# Economist Chris Joye WARNS: "We're Going Into Recession" And How We Fix It

An episode of [Straight Talk with Mark Bouris](https://invisiblenetwork.ai/podcast/1572546872), 12 Oct 2026, 1 h 00 min.

Audio: https://p.podderapp.com/2544644999/traffic.omny.fm/d/clips/2fb3740d-3436-44af-8cc0-a91900716aa5/1c4759f0-81fc-4f35-85d1-b305004fc1e8/f3748092-7da8-4738-be4a-b4e100737884/audio.mp3?utm_source=Podcast&in_playlist=573776d2-4dbd-4f2f-a825-b305004fc1ef

In this episode of Straight Talk, I sit down with economist Chris Joye for round five, a frank conversation about government spending, immigration, productivity and Australia’s economic future. Chris argues that Australia’s challenges run deeper than events in the Middle East. He examineswhat he describes as $660 billion in additional government debt since 2022, the pressure population growth is placing on housing and infrastructure, and an expanding public service alongside declining private sector productivity. He also questions the Reserve Bank’s “narrow path” strategy, whether political influence has shaped its approach to inflation, and the cost to Australian households. I then ask Chris what needs to change: how to rein in spending, lift productivity and get Australia’s economy back on track. Join my exclusive Mentored community: https://mentored.com.au Subscribe to the Mentored newsletter here: https://the-mentored-platform-pty-ltd.myklpages.com/l/WWJGc5 Executive Producer: Samuel Morgan Head of Production: Jonah Mclachlan See omnystudio.com/listener for privacy information.

## Transcript

[0:00] Speaker 1: Welcome to Straight Talk, Chris. Good to have you back, mate.
[0:02] Speaker 2: It's good to be here, buddy.
[0:04] Speaker 1: What a weird time it is. Is this structural change?
[0:08] Speaker 1: Are we seeing structural change?
[0:09] Speaker 2: Yeah, you bet. Like higher for longer rates, higher inflation,
[0:14] Speaker 2: the battle between communities and politicians, you know, profligate spending
[0:21] Speaker 2: and … Failures? Yeah. We're seeing, you know, huge increases
[0:25] Speaker 2: in insolvencies. And that's the beginning, like huge. We've got
[0:29] Speaker 2: record insolvencies in Australia and businesses are going to go bust.
[0:35] Speaker 2: They are going bust. We're seeing, if you think about Sydney,
[0:38] Speaker 2: house prices falling at an 18% annual rate right now.
[0:42] Speaker 2: Our forecasts currently have the peak to trough fall in
[0:45] Speaker 2: Sydney prices at 17%. But here's the rub, mate, as
[0:48] Speaker 2: you would know, that's the 5 million person city average
[0:52] Speaker 2: within the city on our numbers. Yeah. individual suburbs will
[0:56] Speaker 2: fall as much as 20% to 40%. National house prices
[1:01] Speaker 2: are currently falling at about a 16% annual rate. We're
[1:05] Speaker 2: expecting the national peak to drop fall to be about 13%.
[1:09] Speaker 2: We'll break the record for the biggest fall ever in
[1:11] Speaker 2: house prices on our numbers before Christmas. So Sydney's falling
[1:15] Speaker 2: at 18% per annum. Melbourne, a bit less than that,
[1:18] Speaker 2: but double digit all around the country. And then at
[1:21] Speaker 2: the same time, suddenly the RBA lifting interest rates, but
[1:25] Speaker 2: long-term government borrowing rates, the so-called government bond yield at
[1:29] Speaker 2: the highest level in the US since 2002.
[1:31] Speaker 1: And here too.
[1:33] Speaker 2: And here, highest level since 2011. And there's real parallels
[1:36] Speaker 2: to the tech boom, mate. And not many people are
[1:39] Speaker 2: talking about this.
[1:39] Speaker 1: You're talking about the tech boom in the 90s.
[1:41] Speaker 2: Late 90s. Late 90s, yeah. And you've got to remember, again,
[1:43] Speaker 2: people forget this, the US share market fell 49% in 2000,
[1:46] Speaker 2: and the NASDAQ fell, wait for it, 78%, right? And
[1:47] Speaker 2: then they had a recession. So- Basically, we're having the
[1:54] Speaker 2: mother of all CapEx booms right now globally. But in
[1:57] Speaker 2: the late 1990s, we had a similar boom investing in
[2:01] Speaker 2: the internet. And it's fascinating. We are likely to see
[2:06] Speaker 2: the US increase interest rates on our numbers. They've already
[2:09] Speaker 2: started hiking. No one expected this. I've sat on this
[2:11] Speaker 2: potty for some time. I think this is episode number
[2:15] Speaker 2: for us six or maybe.
[2:16] Speaker 1: Yeah, close to.
[2:18] Speaker 2: And I said that the US will be raising rates.
[2:21] Speaker 2: Australia will be raising rates. The rest of the world
[2:22] Speaker 2: will be lifting rates, and we've seen that now. But
[2:26] Speaker 2: we're expecting the Fed to lift rates by 1.25 percentage points.
