It’s fucking Groundhog Day. Again.

 

It is the bad idea that refuses to die.

After vowing that allowing first home-buyers to access their Super for a deposit was a bad idea the government was no longer considering, it was revealed this morning that the offer is back on the table, and this time with conditions.

Now Treasurer Scott Morrison is floating the idea that first home buyers can use funds from their retirement Superannuation account for a deposit on the condition they pay it back via salary sacrifice (having part of their paycheque directed into their Superannuation account).

While I am encouraged that Sco-Mo has recognised the virtue of salary sacrifice for Superannuation, using it to pay back a home deposit is a fucking terrible idea and I cannot believe it is back on the table.

Economist Lindsay David predicted on Twitter last week that the government would continue to inflate the bubble, wringing this property crisis for all its worth, and he was right.

“Why the government is trying to solve a demand problem by adding more demand is beyond me,” David told Hello Humans.

“Before government go anywhere near trying to change housing policy, APRA and ASIC should do their job and stop banks lending toxic sums of debt to homebuyers and get rid of these dangerous interest-only loans. Too many loans being issued right now will never be repaid.”

Treasurer, Scott Morrison will let first-home buyers access their Super for a home deposit so long as they promise to pay it back. 😐


I have written about this before
and I feel like it’s fucking groundhog day so you’ll forgive me if I am repeating myself but using Super for a home deposit is only going to drive up property prices, further inflating the bubble, escalating the economic devastation which will surely follow.

“If we go into Super so people can ‘rescue themselves’ for a dream, it will be the death of Australia,” retirement specialist of 20 years, Trevor Berryman told Hello Humans.

But it is not surprising given Australia’s 226 federal politicians own 524 properties between them, of which 139 are investments. ABC did some digging (relying on the honest disclosure of our politicians) and found that at least seven are negatively gearing properties (deliberately making a loss to claim a tax deduction). Sixty-five politicians approached for comment failed to respond, not exactly inspiring confidence.

In essence, the Australian mortgage market is like the Wild West: lawless.

“Banks can predatory lend without consequence,” says David. “Predatory lending is illegal and they give many young and vulnerable FOMO buyers a loan that under any mathematical account will only be repaid if the borrower can sell the house for a higher price than what they paid for it.”

But it is only illegal if you get caught, right? And as history has shown, the government will not crack down on the banks.

“The government is allowing the youth of our nation to continue to get ripped off,  because if you are victim of predatory lending and inform ASIC, ASIC will not investigate the matter,” he said.

“ASIC protect the banks by not investigating, which is an obstruction of justice which they will inevitably be sued over by victims in class actions. It essentially corruption”.

This isn’t just speculation. Lindsay David and Philip Soos of LF Economics recorded thousands of incidences of predatory lending in its submission to the to the Senate Standing Committees on Economics: Consumer Protection in the Banking, Insurance and Financial Sector.

“The Banking & Finance Consumers Support Association uncovered over a thousand loan application forms (LAFs) shown to be altered by lenders to inflate the assets and incomes of borrowers to issue predatory and unaffordable mortgages,” the submission reads.

“ASIC has also received many claims by alleged victims that lenders have fraudulently tampered with their LAFs. Unfortunately, ASIC has refused to investigate even one of these claims, let alone conducting a thorough and systemic analysis of the mortgage market.”

In this environment would you want to be dipping into your Super to pay for a property?

Never mind the fact that first home buyers will need to borrow more and more money out of their Super as house-prices continue to rise, bolstered by newly unlocked capital for home deposits.

This obsession with surplus and balanced budgets is wreaking financial devastation and stymying Australia’s chance to become an economic powerhouse.

Treasurer Scott Morrison has forecast the budget will return to surplus in 2020-21. That hypnotic word – surplus – is used as a sooth-sayer for voters, as if we should be pleased the government is taxing more than it spends.

Deloitte Access Economics would have us believe that any loss of Australia’s AAA credit rating would be a “tax on growth”, penalising the parts of the economy that needed capital to grow.

