Now Labor tries the Peachy Prescription

Hot on the heels of FINA implementing the Peachy Proposal to have a separate competition category for those very few folks who don’t want to compete against those of like-birth-sex, the Labor federal EZFKA government has decided to adopt a Peachy Prescription to deal with the economic zone’s energy woes.

Specifically, the Peachy Prescription was to dispense with the procedural niceties and technical difficulties around the gas reservation mechanism and tell the gas exporters to “fucking fix it, or else”.


The morning paper of the EZFKA southern mainland province reports that this is exactly what they’ve done:

https://www.theage.com.au/politics/federal/minister-puts-gas-exporters-on-notice-20220621-p5avgn.html

Husic said the gas exporters needed to know the government was “deadly serious” about direct intervention to force them to supply the domestic market on the grounds they were breaching their social licence to act in the national interest.

Will be interesting to see how this plays out. including whether the feds have the ticker to stay the course and present a credible threat.

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LSWCHP

I suspect the gummint will bloviate, the gas cartel will call their bluff and nothing will happen.

Meanwhile, I’ve largely freed myself from the clutches of the cartel by Installing a wood heater. This time last year I’d spent about $800 on gas for heating the house. This year I’ve spent about $150 on wood for heating so far.

Ramjet

You can adjust the oxygen levels for a slower burn. With a decent size bits of wood and decent wood (ironbark) the fire can go all night.

LSWCHP

We just run it in the afternoon and evening. Some kindling and a couple of medium sized pieces of of yed or yellow box will keep the living area warm from about 4pm to 11pm.

robert2013

The stpuid thing is that we can’t buy coal for our fireplaces. It burns longer and hotter for less bulk, it also releases less polluting smoke per minute. There are some places it’s so close to the surface you can mine it for yourself.

MR coal

The smell of sulfur in the towns of the hunter valley on a cold winter night begs to differ with your less polluting assertion for coal.

HD

Just because it smells different doesn’t make it worse.

Coming

I’ve been told that exposure to wood fires are worse for you than smoking cigarettes

in terms of cancer risk and lung damage etc

not sure if true but I think that’s why Sydney councils have banned it

Freddy

Council garbage collection used to be a single tiny bin. This was in the days when groceries were collected in cardboard boxes rather than plastic bags. On Sunday nights every household lit up their many cardboard boxes, newspapers, etc. There was smoke and ash everywhere.

Ramjet

Not sure what is worse, but solid fuel fires are pretty bad in terms of PM2.5. Pollution wise, gas is better as it is a cleaner burn, but Australia’s oligarchy is ensuring that gas is unaffordable and we pollute our suburbs.

If you want to know how bad wood fire heating is, then Armidale is pretty polluted in winter and there is an increase in respiratory issues.

Coming

Don’t most people just use reverse cycle air con to heat

stagmal

australians wouldnt need to rely on any heating measure anywherre near as much if our houses were actually built to passively retain warmth in winter. they are absolutely horrendously constructed heat sinks that leak warmth – in my apartment when i put my hand up to the closed window sill or doorway i can feel the freezing air seeping in.

its not feasible for anyone to afford basic things like double glazing (let alone triple or above) here, if there are any builders that even offer those features, let alone properly insulted ceilings, floors, etc.

not only do we have the most expensive houses we have the worst constructed houses. i’ve heard of people from finland coming here in winter and complaining about how cold it gets indoors.

EZFKA golden rule you don’t get what you paid for.

Last edited 13 days ago by stagmal
Jam

Mates wife is an eskimo and complained their ACT abode was freezing. On a visit I noticed she had heat shrink some kinda plastic to the inside of the window reveal. Apparently some kinda make shift double glazing. Looked interesting to say the least

Gouda

Parent’s old place used to have a wood fired incinerator – IIRC use was banned in the early 90s, and can remember the smell was always foul.

