet do they believe that a crushed export sector which employs so many can be airbrushed to give us a V? Double-digit unemployment, at levels double or treble the present figures will all but guarantee a slower recovery. With household debt exceeding 180% of GDP, any future spending will be directed at rebuilding the balance sheet, not consumption. We’ll be lucky to get an L!!

There will be no normality after COVID19 abates. So much of our domestic future will be driven by the rest of the world’s approach to their own economies. Our neighbours will undoubtedly pursue more nationalist policies which prioritise domestic production. They will also need to contend with the likely aggressive reset of their own relative risk weighting, currency and fiscal positions. For anyone to believe that the magic pixie dust sprinkled by Canberra will avoid any calamity is dangerously naive.

Australia faces a $1 trillion deficit. Await the raft of new taxes on housing, inheritance and income to pay for it. We will absolutely hate what is coming. The sad thing is that we could have taken the pain over a decade ago yet we put short term expediency ahead of rational principle and now await the consequences. We are reaping what we sowed.

Much of the reasoning given by Aussies to sign up has been this belief that it will accelerate the government’s ability to reopen the economy sooner. If the government requires this sort of overlaying safeguard on top of the 99.98% of Australians that don’t knowingly carry the coronavirus or the 99.9997% who haven’t died from it, we should worry about our lawmakers’ ability to manage risk. Seriously.

Why are governments using future hard dates to consider reopening the economy? If today is the best day to do so, why wait till May 30th? Our own experience is that people are broadly respecting the social distancing guidelines. Sure, some might hang out in a park to break the monotony of staying indoors, but we are falling for the taglines from the government to #StayHome a bit too literally. The government should be rebuilding confidence. It isn’t. This app is unlikely to do much given the law of already minuscule numbers. It is all a feel-good measure.

With more than one million COVIDSafe app downloads in the first hour, many have proven that we are willing to conform to guidelines at a moments notice without considering the underlying facts. We saw this during the bushfire season. People blindly donated millions to the rural fire services when we proved their administrative skills were so severely lacking that these monies would unlikely be spent wisely.

In closing, many citizens have sent a wonderful signal to the government that they can easily strip more freedoms away by using panic as a tool to achieve it. The longer the economy is left to rot, the easier it will be to drown obedient plebs in even more regulations and restrictions because we failed to stand up and question the methodology. We will continue to do so. After all, former US President Ronald Reagan once said,

“The nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.”

Already at the back of the discount rack

Former Australian PM Malcolm Turnbull’s memoirs are already on sale less than a week after the hyped launch. Retailer Big W has cut the price from $55 to $29. Booktopia has cut prices too. And Dymocks. And QBD Books. And Amazon.

If Turnbull wanted to leave a legacy of a true statesman he honestly believes he is, he wouldn’t have resorted to documenting slanderous affairs between Tony Abbott and his senior staffer Peta Credlin or accused so many of his supposed close confidants of treachery that ultimately led to his downfall. Had he truly carried all of the hallmarks of the leader he aspired to be and trumpeted he was, the party would have united behind him and the inner factions would have displayed unwavering loyalty. Period. The fact that they didn’t is a reflection on him, not them.

Sadly it was all about Malcolm.

It was no longer called the Coalition which was founded in 1923. He rebranded it the ‘The Turnbull Coalition Team‘.

He was the only conservative party leader we can think of in any country who avoided conservative media platforms like the plague. Instead, he bathed in the adoration of the left-wing mainstream press including The Guardian and ABC where he got overwhelmingly favourable coverage.

A true leader should have been able to comfortably dismantle the flawed arguments held by lunatic ‘Murdoch’ media stooges to their faces and in the process defined the desirable qualities of strength and character to the public. He didn’t. Instead, Turnbull just blamed them for being mean to him.

The CEO of any business knows the top job carries awesome responsibilities before taking it on but are also aware that leadership defines them, especially during crises. Turnbull’s leadership style defined him. Dumped by his party twice for not showing it.

Turnbull lacked judgement. He signed a refugee deal with Obama, weeks before Trump was due to take office. Hardly a great way to start a relationship with an incoming president, made worse by making no preparation for his possible victory complicated by the need to call on former Aussie golf professional Greg Norman to get Trump’s number.

His defining legacy will perhaps turn out to be one of the biggest white elephants in Australian history – the now $250 billion submarine contract with the French. His thought bubble on giving income taxing powers from the federal government to the states before quickly walking back those comments. The Snowy Hydro 2.0 joke. Weighing in on the bushfire crisis to score shots on the man that took his job.

