How Political Incompetence Provides a Deflating Experience For All of Us

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Australia’s political incompetence has been quietly bubbling away for months. Fortunately, Europe’s world-class, AAA-rated, gold medal political incompetence has masked the shortcomings of our own power mongers and their schoolyard antics.

But Kevin Rudd’s tantrum in the sandpit has brought the spotlight back on Australia’s truly dysfunctional political system. Apparently, Julia was about to take Kevin’s toy (the Foreign Affairs portfolio) off him. But Kev saw her coming, threw the toy away and got out of the sandpit. He has eyes on the big yellow Tonka truck – the leadership.

And that’s probably fair enough. Kev is still very dirty on the Labor Party for throwing him out of office when it looked like he couldn’t win the 2010 election. After watching a Labor-led minority government lurch from one debacle to another over the past 18 months, he’s decided he wants ‘his’ job back.

Let’s be honest here…politicians do not care about ‘the people’. Despite giving the appearance of siding with ‘us’, Rudd’s platitudes about the Labor Party soap opera ring hollow. He’s been a part of the show for decades, only turning on it now because it doesn’t suit his personal goals.

We think the Australian people will see through this for what it is – Rudd upping the stakes in an attempt to win back the leadership. He’s willing to destroy his own party for personal gain. That’s very un-Labor like.

As much as it pains us to write about politics, as Dan mentioned yesterday, it has important implications for investors. One of the reasons for Australia’s poor stock market performance (apart from having a hawkish central bank) is the uncertain nature of our government.

Labor governs, but only just. The precarious balance of power dictates that the Greens and Independents also get a say. Whatever your political allegiances, this is no way to run a country.

The left-leaning Gillard government, with the help of the economically ignorant Greens, has increased the amount of red tape businesses have to deal with. Australia’s productivity performance, already poor from decades of overinvestment in housing stock, is getting worse.

If not for the resource investment boom, Australia’s economy would be in a deep hole. There is probably a good couple of hundred points of ‘political risk’ discounted into the ASX200 share market index.

These latest developments will not do anything to comfort foreign investors or indeed anyone (outside of resources) looking to make long-term investment decisions in Australia.

Rudd will now probably challenge for the leadership. Does he have the numbers? There’s no doubt a lot of lobbying is now going on behind the scenes. It all comes down to which sinking ship the rats will flee – his or Gillard’s.

Either way, the Coalition party get a massive free kick from all this. And they need it too. They’re nearly just as useless as Labor.

Before continuing, we want to make it clear we have no political allegiance. We grew up in a working-class neighbourhood. It was a Labor stronghold. People would vote Labor no matter what.

Being young and ignorant, we followed that course. A left-leaning ideology is very seductive to a young person who thinks the world needs fixing. It appeals to the hubris of humans. And therein lies its danger.

We read the Communist Manifesto. That sounded ‘fair’. But it didn’t sound right, or even possible. Who was going to pay for it all? So we studied capitalism…its history, proponents and critics.

We came to the conclusion that capitalism was about offering choices. And if you chose wisely, you could attain personal freedom. That is, not be bound by the chains of debt. Financial freedom is the first step to personal freedom, which for some people is doing what they love…and getting paid for it. Communism on the other hand was about coercion to achieve an unobtainable ideal.

Ever since we’ve been repulsed – and fascinated in a morbid kind of way – by all forms of politics. We recognise the need for limited government…we prefer hierarchy to anarchy…but still don’t like ‘the man’ telling us what we can and can’t do.

‘Do unto others as you would have others do unto you’ is a good rule to live by. But it’s the first rule cast aside in the Machiavellian world of politics. And Rudd would know…we reckon he could recite ‘The Prince’ back to front.

The bigger point to all this is the deplorable nature of politics all over the world. We have a world full of leaders who do not lead…they follow. They make the easy popular decisions and leave the hard decisions for someone else…our kids or grandkids.

And don’t tell us that Gillard is taking the tough decision with the Carbon Tax. That is a political deal done with the Greens to secure minority government.

Debt levels have increased to absurd heights all over the world because of profligate governments and central bankers holding the interest rate well below the ‘natural’ rate of interest.

Take these stat’s that I pointed out to readers of Sound Money. Sound Investments yesterday:

US total debt-to-GDP ratio – over 350%

UK total debt-to-GDP ratio – around 460%

Japan total debt-to-GDP ratio – nearly 500%

Eurozone total debt-to-GDP ratio – nearly 450%

By total debt, I mean government, household, business and financial sector debt. There would be some overlap between household, business and financial sector debt. But still, the numbers are huge.

Capitalism, left to its own devices, wouldn’t allow these numbers to get so out of hand. We’re not saying capitalism is perfect. But neither is a system that allows politicians and the financial elite (banking class) to have so much power and so little responsibility or consequence for their actions.

While the world’s middle class has attained ‘wealth’, they’ve failed to notice the looming debt mountain now rising above that wealth. Debt levels of the magnitude you see (above) in the major industrialised nations of the world are unprecedented.

Such high debt levels are deflationary, in that they suck the life out of economies. The higher the debt, the higher the servicing costs. And the greater the government debt, the greater the burden on the private sector to service and pay back that debt.

Asset price inflation is in the ascendency now. But it may not be long before deflation again rears its ugly head across global stock markets. Rudd, Gillard and Australian politics in general is just a sideshow.

Regards,

Greg Canavan
for The Daily Reckoning Australia

Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.
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5 Comments on "How Political Incompetence Provides a Deflating Experience For All of Us"

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shortchanged
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‘Do unto others as you would have others do unto you’ is a good rule to live by, but, the other rule, “Do unto others as they would do unto you, only do it first” is the one most used in politics. In my last year at school, i left at 15 years of age, we had a lesson called “Citizenship, Duties and Responsibilities”, notice nothing about rights, in which one part was “Democracy, means the greatest good for the greatest number”. Tell that to the Greens. I am convinced that those shouting loudest for democracy, don’t know the meaning… Read more »
trested
Guest

Greg, we get the “leadership” that we deserve. In my opinion, the politicians and the bureaucrats whether with left or right tendencies are mostly in it for the glamour and the benefits that it offers.
How can a pollie tell me that I can’t touch my superannuation until I reach a certain age but then grab there generous benefits from what can be a very young age (think former senator Chee).
There is one set of rules for the “insiders” and a completely different set for the rest of us.
I agree with shortchanged “but, we are all doomed anyway”.

Lachlan
Guest

Donna worry be happy fella’s. Once the financiers have drowned the nations in debt and taken all their gold as repayment they will solve this crisis by revaluing gold and instituting a lovely gold standard on everyone…just like everyone wants. China will be happy with all their aquisitions and their people will be happy with all their precious. Now run along and get with the program ;)

Joe
Guest

One of the reasons for Australia’s poor stock market performance (apart from having a hawkish central bank) is the uncertain nature of our government.

Compare the stock market performances converted to A$ terms and we are no lagards. The UK FTSE and US DOW are inflated by their money printing. After all, if you make new money from nothing, it has to go somewhere, doesn’t it?

Rod
Guest

We can only reform the political classes in Australia if we all vote against the sitting member, regardless of political stripe and get a new lot of pollies in. No more safe seats would be a great thing for democracy.

If the public wants to pick the PM we would need some new rules in both political parties. Won’t happen unless we vote the current lot out.

Please tell your friends.

wpDiscuz
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