On the otherhand, love the smell of wood campfires although it’s only something we do once a year at most.

bjw678

True, Its worse because it’s worse.
https://en.wikipedia.org/wiki/Pea_soup_fog

Coming

RBA likes to jawbone too

Philip Lowe has sent a polite but unmistakable warning to the Albanese government and unions that workers must accept temporary real wage cuts to avoid a 1970s-style wage-price spiral and to stop higher unemployment.

The Reserve Bank of Australia governor says that economy-wide wage increases of up to 3.5 per cent are sustainable, but pay rises should not “mechanically” match the inflation rate, which is now forecast by the bank to hit 7 per cent late this year.

It’s good to start with a three,” Lowe says.

“We can have increases in some parts of the labour market bigger than that for a short period of time. But if wage increases become common in the 4 and 5 per cent range … then it’s going to be harder to return inflation to 2½ per cent.

“There, we’re in a world where the economy will have to slow more, and perhaps the unemployment rate would need to rise.”

Lowe is clearly concerned about the potential for a mindset shift on wages, following rhetoric from the new Labor government and unions about pay increases not falling behind soaring inflation.

He wants to convince workers that the inflation spike from higher petrol and energy prices will be temporary, to contain wage and inflation expectations, and avoid an overly aggressive tightening of monetary policy that would destroy jobs.

Rather than oversized wage rises that will fuel inflation and cost jobs, Lowe says the $250 billion of extra household savings accumulated during the pandemic and existing cost-of-living payments and tax refunds can help most Australians ride out higher petrol and energy prices and increasing interest rates.

Lowe admits he has done a U-turn on wages, after complaining for years about weak pay growth.

“I was complaining when they started with a two,” he told the American Chamber of Commerce in Australia event in Sydney.

“I hope I don’t get into an environment where I’m complaining that they … have a five in front of them.

“Three-and-a-half is kind of the anchoring point that I want people to keep in mind, and I know it’s difficult when inflation is higher than that.

“But in the ’70s we got into trouble because wages growth responded mechanically to the higher inflation rate.

“We had higher inflation, wages responded and then that becomes persistent, and then you have to have higher interest rates and a downturn to get inflation down.

“I’m hopeful we can avoid that, but it’s an important issue. Three-and-a-half is better than two and better than five.”

If inflation hits 7 per cent as forecast, all of us will need to take the tough medicine of a real wage cut. Otherwise, rampant inflation and more job losses are a certainty.

apart from admitting he has no idea what’s going on and no way to affect it, the admission here is quite stunning :

wages must always rise less than inflation

(otherwise our masters might lose a tiny bit of wealth )

Coming

Yes, but it’s because it’s in the hands of the government, not because Phil is in charge of anything

Treasurer Jim Chalmers appears to have already received the memo from the RBA governor.

In an interview with AFR Weekend, Chalmers signalled he would not keep pushing for wage rises to match high inflation rates, arguing last week’s Fair Work Commission decision was a “special circumstance”.

“We don’t believe that there should be an automatic, mechanical minimum wage rise on every occasion that perfectly matches the headline inflation rate,” he said.

It’s interest rates that respond mechanistically

Chalmers says there are other ways to lift wages, such as by boosting productivity.

Lowe says delivering labour productivity growth of about 1 per cent, plus the 2.5 per cent midpoint of the inflation target, means economy-wide wage increases of 3.5 per cent can be sustained.

Lowe and Chalmers now need to make sure they convince Prime Minister Anthony Albanese and Workplace Relations Minister Tony Burke, who has continued to push for big pay increases.

Chalmers and Lowe are obviously “our guys”

Coming

And there’s nothing Phillip Lowe can do about it other than jawbone and propagandise

bjw678

well, he could not put up interest rates and look through the inflation…

Freddy

nothing Phillip Lowe can do about it other than jawbone and propagandise

Or kill workers’ ability to negotiate a wage rise by causing a spike in the unemployment rate.

