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Re: Australian economy

Postby Squire » 30 Nov 2017, 13:03

Tax cuts will boost property prices as well as consumer spending.

Tax cuts that cause budget blow-outs will cause the debt mountain to increase, and an increase in consumer spending will be spent on imports which will cause trade deficit blow-out.
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Re: Australian economy

Postby Squire » 01 Dec 2017, 23:21

The Australian dollar is trending down at this time because the balance of payments is turning negative by the outflow of capital as the multitude of resource projects start paying interest and capital repayments. Resource prices are down so there is not much profit left after operating expenses, interest and capital repayments.

The outlook might not be as bright as the government believed in terms of the cash flow from resource investments as interest and capital outflow to foreign investors dwarf profit.
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Re: Australian economy

Postby Lefty » 05 Dec 2017, 07:39

Methinks denizen Lefty is mistaking the failure of the Capitalist system as being caused by free trade


The capitalist system has plenty of failings. One of the modern neo-liberal versions failings is the unswerving belief that unfettered trade delivers maximum benefits to a nation - it is abundantly clear that this is not the case. Once an ideological position has been embraced as an article of faith, it's proponents tend to keep driving hard down the path, oblivious to the fact that they have gone well past the point where disadvantages begin to outweigh advantages.

They are beholden to (unfettered) trade as an end in itself. Pragmatism would cause one to see trade as a useful service - and where it is not serving the best interests of the nation then it is not useful.

A belief that presupposes that something is always beneficial regardless of the degree to which it is taken prevents a policy maker from acting in the best interests of those who elected them to do so. So it is with the belief in unfettered trade bringing universal benefits. Again, something is good when it is good and not good when it isn't - and policy should be made on that simple fact rather than ideological worship.

Australia's economic problem currently is that the economic belt is tightening and bringing together the middle class and lower classes by squeezing the differential between wage rates such that there is hardly any premium for education and skill.


Agree that the economic belt is certainly tightening. This is a result of decades of neo-liberal ideology driving policy. One outcome has been a massively indebted household sector, indebted to levels without historical precedent. While the powers that be have shown themselves to be remarkably innovative when it comes to finding ways to allow this debt binge to keep expanding, eventually this expansion will reach it's limits. Those limits may well be close at hand now.

And this is going to be a problem in an economy where consumption spending by households makes up over half of all economic activity.

With debt servicing seemingly unable to be made much cheaper, the household savings ratio plunging back down toward zero and wages and salaries overall stagnating - where will households find the means to keep up consumption?

Society is moving back toward serfdom where the master class owns all the factors of production and the serfs are merely factors of production.


Again, agree that we do appear to be moving in this direction.

However, I see hysteresis as playing an important role in how far this can go before major problems impact upon capitalism. Where the system goes in the future is heavily influenced by where it has been before. Since the days of serfdom, we have steadily moved toward the common person obtaining an increasing share and thus increasing their consumption. The wages of the employees that have ultimately replaced serfs represent not merely a cost of production to business but a huge chunk of business income as well - one persons spending is the next persons income, round and round the cycle goes.

So we have ultimately created a large degree of income equality (overall) - and much domestic commerce has grown and adapted to be totally dependant upon it. Cut your average workers wages in half and a huge amount of commerce would simply evaporate - the employee that is a cost to business and the customer that provides the income to business are often one and the same person.

So there is only so far that we can suppress working households incomes through capital prevailing in a class war before the economic system stagnates, stalls and eventually implodes. As mentioned earlier, I think we're nearly out of room to replace household wage and salary growth with household credit growth, though there may yet be ways to keep the household debt binge growing a bit longer yet. We'll see no doubt.

The minimum wage in Australia is not far below the average wage in the UK.


Not too sure really. I was under the impression that the average annual wage in the UK was currently around 27 000 pounds, which seems to roughly compare with what is typical here adjusted to Australian dollars.