[2:30] Speaker 2: That's our official number. My personal number is more like
[2:33] Speaker 2: 150 to 200 basis points. So they started hiking in September.
[2:36] Speaker 2: In the tech boom, they hiked by 180 basis points.
[2:40] Speaker 2: And the US 10-year government bond yield, which is like
[2:43] Speaker 2: the price of money, so every borrowing rate in the
[2:45] Speaker 2: world prices off that number, it started in the tech
[2:47] Speaker 2: boom at 4%. And it went up to 6.5% to 7%. Now,
[2:51] Speaker 2: in this recent cycle- The 250, 250 points. Yeah. And
[2:54] Speaker 2: in this cycle, we started also at about 4% in
[2:58] Speaker 2: the US, about 3.9%. And right now, we're at 5.3%.
[3:01] Speaker 2: And it looks like there's a risk it could drift
[3:03] Speaker 2: a lot higher. And the end of that cycle was
[3:06] Speaker 2: all about interest rates. So what happened was you had
[3:09] Speaker 2: so much spending on the internet, you had a lot
[3:13] Speaker 2: of inflation, and the Fed started lifting rates- and specifically
[3:18] Speaker 2: the Fed raised rates by 180 basis points. So they
[3:22] Speaker 2: lifted rates from 4.75% to 5%. They have a range
[3:26] Speaker 2: to about 6.5%. So there was 180 basis point increase
[3:34] Speaker 2: in rates. That's roughly what we expect for the Fed.
[3:36] Speaker 2: I mean, one number is 125. My number is 150
[3:39] Speaker 2: to 200. And then you saw a parallel increase in
[3:42] Speaker 2: that 10-year government bond yield, as I mentioned, from 4
[3:43] Speaker 2: to 6.5% to 7%.
[3:45] Speaker 1: What happened when they raised those rates?
[3:47] Speaker 2: So basically, it's just like a python asphyxiating the economy,
[3:52] Speaker 2: and it's what we're seeing right now. So think about
[3:53] Speaker 2: what happens when we raise rates here. House prices go down.
[3:57] Speaker 2: Businesses go bust. People get really fearful. They stop spending money.
[4:02] Speaker 2: Activity grinds to a halt. You'd know this better than me,
[4:04] Speaker 2: but I've spoken to two big resi developers during the week,
[4:08] Speaker 2: and they've said, sales aren't down, mate. Sales have freaking stopped.
[4:13] Speaker 1: They don't exist.
[4:14] Speaker 2: They don't exist. don't exist. There's no sales. And so
[4:17] Speaker 2: in the tech boom in the late 1990s and 2000s,
[4:20] Speaker 2: eventually that discount rate or hurdle rate or the government
[4:25] Speaker 2: bond yield gets so high, and because all borrowing rates
[4:27] Speaker 2: are set off that level, so they're above that, that
[4:30] Speaker 2: it just crushes everything. And basically the boom cannibalizes itself.
[4:35] Speaker 2: And I have a feeling that's what we might see
[4:37] Speaker 2: here in this cycle. And they had a recession. Equities
[4:41] Speaker 2: fell 50%. tech stocks fell 80% and potentially we're going
[4:48] Speaker 2: to stand in the barrel of something similar in this cycle.
[4:50] Speaker 1: Is it over-exuberance? So what causes this? But I do
[4:55] Speaker 1: remember the tech boom in the late 90s, early 2000.
[4:57] Speaker 1: I don't remember what happened after that. And I have
[5:00] Speaker 1: been watching what's going on at the moment, especially this
[5:03] Speaker 1: so-called AI boom, how it's distorting GDP, et cetera, not
[5:06] Speaker 1: only here but everywhere else. Um, and we are seeing
[5:09] Speaker 1: some big stories come out more recently. I know, I
[5:11] Speaker 1: see Joe put up a story about, uh, Firmus today. And, uh, that, that, that,
[5:15] Speaker 1: that's been pulled. I'm not saying it's a disaster, but
[5:17] Speaker 1: it's just been pulled, um, because of Appetite. Um, are,
[5:21] Speaker 1: are we now facing off the over-exuberance the last two years?
[5:24] Speaker 2: Um, I think that this cycle is really legit in
[5:31] Speaker 2: terms of, you know, AI is revolutionary.
[5:33] Speaker 1: But internet was too.
[5:35] Speaker 2: Yeah, that's true. And, um, So I think on the
[5:39] Speaker 2: one hand, yes, the extrapolation of earnings and profits from
[5:44] Speaker 2: these unprecedented innovations is inherently very difficult and uncertain. So basically,
[5:50] Speaker 2: there's a lot of bullshit. But what I will say
[5:53] Speaker 2: is this, that we are seeing huge productivity growth in
[5:57] Speaker 2: the US. We are seeing massive growth from the US.
