THE GROWTH MIRAGE

by Eric D. Butler
The key to understanding what is happening, or likely to happen to the Australian economy, is that under present financial rules, industry does not over any given period distribute sufficient purchasing power to meet the total prices of goods and services created over the same period. This is one of the basic truths dealt with in the League of Rights Social Dynamic Seminar.

Attempts to overcome this deficiency makes it inevitable that there will be a growing burden of total debt. The greater the growth of the economy, the greater the growth of total debt, even though vast amounts of debts are constantly being written off by the banking system, which creates debt. The concept of a faster rate of economic growth is as fallacious as the concept of overtaking a mirage on a hot day by driving faster. The faster one drives, the faster the mirage fades into the distance. It can never be overtaken.

The astronomical explosion of debt in all industrialised nations is irrefutable confirmation of the truth that a major economic and social collapse can only be delayed by expansion of debt. The flood of advertising to which Australians are currently being subjected reveals that there is an overwhelming abundance of consumer goods, ranging from washing machines and other household appliances, to lawnmowers and motor cars. Potential customers are urged to buy these consumer goods immediately, with assurances that this can be done by the mortgaging of future incomes. The rising tide of consumer debt, itself the by product of bank loan transactions, is a measure of the reality of the situation.

While the rate of inflation has been reduced by the depression, which Paul Keating said Australians had to have, it still continues to erode the purchasing power of wages. In an attempt to overcome some of the erosion, the Trade Unions are now demanding a wage increase of $10 per week. But such an increase, which will require a further expansion of debt finance, cannot overcome the basic finance economic problem.

An examination of the front pages of many newspapers and other financial pages is revealing. For example, The Age (Melbourne), March l7th, carries the headline, "Recovery Races Ahead", but the financial pages report a number of bankruptcies, and the news that one of Australia's biggest building and construction companies, viz. Jennings, "slipped back into the red".
Another reports that the restructured Greyhound Coach Company has had "another disappointing year". The Australian coal industry knows nothing about "recovery" as the Japanese force lower prices and cut imports.

A few of the bigger retail organisations have increased sales and profits, at the expense of smaller retail businesses. But Prime Minister Keating urges Australian businesses to increase investments in industry so the "recovery" will be sustainable. But business leaders are making it clear that they are reluctant to invest in greater production because of uncertainties about the future.

Slavishly following orthodox financial dogma, the Government has at least, for the time being, rejected any attempt to stimulate the economy by a government programme of capital works. But irrespective of whether capital works are undertaken by the private sector or by government, such a policy can only worsen the overall problem. Only a direct issue of debt free credits to consumers can avert growing disasters. In the absence of such a policy, mass unemployment and growing social breakdown are inevitable.

LESSONS FROM BONYTHON BY-ELECTION

While the swing against the A.L.P. in the South Australian by-election for the seat of Bonython last weekend was enough to offer a temporary relief of leadership pressure from Dr. John Hewson, all is not what it appears. Dr. Hewson is claiming that the drop of 9.9 percent in the A.L.P. primary vote in an A.L.P. "heartland" seat was a disastrous result for Labor, and that the seat had to be decided on preferences for the first time in 30 years. After preferences, it appears that the A.L.P. dropped 8.2 percent to the Liberals, but the significant figures are the primary vote.

Although the A.L.P. dropped 9.9 percent in the primary vote, the Liberals only gained 3.5 percent. Who picked up the rest of the swing away from the A.L.P.? Greypower and Australians Against Further Immigration, who, between them, took over 14 percent of the primary vote. Press reports now describe Australians Against Further Immigration (A.A.F.I.) as an "emerging party" when they bother to mention them at all.

But the A.A.F.I. vote of approximately 6.9 percent is a significant performance, which outstripped the Democrat vote, and repeats a similar result in the Werriwa by-election near Sydney. The result is all the more significant in that the candidate for A.A.F.I., Mr. Dennis McCormack, comes from Melbourne, and spent less than a tenth of that spent by major parties, running his campaign from a friend's home.

The lessons to come out of Bonython reflect what also came out of the Werriwa by-election; the issues of immigration and multiculturalism still bubble away at the grassroots of politics. As an issue they are largely unseen, inasmuch as press and major parties can conspire to ignore them. Occasionally such issues find expression in the form of by-elections, but attempts to permanently ignore the poison of multiculturalism will eventually result in violent expression, of which we have recently had a foretaste in the friction between the Greek and the Yugoslav/Macedonian factions.

In an attempt to crack the pre- election media blackout, A.A.F.I. candidate McCormack led a demonstration of support to the offices of the Adelaide Advertiser, where he presented the Editor with a white feather, symbolising craven cowardice.