But the UK has been subject to floods of cheap labour made possible because of it's partial membership of the European project - and the UK has voted to change this.
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Re: Australian economy

Postby HBS Guy » 05 Dec 2017, 14:07

RBA left the cash rate unchanged at 1.5%.

I still can’t believe the bunch of fools that make up the RBA board cut rates from 2.5%.
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Re: Australian economy

Postby Squire » 05 Dec 2017, 16:21

Lefty wrote:
Methinks denizen Lefty is mistaking the failure of the Capitalist system as being caused by free trade


The capitalist system has plenty of failings. One of the modern neo-liberal versions failings is the unswerving belief that unfettered trade delivers maximum benefits to a nation - it is abundantly clear that this is not the case. Once an ideological position has been embraced as an article of faith, it's proponents tend to keep driving hard down the path, oblivious to the fact that they have gone well past the point where disadvantages begin to outweigh advantages.

They are beholden to (unfettered) trade as an end in itself. Pragmatism would cause one to see trade as a useful service - and where it is not serving the best interests of the nation then it is not useful.

A belief that presupposes that something is always beneficial regardless of the degree to which it is taken prevents a policy maker from acting in the best interests of those who elected them to do so. So it is with the belief in unfettered trade bringing universal benefits. Again, something is good when it is good and not good when it isn't - and policy should be made on that simple fact rather than ideological worship.

Australia's economic problem currently is that the economic belt is tightening and bringing together the middle class and lower classes by squeezing the differential between wage rates such that there is hardly any premium for education and skill.


Agree that the economic belt is certainly tightening. This is a result of decades of neo-liberal ideology driving policy. One outcome has been a massively indebted household sector, indebted to levels without historical precedent. While the powers that be have shown themselves to be remarkably innovative when it comes to finding ways to allow this debt binge to keep expanding, eventually this expansion will reach it's limits. Those limits may well be close at hand now.

And this is going to be a problem in an economy where consumption spending by households makes up over half of all economic activity.

With debt servicing seemingly unable to be made much cheaper, the household savings ratio plunging back down toward zero and wages and salaries overall stagnating - where will households find the means to keep up consumption?

Society is moving back toward serfdom where the master class owns all the factors of production and the serfs are merely factors of production.


Again, agree that we do appear to be moving in this direction.

However, I see hysteresis as playing an important role in how far this can go before major problems impact upon capitalism. Where the system goes in the future is heavily influenced by where it has been before. Since the days of serfdom, we have steadily moved toward the common person obtaining an increasing share and thus increasing their consumption. The wages of the employees that have ultimately replaced serfs represent not merely a cost of production to business but a huge chunk of business income as well - one persons spending is the next persons income, round and round the cycle goes.

So we have ultimately created a large degree of income equality (overall) - and much domestic commerce has grown and adapted to be totally dependant upon it. Cut your average workers wages in half and a huge amount of commerce would simply evaporate - the employee that is a cost to business and the customer that provides the income to business are often one and the same person.

So there is only so far that we can suppress working households incomes through capital prevailing in a class war before the economic system stagnates, stalls and eventually implodes. As mentioned earlier, I think we're nearly out of room to replace household wage and salary growth with household credit growth, though there may yet be ways to keep the household debt binge growing a bit longer yet. We'll see no doubt.

The minimum wage in Australia is not far below the average wage in the UK.


Not too sure really. I was under the impression that the average annual wage in the UK was currently around 27 000 pounds, which seems to roughly compare with what is typical here adjusted to Australian dollars.

But the UK has been subject to floods of cheap labour made possible because of it's partial membership of the European project - and the UK has voted to change this.


GBP 27,000 equates to A$ 46,000.

Australian average wage is 76% higher than UK average wage.

Australian average wage in 3rd quarter 2016 was:

https://www.livingin-australia.com/salaries-australia/

Full-time earnings in Australia averaged A$78,832 a year in the second quarter of 2016.
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Re: Australian economy

Postby Lefty » 06 Dec 2017, 07:08

The ABS AWOTE and related data series have been a point of contention for as long as I have been connected to the internet. People never cease to be surprised - shocked even - as to how far below "average" their pay seems to be. These data series would badly fail a "pub test" simply because they are not designed to pass one. It seems a shame that such data from an institution designed to help guide our policy makers is badly skewed away from the actual on-the-ground reality - I would hope that our policy makers understand this.

