From Authority, With Love

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–First off, yesterday’s DR finished with the promise that today’s would be about the Reserve Bank of Australia…its history…its mandate…and its similarities and differences to the U.S. Federal Reserve. It will have to wait until next week.

–The more we read yesterday, the more we realised it would take more than the usual superficial treatment we give such subjects in the Daily Reckoning. And with today’s announcement that the Board will have two new directors, there is more grist for the mill. But don’t worry! It’s too important a story not to be told, so we’ll keep working on it.

–It’s worth working on because the story contains the answers to some key investment questions…like what happens to the Aussie dollar in a U.S. dollar crash…what happens to Aussie interest rates next…and whether the RBA can or would print money like the Fed if (when) Australia has its next financial crisis.

–In the meantime, we’re going to ignore all the price action in the market and focus on two other stories; the banking sector’s denial of financial reality and Ross Garnaut’s academic understanding of innovation and knowledge. We’ll begin with the banks.

–The global banking sector—Australia included—is generally in a state of denial about the future. Major banking reforms (Basel III) came out of the last crisis to prevent the same problem from happening again. The main problem was too much leverage. Banks built huge pyramids of assets on a tiny little base of liquid capital. When asset values fell quickly, capital was wiped out and had to be replaced (either by private investors or mostly by the government and central banks).

–What compounded the problem is that bank’s financed long-term lending (expansion of assets on the balance sheet) with short-term borrowing (expansion of liabilities). But while the assets and the liabilities might be matched in terms of size, they weren’t matched in terms of duration.

–Without getting too technical, the “duration gap” is a measure of the risk associated with having mismatched liabilities and assets. That risk is mostly from interest rates. For example, if you’ve borrowed short and lent long and interest rates rise, it means your borrowing costs go up right away while the value of your long-term assets goes down (interest rates tending to rise with inflation).

–Double plus un-good.

–Of course the main problem is that in the last 30 years banking has become an incredibly profitable business, especially for the men who run the banks. Expanding the balance sheet (more loans) is the way to grow earnings. And most bank managers seemed happy to do this in the credit boom, especially since the global cost of capital was absurdly (and artifically) cheap and all asset markets everywhere were going up.

–No one (except Dr. Kurt Richebacher) seemed to recognise it as a worldwide credit-fuelled asset bubble. And when banks finally realised what had really happened (what they in part created), they were caught with falling assets and an urgent need to raise new capital. Which brings us to today.

–Europe’s banks alone will have to raise as much as $3.2 trillion in order to meet the new liquidity requirements of the Basel III bank regulations. “Basel III, due to be implemented in 2019, proposes requiring banks to hold enough cash or liquid assets to meet liabilities for a year,” Bloomberg reports. “The aim is to wean banks off the short-term funding from other lenders that dried up during the crisis and sent Lehman Brothers Holding Inc. into bankruptcy.”

–You wouldn’t expect banks to like any kind of rule that limits their profitability. But that’s where all this, if left unchanged, is headed. Another set of regulations—the European Union’s Solvency II regulations (which are due to come into effect in two years)—would make it more difficult for insurance companies to buy long-term bank debt. Banks would be unable t match long-term loans with long-term bonds.

–Simon Willis from Daniel Stewart Securities Plc. in London says if banks can’t sell corporate bonds to insurers, they will have to borrow more from other banks, increase their deposit base to use as a source of funding, or, horror of horrors, lend less. An increased cost of funds eats into profits. And lower lending levels definitely eat into profits. It is hard to build your art collection with lower profits.

–It’s no wonder Australian banks (and the Treasury) are resisting the G-20’s push to label Australia’s big four banks as “too big to fail.” This would require them to hold even more capital than already proposed. The Aussie banks assure us they are well-regulated and not at risk of causing a systemic crisis because they have lent prudently and have plenty of liquid capital. Got that?

–There are two forces at work here, then. One is the banks, who really want to go back to the good old days when they could borrow freely and loan liberally and not be constrained by capital and liquidity requirements. The other force is regulatory, which sees unlimited bank balance sheet growth (and low interest rates) as the sort of thing that can blow up a global economy (not desirable).

–What does any of this have to do with covered bonds? Funny you ask! That question came up yesterday over a beer with a friend. The conversation went something like this…

–“Come on, Dan. You’re not seriously arguing that an Australian bank is going to fail if the housing market crashes…and that the RBA is going to have to print money so the government can bail out depositors…are you? I mean, covered bonds wouldn’t cause all that, would they?”

–“No, that wasn’t my point.”

–“Well you should make your point, because it wasn’t very clear.”

–“Okay. My point was that Australia’s financial system looks a lot like all the other ones that got into trouble. Introducing loan guarantees…buying up residential mortgage-backed securities…allowing for covered bonds…and introducing the Financial Claims Scheme…all of it manages to accomplish one major result.”

