Fix the economy, stupid!

Thursday, 21 September 2023 — South Melbourne

[5 min read]

Dear Reader,

Since leaving Fox News, Tucker Carlson has gained a huge audience who want to hear him speak freely about many controversial issues. He posted a clip last week talking to supporters in a Michigan rally, where he exposed how politicians on both sides of the aisle wilfully ignore the people’s needs.

You can check it out here.

I’m sure there’re many of us in Australia who feel the same.

I reckon the vast majority of Australians believe their political leaders hardly care about their needs, preferring to serve those who lavish them with donations and favours.

The Governance Institute of Australia’s recently released its Ethics Index report showing the most and least trusted occupations.

Not surprisingly, the Federal and State politicians take second and third place as least trusted!

Perhaps our politicians should listen to what Tucker said and align their priorities to what ordinary Australians want.

Just fix the economy, stupid!

The betrayal of Australia by those most out of touch with reality

I’ve shown you in the article two weeks ago how the prosperity of the ordinary Australian household has declined since the turn of the millennium. People’s pay might’ve increased but they’re able to afford less. Meanwhile, rising property prices condemn would-be homeowners to a lifetime of paying down a massive debt, possibly into their retirement.

Many of you’ll never forget how the previous Governor of the Reserve Bank of Australia, Phillip Lowe, misled us all by saying in 2021 that there won’t be an interest rate rise until 2024.

What happened in the past 18 months? The interest rates increased from 0.1% to 4.1% now.

How are people coping with their living costs with this additional burden?

Then there’s the Morrison government and our state premiers who locked us down while letting big corporations continue operating during the Wuhan virus outbreak.

For the life of me, I don’t know how forcing the populace to shop only in big companies would stop the spread. Doesn’t it do the opposite?

So three years on, our economy is in shambles with many small businesses and households facing ruin. Meanwhile, big corporations and the rich are better off. Think about how many billionaires and millionaires have prospered thanks when asset prices went sky high.

Fact is, our economy is much worse today as we watch our leaders create more problems with their policies and proposals.

‘The Voice’ — A land grab in disguise

I’m going to exercise caution in approaching this. No doubt ‘The Voice’ is a controversial topic.

What is it that we’re voting for on 14 October?

For what I know, we’re asked to vote on two questions. The first is about whether we recognise the Aborigines and Torres Strait Islander people into our Constitution. The second question is yet to be disclosed.

Should we pass the referendum, it’ll give our government the mandate to declare that the Indigenous people be incorporated as Australian citizens.

Currently, Aborigines and Torres Strait Islanders are a separate people sharing the same land. And we’re recently hearing from many of the Aborigines and Torres Strait Islander people standing against it.

Now, my understanding is that the change in the Constitution takes away their sovereignty status. A ‘sweetener’ to the deal aimed at getting this over the line lies in the government being able to act on their behalf to reclaim their traditional land.

But do you trust the government will give the land back to the Indigenous people without pocketing a (big) chunk?

I’ll leave it for you to ponder.

What’s not thought through is the economic implication of changing the Constitution on the existing land rights. This’ll hurt the agriculture and mining sectors the most, and I’m sure other industries will experience it too.

The change could make possible for government to take away existing properties on the grounds that it belonged to certain Indigenous tribes and redistributing it as it sees fit. Similarly, it’ll complicate the planning and permitting process, reducing efficiency and bringing more controversies.

Not only could it negatively impact local business, but foreign businesses could think twice about coming here.

It’s not as benign as they’re selling it. And you can expect unintended consequences to come in truckloads, pun intended.

Protecting your interests and wealth of utmost importance

Australians are going to have to tough it out to make ends meet. It’s been hard and I believe it could get harder.

Let’s face it, politicians aren’t looking after us.

Unless you’re part of the small minority who have the clout to influence them. Most of us aren’t part of that club.

The only benefit we get for obeying them is the short-term warm and fuzzy feeling before we pick up the tab.

I believe it’s critical you take matters into your own hands.

The Australian dollar has been dropping sharply in the past two months. It means imports are going to cost more. This covers a lot of what we buy for our daily needs.

One consolation is that gold is worth more. That could help offset the hardships we face.

For the past two years, gold mining companies have trailed most industries because of a weak market sentiment, difficult mining conditions and a high oil price restricting their profitability.

But with economic headwinds blowing, I believe there’ll be a flight to safety and gold will have its day.

Take advantage of this now and it could pay off in the coming years.

You can do this with my investment newsletter service, The Australian Gold Report where I show you ideas on starting to build a precious metals portfolio now.

God Bless,

Brian Chu,
Editor, The Daily Reckoning Australia

Dear Reader,

A little classical wisdom for our broad-minded readers...

