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EYE-BALL’s Herman on: Democrazy Part XV – Clinging to Power…

February 14, 2012
Herman O'Hermitage
Democrazy Part XV – Clinging to Power.
By: Herman O’Hermitage
Herman O'Hermitagefter the ANZ then Westpac raised their variable rate mortgages last Friday, Wayne Swan our Federal Treasurer implored us to go down the road and change banks.  On Monday when CBA and NAB followed he has changed his tune to customers have every right to be disappointed. To make matters worse Bendigo and Adelaide Banks have raised their rates by more (0.15%), and Suncorp is set to do similar (if not already). Praise the lord Members Equity have announced they are not changing their interest margin.Mr Swan is chorused by his leader Julia Gillard and the opposition blames the government for sending mixed messages to the banks.

While not taking any of those claims at face value, I believe that in that mix lies the truth. Explicit price fixing under the Trade Practices Act is illegal. What we observe is implicit collusion.  Aping or Copying.  One of the worse elements of oligopoly.  Poor service, no realistic competition, no one wants to start a price war, merely lip service to product differentiation.

Sheer and unadulterated profit maximisation. Psychopathic pursuit of self interest. Totally lacking in any element of social justice.

Have I just described the banks, or was that describing parliament.  Poor service, no realistic competition, no one wants to start a price war, merely lip service to product differentiation.

In most modern economic thinking the Trade Practices Act is badly out of date.  It was created in an era when utopian but unrealistic perfect competition was paramount. Standardised profit margin does not encourage product development or innovation. It loses the element of excellence.

Therefore imperfect competition trends towards oligopoly or even monopoly in the case of IBM, Intel, Compaq, Google, Apple and look at the benefits. No sustainable monopolistic power results, through innovation.

Greece is currently experiencing fiscal drag. They are in a downward spiral, that not even the IMF has any answer to.  Greece wants to stabilise existing and recurrent debt, to percentage of GDP.  GDP contracted last year by 6%.  So where they were this time last year has deteriorated. Existing debt has grown to shrinking GDP. They can’t cut further Government spending and increase taxes. The crash is slowly unfolding. A true horror scenario.

Portugal has 20% unemployment, so increasing taxes will only further erode the tax base. Italy and Spain are not far behind. Right now the USA is content to see 2% growth, but when they seriously start to attack government debt, where will consumption come from? This was my prediction last Sept/Oct in the post 2012 overture – A Crappy New Year, [see link].

Meanwhile back in Australia our government wants to restore their opinion polls by talking about fiscal performance post 2008. Terming it; record on economic management. Meanwhile, the car industry, Reckitt Benckiser and now the banks are announcing retrenchments. Retail is clearly contracting and tourism and education sector are already recessed. Dismiss it all as economic adjustment at your own peril. Is it economic adjustment or a different type of fiscal drag? Over valued currency.

In the last fortnight I have started to equivocate on the US presidential elections. Barak Obama has not earned the right to a second term. Slowly but surely  grass roots democratic supporters are coming out saying the will not vote for him. In 1981 Ronald Reagan quickly expunged the USA of the Jimmy Carter legacy by using much more words and concepts rather than $ and government outlays. Ronald Reagan was lampooned at that time as just a B grade actor. Today he is credited with bringing down the iron curtain and ending the cold war. I have yet to see the Whig’s (Republicans) bring forward a new Ronald Reagan, but the United states is engaged in the selection process, and engagement is a great start.

Reverting to our own Julia Gillard, the end is nigh. In searching for the short circuit in Australia I absolutely rule out Kevin Rudd crossing the floor of parliament to bring down this government. It is not within his character. I also don’t believe he will openly go to the cross benches (more likely back benches).  He is far too an ALP party man to do either.  He will not accept expulsion from the party. He is a man of vision and patience, (that borders on procrastination). He craves popularity. He is not the ALP, but a part of it. It’s natural leader.

Penny Wong, Bill Shorten and Wayne Swan will continue to support the incumbent.  It suits their own ambitions.  Swan has actually run his race.  I will come to that again shortly. This clinging to power against the odds, a unified face, is just not helping. It has nothing to do with gender of Gillard as claimed by Bob Brown. That is also him defending his position in a minority government.

Wayne Swan has proven himself to be very insipid.  History will show him to be exactly that. His mantra that stability of the banks is paramount is wrong. Our banks are monsters, and only firm government can bring them into check. We have the most profitable banking sector by return on assets in the world. After this latest fiasco of banks increasing mortgage margins and then announcing job cuts, while enjoying record profits, and not a hint of bringing excessive executive perks under control is just too much. The ANZ has added about $120 odd million to core earnings by increasing their variable rate lending rate by 0.06%. It is about the same amount as they need to provision for the class action that is against them for penalty fees on credit cards. When their overall after tax profits this year will exceed $5.5bn, could they not just accept the $120 million action against them as being decent sports. Playing by the rules.

For Wayne Swan to dare to say that CBA customers can be disappointed, after being so silly in previously uttering. “change banks , down the road” please save us.

I can only expect that some insignificant labor backbencher in a marginal seat, will cross the floor to bring down this government and thereby write his page in history.

At the Prime Ministerial level, everything stops right there. What we think of our Prime Minister is the first thing, but her capacity to manage her front bench and be responsible for all government actions is something else extra. We fear this fiscal drag while she wants to talk about economic management. Through redundancies and retrenchments we fear fiscal drag is unfolding, while we are still running deficits from 2008. Where the opposition looks fairly lame, they are the only alternative. I want some long odds about a double dissolution election held before June 30. It is a crazy world.

Believing in Sanity is Insanity.


Click here to read more of Herman’s previous posts …

Herman …

  1. February 14, 2012 at 12:21 pm

    Well said Herman.

    The depth, breath and total scope in the weakness’ in global democracy has led us to the globes current predicament …

    Political advisors work all day for a quick ‘quip’ for their charge so they can front a camera – deliver a line – and then walk off to watch the media spin his wittisism …

    That is about where politics has desended – your comments cover this in indirect ways – the debate is quality as opposed to quantity – substance as opposed to mischief – mis-direction as opposed to honesty and integrity – all politicians are on the short end of this summation …

    Your comments on the Treasurer’s ‘wishy-washy’ commentary to the Bank’s interest rate policies demonstrates the weakness within SWAN’s knowledge base to challenge the BANKS in any meaningful way. Swan’s comments are political mileage to appease what he thinks the voters want to hear – but the BANK’s play that game better and with conviction.

    Good post and on the money again …

    Guru …

  2. February 25, 2012 at 12:49 pm

    A report out overnight that FINCH ratings downgrade the three remaining Australian Banks from AA to AA- … these BAnks were CBA, WBC and NAB – ANZ was already there …

    This will naturally increase the Banks costs for wholesale funds and the recent increase in rates by Banks may have be pre-emptive of this move by FINCH –

    Given the length and breath of BANK reporting requirements to the RBA – and the confirming comments by RBA boss Glen Stevens about the agreement that the Banks have seen an increase in their cost of funds – where does the report from the Soc Gen trader who does know what he is talking about – rank in creditability terms when he says that wholesale funding around the globe has got cheaper …

    Two conflicting reports that were part of the news cycle for a day – where is the follow up …

    Guru …

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