[6:00] Speaker 2: And we talked about this in past episodes, that our
[6:02] Speaker 2: central case was the US economy would be as strong
[6:05] Speaker 2: as 10 min. Unemployment's come down. Inflation's gone up. And
[6:08] Speaker 2: what's novel, mate, that we've never seen before is for
[6:13] Speaker 2: the first time, more or less in our lifetimes, in
[6:15] Speaker 2: 40 years, you might be a touch older than that,
[6:20] Speaker 2: we're seeing technology as a driver of inflation. And this
[6:25] Speaker 2: is one of our hypotheses. We argued that AI would
[6:27] Speaker 2: be inflationary, not deflationary, and that AI would create jobs,
[6:30] Speaker 2: not destroy jobs. And it's amazing when you look at
[6:32] Speaker 2: the US inflation data. So basically, for the last 40 years, technology,
[6:36] Speaker 2: by which I mean things like laptops, consumer tech prices
[6:41] Speaker 2: were falling every year. And so you'd buy a laptop
[6:44] Speaker 2: every year for a thousand bucks and you get every
[6:46] Speaker 2: year more processing power, more storage, more for the thousand dollars.
[6:50] Speaker 2: And that gave us, over the 1990s and 2000s, Mark,
[6:53] Speaker 2: that gave us the low inflation, the stable inflation world
[6:57] Speaker 2: that allowed rates to remain low. So again, a lot
[7:00] Speaker 2: of punters listening to this wouldn't realize that in January 1990,
[7:03] Speaker 2: the RBA cash rate was like 18%, right? And the
[7:06] Speaker 2: reason it came down from 18% all the way down
[7:09] Speaker 2: to 0.1% in November 2020 is partly because of the
[7:15] Speaker 2: miracle of technology deflation. In the last 12 months, for
[7:19] Speaker 2: the first time in almost half a century, tech prices
[7:21] Speaker 2: have gone through the roof. Technology is now a major
[7:24] Speaker 2: driver of inflation and it's lifting the price of goods everywhere.
[7:29] Speaker 2: So that's one problem. Part two is you've got the
[7:32] Speaker 2: Dan Andrews effect where every politician in the world has
[7:34] Speaker 2: thought Money was cheap, like super cheap. So you've got
[7:37] Speaker 2: to remember, the US 10-year government bond yield in 2020
[7:41] Speaker 2: was 0.5%. Here in Australia, it was 0.6%. When those
[7:44] Speaker 2: fucking bullies saw those interest rates, they were like, we're
[7:49] Speaker 2: going to make our little bandits because we can borrow
[7:52] Speaker 2: as much money as we want for free, and we
[7:54] Speaker 2: can build the NBN, we can build the NDIS. Happy days.
[7:58] Speaker 2: So they racked up massive amounts of debt, and the
[8:03] Speaker 2: public spending– has driven a lot of inflation on top
[8:07] Speaker 2: of the AI capex boom driving up tech prices. So
[8:10] Speaker 2: all around the world, we see these monstrous budget deficits.
[8:12] Speaker 2: So I think since Albo came to government, Aussie government
[8:16] Speaker 2: debt has increased by about $ 660 billion gross. The next
[8:21] Speaker 2: influence is particularly in Australian migration. So massive amounts of migration,
[8:25] Speaker 2: dropping half a million people on the East Coast every year.
[8:27] Speaker 2: It just puts pressure on prices. Another influence in Australia
[8:31] Speaker 2: on inflation is has been this wanky word productivity, which
[8:35] Speaker 2: I hate, but basically means we've lost our mojo and
[8:39] Speaker 2: we're not working particularly hard. The lucky countries become the
[8:41] Speaker 2: lazy land. But really what it's about is the CFMEU
[8:48] Speaker 2: writ large dynamic that has emerged in Canberra, which is
[8:50] Speaker 2: basically tax and take from those that generate, has dulled
[8:54] Speaker 2: the incentives for entrepreneurs to create things. So they're taxing
[8:58] Speaker 2: everyone to the bejesus and they are really reducing the motivation.
[9:02] Speaker 2: to build new businesses, hiring people to innovate and to
[9:07] Speaker 2: be entrepreneurial in the private economy. And instead, people are
[9:10] Speaker 2: either leaving Australia, like myself, or they're working for the
[9:14] Speaker 2: public service. So the size of the bureaucracy has expanded 25%,
[9:18] Speaker 2: and productivity is abysmal. We've got the worst productivity in
[9:20] Speaker 2: the world. But on top of all that, there's more. Globally,
[9:25] Speaker 2: we have deglobalization. And that basically means we're taking our
[9:29] Speaker 2: factories out of China, we're rebuilding them locally around the world.
[9:31] Speaker 2: So the supply chains are coming home and that's inflationary,
[9:34] Speaker 2: part one. Part two, you've got global remilitarization. Everyone in
[9:37] Speaker 2: the world is spending a shit ton more on defense
[9:42] Speaker 2: and that defense spending is massively inflationary. And then the
[9:45] Speaker 2: final dynamic is you've got these huge supply side shocks, Russia, Ukraine, Iran,
[9:52] Speaker 2: increasing the price of gas, fertilizer, petrol, diesel, And so
[9:57] Speaker 2: we just live in this inflationary world. So to answer
[9:59] Speaker 2: your original question, is it exuberance? Yes, there's unambiguous, like
[10:03] Speaker 2: PE multiples. Let me put it this way. The one
[10:06] Speaker 2: line answer to that question is simply this. The cyclically
[10:08] Speaker 2: adjusted price earnings multiple, which is a valuation measure for
[10:11] Speaker 2: US stocks, is at the highest level in 200 years.