Coming

That won’t happen just because Lowe wills it

Freddy

It will happen with a recession caused by rising rates. This is the objective.

bjw678

but rising rates won’t cause a recession, they don’t cause anything, I’ve been assured. because reasons…

Coming

rates will be rising because wages are going up and so is inflation

He is purely a passenger/witness, is my point

All he can do is produce propaganda and give an illusion of control

bjw678

Falling real wages isn’t going to boost housing…

Coming

home Ownership is at 63% now
has been falling for a while

what happens when we get to 50%?

actually probably doesn’t even need to be that low, because it’s from census data of HOUSEHOLDS so probably a lot of adult children living at home with parents, and a lot of rental share houses skewing the numbers

they would all be happy with a house price crash

and the % of people with significant holdings of bank shares is probably already much less than 50%

imo it probably already isn’t politically untenable in terms of the electorate, only in terms of the donors

bjw678

they would all be happy with a house price crash

Why? It most likely doesn’t make housing any more affordable. Unless the crash is caused by an explosion of supply it is caused by reduced ability to fund the purchase and the same people will still miss out.

bjw678

Under certain conditions.

I’m really struggling to come up with anything that reduces purchasing power of existing buyers but doesn’t also reduce purchasing power of those currently priced out. Maybe some really insane government manipulation, but I can’t imagine what. FHB Grants just push up prices with the same people actually buying and missing out.

bjw678

mortgage rates at 8% guarantees that wages aren’t at 6% and inflation at 5%. The economy will implode long before that.
Is not getting re-elected preferable politically? Because falling real wages virtually guarantees it. political instability is the inevitable result of falling living standards.

robert2013

“wages rising in real terms (say 6%pa) while inflation is at 5% with mortgage rates at 8% (as rates have been hiked by RBA to try to stop inflation)”

Then central bank independence must be done away with.

bjw678

I think the point he’s making is that changing the RBA’s mandate or management could remove the rates at 8% part of the equation. It still won’t magically fix stuff just change the tradeoffs made and the resultant winners and losers.
The only way that the debt can be inflated away is by ignoring inflation when setting interest rates.

robert2013

Yes, but if competing interests get a go at the money tree perhaps this will result in a kind of long term homeostatic operation, instead of never ending banksterism.

Coming

Basically what the MMT proponents want

do away with central banks and government bond issuance

Unemployment ? Print money
Inflation? Raise taxes

the Central banks and govts cooperated to do the first part quite well

now that it’s time to do the second part, they’re pointing fingers at each other

at least if we did away with central banks there would be no one else for the government to blame , and it might be more likely to get done

Last edited 13 days ago by Coming
bjw678

It bodes even less well for a 2 term labor gov.
Ruling over falling living standards is a virtual guarantee of getting booted at the next election, and falls in real wages is exactly that.

Freddy

wages must always rise less than inflation

Lowe would have been hoping for early 2000s scenario of manageable inflation and wages rising slightly faster.

emusplatt

lamp post him.

bjw678

Wasn’t it the libs pulling this get tough schtick that resulted in the legislation that has achieved exactly zero to date?
Expect the same from labor is my guess. All blow hard, no tangible results.

Ramjet

Why try too hard when you can get a lucrative board position post political retirement? The elites look after each other.

emusplatt

gutless arses won’t antagonise the cartel…not happening

Aussie Soy Boy

Albo should ask his beard to have a word to the cartel because she’ll be more useful than him

harry

I guess they will fall in line, otherwise they will have to *ahem* face the Husic.

Hoody

Only in America

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Hoody

Olaf Scholz , in an interview with the newspaper Munchner Merkur, fired several deep thoughts, the concluding one being :

Putin “seems afraid that the spark of democracy could spread to his country”
and thus has been “pursuing a policy aimed at dissolving NATO and the EU.”

Russian Foreign Ministry spokeswoman Maria Zakharova, returned the fire:

“A couple of times German sparks spread to us. We will not allow any more
fires.”