ACTU economist Matt Cowgill did an excellent piece of research on this topic a number of years ago. I even had the article on file. Unfortunately I no longer have it and the article is no longer available online. Cowgill demonstrated that there was a significant-sized gap between what the ABS data suggested was the average Australian wage and what the typical Australian wage/salary earner actually receives and that the ABS series overstated the typical wage earners income to an extent that it's usefulness was limited.

Thus, the figure of A$78,832 a year is a statistical artefact and does not closely resemble reality. The figures in Cowgill's research piece would be getting a bit dated now but I'd suggest that you'd want to knock a good 20k a year off that figure at least to be closer reality.

From the ABS......

CONCLUSION

AWE is one of a suite of ABS statistics that can inform discussions of earnings in Australia. The survey is designed to provide an estimate of average wages and salaries at a point in time. The survey is not designed to represent the earnings of the 'average person'. Changes in earnings over time may be caused by a large variety of factors and may not reflect changes in pay experienced by a typical individual employee.

http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/6302.0main+features8Nov%202014
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Re: Australian economy

Postby HBS Guy » 06 Dec 2017, 08:46

I wonder what the MEDIAN AWE would be? CEO/professional etc wages would seriously skew the distribution and drag the mean a fair way to the high end.
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Re: Australian economy

Postby Squire » 06 Dec 2017, 13:27

HBS Guy wrote:I wonder what the MEDIAN AWE would be? CEO/professional etc wages would seriously skew the distribution and drag the mean a fair way to the high end.


Median wage does not skew compared to the average wage.
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Re: Australian economy

Postby HBS Guy » 06 Dec 2017, 14:20

I know that, is why I asked.
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Re: Australian economy

Postby HBS Guy » 06 Dec 2017, 14:23

Oh wow! GDP in the September quarter was 0.6.

Lefty was right—’scum mentioned state government spending on roads etc. Here the Adelaide Hospital has been finished and extensive work on South Rd is happening north and south of Adelaide.

Consumer spending increased 0.1. Not much.
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Re: Australian economy

Postby Bam » 06 Dec 2017, 15:20

Lefty wrote:However, I see hysteresis as playing an important role in how far this can go before major problems impact upon capitalism. Where the system goes in the future is heavily influenced by where it has been before. Since the days of serfdom, we have steadily moved toward the common person obtaining an increasing share and thus increasing their consumption. The wages of the employees that have ultimately replaced serfs represent not merely a cost of production to business but a huge chunk of business income as well - one persons spending is the next persons income, round and round the cycle goes.

In general, businesses want to pay their staff as little as possible - as a part of a general desire to minimise their expenses - but at the same time, they want their customers to be as well-paid as possible so the customers spend more. They cannot have it both ways! This is the paradox that the business community ignores.
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Re: Australian economy

Postby HBS Guy » 06 Dec 2017, 16:16

Yup, the fallacy of composition.
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Re: Australian economy

Postby Bam » 06 Dec 2017, 21:39

An interesting chart on the ABC tonight from Alan Kohler. Apparently, half of the rise in GDP was population growth.

The technical definition of a recession is flawed because it is not per capita: it does not take population growth in account. If it did, Australia had a recession in 2000 when Howard introduced the GST, and another in 2008 with the GFC.
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Re: Australian economy

Postby HBS Guy » 06 Dec 2017, 21:48

The economy is not brilliant, for sure.

Had to laugh at ’scum talking about their “policies” creating all these jobs etc. What bloody policy!
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Re: Australian economy

Postby HBS Guy » 07 Dec 2017, 07:37

Because wallets slammed shut household savings have actually grown!
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Re: Australian economy

Postby Squire » 07 Dec 2017, 23:32

It's a shabby economy that has to rely on immigrants and short-term visa holders.

