Liberia and Australia are Doomed

Years ago a man named Gideon Gono first appeared in The Daily Reckoning. He quickly became a favourite character of readers. Best of all, we didn’t even have to make him up.

The charismatic Governor of the Reserve Bank of Zimbabwe surged to fame in 2008. Not just because he destroyed the country’s economy by printing money. But because American and European central bankers embraced his policies after ridiculing them for years, which he promptly rubbed their faces in.

Quantitative Easing went on to become the key economic policy of the decade. It saved us all. Except, of course, the savers who got nothing. In fact, their interest payments dwindled to less than inflation in much of the developed world.

Well, if Gideon Gono is the modern central bank pioneer, we have a new man to bring to your attention. And he’s leading a charge Australia’s politicians are already following. It might’ve cost you thousands already, without you even being aware of it yet. But first, who is this maverick?

Honesty is a virtue if you’re a politician in Liberia. The war torn, basket case of a country has a financial genius in its midst. The Banker magazine named Liberia Finance Minister Amara Konneh ‘Finance Minister of the Year 2014’.

Just like Gono, Konneh is ahead of his time. Comments like these win him accolades from his peers: ‘The economy lacks the potential frameworks to support the national budget.’ That might sound melodramatic. But it’s a profound change.

Minister Konneh can be credited for opening up about the basic assumption of modern politics: The economy exists to support the government’s budget.

This commonly held belief of parliaments around the world has not been uttered in the open since the Nazis surrendered. Still, the conventional wisdom of the unelected is precisely backwards. Citizens falsely believe that the government exists to provide the framework to support the economy. It’s actually the other way around.

Of course, we’d argue that governments can’t support the economy anyway (they can only reshuffle resources). So both belief sets are wrong. But never mind that. It’s the price you might be paying that has us worried today. We’ll get to that in a moment.

The All Africa website has more on Mr Konneh’s ground breaking economic views:

‘Minister Konneh said owing to the poor economic outlook, growth in GDP is disgusting and unacceptable. He noted that Liberia runs a 12-hour economy as a result of the decimal growth in revenue, the economic growth and national development that would lift Liberians from the dungeon of destitution remains bleak.’

 

There’s no doubt about it: Australian GDP growth is also ‘disgusting and unacceptable’. Despite a better than expected 1.1% growth rate last quarter, it can’t even support future government spending. Or, as the politicians phrase it in public: Our budget is on an ‘unsustainable path’.

Measured on a per capita basis, we’re actually in recession. The country also suffers from a 12 hour economy — whatever that is — and we use the decimal system in all sorts of unfortunate places. In short, we’re in the ‘dungeon of destitution’, just like Liberia.

Keen to follow Minister Konneh’s advice to avoid the ‘adverse and excruciating effect if there is slow pace in the collection or actualization of revenue’, Australia’s government is taking the most direct route possible by taking money out of Australian bank accounts — usually those of pensioners.

Under fairly new laws, the government can empty bank accounts that are dormant for three years. And so far they’ve ‘banked’ a remarkable $360 million. Here’s a graphical history of the amount of money (left hand side in blue) and the amount of accounts (right hand side and red) emptied:

click to enlarge

People who thought they were keeping their money safe in the bank are suddenly finding the money is gone. Kim Taylor’s maternity savings, Connie Franz’s 45 years’ worth of savings, Edward Manning’s inheritance and more victims have been profiled by The Age. No doubt Minister Konneh would approve of the Australian government’s ‘frameworks’ that make all this possible.

Read the rest of this article at The Daily Reckoning