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Sunday, 1 February 2015

The MSM asleep at the Wheel. - The AIM Network

The MSM asleep at the Wheel. - The AIM Network



The MSM asleep at the Wheel.













MSM





Last week Mainstream Media (MSM) political
commentators were united in their condemnation and their mockery of PM
Tony Abbott following his bizarre announcement that HRH Prince Phillip
would become an Australian Knight.



They also seemed equally united in their condemnation of Abbott’s
overall performance and the prospect of an imminent leadership challenge
in the Liberal party following the Queensland election. Better late
than never, I suppose.



In fact, media unity on these two issues is similar to their united
front on Labor’s economic prowess, particularly between 2010 and 2013,
when they gave Tony Abbott and Joe Hockey unquestioning prominence as
they recklessly hacked away at Labor’s economic record.



The difference then, is that they were dead wrong about Labor’s grasp of the issues.


ruddWhen
Kevin Rudd became Prime Minister in 2007 he inherited a gross ‘debt’ of
$58 billion; quite trivial by today’s standards. At the time, he and
Labor were treated lightly by the media until the GFC exploded and
suddenly, the big question was: what would they do about it?



But up until this time, the media had been asleep at the wheel
unaware of what had really been going on. For the ten years or so prior
to 2007 they had happily been drinking the wine of what they perceived
as good fiscal management by Peter Costello who had been delivering
surplus budgets year in, year out.



But they should have known that in a national economy, the three
principal sectors of management, i.e. government, private and external,
the respective balances of each will always play against each other,
while their aggregate total must balance when combined. If two are in
surplus, one must be in deficit. If two are in deficit one must be in
surplus and the net result must always equal zero.

A simple formula expresses this as follows:

(I – S) + (G – T) + (X – M) = 0

where I is Investment, S is Savings, G is Govt. Spending, T is Taxes, X is Exports and M is Imports.



During Costello’s time no one ever queried that up until 2007 while
he bathed in the glory of government surpluses, external income was in
deficit, and private debt, particularly household debt was skyrocketing.

costelloCostello’s
surpluses were made possible because of the availability of easy
credit, e.g. home equity based loans, banks offering credit cards to
anyone breathing, and even some who had stopped breathing. Costello took
advantage of the ignorance of the MSM and the people with his surpluses
and actually gained their admiration in the process.



As we all remember, soon after the GFC struck, the Rudd government
announced a stimulus program, one much criticised by the then LNP
opposition and the budget went into deficit. This created excess
reserves in the banking system necessitating the issuing of bonds to
ensure the central bank could control the overnight cash rate.



This necessary monetary process was misconstrued and presented as
borrowing to finance the government’s spending when it was nothing of
the sort. It quite falsely became the “debt and deficit myth” the LNP
used so effectively to discredit Labor.

Following that stimulus the external sector (trade) remained in deficit
but the private sector (business) stopped borrowing and began paying
down debt.



Fast forward to today and we find that household debt has remained at
its historic high. Meanwhile, the business sector have been using
accumulated profits to reduce debt and buffer themselves from
deflationary forces in the absence of attractive investment
opportunities.

chinaAt
the same time, successive years of deficit budgets caused by China’s
economic slowdown coupled with an over-valued Australian dollar has had
the effect of limiting further deterioration in unemployment.

That’s the good news. Now for the bad news. Joe Hockey’s austerity budget threatens a seismic shift in these balances.

The move to austerity will actually force the private sector towards
higher indebtedness (deficit) by running down savings because there
won’t be the flow of money to enable current levels of saving.

If the household part of the private sector starts saving and/or begins
to pay down household debt (credit card and mortgages), the economy
generally will begin to contract, business will slow, unemployment will
grow and the deficit will also grow from further reduced revenues. The
December 2014 inflation rate announced last week confirms this trend.

This means that the private sector will bear the burden of balancing the
economy on a scale that will drive the country into a horrible and
prolonged recession.



This is exactly what is happening at the moment in Europe.
davosThis
is why the European Central Bank has decided to issue fiat currency of $
1 trillion euros into the reserves of the member banks. This is why
austerity doesn’t work, at least in these circumstances.

The question arises therefore, why is it that the Australian MSM
economic experts are not pointing out this fact? Are they once more
asleep at the wheel? Or, is it just too hard for them to acknowledge
Labor’s better understanding of the way the economy works?

It is my opinion that neither they, Joe Hockey nor Mattias Cormann understand any of this.













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