GRAEME CAMPBELL IN TROUBLE AGAIN

The strength of the A.A.F.I. vote in the two N.S.W. by-elections in Mackellar and Waringah this weekend will also be of great interest. Since the A.L.P. is not running candidates in the blue-ribbon Liberal seats, the showing of minor groups could be significant. In view of the fact that no A.L.P. candidate is being fielded the Labor backbench Member for Kalgoorlie Mr. Graeme Campbell, has recommended a vote for A.A.F.I. Not only has he provided his written endorsement of A.A.F.I. policies of cutting non-European immigration, and encouraging integration rather than multiculturalism, but Mr. Campbell is appearing personally to campaign for A.A.F.I.

Campbell's letter, which is being widely distributed in the form of a brochure in both electorates, is strongly' critical of A.L.P. policy in the immigration and multiculturalism fields. Describing multiculturallism as 'corrupt', Campbell 'says' existing immigration policy is bad for the nation economically, environmentally and socially. "It is turning our country into a nation of tribes, it is enriching unrepresentative lobbyists at our expense," he wrote.

QUEEN'S PAWN TO BISHOP'S ABBOTT?

One of the most interesting candidates in the current round of by-elections is Mr. Tony Abbott, standing for the seat of Warringah this weekend. Abbott is a former Hewson advisor who left Hewson' s staff following a number of clashes with Hewson over such issues as strategy, and policies like economic 'rationalism'. Abbott then served as the executive officer of Australians for Constitutional Monarchy before becoming the Liberal candidate.

Described by friends as a "rugged' (Catholic) Christian", Abbott once studied for the priesthood, where he found his Christian convictions and political activism did not fit current fashions in the seminary. Abbott appears to be a man of passionate convictions and articulate, persuasive ability. But does he "fit" into the Liberal-Party any better than he fitted into a seminary?

In last week's edition of The Bulletin Abbott argues that it is intellectually and morally lazy to simply write off Liberal and Labor Parties as equally bad, are mostly concerned with "managing" the economy, and that it matters little which is governing. He is impatient with this attitude, as it denigrates the relatively good along with the relatively bad, and implies that democracy is a charade at best if such attitudes are true, which he denies.

But can Abbott explain why the National Party has finally begun to show signs that they want independence within the Coalition, if it is not because they are only too aware that the major party groups are propounding similar policies? National M.P's. like Mr. Bob Katter Jnr., of Kennedy, are calling for conditions upon their Coalition membership because it is increasingly clear that they have chained themselves to a dying animal with the Liberals. It goes much beyond merely leadership issues.

And can Mr. Abbott explain why Graeme Campbell is defying the A.L.P. to go into Abbott's electorate to campaign not for the A.L.P., but for the A.A.F.I.? Neither A.L.P. nor Liberals are prepared to risk press odour by offering genuine choices on such issues as multiculturalism or immigration. The A.L.P. have denigrated the Crown and Flag, but have the Liberals come out unequivocally in support apart from John Howard and a small minority of others?

Have the Liberals rejected the disaster of economic rationalism? Have they nailed their colours to the mast on the issue of the family, and supported income splitting for tax purposes? No, they have not, and Mr. Abbott needs to take care that he becomes nothing more than an apologist for the Liberals, rather than a genuine, rugged, committed backbencher, who is prepared to boot some sense and courage back into the Liberals, and remind them that they once believed in something other than simply power.

THE SLUGS IN THE I.M.F. SALAD

from The Australian, March 21st
I am writing in reference to the column of Florence Chong (I.M.F. Locked In Slow Waltz With Manila, The Business Australian, 2/3). "Having been involved in negotiations between the Philippine Government and the I.M.F. 'from 1986 to 1992, I would like to clarify a few things. "Let us not confuse short-term stabilisation with long-term structural reform. The first and not the second is always the centrepiece of a typical I.M.F. standby program. This means the I.M.F's. sole aim is reducing inflation by cutting the fiscal deficit and controlling money base growth.

"Whether a country's inflation rate is 25% or 5%, the I.M.F. forces the program target down by several percentage points even if this means choking off growth or triggering political unrest due to increases in taxes, energy or petroleum product prices. "The I.M.F. opposes almost any measure that reduces revenue - such as the tariff reductions described in your article - even if this is in support of structural reform.

"Your column conveniently ignores the fact that during the 30 years that the I.M.F. has supposedly tried to 'give Manila a helping hand', it has also done some damage. "A good example is the I.M.F. program that was in place in 1984-85, during one of the Philippines' worst economic crises. An internal I.M.F. analysis written as a postmortem of that program was tighter and more recessionary than it should have been. Naturally the analysis was not widely circulated, as it was an admission that the I.M.F. had made a mistake!