–“Which is?”

–“Australian banks offload all of the risk from bad lending decisions to the taxpayer, via the government. The banks have every incentive to maximise profit because all the losses are going to be backstopped by the government. This isn’t capitalism at all. It’s what I called it yesterday, The Great Australian Bank Robbery, only the banks are robbing the people by forcing a set of regulatory changes that shift the risks on to the public.”

–“Oh. Well, you act like it’s a bad thing that banks are trying to find a way to funnel more money to the housing market. A lot of Australians own houses. The government and the banks should support the housing market or else a lot of people might lose a lot of money.”

–“That’s not capitalism either. That’s organised asset price inflation. And it’s just inflation. It’s not real wealth. Increasing a nation’s productive capacity (its capital stock) through investment produces real wealth. Trading houses between one another at higher and higher prices using more and more borrowed money is not wealth creation. It’s gambling. And it’s going to blow up.”

–“You’re such a buzz kill.”

–Apparently we are also a hatchet man, at least according to one reader:

Dan Denning

Your little hatchet job on Garnaut was truly disgusting.  A funny little lit wonk writing an investment blog has the arrogance to make fun of all reputable scientific advice and its mouthpiece, in this case, Garnaut.  The American believer in you is capable of believing anything that comes to mind, and in this blog you don’t even have to justify yourself.  I suppose you think the banning of CFCs to reverse the man made destruction of ozone in the atmosphere was also a plot by the ratbag scientists.  Where will all this lead?  Your article was a good example of pithy American believer nutterism.  You are now on my ignore list.

Ross Flutter

–Well Ross, at least you got one thing right. Garnaut, as the government’s climate adviser, is little more than a mouthpiece for a predetermined position, and is probably being compensated for his efforts. His job is to produce a credible sounding and authoritative looking report that supports the government’s position, preferably filled with a lot of impressive jargon, bullet points, charts, and footnotes.

–But if you’re still reading, you should go back and read what we said again. Our criticism of Garnaut was that being an economist doesn’t make one a climate change expert. This is nothing more than an argument from authority, which is a tried-and-true logical fallacy. As an American nutter, our view is that authority can stick it in its ear.

–Being a doctor doesn’t make Garnaut right. Being in the majority doesn’t make him right. What would make him right is if he had a winning argument. If he wants to win the argument about climate change, he should stop treating the Australian public like a bunch of ignorant children who need to be told what to do.

–Yet this is what he said recently, according to the ABC:

There’s no doubt that there is a battle, an awful battle between ignorance and knowledge going on. It’s a great contest between the academies of sciences of Australia … the academies of science of all of the countries of scientific achievement on the one side, and the shock jocks of Australia on the other. We’ve had these battles before in the history of our civilisation. This battle will have quite a lot to do with the future prosperity of Australia, the future quality of our civilisation.

–Can’t you just smell the condescension in that statement? This is an indirect way of saying, “Don’t argue with me because I’m smart,” or its corollary, “You should shut up because you’re stupid.”

–But have a look at the key points in Garnaut’s latest update (number 8!) to his 2008 climate change report. This update is about nothing less than “Transforming the electricity sector.” In this report, Garnaut concludes that, “the introduction of a carbon price is highly unlikely to threaten physical energy security.” In other words, he’s saying it won’t put coal companies out of business. That’s disputable (although many would find it desirable), but he adds this bit:

Nevertheless, it may be prudent to implement cost effective policy measures to assuage concerns about energy security and to improve the regulatory functions of the energy market. These measures include

    • The introduction of an Energy Security Council to implement measures to counter energy market instability regardless of the source; and
    • The judicious provision of loan guarantees to high-emissions generators through the transition to carbon pricing.

–Did you get that? He doesn’t think his reforms will put the power industry out of business. Why? Because he’s going to form a committee with new powers to, you know, do things…and then have the government back-stop loans to keep newly unprofitable power companies from going out of business, if necessarry.

–Hmm. It seems like it would be easier to not introduce ‘reforms’ that could put Australia’s power companies out of business. But that would not be transformative. And the ultimate goal of the central planner and bureaucrat is to transform the nature of free markets so that everything flows through an elite bureaucracy of technocrats, of which Garnaut happens to be a high priest.

–But you have to give him credit. He does have faith. And strangely, he seems to have a lot of faith in the private sector to spontaneously generate technological improvements in response to a new carbon price introduced by the public sector. He says, “We need a lot of technological change, fast,” as if it’s like ordering, saying, a lot of fried chicken when you’re hungry.