Rule number 1, don’t mention the war.

Coming

The epic moves in bond yields this fiscal year have plunged the balance sheet of the Reserve Bank deep into negative equity. This is historically unprecedented territory for Martin Place, and for Canberra as well.

It will need to be reckoned with, ahead of the RBA’s annual report, due in September.

Not everyone agrees with this précis. It is often pointed out the central banks are different from companies and can operate from a position of negative equity.

We agree with that, as far as it goes. And it is certainly the view of the RBA. In last year’s annual report it highlighted that negative equity “would not affect the Reserve Bank’s ability to operate effectively or perform any of its policy functions”.

So, the RBA can continue to raise rates unimpeded by its balance sheet travails.

Similarly, there is not a counterparty in foreign exchange and derivative markets that will question the creditworthiness of the RBA.

But that is not the end of the matter. Not by a long stretch.

The starting point is its Risk Management Framework (RMF), which is a central component of its broader Risk Management Policy.

Within the RMF, there is an extensive capital provisioning regime, that underpins the risks the RBA takes in financial markets. It also informs the RBA’s dividend policy in respect of Treasury.

Last year the RBA conducted its typical stress tests on foreign exchange exposure (a 25 per cent appreciation of the Australian dollar) and interest rate exposure (a 200 basis point rise across the yield curve).

It also started provisioning for “earnings at risk”, reflecting payments the RBA would make on exchange settlement balances in the event of a tightening cycle.

Importantly, the RBA decided to no longer provision capital for its domestic interest rate exposure.

The required amount was $27.4 billion. The principal justification for the change was that the RBA intended to hold the bonds until maturity. The RBA highlighted that “fluctuations in yields alter the timing of any valuation gain or loss over time, but do not change the ultimate return the Bank will earn on these bonds”.

The RBA also paid a dividend to Treasury of $2.7 billion. This reflected underlying cash earnings of $4.2 billion, in turn a function of the cash rate being near zero for most of the financial year of 2020-21.

Putting this together, the RBA provisioned $15.4 billion, held in the Reserve Bank Reserve Fund (RBRF). Its total capital was $23.0 billion, bolstered by the Asset Revaluation Reserve on non-traded assets, such as gold and property.

The shortcomings of these various decisions have been brutally exposed this year.

We estimate mark-to-market losses on the domestic interest rate portfolio of around $50 billion. This can be derived line by line, and cross-referenced, albeit with some accounting adjustments, to the Statement of Assets and Liabilities that the RBA publishes each week.

It includes bonds purchased to establish the yield curve target, as well as the program of quantitative easing. It does not include the fixed rate loans extended to banks under the Term Funding Facility (TFF).

Against this, the RBA will again post underlying cash earnings in the current fiscal year, of around $8 billion by our estimate. This reflects exchange settlement balances being renumerated at zero for most of the period, along with the coupon income earned and accrued.

However, this dynamic is set to change. The tightening cycle will see a sharp increase in payments on exchange settlement balances, likely sufficient to shift the RBA’s cash earnings negative, and for many years ahead.

The negative carry that the RBA faces is particularly acute in respect of the TFF, with the main maturities not due until Q3 2023 and Q2 2024.

At the balance sheet level, the losses the RBA is sitting on clearly exceed the provision held in the RBRF, and the broader measure of total capital. While we are not expecting the RBA to acknowledge this constitutes a failure of risk management, others will disagree.

In any event, the RBA will have to formally acknowledge it is in negative equity as part of its Annual Report.

Absent a massive recapitalisation from the government, some creative accounting will be required to balance the books. The capital provisioning regime will also require wholesale review, not least for the forward-looking risks that the RBA still faces.

A second issue is the fiscal cost.

There is some room for debate here, given that most of the RBA’s domestic interest rate portfolio represent claims on federal, state and territory governments.

At the fringy extreme lies Modern Monetary Theory, which regards quantitative easing (and its variants) as merely an asset swap between the government and central bank.