Turnbull had the assistance of his progeny to abuse his enemies on Twitter. FNF Media was even blocked by his son Alex, which we wear as a badge of honour.

In the success camp, Turnbull secured exemptions from US steel tariffs. He can also lay claim to the introduction of same-sex marriage legislation.  And saying no to the UNHCR which wanted to conduct a special investigation of Israel.

In closing, Turnbull’s TV interview on ABC’s 730 Report this week only added proof to why he no longer occupies The Lodge.

Trillion Dollar Baby?

What will it take to wake the media up to the fact that the way our government is spending it won’t be long before we are a $1 trillion net debt baby?.

Our current federal liabilities (p.121) stand at $1.002 trillion (which is pre COVID19). Have the media bothered to look at the state of the budget accounts? Or are they too busy lavishing praise on rescue packages which have a finite lifespan.

We pointed out yesterday that the “revenue” line could be decimated by the disruption – huge cuts should be anticipated in the collection of GST, income, company and excise taxes. Not to mention huge rebates to be paid to now unemployed workers. On an annualized basis the revenue line could get thumped 30-40% if this continues for 6 months.

So on the back of an envelope, it is not very hard to work out that with a current $511 billion revenue line looking to fall towards the early to mid $300 billion mark against a projected expense bill of $503 billion a deficit of $150bn will open up. Throw on c$150bn of COVID19 stimuli arriving by June 30th and we get a $300 billion budget deficit. Our net financial worth would grow from minus $518 billion to negative $818 billion.

Rolling into next year, it is ludicrous to think that hibernated businesses will have resumed as normal. This means that the following year’s tax revenue line will look as sick as the previous period. The government will be torn shredding the expense line as unemployment shoots higher so assuming minimal budget cuts, it could face another $200 billion deficit taking it north of $1 trillion net liabilities in a jiffy.

Let’s not forget what the states may face. Severely lower handouts from the federal government via GST receipts which will balloon deficits, a trend we’re already seeing.

The states currently rely on around 37-62% of their revenue from the federal government by way of grants. The balance comes through land/property taxes, motor vehicle registration, gambling and betting fees as well as insurance and environmental levies.

All of those revenues lines can dry up pretty quickly. 40% of state budgets are usually spent on staff. Take a look at these eye watering numbers.

NSW spends $34 billion on salaries across 327,000 employees.

Victoria spends $27 billion across 239,000 public servants.

Queensland uses 224,000 staff which costs $25 billion per annum.

WA’s state workforce is 143,000, costing $12.6 billion.

SA has 90,000 FT employees costing $8.5 billion.

Tasmania 27,000 setting taxpayers back $2.7 billion.

Just the states alone employ over 1.05 million people at a cost of $110 billion pa!! The territories will be relative rounding errors.

A lot of the states have healthy asset lines which are usually full of schools, hospitals, roads and land). These are highly illiquid.

Unfortunately, one of the golden rules often forgotten in accounting is that liabilities often remain immovable objects when asset values get crucified in economic downturns. When markets become illiquid, the value of government assets won’t come at prices marked in the books.

How well will flogging a few public hospitals go down politically to financially stressed constituents?? This is why gross debt is important.

The states have a combined $202 billion outstanding gross debt including leases.

Throw on another $150 billion for unfunded superannuation liabilities. Good luck hitting the “zero by 2035” targets some state have amidst imploding asset markets. It simply won’t happen. If only these liabilities were marked to market rather than suppressed by actuarial accounting. The WA budget paper (p.42) notes the 0.4% bump to the discount rate to lower the pension deficit figure. To be fair, they are far less outrageous than US state pension deficits.

How must the State Gov’t of Queensland be praying that Adani keeps plowing ahead? How Greyhound must regret terminating a contract to ferry construction workers to the mine? We doubt the incumbent government will have a climate change bent in the upcoming Oct 31 state election. See ya.

The trillion dollar federal debt ceiling seems like a formality especially as the chain reaction created by the states puts on more pressure for the federal government to inject rescue packages to prop up their reversal of fortune budgets. It is that trillion with a T headline that will get people’s attention.

In short, we ain’t seen nothing yet.

Only one you can’t stop crashing at your place during COVID19 is the economy

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Brace yourself.

COVID19 will be defeated but the cure is turning out to be way worse than the disease.

Unfortunately, the sad reality is that at the rate governments are tightening legislation to keep us in shut down mode, we are day-by-day staring at a great depression.

