Why I Have Trust Issues: The RBA and Australian Economic Growth

The issue of trust has been on my mind recently

The news of a friend having an affair, raised the question of trust issues. Will their soon-to-be former partner ever be able to trust another man?

If a bridge of trust cannot be built, there’ll never be progress in any future relationships.

Free report: Aussie dollar crunch coming (find out why)

Elvis Presley’s ‘Suspicious Minds’ tells us what fate awaits a relationship when suspicion replaces trust:

Why can’t you see

What you’re doing to me

When you don’t believe a word I say?

We can’t go on together

With suspicious minds

And we can’t build our dreams

On suspicious minds

We can’t build our dreams without trust.

Trust is the foundation of our society.

If we don’t trust the banks to open their doors tomorrow, then we’ll find somewhere else to store our cash.

If we don’t trust the insurance company to honour its policy, why bother having insurance?

If we don’t trust the legal system to protect our property rights, guess what? We stop buying property.

As a society, progress has been made possible on the foundation of trust.

In the financial world, trust is continually being tested.

The Banking Royal Commission provided the forum for a display of public contrition from the institutions…

We’re sorry for providing poor financial advice to our clients; we’re sorry for charging the dead; we’re sorry for doing dodgy loans; we’re sorry for ramming high interest credit cards down the throats of people who can’t afford them.

Commissioner Hayne extracted mea culpa after mea culpa from the well paid and less well informed banking executives.

The objective of the Banking Royal Commission was to restore public trust in the system.

Banks were given a serious clip around the ears. Get your act together. Change the cowboy culture. Put people before profits.

Among their many promises, banks vowed to tightened up lending standards.

How about we try the novel approach of lending to real people, with real incomes and real deposits?

Sadly, it took a royal commission to reawaken bankers to these fundamental lending principles.

The raising of the creditworthiness bar had a predictable consequence. Our economic growth rate was lowered.

The pangs of withdrawal from our debt addicted economy were felt most acutely in Canberra.

Faced with softer GDP numbers, it didn’t take long for the government to weasel its way out of its promise of trust us to hold the banks to account.

On the front page of The Weekend Australian (October 26–27 2019 edition) was: Treasurer asks big banks: can we help you to lend more?

Here’s an extract (emphasis is mine):

On Friday, Josh Frydenberg met ANZ chief executive Shayne Elliot and NAB chairman Philip Chronican, and urged them to loosen credit and encourage house buyers.

If ever you needed proof of our dependency on an ever increasing amount of debt for GDP growth, there you have it.

While this is difficult to admit, I actually feel (a tad) sorry for the banks.

The government establishes a royal commission to have them publicly flogged for their sins.

The banks repent and implement procedures to change their sinful ways.

The government then says ‘don’t take this whole “being responsible” thing too far, loosen up boys’. Wink, wink, nudge, nudge she’ll be right.

Talk about mixed signals.

When it comes to politicians and bankers, we can trust them not to be trusted.

These leopards never change their spots. Which is why when the next scandal hots the headlines, we’ll collectively shrug our shoulders and say what’s new?

Trusting the RBA and Aussie Economic Growth…

My real trust issue is with an institution that has a good deal of public trust.

The Reserve Bank of Australia.

People trust the RBA to act responsibly in its management of the Australian economy. That trust is sadly misplaced.

The RBA — due to its slavish adherence to growth and a non-sensical inflation target — has demonstrated a reckless disregard for the long-term consequences that stem from too much debt in the system.

But in all fairness, the RBA is one in a conga line of untrustworthy central banks.

The following chart shows — with the exception of Portugal, Italy and Spain — that all developed nations have increased debt levels over the past five years.

The Rum Rebellion 07-11-19

Source: CMG Wealth

[Click to open in a new window]

The leader of the pack is Ireland…with debt levels growing by 37.8% over the past five years.

And surprise, surprise the BBC News reported on 27 August 2019 (emphasis is mine)…

More people are moving to Ireland than leaving as the economic recovery continues, official figures suggest.

There has now been net immigration for the fifth year in a row.

The Irish economy is still growing strongly and some economists believe it is approaching technical full employment.

And coming hot on the heels of Ireland is Australia…with our debt level increasing 34.3% over the past five years.

Which explains why we can still boast to being ‘recession free’.

What a giant con. And nobody calls them on it.

Mainstream just laps up their economic drivel and repeats it over and over again as if it’s gospel.

We need inflation. Really? Why? We need to get back to trend growth. Do they even understand how trend growth became a trend?

The economic commentariat allows these central bank frauds to get away with blue murder.

The RBA minutes state this…

The RBA governor says that…

The RBA thinks…

How about a little honesty in reporting…the RBA is clueless.

They lower rates. Blow asset bubbles. Then lower rates some more. And, blow another bubble.

We have seen this pattern repeat itself not once, not twice, but three times in the US. Yet, amazingly, the central banker HAS NOT been shamed out of existence.

The central bankers of the world have, in unison, implemented a policy framework that attempts to solve a debt problem with more debt.

Asset prices have been goosed up — with cheap and plentiful money — to create the illusion of everything is under control. Trust us is their message. Those who do are going to be sadly disappointed.

Behind the doctored economic data, bulls**t GDP numbers and the hollow assurances of central bankers, there is another story playing out.

The social mood that created the greatest credit boom in history is on the cusp of changing.

This has profound implications for the economic activity that underpins corporate profits and government revenues.

More on this in tomorrow’s Rum Rebellion.

The short story is the central bankers debt-dependent economic growth model is doomed to fail.

When the next stock market collapse exposes central bankers for the frauds they are, the public anger towards this once-trusted institution will be palpable.

Trust issues with central banks?

No, I trust them.

But not in the way most people do.

I trust them to stuff it up. I trust them to blame it on a ‘black swan’. I trust them to squirm their way out of a Senate inquiry. I trust them to land a plum job in the private sector.

And, finally I trust them to not give a damn about households they’ve wrecked with their ill-fated experiment to control the global economy and financial markets.

Trust me, it’s about time these quacks were exposed for what they really are.

Regards,


Signature
Vern Gowdie,
Editor, The Rum Rebellion


PS:
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Vern has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning, was recognised in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia. In 2005, Vern commenced his writing career with the ‘Big Picture’ column for regional newspapers and was a commentator on financial matters for Prime Radio talkback. In 2008, he sold his financial planning firm due to concerns about an impending economic downturn and the impact this would have on the investment industry. In 2013, he joined Port Phillip Publishing as editor of Gowdie Family Wealth. In 2015, his book The End of Australia sold over 20,000 copies and launched his second premium newsletter, The Gowdie Letter. Vern has since published two other books, A Parents Gift of Knowledge, all about the passing of investing intelligence from father to daughter, and How Much Bull can Investors Bear, an expose on the investment industry’s smoke and mirrors. His contrarian views often place him at odds with the financial planning profession today, but Vern’s sole motivation is to help investors like you to protect their own and their family’s wealth.


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The Rum Rebellion