[10:14] Speaker 2: And there's only one time in history where it's been higher,
[10:16] Speaker 2: at the peak of the tech boom. So we're at
[10:18] Speaker 2: 41 times, the tech boom was 44 times. So, you know,
[10:21] Speaker 2: the downside is significant.
[10:23] Speaker 1: It's very interesting in the way you put it because
[10:27] Speaker 1: Jim Chalmers, our treasurer, has been continually blaming the Middle East.
[10:34] Speaker 1: What does someone like you, who's like analyzing this stuff uphill, down, down,
[10:39] Speaker 1: every single moment of the day, not every day, but
[10:41] Speaker 1: every single moment of the day in your team, what
[10:43] Speaker 1: does someone like you think about that narrative?
[10:46] Speaker 2: I mean, all of our inflation, most of it, like
[10:49] Speaker 2: the lion's share of it, is driven by the professional politicians.
[10:53] Speaker 2: It's the fact that they've racked up $ 660 billion of
[10:58] Speaker 2: debt and spending since 2022 alone across federal and state governments.
[11:02] Speaker 2: The fact that we started in 2007, we only owed
[11:05] Speaker 2: $ 100 billion. Australians, via federal and state government authorities, owed
[11:09] Speaker 2: the world $ 100 billion. By 2030, it'll be $ 2 trillion.
[11:12] Speaker 2: That includes state debt? State and federal. But here's the rub.
[11:16] Speaker 2: Our annual interest bill, mate, is gone from $ 5 billion
[11:21] Speaker 2: a year to basically, if you take that $ 2 trillion
[11:26] Speaker 2: in a few years and you assume it all gets
[11:29] Speaker 2: refinanced at current interest rates, which is pretty likely, we
[11:34] Speaker 2: will be paying about $ 110 billion a year in interest.
[11:37] Speaker 1: And that is the equivalent of $ 110 billion. That's 10%
[11:41] Speaker 1: of our current federal debt.
[11:42] Speaker 2: Yes. Our current federal debt, but the total debt will
[11:46] Speaker 2: be $ 2 trillion. So we'll be paying about $ 110 billion
[11:48] Speaker 2: a year in interest. Mate, that's 24 hospitals, mega hospitals
[11:51] Speaker 2: a year in interest. And it's all public spending. It's
[11:56] Speaker 2: all population growth and migration. And it's all productivity. I mean,
[11:59] Speaker 2: the oil price stuff is at the margins. It's not
[12:02] Speaker 2: really a... It's not the reason the RBA hasn't hit
[12:06] Speaker 2: its inflation target since 2021. That's a recent innovation. That's
[12:10] Speaker 2: a recent event. So he's just bullshitting.
[12:14] Speaker 1: But what would you say? How do we solve this?
[12:16] Speaker 1: It's an easy question to ask, but how do we
[12:21] Speaker 1: solve it apart from changing government? I mean, if you
[12:23] Speaker 1: were Jim Chalmers today, what would be one thing you
[12:26] Speaker 1: would look at?
[12:26] Speaker 2: I actually think it's pretty easy to solve. I mean,
[12:30] Speaker 2: there's quite a few things you could do.
[12:32] Speaker 1: If I was prime minister and you were treasurer, How
[12:35] Speaker 1: would we solve it?
[12:35] Speaker 2: Pretty good team.
[12:36] Speaker 1: Pretty good team. Just putting it out there.
[12:42] Speaker 2: Oh man, that would be fun. I remember Malcolm Turnbull,
[12:45] Speaker 2: love NBC. Once I was sitting in his house, he
[12:47] Speaker 2: said exactly the same thing.
[12:48] Speaker 1: Did he?
[12:49] Speaker 2: Yeah, he said, Chris, if I was prime minister and
[12:51] Speaker 2: you were my treasurer, what would you do? So, okay,
[12:56] Speaker 2: first thing you do is you sack 25% of the
[12:59] Speaker 2: entire public service, Gonski. Everyone says we have a shortage
[13:02] Speaker 2: of labor, a shortage of workers. Well, if you take
[13:04] Speaker 2: a quarter of Canberra, right, the professional, political, and public class,
[13:09] Speaker 2: and redeploy them to all the other, I mean, we've
[13:11] Speaker 2: got more than enough labor. So that's part one, and
[13:13] Speaker 2: you'd save an enormous amount of money.
[13:14] Speaker 1: That's interesting.
[13:15] Speaker 2: Part two is I would zero migration, or at least zero,
[13:22] Speaker 2: I would reduce it as much as you can, practically,
[13:25] Speaker 2: to allow the country to assimilate the circa 1.6 million
[13:28] Speaker 2: people that have come to the country under Albanese. We
[13:30] Speaker 2: just can't cope with those population pressures, and that's.