"At that time, inflation was brought down from 40% to 8% over just one and a half years - but at enormous economic and social cost. G.D.P. contracted by 10% (Gross Domestic Product. O.T.) and unemployment hit an unprecedented 14%. It took the Philippine economy three years to climb out of that recession. "Admittedly, without the I.M.F. program the makings of an economic crisis had already been triggered by political instability in late 1983. But the depth of the crisis was aggravated by the unnecessary stringency of the fiscal and monetary adjustment imposed by the I.M.F.

"External debt service is 'not an issue today' but 'domestic debt is a major problem' because' the bulk of the' crippling external debt in" 1985 was taken over by the Philippine Government. This merely shifted the debt burden from external to domestic. The problem is still there, but in another form. The conversion occurred under a financial restructuring program with the I.M.F' s. sister institution, the World Bank. "In effect, the conversion ensured that the Philippines' external debt continued to be repaid - but this time out of taxpayers' money rather than from foreign exchange earnings. It does not take a financial genius to conclude that the main beneficiaries of this move were the Philippines' external creditors.

"Why did the Philippines agree to all these things, and why does it continue to seek I.M.F. assistance? Because for a developing country without access to oil reserves, external financing works like dominoes. "Without the I.M.F's. 'good housekeeping' seal of approval, the Philippines would lose access to about $(U.S.) 3 billion worth of trade credits and up to $1 billion worth of official development assistance each year - the latter the main source of funds for the infrastructure which your I.M.F. source says the country needs. "The loss of external funding of this magnitude would be enough to trigger another serious balance of payments crisis.

"Let us not delude ourselves that everything the I.M.F. does is for the good of the debtor country.' Or that it is the I.M.F. that pays the price for its own inflexibility." (N. Rejante, Mosman, N.S.W.)

Our Comment
We have little doubt that the same sort of situation obtains with respect to Australia, whether or not the Commonwealth borrows from the International Monetary Fund, or from the private international Finance Houses. The same goes for the States. In Victoria, the Victorian Government is borrowing from overseas sources, but there is the typical social cost. Schools slashed; railways slashed; this service privatised; this service privatised. What for? To produce "good housekeeping" figures for the overseas lenders.

Under the present rules of orthodox finance economics the interest on loans must be guaranteed by the borrowers, and this is done by slashing services, and/or the imposition of more punitive taxation on the people; as has been done in the case of the Philippines (above). The call by the Prime Minister and Federal Treasurer for Australian business to "invest, invest", hardens our opinion that they know that the present "mini-recovery" won't be sustained by the billions of dollars of Asian money (particularly Hong Kong money) which are sloshing around now in Australia (and elsewhere). This in large part explains the suspiciously low inflation rate.

If the Australian banks were creating vast amounts of new ("local") credit, then the inflation rate would be climbing and quite sharply. The "recovery" we are told that we are now having is phony. When unemployment genuinely falls, and the inflation rate rises, then we'll know that the local banks and industries are raising the beat.

MONEY

from The Mail-Times (Horsham Vic.), March 9th
People living west of Deer Park have taken a battering since this State Government took over 18 months ago. We have lost rail services and schools, we are subjected to the threat of municipal amalgamations whether we want to or not, and now we hear that small hospitals are under a greater threat than ever because the Government proposes to move the goal posts on capital arrangements. All of this as a result of an alleged shortage of money.

"Money is a facilitator, not a commodity. It should not be an impediment but only a yardstick of cost. It is itself a costless creation, which comes into being as a debt every time a bank grants a loan or you use your bankcard. It is cancelled when the loan or bankcard debit is repaid but in the interim other money has to be found to pay the interest. We have been conditioned over many decades to accept the commodity view of money, to believe that debt is normal and to recoil in horror at any suggestion that the monetary-fiscal-economic rules should be changed to restore money to its rightful place as a facilitator.

"Before 1925 the Commonwealth Bank was able to make money available debt free for such projects as fighting the 1914-18 war and building the east-west railway on the principle that what was physically possible should be financially possible; that is, money the facilitator. Sir Denison Miller, the Bank's Governor at the time, was reported in the Press of July 7, 1921, as saying: 'Whatever the Australian people can conceive in their minds and will loyally support, that can be done.'

Resources
"So, if we require a piped water supply throughout the Wimmera-Mallee, for example, it should be made financially possible. If we want to keep our hospitals and schools open, money should not be the criterion that says 'yea or nay'. We have the materials, we have the machinery - often under utilised - and we have the human resources in our pool of unemployed. "It would be a good idea if our young people were trained in being a workforce without equal in the area of a good day's work for a good day's pay, as well as constructive use of leisure. "We should not have to wait on the Kelty dream of a jobs levy to put the facilitator in place." (Ron Fischer, Old Ballarat Road, Talbot, Vic.)