In an Australian context it is certainly the case that higher yields have benefitted the various governments against fiscal baselines. In the 2022-23 Federal Budget, for example, net debt fell by $58.2 billion, against that reported in the Mid-Year Economic and Fiscal Outlook.

Higher yields on Australian Government Securities (AGS) contributed to savings of $27 billion against forecast.

But this, and the similar revision that is likely to occur in the October budget, is an accounting gain that will be eroded on the stock of AGS as the bonds pull back to par value in the years ahead.

The RBA will also benefit from this effect, yet faces a persistent drain on financing these holdings at higher cash rates.

It could mitigate this by selling bonds back to the Australian Office of Financial Management (AOFM). But so far it remains resistant to this ‘active’ form of quantitative tightening, and the scale would need to be very large to make a material difference.

In short, higher yields reflect a one-time gain for the government, that is also facing higher borrowing costs going forward.

Meanwhile, the RBA’s ability to earn its way out of negative equity is being undermined by the abrupt tightening cycle that is priced, especially in respect of the TFF. This is the crux of why the fiscal cost is real.

Coming

https://www.afr.com/policy/economy/the-reserve-bank-s-plunge-into-negative-equity-20220619-p5auvi

i copy pasted the choice bits but it’s “awaiting approval”
so maybe peachy can do the needful

but it’s the AFR getting crotchety about this hippity-hoppity newfangled MMT stuff

robert2013

Has anyone else noticed how nicely behaved winning@failing is over at the MB comments compared to his potty mouth over here?

Reus's Large MEMBER

I don’t look at MB anymore, they became irrelevant.

Jam

Yep , hooray for this place. MB is a knitting club.

Stewie

Hah! DLS lets that inbred retard post but keeps Peachy and myself locked out…. what a joke.

bjw678

inbred retards just believe you no matter how retarded the garbage you write is.

Aussie Soy Boy

Leitho is sweating those interest rate increases. Maybe ask DLS for a pay rise.

JimsCentralBanking

OT: Just remembering when Paul Krugman asked for evidence that inflation was bad for poor people and on the same day Jen Psaki tried to say inflation was good for the poor.

They tried to push that for about a day before giving up.

What these neo-liberals really want is complete technocratic control. An economy with no morals e.g. they can inflate away the savings of a retired labourer if they consider the world “awash in savings” or leave generations locked out of home ownership and stable work, depriving them of the foundations needed for a family and a happy life.

Closer to home we have the clown “progressives” like Greg Jericho et al. pushing the same thing. They’re more concerned about trans issues and climate change than real economic issues that are destroying the working class right now.

emusplatt

another two for the guillotine

Freddy

As fixed mortgages end and rates rise, many risk losing their homes – ABC News

Some interesting points on first couple:

  • It took years of living like a peasant (buying 2nd hand clothes) to save a 10% deposit of $160k
  • They borrowed $1.5m

This couple would likely have a maximum saving capacity of $50k-$70k (including the money they have saved on rent). An OCR of 3% would result in a variable rate of 5%, and interest-only payments would exceed $70k pa.

A 3% OCR is going to put a whole lot of mortgages in arrears. As has happened for the last 20 years, the banks will be happy to extend and pretend until equity dries up. I believe the sliding scale will be:

  • 15% price falls will result in repossessions for suckers who bought in last year. Volumes probably small enough for govt to step in and offer cheaper loans or extend their shared equity scam scheme to these buyers
  • 30% falls would be too problematic. The government would not be permitted to destroy an already weak budget to help out that many people. RBA would have to intervene.
Last edited 13 days ago by Freddy
Freddy

I didn’t see the bit about the lawyer. Her story is bs then as there is no way they were buying second-hand clothes and still taking years to save $160k.

Last edited 13 days ago by Freddy
Coming

How much avo toast were they consuming

but seriously white collar professionals in Sydney in their 30s $150k would be the absolute minimum they’d be making ime

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