How Joe Hockey Could Solve the Pension Crisis Tomorrow

How Joe Hockey Could Solve the Pension Crisis Tomorrow

The interest rate fixers find themselves in a pickle. On the one hand, the economy is doing well. On the other hand, the Australian dollar is on the upward march again, strangling politically sensitive businesses. So do you raise the interest rate or keep it steady?

Strangely enough, Reserve Bank of Australia officials are busy answering a different question—what effect interest rates have in the first place. To be clear, they can raise or lower rates. That’s it. But for some reason, the economists reckon they can control the effect that fiddling about with rates will have. This is a bizarre claim. It’s like saying you will pour water into far end of the bath to keep your hair dry.

Central bankers around the world have been busy messing about with monetary policy to influence their currency’s exchange rates. Michael Pascoe explains that ‘RBA officials have spelt out that they don’t cut rates to try to weaken the surging Aussie dollar – they do it to ameliorate the impact of the strong dollar on the economy. It’s an important difference, but apparently a very subtle one for some.’

So in some cases, lower rates target the exchange rate. In other cases, doing exactly the same thing is all about the economy, but not the currency. Hmmm.

Specifically, the Reserve Bank of Australia is focusing on how the interest rate affects mortgages. Central bankers in the US and Europe don’t like to talk about that much. Their housing bubbles burst when central banks began increasing interest rates. Will the same thing happen here?

Nah. If the rate cycle starts to bite homeowners, the RBA will just explain that interest rates don’t actually affect the economy through mortgages. They only affect the currency.

So how should the government go about fixing its rather large projected deficits? Using the corporate policies of Porsche and the knowhow of the US Federal Reserve, the Commonwealth Government of Australia could generate enough cash to pay for pensions at 35, top up Superannuation balances to make the pension irrelevant anyway, pay for free broadband across the nation and save us from climate change for good measure.

Sceptical? Before you get the details, you’ll need to understand where the idea came from.

So the Federal Reserve is busy manipulating the stock market to generate the ‘wealth effect’. The idea being that a government body can fix stock market prices to change people’s behaviour and make them better off. Ethical? Effective? Who cares? They’ve got to do something.

Then there’s Porsche and it’s dealings in Volkswagen shares. Back in 2008, Porsche’s head honchos were pondering a takeover of VW. They bought a rather large amount of options in the company, which would allow them to buy much of VW at a fixed price.

Meanwhile, hedge funds were shorting VW’s shares, betting on a falling price. But once they realised the size of Porsche’s options positions, they got a fright and tried to close their short trades. To do so, they had to buy VW shares. The sudden influx of buy orders sent the share price surging so fast VW briefly became the world’s most valuable company.

The share price surge also lit a fire under the value of Porsche’s options. In fact, the profit on selling the options was more than double the company’s first half car sales!

So how does all this apply to Australia? Well, if a car company can make 6.8 billion euros on a stock market trade, and central banks can control stock markets, why not let the Treasury take a punt?

The perfect opportunity is of course the controversy surrounding TPG and the NBN Co. We all know Australia needs faster internet to be more productive. But by launching its own fibre optic cable service, TPG has violated basic economic law. Doesn’t the board know that the private sector can’t supply infrastructure like lighthouses, bridges and the internet? That’s exclusively for the government to do.

Even TPG’s competitors in the private sector reckon TPG should be stopped. It’s unfair to let a private company compete. There should be government constraints to ensure competitive constraints. And you can do that by allowing a government owned business unequal competition to ensure enough constrained competition by private business. Got it? Or, as the new NBN chief Bill Morrow put it, ‘A clear majority of the industry is opposed to TPG’s plans or wants the firm to be subject to competition constraints.’ After all, competition must be constrained to ensure there is enough of it.

