Thursday, 11 May 2023 — Burradoo

By Brian Chu Editor, The Daily Reckoning Australia

[7 min read]

Dear Reader,

Two days ago, Federal Treasurer Jim Chalmers delivered the Australian Federal Budget. One of the notable points was that this was the first budget surplus in 15 years.

$4.2 billion surplus, or 0.2% of our gross domestic product.

This was considered a major achievement. Finally, our government has delivered the all-important ‘Budget Surplus’!

It’s been elusive. Many sat through past Budget nights hearing how the surplus would be delayed a couple more years as the government finds a new cause or group to ladle our tax revenue. That, or because the forecasted receipts from businesses and households were less than expected.

So the government is patting itself on the back and the media is highlighting how there’s a budget surplus!

In context of how this is the first in 15 years, it’s commendable.

But the forecasts show there won’t be a repeat performance, and you shouldn’t hold your breath that it’ll happen again any time soon.

What’s more concerning are some of the measures the government plans to implement this coming year to try to ‘help’ the Australian population through these tough times.

But let’s look at the budget surplus and how we’re being misled to take this as a suitable measure for evaluating the government’s fiscal responsibility.

Deep in debt with little desire to get out

What is often ignored when the media reports on the Federal Budget is the government’s financial position. This is how much the government owes its creditors, which is also what we’re meant to pay via our taxes.

As of now, our net government debt is estimated at just under $550 billion or 21.6% of our GDP.

This is a pretty significant figure, though not dire.

Put our government budget into perspective, let’s say it made $100,000 a year. This year it’s projected to have a surplus of $200. Meanwhile, the total outstanding debt (after deducting our savings and liquid assets) is $21,600.

It might not sound that bad. I daresay that many households are in a more precarious financial situation given that they have a massive mortgage that’d dwarf the government’s outstanding debt.

Perhaps that’s why we’ve seen the government continue to spend beyond its means. That and the low interest rate environment that many have come to take for granted, at least until the last few months.

And this is where we ought to be concerned.

The government has several advantages over households in that it makes the rules and owns a lot of assets. Its goal is to implement policies that are meant to help the ordinary Australian become more prosperous. So it can also change laws that could impact its revenues and expenses, although it can only do so within the confines of what the ordinary voter will tolerate.

Such advantages give the government a lot of leeway. But it’s the fact that the government has such a good handicap that it raises red flags when it continually falls short of its standards.

When you look at it from this angle, you see that our government has a track record of fiscal incompetence. Policies haven’t improved the prosperity of the nation, given it receives less than its expenditures. In turn, it’s owing more to its lenders year after year.

So it’s failing to score goals despite widening them time and again.

Let me present some numbers to back up my claim.

Household debt in Australia has ballooned over time. Based on the Australian Bureau of Statistics, the average household debt at the end of the 2022 financial year was $261,492, compared to an average disposable income of $139,064. This means an average household owes almost $2 for every $1 it earns each year. It’s worth noting that you need to go back to the mid-1990s to see the average household owing as much debt as it earned annually.

The figure below illustrates this:

All this happened as property prices boomed.

Now I get how you may rebut my point by saying that Australian households are benefiting from rising property prices. They can stomach the higher debt burden. However, this creates an attitude of debt reliance. It’s unhealthy because it encourages spending beyond your means on the back of potentially illusory wealth.

Debt is someone else’s wealth. If you’re owing more as time passes, that’s going to hurt you in the long run. It’s that simple.

Thanks to a prolonged period of falling interest rates, we’ve been conditioned to think that we can rely on debt, even letting it balloon over time.

If only it’s that easy! History shows otherwise.

A rude shock and potential reckoning

We’ve been a lucky country in many ways. Many countries experienced a reckoning of sorts during 2007–09 when the property bubble collapsed, causing much heartache and despair.

We managed to ride an unprecedented property boom back then given the Reserve Bank of Australia reduced the interest rate and our government spent billions propping up our economy.

For this, many Australians are complacent about what could happen in the future. Even the rapid interest rate rises in the past year haven’t really hit home yet.

It might start to bite when many mortgage loans come off their fixed interest rate period in the second half of the year.

The government has set aside $3 billion to provide relief to households that’re facing energy bill pressures, which is part of the $14.6 billion set to ease the cost of living.

But if the economy slows down significantly as the fallout of rising interest rates and mortgage repayments hits, would these be enough?

Not to mention that businesses could also face shrinking revenues as consumer confidence slumps.

Does the government have enough borrowing capacity to help soften the impact on ordinary Australians?

Unlike Japan where the population owns much of the government’s debt, our creditors are foreign lenders. They’re less likely to cut us much slack as they’ve no loyalty towards us, it’s strictly business.

That’s why our Australian dollar has remained weak against the US dollar and gold.

Which brings me to this graph of the price of gold in Australian dollar terms since 2000:

For more than 23 years, gold has increased six-fold relative to our dollar. This is a good reflection of how much purchasing power our currency has lost, thanks to our collective financial mismanagement.

Many households have seen their wealth increase in dollar value, make no mistake about that. But I’m confident that the vast majority of Australians are now able to buy less despite having more.

What should this tell you?

The insanity of debt dependency has cost us a lot. It’d be great if it can come to an end. But it comes with much pain.

Soften the impact with sound money, gold. Change your mindset and save yourself some heartache.