–This seems like a fairly academic (and unrealistic) understanding of innovation; a kind of “just in time” technology change which eliminates all the negative effects of your policy change. What’s worse, Garnaut thinks that spending more money will magically produce the innovation required. Of course it’s government money (your money). He writes that:

One potential driver of accelerated technological development in low-emissions technology is the recent increase in public investment in innovation following the Great Crash of 2008. The injection of substantial ‘green’ stimulus spending by governments within stimulus packages following the Great Crash reversed the 35-year decline in real terms in low-emissions energy research, development and demonstration (IEA 2010) and raises the prospect of significant breakthroughs. This may extend beyond breakthroughs in learning by doing to shifts in technological processes or shifts in the production function.

–Translation, “Garble garble blah blah blah. Spend more public money on innovation and you’ll get the breakthroughs you need to make your policy workable or mitigate its wealth-destroying effects.  Garble garble blah blah blah.”

–It’s important to point out that we’re not making an ad hominem attack on Garnaut the man. We’re merely raising two important points about how bad his ideas are. First, Garnaut has been selected as the point man on climate change to give credibility and authority to a report on a policy the government has already selected. There’s nothing objective about his ‘expert’ opinion.

–You might think of this as an argument, “From authority, with love.” He seems likable enough. And he is a doctor. He’s just the sort of guy to give covering fire to a government eager for more revenue and power over private and public life.  But likable or not, the argument is from authority and for authority. And that should not be the basis of changing the cost of energy and the whole structure of production in the Australian economy.

–Our second important point is that Garnaut doesn’t know as much as he thinks he does. Neither do we. Neither do you. He’s only human in this regard. But perhaps he doesn’t recognise it. A bit of self-knowledge (and modesty) wouldn’t go amiss (yes , we aspire to this modesty as well).

–Specifically, he’s making the text-book economic mistake made by central planners and government bureaucrats. Like most people with a great faith in planning, he’s confident that his knowledge is complete and superior. But total knowledge in a complex and dynamic system is never possible. Friederich Hayek makes this point in his essay, The Use of Knowledge in Society (emphasis added is ours):

The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate “given” resources—if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.

–Hayek’s point, admittedly, is about planning in general, and prices. But the point remains: Garnaut is bulldozing through the climate change debate with pages and pages of predictions and prescriptions without complete knowledge of a) whether carbon dioxide is a pollutant, b) whether human beings are causing global warming, c) how the climate even changes over the long term.

–That is a lot of known unknowns. And it’s a lot of ambiguity to sweep under the rug as you make even more sweeping changes to Australia’s economy. But maybe we should just take his word for it and hope for the best. After all, with the government and a bunch of economists and academics in charge of the economy, what could possibly go wrong? You should shut up and do what you’re told.

Dan Denning
For Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. Hi Dan i liked the article, I would be interested to hear your point of view on the case that has been made on climate change initiaitives that the financial risk of acting to cut emissions when it is not necessary is less than the financial risk of not acting when it is (and facing significant climate problems). By extension the carbon tax (or any serious sounding Australian initiaitive) whilst effectively meaningless in the context of global emissions might contribute to sway internatioal convention towards meaningful abatement and hence risk reduction.

    Reply
  2. It’s worse than this:
    “he’s confident that his knowledge is complete and superior”

    He, and his fellow propagandist Tim Flannery, readily admit there are a lot of unknowns. When asked how much the tax will cost, Garnaut says he can’t answer. When asked how many degrees of warming will be averted, he shrugs and says it’s impossible to calculate (which is patently false, given all the projections are based on computer models taking atmospheric co2 as an input).

    They freely say they don’t know how much it will cost, and by how many degrees or warming (or co2 parts per million) will be saved.

    However, where we do get some confidence is ‘lower income people will definitely be better off’ and ‘Australia will lead international negotations’. The former is unknowable without the costs, and the latter would be a regular joke in foreign policy circles.

    So we have uncertain costs, uncertain benefits but the supposed side effect of wealth distribution is ‘well known’.

    Makes you realise exactly what the purpose of the whole exercise is, doesn’t it?

    J Green : calculations have been made using the IPCC models. Cutting Australias emissions by 5% by 2020 (and thereafter) will reduce global warmining by 0.0005% by 2050. The line that ‘we don’t know the cost, but we know the alternative will be worse’ is just a pure, made up guess designed to frighten people and prove the likes of Garnaut have all the answers. The amount of unknowns going into that type of calculation quickly renders it a meaningless exercise – not at least the risk-free rate that went into something like the Stern report (Garnaut’s title compatriot in the UK). It’s like trying to predict the 2015 melbourne cup winner by analysing the grass seeds at flemington, the price of aviation fuel and the rate at which promising young horses are winning in rural racetracks.

    What people like Garnaut don’t want the public to realise that the co2 tax is actually a reverse tariff. It’s a tax on Australian produced goods and services with no comparable for imported goods and services. Nobody is brave enough to implement an actual tariff these days, but yet we are supposed to believe a reverse tariff is going to be sound economic policy? You don’t need to assume a can opener to see how crazy this all is.

