Sunday, 25 September 2016

Monetary Abuse (Part II)

Bank of Japan Governor Kuroda feeling the pain of a stronger Yen

Exactly five months ago The Spear lamented the slow murder of money in this blog.  Since then, the RBA has delivered on The Spear’s portents of MOAR easy money, lowering the cash rate twice by 25bp, to an all time low of 1.50%, citing low inflation.
On the other side of the world, the most important central banker in the world, Janet Yellen, continues to sit on the sidelines, refusing to raise interest rates against the forecasts of most economists despite amenable employment figures and signs of mounting inflation.  Perhaps she is still trigger-shy after the yuuuge market sell-off following the last time she rose rates in December 2015.
Now, the craziest of the crazy overlords of money, the Bank of Japan, seem to have changed their tune somewhat.  The BoJ has shifted its focus away from the deepening of negative rates and fulsome quantitative easing, given the severe impact this is having on the profitability of its pension funds and banks, the mainstays of the Japanese financial system.  Instead it is proposing to implement selective control of points on the yield curve, which one would assume would require ‘open market operations’, i.e the buying and selling of bonds of different maturities, similar to how central banks set overnight cash rates.
It seems the BoJ is indeed approaching what The Spear previously alluded to as the ‘end-game’ of monetary abuse, whereby there are fewer free-lunches to be had.  Short-term rate reductions are exhausted.  ‘Quantitative easing’ via asset purchases is not having the desired effects.  Deeply negative rates threaten to destroy the viability of the financial system.  The next time a crisis hits, most central banks will open their tool-boxes and find them almost bare.
For now, the governments of the world seem content to wait until that crisis, relying on central banks to conjure up some new devices by which to stimulate ailing economies.  It however seems increasingly likely that fiscal stimulus will be the name of the game in the next downturn, as the central bankers are unlikely to pull a rabbit out of the hat.  But don’t be surprised if that stimulus needs to be directly financed by the central bank.  
In Europe, the sick man of Europe, Deutsche Bank, looms over the financial system, threatening a supernova that would put Lehman in the shade.  Sure, the banks are better capitalised this time around, but the balance sheets of corporates, households and governments are soaked in debt.  The banks may not require bail-outs, but investors may find themselves overly leveraged, precipitating a liquidity crisis.
Back to Australia, and the RBA’s new governor, Phil Lowe (a fitting name given interest rate levels), has kicked off his reign by telling the house of representative’s committee:
“If we need to increase spending in a downturn, the debt levels will already be high and we will not be able to borrow that much — this is what happened in Europe. So for the sake of our children, for our own sake and for the sake of having decent insurance, I think we need to be very disciplined about recurrent expenditure.”
Amen to that.  But it is likely a case of talking to the hand, cause the political face ain’t listening.

Sunday, 11 September 2016

Partial Mark Society

In a hundred years time when historians look back upon the decline of the west as we know it, The Spear hopes they reserve a special chapter for the bastard who introduced the concept of partial-marks into our current educational system.
Partial marks, those marks given for each step of the problem solving process - regardless of the end result - have got to be one of the most well-intended yet ill-conceived concepts let loose upon society.  That children and young adults grow up thinking that close enough is good enough, that the intention to get the correct answer is more important than the critical output itself, sets up an entire generation to flounder when exposed to a consequential world, where results do matter.
Universities have never produced more graduates, yet you speak to employers and they tell you it is harder than ever to find good talent.  What people may find hard to grasp is talent has always been rare, in that it is more of an attitude and not something you can necessarily learn.  But in a society where everybody passes and standards are lowered, it has become harder to differentiate between those who thrived and those who were merely pushed through.
And those who do emerge on the other side with diploma in hand, for better or worse, are now more likely to subscribe to relativistic worldview.  Two students can answer the same question, get wildly different results, one correct and the other grossly off the mark, and yet the difference in their final grade can be minimal, and both will qualify.  If you grow up in a setting like this, how can your view in absolute truth and objectivity not be undermined?
In a society which rears its young to accept multiple perspectives on truth in an effort to spare their feelings, is it any wonder that we find ourselves battling increasingly relativistic perspectives on western society itself, whether it be in medicine (anti-vaxers) or culture (Burka-Bikini equivalence).  When everything becomes equally valid there is a loss of confidence in what truly underpins our society, and we risk throwing the baby out with the bathwater in an attempt to appease all points of view.
We mustn't let ourselves be fooled into thinking that what we are doing is necessarily right just because we get to enjoy a feel-good moment.  Sometimes the right answers are only able to be produced with a lot of pain, effort and sacrifice.