Anyway, here’s what we think Treasurer Joe Hockey should be doing instead of whining about the cost of pensions. He should list the NBN Co on the Australian Share Market to pay for some of the costs of building the NBN. Then, the Treasury should short TPG shares before announcing the government will close the loophole allowing the private company to compete with the NBN Co in the public service of providing internet infrastructure. After all, believe it or not, TPG is insolently planning to undercut the NBN Co in price! That would mean real trouble for the NBN Co, which is politically unacceptable. Customers must pay politically viable prices for their internet.

The share price of TPG will crash if their business model is banned, delivering a cash profit for the Treasury’s short trades. The shares of the NBN Co monopoly will surge because of the lack of competition. The Treasury could sell its remaining stake in the NBN Co for another cash profit.

Having divested itself from NBN Co, the government should buy Telstra shares in anticipation of the $98 billion revenue stream which NBN Co may have to pay for the rights to use Telstra infrastructure (which the government used to own). That’s according to a leaked report from Goldman Sachs.

Put together, all these machinations will surely pay for the huge budget shortfall in coming years.

It must be fun being a government official in times like these. Anything goes when people are scared or want fast internet. You can get a job with a bank after bailing it out during your tenure at the regulator. You can mess about with stock prices by printing money. You can engineer a housing boom by fiddling with interest rates. You can stop a private company from competing with you. Why not make money with all this power? (For the taxpayer of course.)

Regards,

Nick Hubble+
for Markets and Money

Join Markets and Money on Google+

Free report reveals…

How to potentially maximise your age pension benefits
Markets & Money Free ReportIf you currently receive the age pension, or are close to retirement age…

You must download and read this report NOW.

As of 1 January, 2017, the Australian government will introduce harsher asset test changes that could affect your income.

Inside your free report, rogue economist Vern Gowdie reveals what he believes you could do right now to boost your age pension income. If you’re at, or near, retirement age…download Vern’s report today.

You’ll discover:

  • Three ways you could boost your age pension payments now: Trying to squeeze a few extra bucks out of the government can be like drawing blood from a stone. It’s HARD. Fortunately, Vern’s discovered three ways you could boost your age pension payments (number #3 will surprise you).
  • Will you be hit by the age pension changes in 2017: As of 1 January, 2017, the Australian government will introduce a series of harsher asset test changes for the age pension. Will your income be hit by the new changes? Download Vern’s report to find out.
  • Retire in luxury overseas (on the cheap): An increasing number of Aussies are packing up and moving overseas to retire. No wonder. Your total living expenses in an exotic location like Thailand or Costa Rica could be HALF what you’d expect to pay here in Australia. Cheap food, rent and medical costs are just some of the reasons waves of retirees are heading for warmer climates permanently. How does a shift overseas affect your pension entitlements? Vern explains in his report.

To download your free report, ‘What You Need to Know about Changes to the Age Pension’, simply subscribe to Markets and Money for FREE today. Enter your email in the box below and click ‘Send My Free Report’.

We will collect and handle your personal information in accordance with our Privacy Policy.

You can cancel your subscription at any time.

Nick Hubble

Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like.

Leave a Reply

2 Comments on "How Joe Hockey Could Solve the Pension Crisis Tomorrow"

Notify of
avatar
Sort by:   newest | oldest | most voted
slewie the pi-rat
Guest
Spyware Nanny already knows what ‘the majority’ wants, via ‘trending’, of course: to race Porches and v-dubs on the information superhighway! speaking of ‘politically sensitive businesses’: lO^Oks like Oz business set-ups may have been part of the ‘rat-line’ outa Benghazi, right in there w/ the CIA, MI6 & TKY, to get weapons to the Sunni mercs, all fighting that dastardly arch-villain Assad, who has threatened Liberty world-wide, himself, apparently, simply by being a ‘living branch’ of Shia. btw, no rats were harmed, only humans. the rats are in church this week, preying, and giving thanks for their salvation via God’s… Read more »
SG
Guest

“We all know Australia needs faster internet to be more productive”

I think this comment wont live up to its claims, and that the internet is not a big growth producer like say the introduction of the internal combustion engine, however a discussion about it would make a great essay.

wpDiscuz
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@marketsandmoney.com.au