Years ago a man named Gideon Gono first appeared in Markets and Money. 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.
But there’s some bad news. For once, the banks and the people are on the same side. Australian Bankers’ Association chief executive Steven Munchenberg is standing up for the man on the street: ‘We have grandparents who put money aside for their grandkids’ future … and farmers who have set aside money for a rainy day, but it was transferred to the government’.
‘Transferred’? We’d call it theft. But then again, we can’t change the definition of what constitutes theft.
Munchenberg’s protests are likely to fall on deaf ears. He failed to mention the key political catchwords ‘fair dinkum’ and ‘working families’ at least once each. But Australia’s own Finance Minister Mathias Cormann is putting out a discussion paper on the topic anyway. At the bankers’ request, the government may raise the bar on when it can loot dormant bank accounts…to five years of inactivity.
We’d love to insert a necrophilia metaphor here, but let’s not get carried away.
Of course, the banks’ passionate defence of their customers’ property has nothing to do with the their love of dormant bank accounts. According to Munchenberg: ‘To you or I, hundreds of millions of dollars might be a lot of money, but when you’re looking at the funding level of banks, it’s all trivial.’
Hmm, so the government cares enough to take it, but the banks aren’t fussed about the ‘trivial amount’. So what’s going on? Cui bono? Who benefits?
We’ve no idea to whose benefit raiding dormant bank accounts might be, except the government’s. Clearly politicians have risen above the voter they represent, the lobbyists who bankroll them, and any other form of accountability. It’s now all about the ‘revenue based budget ’ Minister Konneh advocates.
But things have to be a bit more true blue and down to earth in Australia than in Africa. ‘Revenue based budget ’wouldn’t go down well here. As Australia’s Treasury Secretary put it instead: Australian’s are suffering from a ‘reality gap’ when it comes to the government’s finances:
‘I’ve been saying there is a gap between what citizens want from government and what they are willing to pay for that… I’ve been saying this, the governor of the Reserve Bank has been saying this, the head of the independent Parliamentary Budget Office has most recently said this last week. If the two most senior economic bureaucrats in the country are saying ‘people we have a challenge and it’s about time we had a serious community discussion’ and the independent head of the Parliamentary Budget Office says the same thing, it’s actually in the hands of the political class.‘
We agree. The Treasury Secretary, the head of the Parliamentary Budget Office, and the Governor of the RBA should be fired to save money.
Keep dreaming. All those bureaucrats must be paid so they can spend their time telling you to stop complaining about the government taking your money.
What has us really worried is that Minister Konneh’s advice of implanting a ‘revenue based budget’ will begin to show up elsewhere. Like in superannuation tax changes.
If they can take money out of your bank account, what else might they be up to? We doubt Liberians would put up with this sort of thing.
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