The Australian economy is directionless and subject to the whims of international resource prices and international agricultural product prices.

The rise of the A$ to 2014 was caused by the capital inflow from foreign investors in Australian resource projects. The government managed that badly by not staggering project implementation to avoid the simultaneous peaking of too many projects.

It could be argued that the short-term rise of the A$ to 2014 was the death knell for the automotive industry putting it beyond redemption.
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Re: Australian economy

Postby Lefty » 10 Dec 2017, 06:09

Oh wow! GDP in the September quarter was 0.6.

Lefty was right—’scum mentioned state government spending on roads etc. Here the Adelaide Hospital has been finished and extensive work on South Rd is happening north and south of Adelaide.

Consumer spending increased 0.1. Not much.


Yep - this is an economy that has been powered by state government investment spending for a while now. The fundamental driver of the domestic economy - the consumer - has gone on strike but as nearly always happens, something has come along in a timely fashion to prevent outright calamity. That something has been state governments effectively acting as "consumer of last resort".

There has been a very large surge in public investment for the past few years now. The year just gone has been particularly impressive. This is good. But it only adds to overall growth while it is still growing. Government investment spending tends to be "lumpy" - something big gets purchased that usually lasts a long time. The coming year's investment spending is going to be dramatically smaller than the one just gone (unless something new suddenly drops into the pipeline), the one after that even smaller and from then it will begin to detract. So it appears to me that most of the stimulus effect has now been expended and households will be called on to play their major part once again - which is looking potentially like a problem.

This seems to have been the major source of the remarkable divergence between household performance and confidence and that of business. While households remain in the gutter, business overall has reported doing increasingly well and have equalled or exceeded pre-GFC levels. To the extent that private non-mining investment has finally been starting to make a significant contribution.

But this surge in new private investment looks to have come just in time for the customer (government) to suddenly decide that they no longer need to keep spending big sums. I don't see much evidence that households are ready to spring straight back into the breach. The one section of business that is most closely and directly tied to the performance of wage-earning households - retail - has failed to share in the overall business boom and has been doing quite poorly in general. I don't think this is a coincidence - it looks more like a warning to the rest of the domestic business sector.
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Re: Australian economy

Postby Lefty » 10 Dec 2017, 06:21

In general, businesses want to pay their staff as little as possible - as a part of a general desire to minimise their expenses - but at the same time, they want their customers to be as well-paid as possible so the customers spend more. They cannot have it both ways! This is the paradox that the business community ignores.


Yup, as HBS Guy says - fallacy of composition.

The wage earner that is a cost to business and the customer who is the source of income to business are typically one and the same person. This is why it has been puzzling to see domestic business do increasingly well and even come close to booming over the past couple of years while wage-earning households have struggled. Retail has demonstrated the weakness of households but the rest of domestic business have thrived on some "phantom income stream". We now understand that public investment has played a large part in fuelling that income stream. Unfortunately, that looks to be about ready to slow fairly dramatically.

If households do not suddenly open their wallets back up, or something else does not come along to replace them (or some combination of both) then I tend to feel that increasing economic weakness lies in the immediate future.
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Re: Australian economy

Postby Lefty » 10 Dec 2017, 06:27

Bam wrote:An interesting chart on the ABC tonight from Alan Kohler. Apparently, half of the rise in GDP was population growth.

The technical definition of a recession is flawed because it is not per capita: it does not take population growth in account. If it did, Australia had a recession in 2000 when Howard introduced the GST, and another in 2008 with the GFC.


Yes - this seems to be the motivation for our policy makers retaining the Howard-era policy of crush-loading our biggest cities with rapid immigration. It gives the appearance of overall growth but everyone's individual slices of the pie are not getting bigger.
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Re: Australian economy

Postby Lefty » 10 Dec 2017, 06:32

Squire wrote:It's a shabby economy that has to rely on immigrants and short-term visa holders.

The Australian economy is directionless and subject to the whims of international resource prices and international agricultural product prices.