Tuesday, 6 September 2016

Colleagues wince as man takes ‘no question is a stupid question’ literally

Employees of a local finance company have reportedly begun to wince as it becomes painfully clear that one of their colleagues has accepted his manager’s insistence that “no question is a stupid question” at face value.
Sources indicate that the oblivious employee, local area man Steve Baker, has seemingly interpreted the popular phrase in a literal manner, in the sincere,  naive belief that his manager has his employees’ best interests at heart.
“The poor bastard,” stated one of his fellow colleagues after being a firsthand witness to the highly embarrassing and potentially career destroying faux pas.
“At first I thought he was just taking the piss, asking about a concept from economics 101.  But then his question came to an end without any signs of sarcasm or the hint of a smile, and I realised, holy shit this guy is for real,” his bewildered colleague stated.  “And the next one about the difference between the balance sheet and the income statement?  Wow.  Just, wow.”
At press time, Mr Baker was seen emerging from the meeting furiously reviewing his notes while his colleagues looked at each other sideways.

Sunday, 14 August 2016

Sense & Censusbility

The ABS's new and improved 'hack proof' data collection method

After this year’s census, The Spear is left feeling a lot like a 16 year old girl the morning after prom-night.  The ABS told The Spear they loved him.  They told The Spear they needed him.  They told The Spear he could trust them and that they would never betray him.   And it all ended in tears.

The Spear feels like a putz.  His household dutifully completed its census duties early and honestly, before the gargantuan ineptitude of the ABS and its systems were made manifestly clear on Tuesday night.  He can almost hear the statisticians at the ABS sniggering as they review The Spear’s lone complete entry in their systems, “Oh my God, some doofus actually fell for it.”

There has always been an asymmetry in responsibility between government and citizen.  As The Spear walks along the platform of his local train station, the speakers dutifully prompt him to “exercise extreme care, surfaces may be slippery when wet.”  So while we, mere average citizens, cannot be trusted to walk for more than a few meters without falling over and cracking our big stupid heads, the government acts as if it is infallible.  “We make the rules, and we get to decide just who is breaking them.  Oh, and by the way, it’s up to you to understand and comply with them all, no matter how convoluted and inane.  Good luck with that.  Suckers.”

So while we were all threatened with $180/day fines if we didn’t complete the census on time, the government agencies themselves seemed to suffer a lack of imagination when brainstorming the possible negative outcomes from a failed census, if it was given much thought at all.  Only after the fact is the PM now grandiosely proclaiming that ‘heads will roll’.

Mr Turnbull may want to first check with The Fair Work Commission to make sure that those meeting the guillotine aren’t likely to object on the basis of race, colour, sex, sexual orientation, age, mental or physical disability, marital status, family or carers responsibilities, pregnancy, religion, political opinion, national extraction, or social origin, or because they were temporarily absent from work because they were sick or injured, or because they joined or did not join a trade union or participated in industrial activities, or because they exercised or proposed to exercise a workplace right.

He wouldn’t want to be responsible for creating the wrong impression, now would he?

Sunday, 7 August 2016

The Language War Prt 1

Sick of being constrained by language dominated by the progressive left, the Spear is proposing a few new definitions to use when fighting the continuous language wars for the domination of public thought.

Climate Change Replier:  Somebody who, no matter what the situation, when asked about the cause of a problem, will reply that its source is ultimately linked back to climate change, whether it be bushfires or the Lynx effect. Usage example: “Don’t bother asking him, he’s just a Climate Change Replier.”

Bigotourette’s Syndrome: Someone who suffers from an uncontrollable, compulsive need to say the word ‘bigot’, over and over, whenever confronted by somebody with an opposing view.

Privilegophobe: a person with an irrational fear of white males.

Thempowerment:  An outwards version of ‘empowerment’, whereby a group transfers responsibility for their condition to ‘them’.  ‘Them’ can include anybody else, so long as it isn’t ‘us’.  That way, the problem can continue indefinitely while ‘they’ take the blame.

Sympatheticist: Somebody who makes decisions based on nothing but the degree of perceived sympathy owing to a given group.  Otherwise known as a Vestal Virtuen.

Publicschoolaphobia: The fear that a public education may befall your child, which can often lead to a condition known as ‘whiteflightitis’.  Usage: “The influx of refugees lead to a large outbreak of Publicschoolaphobia in the otherwise progressive neighbourhood”.

Gender-flu:  A condition whereby a man may or may not be a woman, or a woman may or may not be a man.  Otherwise known as ‘persona indecisiva’.  Symptoms may last longer than 24 hours.

Islamophobeophobia: the irrational fear of people who fear Muslims, or otherwise the fear of being known as somebody who fears Muslims.  Sufferers may at times outnumber the number of actual Islamophobes.

Sunday, 31 July 2016

Canberra: Wrong way, go back

The Spear visited this nation’s capital of Canberra for the first time this weekend, and the experience, like his one souvenir, still hasn’t quite left him.  He is left with a very odd feeling that he can’t describe, something akin to waking from a dream about work: you can’t quite remember what is was about, nothing quite made sense and it sure as hell didn’t rock your world.

