© John Adams Economics 2020. All Rights Reserved.

  • John Adams

Be Aware of Australia’s Soviet Liberal Government

Australians must remain vigilant to the risks and impacts of economic policies being pursued by the Morrison Government.


Since its unanticipated victory during the 2019 federal election, the Morrison Government has been engaged in a rapid race to prevent Australia’s largest-ever domestic debt and property price bubble from experiencing a catastrophic deflationary crash.


This attempt, to date, has encompassed a series of stimulatory policies that have implicitly sought to further exacerbate the structural imbalances within the Australian economy through manipulating prices such as interest rates and asset prices (i.e. residential real estate), devaluing the Australian dollar, distorting markets and thus misallocating capital and economic resources.


These measures include:

  • consecutive cuts to official interest rates by the Reserve Bank of Australia (RBA) to now 1%;

  • the removal of the 7% interest rate mortgage lending assessment criteria and the introduction of a 2.5% mortgage rate assessment buffer by the Australian Prudential Regulation Authority (APRA);

  • the implementation of significant cuts to personal income tax rates;

  • an ongoing generous intake of both permanent and temporary foreign migrants;

  • promotion of the ‘tiny homes’ industry; and

  • the introduction of a 5% deposit scheme for first home buyers from 1 January 2020.


Unconventional Monetary Policy

Beyond these measures, the Morrison Government and key economic institutions such as RBA have signalled that new and more extreme forms of stimulus are likely to be implemented if:

  • the current policy suite is unable to revive the Australian economy from the significant slowdown which has occurred during late 2018 and throughout 2019 in credit growth (especially to housing), retail consumption, residential building approvals and thus economic growth; or

  • the onset of a global shock or global economic recession causes a deep domestic economic recession which adversely and materially impacts investment, unemployment, disposable income, consumption as well as the ability of Australian households to service existing debts.


These new forms of stimulus that have been flagged to date include:

  • further conventional cuts to official interest rates;

  • fiscal stimulus focused on infrastructure projects, business tax incentives and direct cash payments to households;

  • the implementation of a series of ‘unconventional’ monetary policies such as zero or negative interest rates, quantitative easing or helicopter money[1]; and

  • nationalisation of particular distressed assets (such as residential mortgage backed securities or RBMS) or distressed institutions such as commercial banks.

Alarmingly, unconventional monetary and fiscal policies of this nature represent:

  • a significant expansion of the role, size and power of the federal government and the Reserve Bank of Australia; and

  • confiscation of the wealth of Australians households through the implementation of negative nominal interest rates (direct confiscation) or QE (indirect confiscation via loss of purchasing power through monetary inflation[2]);

which is likely to lead to a further distortion of key markets and prices throughout the Australian economy and an exacerbation of existing structural imbalances that lead to Australia assuming a greater debt load (both through the growth of household and corporate debt as well as through transferring private sector debt through to the balance sheet of the Commonwealth Government).


Currency (Restrictions on the Use of Cash) Bill 2019

To compound the distortionary effects of the Morrison Government’s existing and proposed policy suite, the Morrison Government is now seeking to escalate the war on cash here in Australia through the implementation of a cash transaction ban via its proposed Currency (Restriction on the Use of Cash) Bill 2019 which would make cash transactions of $10,000 or above illegal.


As noted elsewhere, the Australian domestic and global war on cash is consistent with the global agenda outlined by organisations such as the International Monetary Fund[3] and the International Center for Monetary and Banking Studies[4] as well as world central banks, designed to entrap citizens into the digital commercial banking sector and allow negative nominal interest rates to be ushered in.


Such legislation if enacted by the Morrison Government and the Federal Parliament would undermine private property rights in Australia.


The implications of this legislation to economic freedom, civil and property rights as well as linkages to the global central bank agenda of negative nominal interest rates has even been acknowledged by mainstream media organisations such as the Australian Broadcasting Corporation[5].


The ‘Cantillon Effect’

This efficacy of the policy suite being pursued by the Morrison Government is sub-optimal from both an economic welfare and equity perspective.


From an economic welfare perspective, empirical economic studies have shown that debt-fuelled inflationist economic policies detract from promoting higher living standards over the medium to long-term as market distortions resulting from manipulation of key market prices (e.g. interest rates) and ‘money illusion’ lead to greater levels of resource misallocation and lower levels of productive investment and therefore real economic growth.


Alternatively, from an equity perspective, both conventional and unconventional forms of policies of monetary inflationism (including expansionary government fiscal expenditure) do not result in evenly distributed impacts through an economy.