    Reply
  3. Great article Dan

    and a very good commentary by brc.

    where are you Joe? This is going to cost the community big time .. it seems to me that all it is doing is shuffling the chairs on the Titanic. Take from the power companies who charge the consumer some of whom get reimbursed by a tax cut from some of the revenue from the tax on the power companies. AND Gamaut and Flannery ($180,000 for a part time chairmans role) will become R I C H !!

    Good Government
    Good God!!

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  4. There is overwhelming consensus in scientific circles that the climate is changing and that the cause is anthropogenic. Having studied climate science as part of a Masters degree I agree and am on the side of science. There are a great many people who do not agree though; and as the article points out, the main difference is knowledge. I would suggest that politics is as important and if ones view of the world is that a laissez-faire free market approach is best (as I do) then one is far more likely to oppose the science of climate change. The problem is that the response required is collective, simply because the air and the oceans are commons. And that requires regulation and the internalizing of cost; and this means the imposition of a tax. The deniers don’t like regulation or taxes, therefore they don’t agree with climate change. It is intellectually dishonest, but that is the reality.

    Anyway, climate change isn’t todays problem. Peak Oil is upon us and the impacts are already evident – just connect the dots. The gas price in the US (and everywhere else) is threatening the “recovery”, Qantas is grounding planes, retail is struggling, the housing bubble is about to burst (in Australia) and much else besides. In these circumstances we have no hope of managing climate change. In short, we are stuffed!

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  5. Great article. Except that it (like of all Dans articles) fails to remedy one issue, both major Australian parties are going to “act” on climate change. So, the real question is not “whether human beings are causing global warming”, but given both parties are going to act, which form of action is most beneficial.

    Beneficial in this sense relates to both the reduction of CO2 and to my hip pocket. The Liberals direct action approach fails in that “it is a problem of the utilization of knowledge which is not given to anyone in its totality”. Taking money (taxes) from productive enterprise and giving it away to business of their choosing is nothing short of robbery.

    A carbon tax which is used completely to offset income tax, is a market based approach and as Dan rightly points out, it would allocate “the best use of resources, for ends whose relative importance only these individuals know”.

    There are 3 major hurdles for a carbon tax;
    1. No government (especially Labor) can keep their hands out of the cookie jar and any tax revenue raised will be subject to unnecessary government waste (eg. Garnauts Energy Security Council). However, this doesn’t mean that the principle is flawed, just that people and especially political people are.

    2. It’s too simple of an idea that a large percentage of people don’t understand it. Eg. My mate @trested here reckons he’s going to see “Carbon Tax” as a line item on all his receipts, which completely misses the point. He also doesn’t understand that incentives are not binary, “I have an incentive now regarding electricity costs. Why do I need a carbon tax and [an income] tax reduction to make me change?” – trested

    3. It’ll actually work. Which is probably why the Liberals are pursuing an anti-capitalist solution, then Mr. Abbott can implement his policies and say, “see we spent much more money than Labor on green technology and still weren’t able to reduce emissions!” This is just spiteful, wasteful and probably fraudulent.

    Reply
  6. @Joe “It’ll actually work.”

    Please tell us by how many PPM of CO2 in the atmosphere this tax will change. You can assume no major emitters changing their current policies and a carbon price of $30/tonne, and a target of 5% cuts by 2020.

    The only place it will work is in the minds of policy dreamers and undergraduates newly familiar with economic theory. You admit this yourself by saying it is a beautiful plan, but flawed because it will be implemented by humans. In your mind a HAL supercomputer would be the best way to implement a plan – far above the meddling hands of man.

    You call it a market based approach – well, sorry, but markets are spontaneously created by free people trading things that they want. You cannot force a market into being via the use of government, which is underwritten by force, and then call it a market. Gold doesn’t need governments to create a market for it, nor wheat, nor wages. These are all things people have (and will) continue to trade freely regardless of whether there is a functioning central government or not. These are true free markets. Pretending to create a free market with a couple of pieces of legislation is blatant misunderstanding of the human condition underlying a proper understanding of economic theory.

    The Liberal policy is bad as well, but has the distinct advantage of being able to be dropped at a moments notice by cutting budget allocations, while having some positive real benefits of planting trees as a leftover. The only leftover from a carbon tax is a massive army of carbon-counting beuracrats, a truly useless activity in the scheme of things.

    The best plan overall is the ‘do nothing stupid and counterproductive and hope for the best’ plan. Because ‘acting’ will not change anything, but will distort capital investment and waste money. Money which could otherwise be improving lives through improvement of living standards. You might scoff at the ‘hope for the best’ plan, failing to realise that is exactly the plan humans have been following since the first hominid pair stood up and walked out of East Africa.

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  7. I have to take SailDog to task over his comments. There is absolutely NO CONSENSUS among scientists about climate change. In fact, they cannot even agree on how to measure ‘Greenhouse Gas’.