The borderline libertarian that he is, Canberra is actually more the stuff of nightmares than dreams to The Spear.  

An entirely planned city, there was something about Canberra’s low-density if aerially-aesthetic layout that struck him as wholly unnatural and discomforting.  Simply put: there was too much space and macrolandscaping for a person to feel at home.  At times it was as if The Spear was walking around in a post-apocalyptic ghost town, except that everything was far too immaculately maintained to suggest that its inhabitants had caught even the vaguest whiff of the end of days.

And as if the physical landscape wasn’t eerie enough, it’s makeup was almost entirely uniform: every way The Spear turned his eyes were met with a rectangular medium sized concrete building of drab colour with signage proclaiming the department of X or the bureau of Y.  The Spear was even forced to look directly into the bowels of the beast form his hotel window which happened to abut the Australian Authority for the Pushing of Paper.  And oh how beautifully maintained.

Canberra is government solidified.  One gets the impression that it largely exists for it’s own sake, a well-planned monument to itself and its ability to extract its lifeblood from the rest of the nation, along with the administrative necessities to keep the money flowing.  You can’t help but think things in our nation’s capital aren’t running exactly as leanly as they could be, and that there are many cost savings measures hiding in plain sight.  Graffiti removed before it has a chance to be seen.  Remedial works for assets that look like they were built yesterday.  It is by far the cleanest and most well maintained city The Spear has ever set foot in.

The souvenir The Spear picked up during his trip? A magnet reading “Canberra: Wrong Way, Go Back.”

Wednesday, 27 July 2016

Warming Up the Helicopters

They had then learned how easy it is to issue it; how difficult it is to check its overissue; how seductively it leads to the absorption of the means of the workingmen and men of small fortunes; how heavily it falls on all those living on fixed incomes, salaries or wages; how securely it creates on the ruins of the prosperity of all men of meagre means a class of debauched speculators, the most injurious class that a nation can harbor,—more injurious, indeed, than professional criminals whom the law recognizes and can throttle; how it stimulates overproduction at first and leaves every industry flaccid afterward; how it breaks down thrift and develops political and social immorality.

The above doesn’t refer to Venezuela or Zimbabwe in modern times.  These words were written in 1896 by Andrew D. White, in relation to the calamitous experience of the French with fiat money in the 1790s (only some 70 years after a similar debacle involving the collapse of the Banque Générale under John Law). And they could very well be applied to our current global zero interest rate environment.

This week The Spear got to listen to one of Japan’s leading investment banking economists talking about Japanese Helicopter money, a policy which is already covertly underway via on-market debt purchases of government bonds by the BOJ, but which may become more overt over the coming years.  His long-term outlook was grim: eventual hyperinflation.

Japan has a three digit currency rate today because of a similar experience in the 1930’s, when the central bank was directly underwriting government debt issues and engaging in widespread stimulus programs due to the great depression (which got our of control after the finance minister was assassinated by the military due to his attempts to reduce military spending).

And today from CNBC:

Japanese Prime Minister Shinzo Abe said on Wednesday his government would compile a stimulus package of more than $265 billion to reflate the flagging economy, media reported, though it is unclear how much will be spent to directly boost growth.

The premier's 28 trillion yen ($265.30 billion) stimulus package, which exceeds initial estimates of around 20 trillion yen, includes 13 trillion yen in "fiscal measures," Jiji reported. Those measures are likely to include spending by national and local governments, as well as loan programs.
Abe's announcement, via a speech in southern Japan, came earlier than expected and pressures the Bank of Japan to match his big spending plan with additional monetary easing at its closely-watched rate review ending on Friday.

"The amount is so large that the stimulus package is bound to have a big economic impact. It is impossible to spend this much money in one extra budget, so this may take place over the next few years," said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

"The BOJ is likely to ease policy, including increasing government debt purchases, so you could say the BOJ can absorb the new debt. It also makes it easier to show that the BOJ and the government are working together."

Unfortunately in our global economy, this type of action spurs central bank easing by the likes of the ECB and Fed who want to maintain a competitive currency, for currency markets are a zero-sum game.  Japan actually ends up exporting its current deflation to the rest of the world.  Cheap debt is used to maintain standards of living, and the debt pile grows bigger yet, necessitating further easing.
As the use of the helicopter - the printing press - becomes more frequent, common and overt with seemingly no consequences, the more likely we are to use it.

Once the helicopter is in use, money has become a political tool.  There can be no helicopter money without collusion between the central bank and government, as it is a fusing of monetary and fiscal policy.
But when the free money stops, there be a lot of wailing (and assassinations).  And since the only thing a politician fears more than death is unpopularity, once the helicopter starts it is almost impossible to stop.

Stimulus, anyone?