Get ahead of the others now, before they wake up to this reality and clamour on board!

God bless,

Brian Chu,
Editor, The Daily Reckoning Australia

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

‘Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children…’

Dwight Eisenhower, 1953

Presidential hopeful Robert F Kennedy Jr called us last week. So began the following line of thought.

Dwight Eisenhower spoke those words above at what must have been near the peak of American power and prosperity. And yet, Eisenhower urged restraint. He reminded citizens that every penny spent by the government had to come from somewhere, taking away things people actually wanted — housing…automobiles…food…and medicine.

Back then, you couldn’t get something-for-nothing any more than you can today. But who says so now? Who urges humility…who speaks of trade-offs? Who bothers to look at the price tag? And who would dare to tell the voters that they have to pay it?

There’s always more than a little flimflam in public spending. It’s the hope of getting something-for-nothing that keeps the whole hullabaloo going. But the cost of the US empire is now nearly US$1.5 trillion per year. That’s five million houses we don’t get to live in. Or 50 million new cars. Or 397 billion happy meals. It’s about US$17,000/family/year. Did anyone tell the voters? Are they OK with this?

The point of today’s message is that at least one politician seems ready to ask.

A modest start

Here, our beat is money, not politics. We’ve never said anything nice about politicians because they, almost without exception, are a nuisance. They pass laws that reduce output. They spend money they don’t have…and divert resources from useful investments to their favourite bamboozles. They impose regulations that benefit a small group of insiders (such as the people who make steel or silicon chips) at the expense of everybody else.

But we wrote about Robert F Kennedy Jr because we saw him breaking with the Biden/Clinton/Schumer ‘woke and war’ agenda. He’s proposing to…

…shut down many of the US’s overseas bases and reduce the military/industrial/ spook budget…

…allow whistleblowers to tell the truth without going to jail

…block the feds from creating a new form of central bank digital currency that they could use to control how we spend our money.

Much more would have to be done to rescue the Republic…but that’s a start! And what could we add that might be helpful?

We’ve been writing this column for nearly 25 years. Long-term sufferers know ‘where we’re coming from’. They understand how cutting the link between gold and the dollar, in 1971, changed our monetary system. They know, too, that new, flexible dollars — along with the Fed’s artificially low interest rates — created today’s inflation/debt problem. They know that the US’s elites — both Republican and Democrat — have become predatory, incompetent, and corrupt. They see how the Fed is trapped between ‘Inflate or Die’; either it continues to inflate…or the US’s US$93 trillion debt bubble collapses.

Uncommon knowledge

Our readers are well aware that investors and speculators have gained about US$50 trillion in ‘excess’ wealth from the Fed’s fake interest rates. They recognise that inflation is not an act of nature, but a government policy. And they understand that the elites — who control the government — would prefer inflation rather than see their stocks, bonds, and real estate marked down and their power and status greatly reduced.  

Our readers are well aware that inflation helps to hold asset prices up (at least in nominal terms) but it destroys the middle class…and how, with no independent middle class, the US’s democracy — such as it is — is finished.

But what does RFK Jr know? He ‘had it all’ — good looks, brains, money. He was one of the ‘privileged elite’. Private schools, Harvard...his grandfather was Ambassador to Britain. His uncle was president of the US. Another uncle was a US senator. And his own father was US Attorney General. He went to the London School of Economics — a bastion of ‘Fabianism’…a hesitating, gradualist form of socialism. And he made his career as a lawyer, mostly litigating against large corporations for environmental infractions.  

But wait. Is that how it works? Is that what gives you happiness, peace, contentment in life? Your connections? Your status? Money? 

Uncivilising America

A friend of ours ‘had it all’ too. He was rich. Good looking. With a beautiful house. A lovely wife…children…he was a partner in a large, successful financial firm…and a commissioner of the SEC.  

Apparently, ‘all’ was not enough. He shot himself.

And you might think twice before trading lives with RFK Jr. Both his father and his uncle were shot dead. How come? He must wonder. 

Lyndon Johnson had the blood of thousands of Americans and maybe a million Vietnamese on his hands. Nobody shot him. George W Bush’s hands are stained red too — a million corpses in the Middle East, and yet, he still breathes. And there is Joe Biden…providing billions of dollars, and the latest weapons, to keep the Russo-Ukrainian War going; where’s his Sirhan Sirhan…his Lee Harvey Oswald?

No doubt, RFK Jr’s wondering mind took him down some blind alleys to some dead ends. He got arrested for heroin possession. He went into rehab. His ex-wife hung herself. He probed ‘conspiracy theories’ and believes the CIA was involved in JFK’s murder.   

This is not Mike Pence’s resume!

And he’s still wondering…at least enough to ask us what we thought.

So, we sent him a copy of our new book, Uncivilizing America (out this week and already Number One in the economics category at Amazon!). We hope it will give him a coherent framework for thinking about economic issues.

The problem is time. Mr Kennedy must have little ‘free’ time. After all, running for president is not a part-time job. And it took us nearly 25 years to work out what is going on (and even now…there are plenty of air pockets in our pensée). 

So, if he is willing to give us a little attention, how can we take best advantage of it? Stay tuned as we pack a quarter century of accumulated observations and guesswork into an overnight bag.

Regards,

Bill Bonner,
For The Daily Reckoning Australia