ABBOTT GOVERNMENT NEED ENTREPRENEURS NOT ECONOMISTS

The global economy is now at breaking point. We have a complex system on the verge of collapse and the Central Banks around the world are now realising that they can do nothing to prevent the world from the inevitable debt deflationary collapse. The world has never seen a global set of central bank monetary policy settings quite like those in play now that include unprecedented levels of Central Bank asset purchases along with Zero and Negative Interest rate policies.

The currency wars are heating up with desperate central banks trying to import inflation and support the local employment environment by depreciating their nominated currency. This is having the opposite effect however with nearly all of the worlds economies suffering disinflation or deflation. A friend of mine that publishes boomfinanceandeconomics.com recently compiled a list of nations that have negative inflation rates. The negative inflation rate hall of fame includes:

Belgium, Belize, Benin, Bosnia & Herzegovina, Bulgaria, Burkino Faso, Cape Verde, Croatia, Cyprus, El Salvador, Estonia, Euro Area, European Union, Finland, France, Greece, Guinea-Bissau, Hungary, Iraq, Ireland, Israel, Italy, Kosova, Latvia, Lebanon, Lichtenstein, Lithuania, Luxemburg, Macedonia, Niger, Panama, Poland, Portugal, Senegal, Singapore, Slovenia, Slovakia,  Somalia, South Sudan, Spain, Sweden, Switzerland, Syria, Taiwan, Thailand, United States, Zimbabwe.   - taken from boomfinanceandeconomics.com    

It is clear that the attempts to bolster competitiveness through currency devaluation are accelerating the deflationary spiral. The list of nations suffering negative inflation is growing because the central banks wrongly believe competitiveness and inflation are a function of relative currency valuation. This assumption has created a blind spot for the long term deflationary effects that a global race to the currency bottom of the ocean creates. Currency wars are a zero sum game meaning the net effect of importing inflation does little or nothing to improve or drive global GDP, drive wage growth or improve any of the economic metrics from a global aggregate perspective. Currency wars simply end up becoming one giant pass the deflationary parcel game as each country takes its "turn" to provide the cheap products.

The aggressive central bank approach to currency debasement/wars  along with the biggest private debt levels in recorded history are the main drivers of deflation in the global economy of today. If trends are anything to go by the acceleration of negative inflation or disinflation to full blown deflation is setting the world economic system up for an asset deflationary collapse. It is clear that the unprecedented levels of private debt around the world was the key trigger for the financial crisis in 2007/08 and that currency wars were the tool of choice to ward off deflation. Currency devaluation is the wrong tool, it is a blunt instrument that doesn't address the core private debt issue. Central banks need to understand the disease is not a strong currency, it is the largest debt bubble in human history.

Instead of focusing on currency debasement, Central banks and policy makers need to focus on private debt because the easier path to achieving inflation is not just through an increase in the money supply, but with an acceleration in the velocity of money. Velocity comes with confidence, it is behavioural. In a recent post I was highly critical of the Abbott led Liberal Government in fact I had to force myself to show mercy to a government that has no idea on how to manage an economy. It is a circus!

The treasurer talking budget crisis, government spending cuts and no policy direction is stifling business investment. I find it hilarious that Joe Hockey says that businesses should take advantage of the low interest rates to invest in growth whilst he says the government wont take advantage of the same low rates! Is Joe talking with a forked tongue? I guess the upcoming budget he delivers will answer that question. It is a moot point however because interest rates don't spur confidence, a plan for the future and a steady government willing to invest in the economy spurs confidence.

Central banks and policy makers are asleep at the wheel. Austerity and comparing the public sector debt to that of a family or household is outrageous. I wonder how many households with a mortgage and car debt and credit cards are in surplus? We need government investment, good investment. We also need coordinated responses to economic conditions where governments with the central banks supporting them work to produce a macro prudential set of policies that will provide an environment for growth. After writing this post on the 25th of February http://carneycapitalmanagement.blogspot.com.au/2015/02/joe-hockey-has-no-idea-on-small.html the RBA Deputy Philip Lowe went as far as he could to express his dissatisfaction of the current Liberal Government in Australia. Approximately 2 weeks after my post the Sydney Morning Herald, one of Australia's leading newspapers published this article http://www.smh.com.au/business/the-economy/central-banks-cant-do-it-alone-says-rbas-philip-lowe-20150305-13vtja.html .

Governments the world around need to work with central banks and implement sweeping reforms and new policies aimed at driving confidence. The world economy needs structural reform and governments with a plan and willingness to invest in the future to boost their respective economies output or production. Quality government spending on infrastructure and other productivity gaining investment such as education and technology that will provide ongoing returns should be embraced not attacked.

Public debt is just a political football that gets kicked around and is a tool to mislead and confuse the average person into believing one political party are a pack of spend thrifts, a wasteful inconsiderate group "lumping debt on future generations" or "passing on a debt ball and chain to our children and grand children". Politicians play the "its not fair to leave our kids with the debt that our current generation is accruing". I ask though, having watched my father build businesses and drive innovation in the airconditioning industry, where would my family be if my dad did not borrow from his kids future would we be where we are today?