    Exhibit a:
    “” There is no dispute at all about the fact that even if punctiliously observed, (the Kyoto Protocol) would have an imperceptible effect on future temperatures — one-twentieth of a degree by 2050. ”

    Dr. S. Fred Singer, atmospheric physicist
    Professor Emeritus of Environmental Sciences at the University of Virginia,
    and former director of the US Weather Satellite Service;
    in a Sept. 10, 2001 Letter to Editor, Wall Street Journal ”

    Dr Singer seems to be of the opinion that scientists agree that humans cannot effect the greenhouse gas levels. Of course he is of the opionion that water vapour (95% of the ‘greenhouse gases’) should be included in the calculations. But that would reduce human contribution of CO2 to a minisule 0.117%.

    Carbon Tax has nothing to do with saving the planet and everything to do with increasing the tax take.

    Reply
  8. @brc
    You’re right the only true free market response would be to do nothing, and then “if” global warming were true and sea levels rose, etc, then entrepreneurs would spring up and take advantage of that some how. Agreed. So, I don’t scoff at the ‘hope for the best’ plan. But you can’t disagree that a carbon tax is more market “based” than the Liberal policy. Especially, if all the revenue raised were used to reduce income taxes, personal and corporate. We don’t have a free market in this country anyway, and if the carbon tax were revenue neutral then it’s net effect wouldn’t distort the market anymore than it already is. True it’d be differently distorted but difficult to argue more.

    I’m not sure what this massive army of carbon counting bureaucrats that you talk of are doing. There’s only about 50 coal fired power stations in Australia to manage and petrol excises exist, so there’s already a framework for taxation there. Energy and tansport account for about ~70% of our emmissions, so hit them and you’re most of the way toward acheiving the desired result (reduced CO2 emissions).

    Your question is difficult to answer because of the premise that, “no major emitters [will change] their current policies”. The whole point is that they do, or are forced to because of a reduction in profits. Suppose people reduce their usage by 25% at the tax rate proposed. Then, we would need to adjust the tax rate upward to make up the shortfall. But when we do that, people will conserve more. So we need a higher rate yet. There may be a rate high enough that allows us to replace the income tax, or there may not. – http://www.holisticpolitics.org/GlobalWarming/

    I find it ridiculous however, that you a. Think any government spending can be dropped at a moments notice, how’s Labors Building the Education Revolution going? Glad they were able to drop that as soon as the stimulus wasn’t needed anymore and, b. Misunderstand that “budget allocations” come from our taxes, any money the Liberals spend is as a direct result of increased taxation.

    Finally, and no one may ever read this but here’s a question. Assume for a second that global warming exists and it is man made (bear with me). Then, green house gas emissions have a cost, rising sea levels, drought, flood, etc. Who pays for that? If CO2 emitters are able to pass on the costs of these things for free then aren’t they already distorting the market? A carbon tax then is just adjusting prices to the “real cost” of doing business.

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  9. No, my question is not difficult to answer. That is a complete cop-out.

    The desire of the tax is to cut emissions by 5% by 2020.

    Therefore, if the tax works, emissions will be cut by 2020.

    If Australias emissions are cut by 2020, and all other countries currently stay on the course they are on, then the calculations are quite possible.

    The fact is the answers reveal the truth about the tax – it is a useless ‘feelgood’ policy designed to do nothing. If you are genuinely concerned about global warming then you should reject the tax. If you are genuinely afraid of the co2 bogeyman, you should be campaigning to stop all coal mining right now. Granted, some of the more severe Greens do campaign on this. But all this middle of the road, oh we’ll just tax them a bit, cut emissions by 5% is just political posturing – greenwashing by the ATO.

    As for dropping government spending, the BER will be gone by the next election. Instantly is a relative word in government policy circles. The Carbon Tax will still be with us forever. After all, personal income tax was only levied on the rich to help pay for World War 1. Governments can and do drop spending all the time. They never give up their revenue streams.

    Who pays for raising sea levels? Well, for a start, this wont happen for centuries even under the most aggressive IPCC models, so it is so far down the track it is not worth worrying about. If you do want to worry, the answer is ‘future generations’. And because the changes will happen so slowly, they’ll have plenty of time to adjust. There will always be winners and losers, climate-wise. Those that win will congratulate themselves. Those that lose will berate both themselves and those that have won. Not a single thought will be given to the people that lived in the late 20th/early 21st century. We deal with problems created by earlier generations all the time – cane toads being a perfect example. But do we sit around blaming the people who released them? No. We just sit around trying to solve the issue. That’s because humans are built for adaption and change, and action doesn’t mean crying into your beer about the hand that you have been dealt.

    Again, my point : the carbon tax will not work to it’s stated aims. Therefore there is no reason to support it, even if you a fervently co2 phobic.