The rise of the A$ to 2014 was caused by the capital inflow from foreign investors in Australian resource projects. The government managed that badly by not staggering project implementation to avoid the simultaneous peaking of too many projects.

It could be argued that the short-term rise of the A$ to 2014 was the death knell for the automotive industry putting it beyond redemption.


Agree in general.

Our policy makers were happy for the domestic economy to be scorched because we apparently weren't going to need much of one because China was going to "boom forever" and us along with them. Apparently.

Things that could easily have been saved were dispensed with so as to make way for this new economy - and the new economy turned out to be a relatively short-lived fizzer. Like all other commoddity booms in history before it. Yet somehow, this one was going to be different. The folly of this belief has now been laid bare.
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Re: Australian economy

Postby HBS Guy » 11 Dec 2017, 13:09

Image
Stephen Koukoulas ✔ @TheKouk

The Government just borrowed another $500 million - not repaid till 2047! It is an interesting decision to ramp up government debt to fund company tax cuts

10:35 AM - Dec 11, 2017


That’d be right with this idiotic mob in Canberra!
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Re: Australian economy

Postby Lefty » 11 Dec 2017, 18:04

HBS Guy wrote:
Image
Stephen Koukoulas ✔ @TheKouk

The Government just borrowed another $500 million - not repaid till 2047! It is an interesting decision to ramp up government debt to fund company tax cuts

10:35 AM - Dec 11, 2017


That’d be right with this idiotic mob in Canberra!


The idiotic belief in trickle-down economics laid bare!
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Re: Australian economy

Postby HBS Guy » 11 Dec 2017, 18:15

Boost NewStart by $50/week and see a surge in final demand!
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Re: Australian economy

Postby Lefty » 11 Dec 2017, 18:44

HBS Guy wrote:Boost NewStart by $50/week and see a surge in final demand!


Yup, it's basically poverty level!

The consumer can't support capitalism if they have nothing to spend. And there's only so much they can borrow before being choked to the eyeballs on debt (which is where we seem about at now).

Or introduce a job gaurantee and - once again - almost eliminate involuntary unemployment.
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Re: Australian economy

Postby Lefty » 13 Dec 2017, 08:21

Penalty rate cuts followed by weakest consumer spending since 2008

It's pretty early days yet to draw a definitive link - most of it has yet to come into effect - and there is more to Australia's current weakness than just this.

However, this feeds into the malaise. There is likely to be a psychological effect on significant numbers of consumers, knowing that their income is going to be impacted. Knowing that if their take home pay can be cut once, why not again? These people are in the lower part of the income spectrum, with a propensity to spend most of what they earn rather than save much so it represents a real loss of demand. Though the shock could actually increase their propensity to save to whatever extent they possibly can.

We see that the household savings ratio recently increased. Again, too early to draw a definate link but while increasing savings are wise and good for the individual, they are not good for the economy which relies on spending.

The surge in employment the proponents of the cuts claimed would occur has yet to show any sign of beginning to materialise.

This is the fundamental weak spot in capitalism and the glaring flaw in the modern-day version of lassiez-faire which we generally refer to as neo-liberalism. The failure to grasp the most basic macro-economic fact that workers are not merely a factor of production that are a cost to business but also represent the driving force of consumption from which business derives it's income. Cutting wages across the broad economy might immediately be of benefit to business as their operational cost straight away fall and profitability rises. But it doesn't take long for this to be offset by falling demand for their product owing to the loss of wage earners spending power.

It really is blindingly simple yet the business sector and the political right seem to struggle to comprehend it. Perhaps they don't want to comprehend it.

If we're going to run a capitalist economy then the neo-liberal model is an abject failure. Capitalism must be MANAGED to ensure fair redistribution of wealth. This is not just about concepts of fairness, equality and social justice - if wealth is allowed to become too concentrated into too few hands then the economy itself starts to become endangered. The GFC proved in devastating fashion that market economies are simply unable to run and regulate themselves - a decade on and many have still not accepted this simple fact. We are slow learners.
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