[13:32] Speaker 1: What's, putting a lot of- Canada model.
[13:35] Speaker 2: Yeah. And we've seen the same thing in the US.
[13:37] Speaker 2: They've killed migration and New Zealand killed migration and the
[13:39] Speaker 2: Canadians have done it.
[13:40] Speaker 1: It's no surprise that the US is going fantastic, like fantastic.
[13:44] Speaker 2: With zero migration.
[13:45] Speaker 1: Yeah.
[13:46] Speaker 2: And the next thing I would do is sell the
[13:50] Speaker 2: National Broadband Network. So I'm not sure exactly what you
[13:53] Speaker 2: get for probably 20 to 30 billion, best case scenario,
[13:56] Speaker 2: but I'd flog that off. I'd cut the NDIS down
[13:59] Speaker 2: by 75%. right size it to 25 odd billion a
[14:05] Speaker 2: year or whatever that number ultimately proves to be. So
[14:10] Speaker 2: you massively reduce government spending.
[14:13] Speaker 1: What about debt?
[14:15] Speaker 2: I'll come to the debt. On taxes, I would basically
[14:21] Speaker 2: unwind all of the recent budget measures, but I'd reduce
[14:25] Speaker 2: income taxes, I'd reduce corporate taxes, I would normalize the
[14:29] Speaker 2: capital gains tax back to where it was previously, which
[14:32] Speaker 2: is more or less in line with every other country
[14:33] Speaker 2: in the world. I'd boost the consumption tax, the GST,
[14:37] Speaker 2: from 10% to 15%. And with debt, there's an idea
[14:42] Speaker 2: that I wrote about actually today that I don't think
[14:44] Speaker 2: anyone's ever thought of, which is pretty unbelievable, frankly. The
[14:48] Speaker 2: Polis came up with an idea decades ago, which was, oh,
[14:54] Speaker 2: we're entitled to these retirement incomes as politicians and public servants.
[14:59] Speaker 2: maybe we won't get paid.
[15:01] Speaker 1: What do you mean by that, retirement incomes? The politicians?
[15:04] Speaker 2: Superannuation, yeah. So basically, we're entitled to our version of
[15:08] Speaker 2: superannuation in retirement, and there's no pot of money guaranteeing it.
[15:11] Speaker 2: So the polys had a brainwave, which was, why don't
[15:15] Speaker 2: we take the budget surpluses that we had pre-GFC and
[15:18] Speaker 2: start putting them into a fund just for the public
[15:20] Speaker 2: service and the polys? This is our money, your and
[15:22] Speaker 2: my money, being set aside just for the public service
[15:25] Speaker 2: and polys. And that will then guarantee that we get
[15:28] Speaker 2: paid what we're owed in our employment agreements in relation
[15:32] Speaker 2: to our retirement entitlements. Now, that fund today is about
[15:38] Speaker 2: $ 350 billion. And if you take, it's a future fund,
[15:43] Speaker 2: and if you take its return target, it's got about
[15:48] Speaker 2: $ 60 billion too much. of our savings squirreled away in
[15:52] Speaker 2: that fund for polys.
[15:53] Speaker 1: So in other words, as politicians retire over the next, say,
[15:56] Speaker 1: so many years, there is $ 60 billion more in there
[15:59] Speaker 1: than we currently need, assuming certain earnings for the future.
[16:02] Speaker 2: Assuming that it hits its return target. Now, that's 7%
[16:04] Speaker 2: a year. It's actually delivered 9% a year. On that basis,
[16:08] Speaker 2: the $ 60 billion jumps to $ 110 billion.
[16:11] Speaker 1: So there's even more.
[16:13] Speaker 2: $ 110 billion of Australians' cash set aside for polys in
[16:16] Speaker 2: the public service. that shouldn't be there, right? That's based
[16:19] Speaker 2: on the realized returns since we set up the future fund.
[16:22] Speaker 2: If you take the more conservative number, it's about $ 60 billion.
[16:24] Speaker 2: But in addition to that, there's about $ 60 to $ 70
[16:27] Speaker 2: billion of other stuff that is sitting in what we
[16:30] Speaker 2: call special interest funds.
[16:32] Speaker 1: For- That's been taken out of the future fund?
[16:35] Speaker 2: No, no, that's been allocated to the future fund. So
[16:37] Speaker 2: there's another $ 60 to $ 70 billion of pork barreling where
[16:40] Speaker 2: basically they said, we want to help out housing, so
[16:42] Speaker 2: here's a bunch of money and we want to help
[16:44] Speaker 2: out disaster relief and we want to help out- the Aboriginals,
[16:47] Speaker 2: and we want to help out the medical sciences. Now,
[16:52] Speaker 2: the government has a free option to write a cheque
[16:54] Speaker 2: at any point in time to all those special interest
[16:56] Speaker 2: groups if it warrants it. We don't need to square
[16:58] Speaker 2: away cash.
[16:58] Speaker 1: Well, it doesn't need to be there forever.