While some will praise governments for throwing the kitchen sink at the economy with all manner of stimulus packages, the relief will be temporary because all of the ammunition for a sustainable recovery had been depleted years earlier. It is like supplying an alcoholic on rehab with an all-you-can-drink open bar.

Our feckless RBA has just embarked on QE, a mission that has failed every other central bank that has tried it. The velocity of money has been falling for decades. Who will be given access to borrowing at zero interest rates when the economy is in freefall? Which banks will lend against properties that will likely implode in value? 50% down? To think of all the reckless “first home buyer” schemes that loaded young people at the top of the property market. The RBA has been complicit. Not wanting to put pressure on the government to reform, it just kept cutting rates to keep housing afloat. It was totally negligent in its duty even though it will signal its role as a rescuer of last resort.

When will banks be forced to mark to book the value of mortgages on their balance sheet? Equity is thin as it is. 15-20% equity buffer to mortgages is pretty wafer-thin. They need to do this immediately so we can properly assess risk. Forget stress tests by APRA. They’re meaningless. Our housing market will collapse with higher unemployment. 50% falls from here are possible. Remember there will be hardly any buyers. Prices fell up to 90% in Japan after its property bubble popped.

Worse our regulators have been asleep at the wheel chasing financial institutions on their commitment to climate change, the absolute least relevant metric to save them from here. It shows how complacent they became.

Australia has made some interesting crisis policy choices. For instance, PM Scott Morrison is trying to pass rent moratoriums where landlords suspend payments from tenants until things return to normalcy. It is not enshrined in law yet. In principle that is a nice gesture even if the government is subsidizing the banks for forgone interest due to short term loan repayment moratoriums. Let’s assume this continues for 6 months. Apart from the astronomical size of the subsidy, who will ultimately end up sacrificing the 6 months? Landlords? It won’t be the tenants.

Shouldn’t landlords be free to choose whether they are prepared to forgo rent or not as a purely rational business proposition? Shouldn’t a landlord be free to enforce a rental agreement? Will contracts matter anymore?

At some stage, the free market must be allowed to function and the government will hit a tipping point of weighing stopping economic armageddon by allowing businesses to function and the marginal risk of infections. The people will be crying for this if shutdowns remain.

Landlords may be labelled un-Australian or worse but in 6 months time, if unemployment has surged to nose bleed levels well above the 6% we saw during GFC at what point will disposable income be able to support a daily coffee at a cafe?

A cafe might soldier on for a further 3 months on skeleton staff before realising that they can’t cover costs. A landlord would be well within reason to demand that early cancellation clauses and fees are enforced.

Then what of all the invoices to coffee suppliers, bakeries who provide muffins and croissants and utilities? Who misses out? What about the invoices of the coffee supplier? Will the bakery get called on by its flour supplier to pay upfront for future deliveries when it has no operating cash flow, instead of the long-standing 60-90 day terms? That happens overnight. It isn’t a managed outcome. Cash is king.

The question is why hasn’t the government taken advice from the banks on business lending so it can better assess the risks involved from those that deal every day with small companies?

We can’t just shut an economy down for 6 months and expect a return to normal when it is all over. Unemployment rates are likely to surge well above 10%.

As we wrote in an earlier piece, there are 13.1 million Australians employed as of February 2020. Full-time employment amounted to 8,885,600 persons and part-time employment to 4,124,500 persons. Retail trade jobs come in at a shade over 1.2 million jobs. Construction at 1.15 million. Education 1.1 million. Accommodation/restaurants /bars etc at 900,000. Manufacturing another 900,000. Noticing a trend in our employment gearing?

We can fudge the unemployment figures however we like. We can pay $1,500 a fortnight for 6,000,000 workers to pretend they still have a job. That is $18bn a month. The PM can talk about how this will help us bounce on the other side. If it continues for just over 6-months can the budgeted $130 billion will be spent. This is separate to NewStart payments too.

Yet, will people lavishly spend or pay down debt and economise as best they can? We think the latter unless moral hazard has truly sunk in.

What people need to understand is that our Treasury expects to raise $472.8 billion in taxes for FY2019-20. Throw in sales of services, interest and dividend income and that climbs to a total of $511 billion. Expenses are forecast at $503 billion. In the following three years Treasury anticipates $490.0 billion,  $514.4 billion and $528.9 billion in taxes. Expect those totals to be cut significantly.