If you possess a firm grasp of these tenets, you will see
That nature, rid of harsh taskmasters, all at once is free
And everything she does, she does on her own, so that gods play no part

~ De Rerum Natura, Lucretius

On the shelves at Jefferson’s library at Monticello were five dog-eared copies of an amazing book written more than 2,000 years ago. Not the Bible…not the Iliad…nor the Odyssey.

It is a book that has fascinated and inspired thinking people for 70 generations…Copernicus, Galileo, Spinoza, Newton, Locke, Montesquieu, Voltaire, Diderot, Hume, Franklin, Wallace…and many others.

Directly or indirectly, Adam Smith drew on it for his ‘Wealth of Nations’…and even more in his ‘The Theory of Moral Sentiments.’ Charles Darwin’s grandfather, Erasmus Darwin, used it as a model for his own poetry, passing along the insight that changed intellectual life in the Western world. Everything nature does, we paraphrase from above, she does on her own. This is what Darwin tried to demonstrate in his ‘Origin of the Species.’ More recently, Steven Pinker relied heavily on the idea in his popular ‘The Better Angels of our Nature.’

And, importantly for us, it helps us understand why the Fed cannot really control inflation.

Money, Money, Money

This is, after all, a money-oriented ‘blog.’ While our thoughts and inquiries range far and wide, we also try to keep our eye on what is happening in the money world…and connect the dots, between current trends and events, and the deeper, longer-term tides of human society.

Dan made the point on Friday: if you follow only the mainstream press, you will have a very distorted idea of what is really going on. Case in point, this article appeared at Markets Insider on the weekend:

5 common misconceptions about the US's $32 trillion debt mountain

We read quickly, not wanting to waste time, but curious; the financial press is more likely to peddle misconceptions than to dispose of them. Sure enough, the article is a pot-pourri of error: the debt is not too high…it doesn’t need to be paid off…it’s not bad for the economy…there’s no crisis coming…and everybody does it.

Here’s the gist of it:

The US's $32 trillion debt mountain may not be as bad as it seems.

They’re right! It’s much worse than it seems.

First, the author tells us that paying the interest on the debt is a piece of cake:

It cost the US just $395 billion to service its debt last year, according to the Office of Management and Budget. That's around 1% of last year's GDP.

A Borrowing Binge

Well…yeah…with the lowest interest rates in 5,000 years. The key to understanding the debt is to realise that the ultra-low rates (courtesy of the Fed) lured borrowers to take on more debt than they can carry. When interest rates return to more normal levels…which they surely will…there will be trouble.

That is already happening. Two years ago, the feds could finance trillions of debt at the remarkably low 2-year treasury rate of only 0.22%. The rate went over 5% last week — 20 times more. And the Treasury needs to refinance $7.6 trillion of old debt, plus an estimated $2 trillion of new debt, in the next 12 months.

This borrowing binge by the government is almost guaranteed to keep interest rates up…even if inflation were to fall. It also assures us that investment capital will go to the government, rather than to private, wealth creating businesses.

There is only so much time, so much labour, so much energy…and so much capital…available. If it is used to build factories and add services, it increases our wealth. But if it is consumed or wasted on dead-end ‘investments,’ it is simply lost.

‘Dead-end investments’ is what the feds do better than anyone. Wars…weapons…spying…fighting poverty and drugs…encouraging people not to work…agencies for this…departments for that — resources are squandered, growth rates fall…there are fewer products and services to buy, while the demand for them increases. Result: inflation.

Here’s Bloomberg, on the case:

Fed’s Policy Paradox: Too-Slow Growth Threatens Inflation Fight

…policymakers and Fed watchers are now giving more attention to a new line of argument, that central banks need to take account of what their actions mean for the supply side of the economy. The implication: Too-high rates could actually undermine the inflation fight, by squelching the benefits of increasing supply — which are just now coming on stream.

Yes, dear reader, you can get price increases from either side: rising demand or falling supply. The feds give us both.

So…we move on…back to the book we were telling you about...

Origin Texts

It did not come out of nowhere. It had its antecedents…its forerunners and scouting parties. It was foreshadowed by two famous Greek philosophers, Epicurus and Democritus. The latter introduced an early form of atomic theory; none of Epicurus’s works survived, but he emphasised the ‘here and now’ and how to enjoy it..

The book we refer to was written by a Roman, not a Greek. And it came about at a unique period. Rome conquered Greece after the battle of Corinth in 146 BC. This book was written 100 years later, a special window in history, thought Flaubert, ‘when gods had ceased to be, and Christ had not yet come…a unique moment…between Cicero and Marcus Aurelius, when man stood alone.’

Alone? On our own? No Fed to save us?

More to come…

Regards,

Bill Bonner,
For The Daily Reckoning Australia