[17:00] Speaker 2: Yeah, and check out this. Of the $ 66 billion, $ 30
[17:02] Speaker 2: billion is actually sitting in cash deposits earning about 4%,
[17:07] Speaker 2: whereas the government's paying interest on the debt that exists
[17:10] Speaker 2: right now of 5.5%. So we're losing money on that
[17:14] Speaker 2: money and it doesn't need to.
[17:15] Speaker 1: Be- What they call negative carry. If you did that
[17:17] Speaker 1: in your business, one of your funds, they'd be talking
[17:21] Speaker 1: about it forever.
[17:21] Speaker 2: Yeah. So the simple idea is to say, let's take
[17:25] Speaker 2: the 60 to 100 billion from the future fund that
[17:30] Speaker 2: doesn't need to be there. The polys and public services
[17:33] Speaker 2: have furthered their nests more than enough. And so if
[17:38] Speaker 2: we assume the future fund, it's mandated target, not the
[17:42] Speaker 2: higher return that it's actually delivered, the 7% per annum,
[17:44] Speaker 2: not the 9%. There's about 60 odd billion. And then
[17:47] Speaker 2: there's another 60 billion of special interest money. So that's
[17:50] Speaker 2: 120 billion combined. All up, it's probably about 150 billion. Now,
[17:54] Speaker 2: if you take the 150 billion off the 2 trillion
[17:57] Speaker 2: in government debt, you reduce government debt by about 12%.
[18:00] Speaker 2: And you're also reducing an annual interest bill, which is
[18:04] Speaker 2: about 8 billion a year. So you save 8 billion
[18:06] Speaker 2: a year, you reduce the government debt by circa 12%
[18:10] Speaker 2: or by $ 150 billion, which no government, I don't think,
[18:12] Speaker 2: in the history of governments has really ever done before.
[18:14] Speaker 2: And they could do this, I think, tomorrow. I mean,
[18:16] Speaker 2: it's not very hard to get a parliamentary consensus around
[18:19] Speaker 2: the idea we're carrying $ 150 billion of excess cash, which
[18:22] Speaker 2: is actually taxpayers' hard-earned savings, and they'd be much better
[18:25] Speaker 2: served just by paying back the debt, cutting the annual
[18:27] Speaker 2: interest bill by $ 8 billion a year, and moving on.
[18:32] Speaker 2: So that's what I would do.
[18:33] Speaker 1: So, Chris, you said the government... parliamentarians, have squirreled aside billions,
[18:44] Speaker 1: hundreds of billions of dollars just to make sure that
[18:47] Speaker 1: when they retire, they get their pension, however they get
[18:50] Speaker 1: paid upon retirement, just to make sure that there's enough
[18:55] Speaker 1: money there to pay them.
[18:56] Speaker 2: Yeah.
[18:57] Speaker 1: It's from tax. It's from tax.
[18:59] Speaker 2: It's from our tax. Our earnings, our labor earnings and
[19:02] Speaker 2: our capital gains have been taxed and turned up in
[19:07] Speaker 2: government revenues, and those revenues have been put into the
[19:09] Speaker 2: Future Fund to pay for what they call the unfunded
[19:13] Speaker 2: pension liabilities of politicians and public servants, which is fine.
[19:16] Speaker 2: I don't have a problem with that. It's a good idea.
[19:19] Speaker 2: The bad idea is that they should have an extra
[19:21] Speaker 2: $ 100 billion odd sitting in there. And, of course, the
[19:24] Speaker 2: Future Fund doesn't want to give the money back because
[19:26] Speaker 2: they're being paid based on the funds that they're running.
[19:28] Speaker 2: So we pay the Future Fund to run that money.
[19:30] Speaker 1: They get a percentage. Yeah.
[19:32] Speaker 2: Well, they get a fee, and the top guys are
[19:34] Speaker 2: making millions of dollars a year. And there's 500 people
[19:37] Speaker 2: working at the Future Fund. And then the center-left governments
[19:40] Speaker 2: want to set up all these special interest funds for
[19:43] Speaker 2: medical science, housing, aboriginals, disaster relief.
[19:47] Speaker 1: Affordable housing, we talk about that.
[19:49] Speaker 2: Droughts, whatever the case may be. But the government can
[19:51] Speaker 2: write those checks at any point in time, but you
[19:52] Speaker 2: don't need dedicated funds. And by the way, the $ 66 billion,
[19:56] Speaker 2: 30 is in cash, it's not being used. And it's
[19:58] Speaker 2: in cash earning lower rates than the borrowing rate that
[20:00] Speaker 2: we pay on our government debt, which makes no sense.
[20:02] Speaker 2: So again, simple math, take the $ 150 billion bill, pay
[20:05] Speaker 2: back $ 150 billion of debt, reduce $ 8 billion a year
[20:08] Speaker 2: in interest. And then by repaying $ 150 billion of $ 2
[20:12] Speaker 2: trillion of debt, or actually what would be 10% of
[20:18] Speaker 2: just the federal debt, you will radically reduce the interest
[20:22] Speaker 2: rates on all that debt because the global bond market
[20:25] Speaker 2: will turn around and say, gee whiz.