It is why I believe politicians and Central bankers need to listen to entrepreneurs and business owners because many of them have lived and worked through their own business life cycles which I believe are not to dissimilar to economic life cycles. Entrepreneurs and business owners/managers may also be more nimble and adaptive, skills that have been honed and refined with a drive to be the best, to be more efficient, to innovate and be creative. They have experience in understanding the way out of a dynamic and ever changing economic and business environment.

The Abbott government believes the cost of borrowing will drive business investment, it won't. I expect the future economic data to continue to surprise on the bad side. I think this government is destined to be a one term wonder if it does not switch course on investment and policy. It will begin with a poor consumer confidence report then they will be shocked at the unemployment number which I am tipping will be much weaker than many economists are predicting next month. The biggest shock is coming though with the next 6 months likely to see the unemployment rate rises accelerating.

The Abbott Government would be best served talking to an expert on business turnarounds or an experienced entrepreneur with flair that has a proven track record of taking a great performing business that was transitioning from post maturity to the decline stage of its business life cycle and rejuvenating and reinventing it. Looking at the messages coming out of this clueless Australian government one would think they were looking at the economy and are talking to a liquidator!

I am uniquely qualified to make the statements I have made both in this post and in my previous post. They are not politically motivated because I am a political atheist. I am qualified because I have experimented, albeit on a smaller scale but the relativity cannot be ignored and the lessons should be examined.

Let me explain...

I see striking similarities between my fathers entrepreneurial career and where he was at mentally when he retired and the current Australian economy and the policy direction the Abbott Government is pursuing. At the end of 25 years of a successful career he slipped into protection mode, save and don't spend, no exposure, no risk, no innovation, no belief. Tighten the belt, watch your overheads, control your costs, manage the budget. I am sure if you put some of his speeches side by side with those of the leading Liberal Government members the similarities would give you goose bumps.

He had made his money, put our family in a great position but he insisted on making his once thriving business a bomb proof, recession proof business in 2007. He could see the coming crisis and in preparing for it his company slowly moved from a sustained maturity stage to post maturity and decline. Things needed to change quickly and I recall butting heads with him on my investment strategy in much the same way that I am now butting heads with the policy agenda of Australian government on their crony Budget crisis mantra and investment cut backs.

I have had the privilege of inheriting a business structure that was sound and steady. The model was broken, but not to the point it could not be rescued. We needed a new direction, just as the Australian economy does as it transitions out of a mining boom that has been and is just about gone. I no investment, or innovation was restricting growth. In 2007 my father retired and in 2008 his models and strategies were retired with him. My fathers protection philosophy and investment stagnation was reversed. Investment in new innovation, plant and equipment, infrastructure. I vividly remember him being critical, apparently it was not the time to expand or invest in better production methods. It was not the time to invest in efficiency building and competitive accelerating assets and infrastructure. If that sounds strikingly similar to the Abbott and Hockey mantra it is because it IS THEIR MANTRA.

I am sorry to say that the philosophy is deeply flawed, the budget crisis is a fallacy and the political point scoring at the expense of the greater good of our great nation is a disgrace. My business investment success is proof. The investment and innovation path we persued in 2007 that rolled through the Global Financial Crisis has yielded exponential growth. The growth can be attributed to timely and targeted plan that was executed to produce a return sufficient enough  to service the debt, improve efficiency, productivity and ultimately profitability.

The current government are clueless on investment, if they fail to move on policies for the future and continue to cut investment in our great country we will fade away into the background. I see it as an obvious choice but then again I have had the benefit of personal experience. 

The Australian economy is in the process of transitioning from a mining boom growth phase to a rapid shift into post maturity and decline. Rejuvenation and prosperity will only come with a government that has a plan to invest big now in quality infrastructure and targeted future growth sectors. We need a confident government to steer Australia from the mining boom into the next big thing. A good government would be planning to steer the economy into what it believes will be the next big thing and prosecuting its case confidently in a pitch to the people they were elected to represent. A bad government, can't tell you, won't tell you and tosses out a plan for the future on a budget crisis fallacy and fear campaign, then wonders why business investment is plummeting and confidence is reaching the danger zone.

 Perhaps this government is only capable of running a household budget, if that is the case they should get out of the way and let an entrepreneurial leader with experience engage in policy direction and the upcoming budget design. I guarantee a better outcome will be achieved because entrepreneurs are creative, positive and passionate people. They succeed because they believe in the vision and will sell it to their stakeholders. They will stir emotion and excitement and ultimately drive confidence. The Australian economy needs talking up and the investment dollars to back up the talk. Australia needs a plan for the future not an argument about the past or the now. It needs the Abbott Government to turn to entrepreneurs for advice on the upcoming federal budget and not just eclectic bunch of economists.