So if ScoMo’s JobKeeper rescue package for workers goes beyond 6 months, that is equivalent to 27% of annual tax revenues. That doesn’t take into account the slug to tax collections of lower GST and vastly lower income tax for individuals and corporates. That is just at the federal level.

Note, states such as NSW have recently waived payroll taxes for small businesses in a  $2.3bn stimulus package. We shouldn’t forget that the NSW Government is the largest employer in the Southern Hemisphere at 327,000 staff.

We remind readers that according to the RBA small businesses employ 47% of the workforce. Medium enterprises employ 23%. That is 70% of the entire workforce who are most at risk from a slowdown.

In 2019-20 income tax collections will make up $220 billion. Company tax was forecast to generate $99.8 billion. GST $67.2 billion. Excise taxes (petrol, diesel, tobacco etc) $44.7 billion. This data can be found on page 21 here.

Local cafes are reporting a 60~80% fall in revenue. Pretty much all casuals have been let go. It is a bit hard to survive on coffee when a lot of stores aren’t stocking pastries for fear of spoilage.

It is not hard to assume a scenario where government income taxes fall to $160 billion (-28%) due to mass layoffs. One assumes many people will be able to get a tax rebate come June 30th. So this number may end up being conservative on an annualised basis.

Company tax could plunge to $40 billion annualised due to the drastic fall in revenues as customers change the manner of contracts and reign in their own spending. Anyone that thinks that business will resume as normal is crazy. The ripple effects will be huge.

Excise taxes may drift to $35 billion as people cut back on drink (currently $7bn in tax revenue), are limited in places to drive negating the need to fill up (currently $18bn in total tax take). The $17 billion in tobacco excise may weather the storm better than most.

GST could fall to $50 billion. People just aren’t spending much outside of food. Massive retail discounts will not make much difference. GST will be the best indicator of how much the economy has slowed. Even if we start to see a massaging of the GDP numbers, GST won’t lie. It will be the safest indicator.

If our assumed tax revenue sums to $285 billion annualised from the budgeted $472 billion that equates to a 40% haircut.

Trim the ‘other revenue’ column to $30 billion from $39 billion and we have $315bn. Will the government then chop away at the $503 billion in expenses? All of the stimuli doesn’t arrive at once but a lot of it in relatively short order. Surely a $300~400 billion deficit is a fait accompli?

We should also anticipate forward year tax revenues be cut c.30% for several years after. The question is when does the government realise that it must cut the public service and scrap wasteful projects like French submarines and other nice-to-have quangos? We won’t see a budget surplus for decades.

We must careful not to fall into the trap Japan finds itself in. It has a US$1 trillion budget funded by US$600bn in taxes and US$400bn in JGB issuance. Every. Single. Year.

Nothing short of drastic tax and structural reform will do. Instead of behaving more prudently by cutting budgets when we had the chance, instant gratification created by governments desperate to stay in power has only weakened our relative position. Since 2013, the Coalition has been responsible for 46% of the total amount of all debt issued since 1854.

States should quickly realise that the $118 billion in federal grants going forward will also be curtailed. NSW will likely fare the worst because its financial position is by far the best.

If the government had a proper plan, it would be looking to what essential industries have been given up to the likes of China that we need to onshore. Medical equipment, masks or sanitiser. For cricketer Shane Warne to be converting his Seven Zero Eight gin factory to produce hand sanitiser shows how much of a joke our local manufacturing has become.

We must never forget that a Chinese government-owned company displayed the Communist Party’s mercenary credentials by (legally) buying 3,000,000 surgical masks, 500,000 pairs of gloves and bulk supplies of sanitiser and wipes. So not only was it responsible for covering up the truth surrounding the virus in the early stages of the pandemic, we openly let it compromise our ability to combat the virus when it hit our shores.

China has shown it doesn’t give a hoot for ordinary Australians. So why should we continue to fold to its whims and cowardly surrender our industries for fear it’ll stop dealing with us? It is nonsense. We have some of the highest quality mineral resources which it depends on. We can bargain. We have chosen to appease a bully.

Our Foreign Investment Review Board (FIRB) needs to be far more vigilant to prevent takeovers by Chinese businesses. We should openly accept the way China conducts business practices and recognise that it is often incompatible with ours when national security is at stake. Surely this crisis has highlighted the true colours of the political system in Beijing.

That leads us to Japanese companies. Many are seriously cashed up, have a favourable exchange rate and have a long-standing history of partnering with local businesses. We should be prioritising our relationship with Japan and look to have them invest in our inevitable capital works programs – specifically high-speed rail. It is the type of project that has meaning for the future and a long enough timeline to turn an economy around.

People need to be prepared for the reckoning. There is no point softening the blow. The brutal truth will eventually arrive and we will have only put ourselves in an even weaker position with the policy suite enacted so far. Time to be rational about risk/reward. Whether we like it or not, the minimum wage will need to be cut substantially in order to get the jobs market alive again. Don’t worry, unemployment will be so high that people will demand minimum wages are cut because it is far superior to the alternative!

(Time to ditch your industry super and start shovelling your superannuation into gold)

Why would anyone celebrate BoJo contracting COVID19?

You have to hand it to a particular bunch of imbeciles who believe that certain people catching COVID 19 is a positive. When UK PM Boris Johnson contracted it one called it poetic justice. Another karma. It is sick.

Social media does amazing things to lure people to write/do ludicrous things in the hope of going viral, presumably to boost their followers, likes, retweets or shares.

Twitter isn’t real life but it exposes the underbelly of how sick society can become.

I’ll never forget an excerpt from my grandfather’s letters while serving in New Guinea in WWII. Amazingly he was able to feel pity for a mortal enemy sworn to kill him. He wrote,

“Well on reading about some of the women you were telling me about I feel a loathing for such hypocritical parasites. Is this what men are laying down their lives to protect? I sometimes wish that they could see how a bloke looks like when he is unburied for a couple of months, a skeleton with boots and clothes on, eaten by ants. A grinning skull and shirt black and stiff with congealed blood. Or a few Japs scattered around a shell hole with leg bones protruding from their boots…

…I wonder and think that these bones were a few months ago living people, with their loves and hates, wives and mothers, and sweethearts, posted as missing, they are frequently seen in the jungle, unburied until found. Then I think of the mongrels safe in Australia and having a great time the bastards – pardon my eloquence but I really get worked up over the mongrels that are not worth the little finger of the boys on the job defending their pseudo honour and their miserable little lives.”

How is it we are able as a society to celebrate the contraction of a potentially deadly disease by anyone?

If a soldier could find empathy at the wrong end of an Arisaka rifle, how is it some can’t find a wafer thin slice of compassion for people who hold a different political opinion that happen to become infected?

One can only imagine what might happen if Trump contracted it? Many are hopeful. Even if they make it out to be a joke.

Even in Australia, some hope PM Scott Morrison contracts the virus.

This is the level of the tolerant left before real economic hardship properly sets in.

Surely lightning can’t strike twice, RBA?

The video posted here is of then Treasury Secretary Hank Paulson who steered the US financial system through the GFC. He is speaking to the Financial Services Committee in 2009. Perhaps the most important quote was the one that world central banks failed to heed –

Our next task is to address the problems in the financial system through a reform program that fixes our outdated financial regulatory structure and that provides strong measures to address other flaws and excesses.

Central banks across the globe honestly believe in fairytales to think they have learnt the lessons of 2008 or 2000 for that matter. Sadly they continue to use the only tool they possess – a hammer – which would be great if every problem they encountered was actually a nail.

When will people realise that had central banks practised prudent monetary policy over the past 20 years, they would possess the ammunition to be able to effectively steer the economy through Coronavirus? Everything the RBA and government are deploying is too little and too late. They never ran proper crisis scenarios and are now scrambling to cobble together an ill-contrived strategy wasting $10s of billions in the process all at our expense.

Central banks only have one role – to support markets with consistently sound monetary policy that creates confidence in the marketplace. Not run around like headless chooks and make knee-jerk responses and follow other central banks off a cliff like lemmings to disguise their own incompetency. The willful negligence displayed by our monetary authorities needs to be recognised. The RBA has got the economy trapped in a housing bubble of their own creation.

So when the RBA talks about, “Australia’s financial system is resilient and it is well placed to deal with the effects of the coronavirus” it couldn’t be further from the truth.

While it is true to say that Australia is relatively more healthy than other economies in terms of the percentage of GDP in national debt, the problem is we rely on the health of our foreign neighbours. 37.5% of our exports go to China. What is the first thing that will happen when our trading partners suffer economic weakness at home? Nations that exercise common sense will look to push domestic production and supply so as to boost their local economies. It is a natural process.

Sadly the RBA, APRA and ASIC have been too busy convincing us that climate change was a priority rather than getting businesses to focus on sensible commercially viable shareholder-friendly strategies. Some groups like the AMA have been encouraged to parade their climate alarmist virtues on breakfast TV.