[20:27] Speaker 1: Much less risky.
[20:28] Speaker 2: Much less risky. They've just disappeared 10% of their national
[20:31] Speaker 2: debt or 12% if you account for federal and state debt.
[20:35] Speaker 2: And therefore, we don't need to charge them these high
[20:37] Speaker 2: interest rates. So that's an absolute freaking no-brainer. So let's just.
[20:40] Speaker 1: Look at the– I mean, I love the idea of
[20:42] Speaker 1: paying less tax here in Australia, either corporate tax or
[20:46] Speaker 1: personal tax. What about the argument that says that– well,
[20:51] Speaker 1: first argument they'll say about that is, look, we need
[20:53] Speaker 1: the amount of money. We need the amount of money
[20:55] Speaker 1: we currently raise, revenue, tax, from you in order to
[21:00] Speaker 1: at least run a close to break-even situation. Or alternatively,
[21:04] Speaker 1: we haven't got enough money to spend anyway. So what
[21:09] Speaker 1: would you say about that? Would you say, okay, well,
[21:11] Speaker 1: that's fine, just reduce your costs?
[21:13] Speaker 2: Well, I can disappear the budget deficit overnight. The NDIS
[21:17] Speaker 2: is basically the budget deficit. We're spending $ 50 to $ 60
[21:21] Speaker 2: billion a year on the NDIS, and Australia's budget deficit
[21:25] Speaker 2: is about $ 60 billion a year at the headline level.
[21:27] Speaker 2: So it's really easy to find the savings, mate.
[21:29] Speaker 1: And.
[21:33] Speaker 2: We have a spending problem. Listen, Australians with the right incentives,
[21:37] Speaker 2: with the right motivations, with the right opportunities, we're the
[21:41] Speaker 2: most competitive mofos in the world. Everyone in the world
[21:44] Speaker 2: knows that we work as hard as anyone else and
[21:47] Speaker 2: we have world-class ingenuity and appetite to win, but the
[21:52] Speaker 2: lucky country has become a bunch of losers, basically. We're
[21:57] Speaker 2: not building world-class businesses anymore because the incentives aren't there
[22:00] Speaker 2: because the professional politicians want to rape and pillage from
[22:03] Speaker 2: the private sector and tax and take until they can
[22:09] Speaker 2: feather their own or line their own pockets without income
[22:13] Speaker 2: and earnings. And it's just got to stop because it's
[22:16] Speaker 2: killing the country. It's also shipping in half a million
[22:19] Speaker 2: foreigners every year is fundamentally changing the country. It's not
[22:23] Speaker 2: the country that we grew up in. And the values
[22:27] Speaker 2: and aspirations are being, I think, contorted in the name
[22:32] Speaker 2: of advancing a political program. These guys are basically shipping
[22:35] Speaker 2: in people to buy votes.
[22:36] Speaker 1: And do you think that's not too dissimilar to what's
[22:38] Speaker 1: happening in a lot of parts of Western Europe? The
[22:41] Speaker 1: same sort of, and what was Hunter and Biden, Canada?
[22:44] Speaker 2: Trudeau did it in Canada. Biden did it in the US.
[22:48] Speaker 2: Aderne did it in New Zealand.
[22:50] Speaker 1: New Zealand.
[22:51] Speaker 2: Starmer's done in the UK. It's a purely political program. So, yeah.
[22:55] Speaker 1: Maybe you can explain that a little bit, though.
[22:57] Speaker 2: Well, they think there's a high correlation between shipping in
[23:01] Speaker 2: some folks from the Middle East that will feel forever
[23:05] Speaker 2: indebted to the Labor government for giving them permanent residency.
[23:09] Speaker 1: And therefore, vote.
[23:11] Speaker 2: And vote, yeah. So, I mean, Australia is an immigrant country. 30%
[23:14] Speaker 2: of us weren't born here, as you know. And that's
[23:17] Speaker 2: been our secret source. But it needs to be managed
[23:21] Speaker 2: in a very orderly way where people are brought to
[23:24] Speaker 2: this country on their merits, where their value accretive to
[23:27] Speaker 2: the national mission, and most importantly, where they buy into
[23:31] Speaker 2: our vision and they assimilate and align with that vision.
[23:34] Speaker 2: They're not trying to destroy that vision.
[23:36] Speaker 1: Is it pretty simple from your point of view, probably
[23:39] Speaker 1: not generally speaking, but is it pretty simple from Chris
[23:41] Speaker 1: Joy's point of view that really the best country to
[23:46] Speaker 1: have is one that is economically viable. All the other
[23:49] Speaker 1: stuff all fits in at some stage, falls into place
[23:52] Speaker 1: at some stage. But absolutely, basically, we've got to get
[23:56] Speaker 1: the economics right. We've got to make sure we are
[23:58] Speaker 1: running a profitable country.
[24:01] Speaker 2: Yeah, we need to be prosperous and profitable. And that's
[24:04] Speaker 2: got nothing to do with the public sector. It's everything
[24:06] Speaker 2: to do with business, small business, medium-sized business, big business.