The phenomenon is known within the economic literature as the ‘Cantillon effect’[6], which was first outlined out by 18th century economist and monetary theorist Richard Cantillon.


According to Cantillon’s monetary analysis, economic units (whether they be firms or individual agents) who are ‘close to the money’ (i.e. who are able to obtain early access to freshly created currency), for example large commercial banks and corporations, during a monetary expansion are able to reap greater benefits relative to the rest of the population.


This is because of those economic institutions and agents who are first to receive the new supply of money are able to deploy extra units of currency (either through real investment, asset speculation or consumption) before the prices of assets, goods or services have increased. This benefit differs from those economic agents who are last in to receive their share of new dollars after prices have increased.


In the Australian context, the Cantillon effect means that freshly created units of Australian dollars by the RBA are enjoyed by the commercial banking industry (including investment banks) who are able to reap benefits from either:

  • obtaining cheap sources of financial capital which funds their commercial operations;

  • loaning dollars at attractive commercial spreads to fuel asset speculation or conspicuous consumption; or

  • accumulating cheap assets whether they be real estate (commercial or residential), shares, bonds or other investment grade assets.

Alternatively, ordinary Australians do not benefit from gaining access to additional credit as asset prices such as real estate and shares and the prices of consumable goods and services have already risen. This means that ordinary Australians end up:

  • carrying greater levels of debt;

  • experiencing a lower standard of living through acute cost of living pressures; and

  • accumulate disproportionately lower amounts of wealth relative to wealthy Australians or who Australians employed in organisations who enjoy benefits resulting from the Cantillon effect.


Australia’s Silent Victims

Thus:

  • the build-up of Australia’s household and foreign debt bubbles to date;

  • the economic and legislative policy program currently being pursued by the Morrison Government; and

  • the foreshadowed additional stimulatory fiscal and monetary policies (including unconventional policy)

is creating a cohort of silent victims across Australian society who are suffering disastrous outcomes which are likely to be to be exacerbated into the future.


The constituencies who are represented in this cohort of silent victims include:

  • indebted farmers who were unfairly treated by Australia’s banking industry prior to the Royal Commission into Banking;

  • Australians forced into homelessness;

  • immigrants who have purchased over-inflated Australian property;

  • ordinary middle-class Australian families suffering from mortgage stress or from rental stress;

  • fly-in, fly-out workers who suffer from excessive debts and financial pressures;

  • single mothers facing significant cost of living pressures;

  • Australian marriages that result in divorce given financial and debt driven problems;

  • retirees who struggle to pay for adequate heating given record high electricity prices;

  • Australian women who suffer domestic violence resulting from mortgage stress[7]; and

  • Australians who engage in illicit drug activities given financial and social pressures.


Conclusion

The Morrison Government is in a desperate race to keep Australia’s largest ever domestic debt bubble from imploding into a deflationary economic crisis.


To achieve this, the Government is embracing an extreme policy suite of economic, fiscal and monetary policies coupled with draconian laws that fly in the face of the interests of middle-class Australians and are reflective of the failed policies typical of socialist or communist regimes of the soviet era.


The economic consequences of this policy program will ultimately result in less freedom, more debt, devalued money, exacerbated cost of living pressures and ultimately a lower standard of living.


Australians must seek to not only defend their personal economic interests against the Morrison Government’s policy program, but must collectively stand together to protect long established legal and economic principles which have underpinned the development of Australia into a developed economy and an advanced society.


John Adams is the Chief Economist for As Good As Gold Australia


[1] As noted by the International Monetary Fund, a monetary response of between 3% and 6% in official interest rate cuts has historically been required during an economic recession to stabilise the economy. Further information can be found at the following link: https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-negative-interest-rates-work/


[2] For the purposes of this article, inflation is defined as the growth in the money supply (i.e. the pre-Keynesian definition) rather the growth in consumer prices (which is the contemporary definition and understanding)


[3] See for example IMF 2019 Blog post “Cashing in how to make negative interest rates works” https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-negative-interest-rates-work/


[4] See Geneva Report 18 (2016), “What else can Central Banks Do?” https://www.cimb.ch/geneva-reports.html


[5] https://www.abc.net.au/news/2019-08-26/cash-ban-so-you-pay-the-bank-to-hold-your-money-what-imf-wants/11443646


[6] The Cantillon effect was named after the 18th century economic and monetary writings of Richard Cantillon. More information can be accessed from: https://www.austriancenter.com/cantillon-effect-populism/


[7] https://www.smh.com.au/national/nsw/it-s-got-to-stop-minister-s-final-message-for-the-men-of-nsw-20190120-p50sgz.html

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