    Reply
  10. Your real argument is not that it won’t reach its stated aims but, “why bother stopping at a 5% reduction”? We need to go for 70 or 80% you reckon? Or is it, “we’re such a small country, we don’t matter”? There’s some sort of circular defeatest logic in there, why bother having a military? Why bother doing anything? Who knows something to do with the human psyche I presume. There’s probably lot’s of reasons on both sides of that, but again both parties ARE going to ACT, so which one, a. works best and b. is most cost effective?

    As for the carbon tax being a government revenue stream, you’re wrong. I’m not advocating that at all, I’m advocating using it in its entirety to reduce (dramatically over time) income taxes.

    CARBON TAX WORST CASE SCENARIO
    Global warming doesn’t exist and we’re left taxing CO2. The carbon tax has significantly reduced our dependence on coal and oil, we’ve used less and the rest of the world (China) is still hungry for more, we sell our supplies to them at an ever increasing price because they’re even scarcer than today. It hasn’t cost us anything at all because the revenue went straight into reducing income taxes.

    DIRECT ACTION WORST CASE SCENARIO
    The Libs build 5 massively overpriced perpetual motion machines, one for each state (except tassie because the greens complained of noise pollution). We’re stuck paying for the maintenance of these things for the next 30 years, even though because they’re built by the government don’t actually do anything. A la the newly built Victorian desalination plant.

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  11. Joe your carbon tax worst case scenario is far too rosy.

    How about taxing the economy so much it is brought to its knees, and the whole country suffers a debt-laden recession/depression as foreign investors leave and our dollar plummets?

    This is at least the third tax we’ve been introduced to in the last 12 months. Not a good thing.

    Reply
  12. And if you like simple, try this.

    CO2 is ommitted from productivity. From energy use.

    Taxing productivity even more, and giving money to people as a tax break, only empowers the workers themselves, not the companies that they work for.

    Tax the companies, give the money to the workers (and bludgers). It’s not a recipe for ‘economic’ success.

    But, if you don’t give a crap about the economy at all, then yes, this regulated, semi-communist approach of taxing CO2 emmissions will encourage alternate energy use. So you are right there.

    It just seems that you have no idea about the ‘cost’. A bit like a driver of a smart-car, thinking they are clever by supporting the environment, only to find out that the cost to them will be their life when they have even the slightest of knocks from an SUV driver.

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  13. An apology to Biker for calling him and me a pair of poofs might be in order Pete? Given all the crap he’s copped from so many parties over the years. Though no need to apologise to me as I’m a bit indifferent to copping a bit of crap now.

    Reply
  14. Comment by Ned S on 31 March 2011:

    An apology to Biker……….Given all the crap he’s copped from so many parties over the years.

    All of it deserved…

    Stillgotshoeson
    April 1, 2011
    Reply
  15. “All of it deserved…”

    I disagree on that Shoes.

    Reply
  16. Comment by Ned S on 1 April 2011:

    “All of it deserved…”

    I disagree on that Shoes.

    As is your right,,,,,,,,

    Maybe “All” is a bit harsh, however “most” is definitely warranted…

    Stillgotshoeson
    April 1, 2011
    Reply
  17. Ahh, Shoes, Shoes.. . Harsh?!~ :D

    Surely not the fella who cursed me with:
    1.) A slow painful death through Liver Cancer; 2.) Prostate Cancer, pissing blood; 3.) Broken neck through motorcycle accident; 4.) Total incapacitation, spoon-fed and arse-wiped by missus…?

    And we both recall _exactly_ why you cursed me, don’t we?!* ;)

    I expect no apologies from _anyone_, Ned.

    Everyone here is hoping to learn something to his and her advantage; to fly a theory or two in a forum in which little quarter is taken or given.
    It would be extremely foolish to think that we won’t come to verbal blows at times. What goes around comes around… . :D

    * I’m a patient man… . ;)

    Biker Pete
    April 1, 2011
    Reply
  18. I’ve got a bit more history on it than a lot I suspect Shoes? Having seen Biker and a couple of other parties who’ll know I mean them if they read this, chat about house prices elsewhere (with me throwing in my threepence worth as a bit of a johnny come lately regardless). Then also seeing some really strange stuff pan out on this site immediately prior/around the time of you first appearing. (Where in at least one instance I felt to back Biker on purely moral grounds but didn’t as I thought his protagonist might have had a lot to contribute to lots here – With me making the decision at the time that with it being a financial/investment site Biker’s ‘right’ to support on any ‘moral’ grounds was most reasonably subjugated to the opportunity of the majority here to potentially hear some useful info re finances.)

    Which decision I’ve since had cause to reconsider! :D

    Reply
  19. “I expect no apologies from _anyone_, Ned.” – Never crossed my mind for a moment that you would Biker. But certainly thought it was appropriate to point out that such might be ‘good form’ – In this particular case.