[24:10] Speaker 2: And it's got everything to do with employers and employees. So,
[24:15] Speaker 2: you know, one of the ideas I've previously articulated is
[24:18] Speaker 2: the notion that for anyone starting a business and for
[24:20] Speaker 2: any of their employees, we should give them capital gains
[24:24] Speaker 2: tax exemptions up to, say, 25 to 50 million per person,
[24:28] Speaker 2: such that if you want to build a world-beating business,
[24:32] Speaker 2: Australia becomes a destination of choice. I mean, this is just,
[24:35] Speaker 2: the stuff that needs to be fixed is so bleedingly obvious,
[24:38] Speaker 2: it's not funny. You could end so many, I mean,
[24:41] Speaker 2: the interesting thing is If we had cathartic change, the
[24:46] Speaker 2: prospects are really promising for this country. So if there
[24:49] Speaker 2: was a radical shift in political leadership, which is why
[24:53] Speaker 2: I think you're seeing the ascendancy of One Nation. I actually,
[24:56] Speaker 2: for the first time ever, Pauline Hanson's chief of staff
[25:00] Speaker 2: reached out to me and I actually met with them
[25:01] Speaker 2: both during the week. I was really surprised.
[25:05] Speaker 1: With what?
[25:05] Speaker 2: Well, I was expecting Pauline Hanson to be, you know, the–
[25:12] Speaker 2: very analytical and interesting mind that she presented like just
[25:15] Speaker 2: even numerically she was kind of running debt servicing calculations
[25:18] Speaker 2: in her head and uh i just it was politicians
[25:22] Speaker 2: are interesting when they're in opposition because they're generally always
[25:26] Speaker 2: engaged they all reach out they all want to act
[25:28] Speaker 2: like they're listening and when they're in government they you
[25:31] Speaker 2: know generally put the blinkers up you know pivot back
[25:35] Speaker 2: into narcissistic megalomaniac mode and they're not interested And the
[25:39] Speaker 2: best politicians are folks who are constantly engaged, constantly listening,
[25:43] Speaker 2: and able to make really good decisions with imperfect information
[25:47] Speaker 2: under duress. So I have no idea what Pauline Hanson's like,
[25:50] Speaker 2: but I'll tell you this, her chief of staff's a
[25:51] Speaker 2: very smart guy. She's getting very good advisors, like heavy-hitting
[25:56] Speaker 2: economic and policy advisors, which was a bit surprising. Like
[26:00] Speaker 2: her chief of staff was formerly the general counsel of
[26:03] Speaker 2: Scott Morrison, ex-top-notch M & A lawyer, very, very sharp dude.
[26:08] Speaker 2: And I was just interested in when I started sort
[26:10] Speaker 2: of giving my economic view of the world of what's
[26:14] Speaker 2: going on and what's happening and what it means for Australia.
[26:17] Speaker 2: You can see when people get the glazed eye look
[26:20] Speaker 2: and they're just nodding and they don't really understand, whereas
[26:22] Speaker 2: she was fully intellectually engaged. Now, she may have other
[26:28] Speaker 2: shortcomings that I don't follow what she says at all closely.
[26:31] Speaker 2: I wasn't even expecting to have a conversation, but we did.
[26:36] Speaker 1: So if we just get– they are solutions and they
[26:39] Speaker 1: all make a lot of sense to me. And I
[26:41] Speaker 1: think a lot of people would agree with that. But, like,
[26:43] Speaker 1: we've got to have people with the right amount of
[26:46] Speaker 1: intent and preparedness to actually take that forward. And maybe
[26:49] Speaker 1: just Pauline, maybe it's going to be, you know, Tony
[26:52] Speaker 1: Abbott and his new crew, you know, Angus Taylor, et cetera, maybe.
[26:56] Speaker 1: It should be you, mate. It could be me one day.
[27:00] Speaker 1: It could be you and me one day. And I don't– actually,
[27:03] Speaker 1: to be honest with you, if I do it, would
[27:04] Speaker 1: you do it with me?
[27:06] Speaker 2: I don't think so, but, uh, it's not for me, mate,
[27:08] Speaker 2: but I think you'd be amazing.
[27:10] Speaker 1: Yeah, that would be, it would be fun.
[27:11] Speaker 2: I'm, I'm more than happy to offer my views to anyone,
[27:14] Speaker 2: including obviously you as my mate, but, uh, but you'd
[27:17] Speaker 2: be amazing, mate.
[27:18] Speaker 1: It would be fun. Um, do you think my brother
[27:20] Speaker 1: should get a run?
[27:20] Speaker 2: Yeah, your brother would be a beast. Your brother's an
[27:23] Speaker 2: absolute weapon.
[27:23] Speaker 1: Yeah, totally is. So, but if I go back and
[27:26] Speaker 1: let's say nothing happens, mate, let's say there's no change.
[27:29] Speaker 1: There won't be any change in 2028 anyway. As I
[27:31] Speaker 1: said recently, I mean, if, um, If you were running
[27:35] