Prosper Australia

Following Prof Michael Hudson’s recent tour, here are more multimedia highlights:

Visual:
Hudson on ABC International with Jim Middleton.
Hudson on Switzer – Sky TV Business.
Forever Blowing Bubbles – Sydney presentation.
Hudson tour slideshow

Audio:
The Earth v the Neo-Liberal Paradigm – Prosper Australia speech
Global Policy Trends in a Financialised Economy – Federal Parliament’s Vital issues seminar. Transcript available soon.
Steering the Economy into Debt Deflation – Melbourne Town Hall speech
Philip Adams Interview – Late Night Live
Debt Creation as Wealth Creation – the Renegade Economists

Written:
The Age: Housing supply down, profits up – check the comments as per the Kavanagh link at the bottom.
What recovery? – Business Spectator interview
Landlords and bankers back in charge of the economy again – Daily Reckoning commentary
Interest Rates in Whose Interest – Press Release

photo credit: ukslim

The great ‘Texas’ tax dodge

WHAT were they thinking? How could our leaders have made changes designed to ”better target and strengthen the application of capital gains tax” without seeing they would later allow companies associated with the misleadingly named Texas Pacific Group to make a billion or so dollars in capital-gains-tax-free profit from the sale of Myer because they were registered not in somewhere like Texas but in the tax havens of Luxembourg and the Cayman Islands?

…
Mark Latham said:

It would ”add to the great Australian disease of asset and property speculation, particularly in our big cities”, Latham told an uninterested chamber.

He was right. Before the change, Australian landlords actually made money. In 1999-2000 they pulled in a net $219 million from rent. By 2006-07 they were losing a net $5.37 billion.

Ralph – prodded by Howard – turned Australia into a nation of losers. He encouraged us to deliberately lose money in order to replace highly taxed income with lightly taxed capital gains.

BUT WAIT – READ THIS!

As Macquarie Bank’s Rory Robertson told his clients at the time, ”Since September 1999 it is almost as though the Australian tax system has been screaming at taxpayers to gear up to earn increased capital gains rather than to work harder to earn increased wages or salaries.”

Other worthwhile reading of recent:
The Housing Bubble that no one dares bust
Fannie Mae trick to hide ghost houses

Michael Hudson

As published in the Business Age
The 2nd most read article in the Age website on the day as per the graphic billing

HIGHER land and house prices typically lead to an increased supply of housing. Yet at the peak of Australia’s perennial housing affordability crisis, the Housing Industry Association declared that there would be a 13 per cent fall in housing starts this calendar year, compounding last year’s 18 per cent fall.

In light of massive rezonings in Victoria and improved planning bureaucracy in many states, this can only be seen as a warning that property insiders expect there to be a price crash.

The public face of the housing industry is quite different. So, what do property investors expect that the rest of the population does not?

Government spokesmen reflect assurances by bankers and their major category of customers – the real estate industry – that Australia’s economy is defying gravity. In reality, that is as impossible in economic life as it is in physical nature.

Property prices are defined by how much a bank will lend. Donald Trump claims that a man is worth what he can borrow. This usually depends on what a borrower can afford to pay, after meeting basic break-even needs (the cost of living, plus taxes). In the corporate sector, it means after-tax cash flow. So property prices are set by the banks, subject to the tax system.

The motto of real estate investors is that rent is for paying interest – and whatever the tax collector relinquishes is available to be capitalised into a bank loan as a flow of interest payments. The guiding idea is that affordability determines property prices. One example of how the tax system affects property prices is in its failure to distinguish land from capital improvements. Speculative withholding of prime locations from the market in an undeveloped or unsold state creates artificial scarcity. This raises prices.

Property speculators are able to afford this hoarding to the degree that the land’s potential site rent remains untaxed. Taxing the land would bring underutilised land and other property on to the market. It also would reduce the available free-lunch rent that is currently capitalised into bank loans to raise prices.
(more…)

Professor Michael Hudson on ABC International (broadcast to 44 countries) – Monday 26th October

The presentation from Professor Michael Hudson’s Sydney talk ‘Forever Blowing Bubbles’.
The screen size is small to reduce the file size.

photo credit: the|G|™

Written Oct 16th
Raising interest rates will do little to address underlying economic issues, says visiting US economist Professor Michael Hudson. “The market factoring in 7 interest rates rises spells danger for the Australian economic miracle” warns Professor Hudson.

“Governments must use tax policy rather than monetary policy to address asset bubbles. Burdening the whole economy with land price overheads penalises manufacturing by pricing the products of Australian labor out of global markets.”

“Higher interest rates will provide a windfall for arbitrageurs to borrow at about 1% abroad and lend to Australia at 3.25%. This inflow into the A$ will bid up the exchange rate. This will make Australian exports more expensive, slowing new manufacturing investment and employment while eating into export revenues across the board.”

Prof. Hudson says that “this is the same phenomenon that is happening in Canada. It represents a sacrifice of the real economy of production and consumption to the financial sector.”

“Raising interest rates will hurt government finances in three ways,” Prof. Hudson explains. “First, the government will have to pay more money to bondholders. Second, mortgagees also will see their interest payments rise. This will reduce the income they have to spend on goods and services. Markets will shrink, and so will tax revenues. Finally, the rising exchange rate will reduce business profits, reducing corporate revenue.”

“If the government really wants to slow the property bubble, the appropriate tool is fiscal policy. All they need to do is apply a windfall gains tax. This is like the excess profits tax that countries passed in times past.”

“The beneficiaries of higher interest rates are the banks, not labor and industry. Giving tax preferences to the FIRE sector (finance, insurance and real estate) rather than to industry and consumers limits the ability of economic growth to benefit most Australians. By cutting the capital gains tax below taxes on wages and business profits, the government is encouraging speculation, benefiting wealth and raising the price of property against labor. This means that consumers need to go deeper and deeper into debt to afford rising land and housing prices.”

“Rising interest rates accentuate the housing affordability crisis by rewarding speculators with negative gearing write offs whilst penalising first home owners.”

“Limiting asset bubble policy to raising interest rates makes billions of dollars for bankers in the carry trade, whilst penalising the manufacturing and export sector. Governor Stevens aggressive commentary on the likely prospect of rising interest rates shows his policy conundrum. He has indicated that speculators can make a gain on the rising A$ against foreign currencies ­and falling government bond prices. This seems a circuitous way to counter the price rise inhousing. He should look at keeping a lid on land prices via the use of a Land Tax. This tool should be incorporated into the RBA’s powers. Then it can be properly implemented without the limitations of political lobbying.”

In addition, Prof. Hudson observed, “The Treasurer’s announcement earlier this week that the government will expand its guaranteeing of mortgages shows that it has learnt little from America’s experience. Giving a public guarantee runs the danger that banks will simply give their loan officers bonuses on the number of mortgages they can write, without much care as to whether the borrowers can pay their debts or not, because the government will bail out bad loans.”

“This gives bankers the confidence to make as many loans as they want because the tax payer can always bail them out. The bonuses to bankers will continue as they load the economy down with debt. That is what Alan Greenspan called wealth creation.”

“The everyday person has been conned into believing that borrowing more and more money is the best way to get wealthy. This is the first time in history that going deeper and deeper into debt is seen as wealth creation” stated Professor Michael Hudson, touring the country warning on the epidemic of re-inflating asset bubbles.