Unfortunately, instead of focusing on fireproofing our establishments from ruthless cutthroat overseas competitors, our businesses and commerce chambers waste time on chasing equality and diversity targets instead of striving to just be the “best in class”.

Sure, we may have certain raw materials (that the lunatic Greens and Extinction Rebellion protestors will do their best to shut down) that China or other nations will rely on, our service sector weighted economy will be crushed. Almost $250bn, a fifth of our GDP, derives from exports.

Just look at Australian business investment as a % of GDP dwindle at 1994 lows. Mining, engineering, machinery and even building investment are nowhere.

That means our ridiculously high level of personal debt will become a problem. It stands at 180% of GDP as recorded by the RBA on p.7 of its Chart Pack. Most of this debt is linked to housing. Housing prices should crater should coronavirus not be solved in short order. Delinquencies will surge. Families that are funding a mortgage with two incomes may end up being forced to do in with one. Then we cut our gym memberships, Foxtel and stop buying coffee from our local cafe. It is the chain reaction we need to be wary of.

That will work wonders for banks with 60-70% mortgage exposure and precious little equity to offset any ructions in housing prices. If you thought Japan was bad after its bubble collapsed – you ain’t seen nothing yet. By the time this is over we could well see Australian banks begging for bailouts. Note that cutting interest rates further kills interest rate spreads and smacks the dollar which hikes the cost of wholesale funding which these banks heavily rely on.

Yet our RBA knows that it must choose the lesser of two evils. It needs to keep the bubble inflated at all costs because the blood that would come from bank failure is just not worth contemplating. Maybe if they had listened to Hank Paulson they might have been able to hold their heads high rather than showing off, the fool’s version of glory.

Milton Friedman once said,

The power to determine the quantity of money… is too important, too pervasive, to be exercised by a few people, however public-spirited, if there is any feasible alternative. There is no need for such arbitrary power… Any system which gives so much power and so much discretion to a few men, [so] that mistakes – excusable or not – can have such far-reaching effects, is a bad system. It is a bad system to believers in freedom just because it gives a few men such power without any effective check by the body politic – this is the key political argument against an independent central bank.

How right he was. When the economy tanks, await the RBA and government pointing fingers at each other when both failed to avert the coming crisis which had been so bleeding obvious for so long.

Batten down your hatches.

Central banks use coronavirus as a convenient cover-up

Image result for death by 1000 cuts

Where would we be without central banks? The Reserve Bank of Australia (RBA) has trimmed another 25bps of the cash rate to 0.5%, an all-time low and the fourth cut in 9 months.  It is amazing how central banks can shape-shift from climate scientists to doctors.

Given the recent three rate cuts were unrelated to coronavirus and have failed to stimulate the economy as hoped, the pandemic has allowed the RBA to continue its limited ammunition under the context of rescuing us.

We aren’t supporters of ever more rate cuts, truth be told. Yet if central banks want to keep the disco ball spinning, why bother with a sissy 0.25%? If the RBA wants to jolt the economy back to life it would have been better to go straight to zero. Show the markets they are serious rather than drip-feed to the inevitable.

No doubt we will get the usual song and dance from politicians goading banks into passing on the full rate cut to customers. This time banks will probably fold on the back of the Hayne Royal Commission even though the truth is their funding costs won’t fall by the full amount meaning profit will be forgone for the sake of keeping up appearances.

Think through the logic. Last month, China PMI plunged to 35.7 from 50 in January, the lowest reading since January 2005  38.8 during the 2008 Global Financial Crisis.

Australia’s next economic print will be awful. Pushing through a miserly 0.25% won’t put a spring in people’s step unless they see a cycle. Personal credit growth is negative and at levels not seen since the GFC. Housing and business credit growth are at 6-yr lows. Money velocity is slowing. Business investment is at 1994 lows. Nothing to see here.

The economy needs proper industrial, structural and tax reform. After 28 years of untrammelled growth, Australia needs to realise that the complacency bred over that period will come back to haunt if we don’t wake up from the sleep walk.

As Jonathan Rochford of Narrowroad Capital said,

“When it comes to central banks, I would prefer to believe it is a combination of groupthink, an unwillingness to take career risk by speaking the truth and a willingness to either ignore or disregard counter-evidence that has resulted in the detrimental decisions since the financial crisis. However, the increasing amount of evidence, often produced by central banks themselves, points to central banks being more culpable than gullible.”

Don’t believe the hype. Coronavirus has given another excuse to cover up failed central bank policy alongside climate change green swans.