    Cheers mate! :)

    Reply
  20. It’s all academic, Ned.

    One can never be sure ‘The Plan’ will work as well as one hoped.
    We’ve exceeded our hopes, indeed our dreams. I’m retired, healthy, fit and financially ‘comfortable’ (and comfortable with that euphemism! ;) )

    I’ve never been influenced by a pessimistic critic or an Irish Mobsta, but I’ve learned a great deal from a number of kind contributors whose views differed from mine, but offered constructive advice opposed to my views; yourself included.

    Much of my time will now be spent writing the family history and travelling. At the gym a lot these daze, so my contributions are
    fewer, a fact which must upset a few sparring partners… . ;)

    Cheers, Ned. :D

    Biker Pete
    April 1, 2011
    Reply
  21. “Much of my time will now be spent writing the family history and travelling” – Struggle a bit to see you ‘riding off’ into the sunset of your ‘dotage’ never feeling inclined to contribute further Biker? :D

    But either way it’s good to see a worker break himself (and in your case herself/tamarra ;) )and theirs, out of the grind. So Congrats again – April 4 looms close now!

    If nothing else, people MUST remember your advice to get a plan. And to ensure it’s got some flexibility built in. IM(H?)O.

    Reply
  22. Comment by Ned S on 1 April 2011:

    I’ve got a bit more history on it than a lot I suspect Shoes?

    Can only comment on what I have seen Ned.. From what I have seen.. the crap he has had thrown at him is self inflicted.

    Have been on the site for 2 years now. Common theme on any thread full of tirades is Biker Pete.
    2 years ago his position was you can’t go wrong with property.. Then it was property might stagnate, now onto it might correct a bit but the impending mining boom in WA will save WA property but not sure about east coast..

    Clearly Perth property has hit the skids and is in decline.. as some has stated in the comments section of the Perthnow link and Kris says in his Money Morning article.. the likes of Biker Pete and his fellow spruikers are a bit thin on the ground now…

    Stillgotshoeson
    April 1, 2011
    Reply
  23. You’ll have to wait three more quarters for _your_ Report Card, son. ;)

    Biker Pete
    April 1, 2011
    Reply
  24. All I can say to that Shoes, is that even though I remain bearish on property, I can see why Biker (being 12 years older than me and living in a different state) could very well be way less bearish than me. And at the risk of starting any other bunfights (which I have NO desire to do) simply have to admit that I’ve learned from him.

    Reply
  25. Hey, it’s 11:13 pm over here, fellas. Time for bed!~
    Cheers… .

    Reply
  26. Comment by Ned S on 1 April 2011:

    And at the risk of starting any other bunfights

    I have found it easier to ignore him all together….

    Stillgotshoeson
    April 1, 2011
    Reply
  27. “I have found it easier to ignore him all together….” – Each to their own maybe Shoes?

    “Time for bed” – Yep, time to call it quits here as well – I’ve still got half a bottle of Wolf Blass left; And am far more practiced at removing corks from bottles than putting them back in. But as it’s 1:32 AM here and I need to make like a plumber on the morrow, I guess I’ll just have to make that ultimate sacrifice on this occasion! :( Til tomorrow nite anyway! :D :D :D

    Reply
  28. House prices in metropolitan Melbourne dropped two per cent in the September quarter, from $500,000 to $490,000.

    Well I can count a tick on my scorecard for Melbourne going under 500K then ;)

    Comment by Ned S on 1 April 2011:

    Til tomorrow nite anyway! :D :D :D

    2:36 in the am here…… not working today, working security tonight (as in Friday night not present night)

    Stillgotshoeson
    April 1, 2011
    Reply
  29. Hawthorn, Toorak retreat

    Hawthorn’s median price also dropped dramatically by 24.6 per cent from $1,602,500 to $1,208,000, the Valuer-General said.

    Toorak, which had the highest median price of $2,335,000, also suffered an 11.9 per cent decrease from the previous quarter and a 15.1 per cent decrease from the same period the year before.

    “It can generally be observed that with a few exceptions, the September 2010 quarter produced general decreases in the eastern suburbs and a mix of increases and decreases in the western suburbs,” the Valuer-General’s report said.

    House prices in metropolitan Melbourne dropped two per cent in the September quarter, from $500,000 to $490,000.

    This followed an increase of seven per cent in the previous quarter. The September results also showed a dip in sales volumes, the lowest quarterly result since the March 2009 quarter.

    The Real Estate Institute of Victoria will release its March 2011 quarter results in two weeks’ time.

    “We wouldn’t be surprised if this quarter saw a reduction of 3 to 5 per cent,” spokesman Robert Larocca said. The drop in values was likely to reflect a quieter month in January and no seasonal adjustment to the figures, he said.