However, Professor Emeritus AO of Cambridge University and of the University of New South Wales, Geoffrey Harcourt told Hello Humans, Australia is letting itself be “bamboozled” by AAA credit ratings.

“Fancy taking any notice of those crooks!”, the Professor exclaimed.

“They are ones that are partly responsible for the Global Financial Crisis. It was the one who gave AAA credit ratings to all of that rubbish coming out of the US, subprime bundles, containing completely unviable securities.

“They should be run out of town.”

The importance of AAA credit ratings are vastly overstated. Britain was downgraded to AA after Brexit and pundits speculated it would be forced to pay higher returns for its investment borrowing, forcing interest rates to rise. But the opposite occurred, with government bond yields falling to record lows. Over in Switzerland, government bonds have negative interest rates. So any potential loss of AAA credit rating might incrementally increase the cost of investment for governments and the major banks, but if market conditions and low interest rates persist, economic momentum and growth would outweigh the impact of any potential downgrade.

(The Sydney Morning Herald said as much back in 2013 but I notice that didn’t stop it from repeating the same old government line this morning in 2017).

But this didn’t dissuade the Prime Minister, who on ABC this morning repeated the fallacy that a failure to return to surplus would leave a debt for future generations.

You’ll have to excuse my french but this is fucking bullshit.

By running a surplus, the government is endowing future generations with less roads and hospitals, less education and less infrastructure.

“The real measure of providing for future generations is what you leave them, not  in terms of monetary debt which are little pieces of green paper, it is the physical resources you endow them with,” Professor Stephanie Kelton told Hello Humans.  Professor Kelton, PhD is the Professor of Economics at the University of Missouri-Kansas City, former Chief Economist on the U.S. Senate Budget Committee and economic advisor to Bernie Sanders.

“If you undermine those resources by running a surplus, you are endowing future generations with less, Running a surplus undermines the economic well-being of future generations. You’re saying we can’t have this debt otherwise future generations have to pay for our spending today.”

Professor Steve Keen, Head of Economics at London’s Kingston University says when governments try to run a balanced budget, or worse – a surplus – it is destroying money and then saying to the economy ‘please grow’.

“It is suicidal,” Professor Keen says.

(First of all, the government does not need to tax people before it spends. I have written about this here, here and here).

Voters should start to recognise Surplus as a dirty word. The result of a surplus will mean individuals, households and the private sector will pay more tax and have to take on a greater debt burden to make up for the fact that the government won’t dig into its own pocket. Consumer spending drops and the economy slows.

“The government relies upon unachievable expectations of the private sector by assuming the Australian economy will continue to grow while government seeks to reduce its expenditures,” wrote Economist Lindsay David in LF Economics’ submission to the government. “Put simply, the government is not interested in investing for the future and expects the private sector to do the heavy lifting even as capital expenditure plummets and wage growth falls to record lows.”

Absent a trade surplus, an economy can’t grow for long without a fiscal deficit, and can’t maintain equitable full employment.

“A responsible fiscal policy involves a commitment to run sufficiently high fiscal deficits over time to allow for the maintenance of full employment, while not running deficits which exceed those consistent with the productive capacity of the economy,” Professor Steven Hail, Economics lecturer at Adelaide University told Hello Humans.

“A fiscal surplus should be rare indeed, and a consequence either of a persistent trade surplus with the rest of the world, or it being appropriate to allow the ratio of private debt to GDP to continue increasing over time.”

So, in conclusion: Government surplus require individuals and the private sector to take on more debt. AAA credit ratings are bullshit and they don’t even work the way most politicians expect. And accessing Superannuation for a first-home deposit will wreak havoc in the inevitable economic crisis on the horizon.

Remember this when the government tries to take a victory lap for a budget which will bankrupt generations.


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Claire Connelly is working on her first book, How The World Really Works, a guide to recognising rhetorical red flags and immunising yourself against bullshit. You should definitely buy it when it comes out. A podcast of the same name will also be launching in the coming months.