    Stillgotshoeson
    April 1, 2011
    Reply
  30. Plot the points on the AUD-USD chart :

    http://www.economist.com/node/18486183?story_id=18486183&fsrc=nlw|hig|31-03-2011|editors_highlights

    1. When securitisation and derivatives blew up
    2. QE I started
    3. QE I petered out
    4. QE II started

    What happens next?

    Reply
  31. Stress tests hit Irish and Portuguese banks but Euro rises against the USD, Pound drops against the Euro. No run to USD safety, inverse to Euro crisis round one

    Reply
  32. @Pete,

    Two points on your posts:
    1. If no “extra” tax is introduced (carbon tax == reduction in income taxes) then there is no nett extra expense on the economy. No increased risk of recession.
    2. I’ve purposefully used income taxES PLURAL. Companies must be compensated! Use the revenue from a carbon tax to reduce the corporate profits tax rate.

    A carbon tax does not to shift wealth from the rich to the poor but shifts wealth from high emitters to low emitters.

    Please explain how a carbon tax is a semi-communist approcach? Direct action takes income tax revenue and gives it to government approved projects/business – that is socialism.

    Reply
  33. Comment by joe on 1 April 2011:

    A carbon tax does not to shift wealth from the rich to the poor but shifts wealth from high emitters to low emitters.

    Please explain how a carbon tax is a semi-communist approcach?

    First up.. no changes for a thousand years to global temp.

    Government has stated that the lower classes and middle classes will be no worse off under a Carbon Price/ETS system and in fact most will be better off financially… that is wealth re distribution.

    Stillgotshoeson
    April 1, 2011
    Reply
  34. @joe, you mean it shifts wealth from producers to non producers. we can all join the public service and dot com companies and be rich!

    Reply
  35. @Joe

    “A carbon tax does not to shift wealth from the rich to the poor but shifts wealth from high emitters to low emitters. ”

    Ross basically said what I was going to say, but with better humour.

    Think about it. What caused the rapid advancement and industrialisation of the world? Oil. Carbon based fuels.

    Coal power plants. CO2 emitters. We rely on electricity for practically everything. So, a big tax on everything.

    Taking money from one place and giving tax breaks to another? Like taxing the hell out of term deposits and giving tax breaks to property investors? We get to see the distortion there every day. Let’s not pretend that a carbon tax won’t distort things, and lets not assume it will all turn out well.

    Your point does stand – yes, taxing emissions will encourage us to reduce emissions. It will also encourage us to do some really stupid things.

    Regarding an ETS, I can imagine the shell companies starting up right now, claiming they are not emitting anything and wanting to trade their carbon credits to the heavy emitters. Shell companies that don’t actually produce anything much, just solely exist to avoid taxation. Excellent.

    And finally…
    “Government has stated that the lower classes and middle classes will be no worse off under a Carbon Price/ETS system and in fact most will be better off financially… that is wealth re distribution.”

    You think too low-level in this regard. Where do the lower and middle classes get their income in the first place? Companies. Why do companies exist? Because they can see profitability in establishing their business. Because they can see a return on investment. You start messing with the RoI through taxation, and companies close up shop.

    You can give as many tax breaks as you like to unemployed people, they’re still unemployed.

    Reply
  36. Sorry I misquoted you… it was Stillgotshoeson that said that last thing, but it was in response to you so the gist is fairly right.

    But yes, I agree with Stillgotshoeson – it is wealth redistribution. And where you take wealth from one, and give to another, there is always one party that will be upset. Bye bye foreign investment dollars?

    Reply
  37. @Pete, Shoes.
    I’m not advocating that a carbon tax should be some sort of social welfare scheme. Labor may, but that is there want.

    My original point, which remains unrefuted is this: A carbon tax thats revenue is (100%) used to offset income (personal AND corporate) taxes is the cheapest (it’s revenue neutral) and effective way of reducing CO2 emissions.

    You assume that direct action is both a) free or b) not wealth redistribution. When the Liberals spend money on “green” projects for their mates, that’s wealth redistribution, it’s your money that they’re intending to spend.

    Reply
  38. For those who buy Kev Rudd’s line about this being the “Greatest moral challenge of our time”, then tell the blokes who want to mine coal and build factories that they’ve also got to plant some forests.

    As to governments that want to tax me more because of it and then say “But we’ll give you even more back in return”, I just say “Yep; And the other one STILL plays Jingle Bells!”

    Reply
  39. The Australian economy is not a magic pudding Joe. The carbon tax will lead to higher energy prices in Australia which will drive industry elsewhere and consequently raise unemployment or lower living standards or both. That will of course lead to that wonderful housing correction that quite a few people on this site are looking forward to so I guess take the good with the bad.

    Reply
  40. @Don, you’re absoloutely right. I don’t see how they can introduce a tax on industry without a reciprocal tax on imports. Labor’s whole carbon-tax proposal falls down if they don’t address this obvious issue.

    Reply

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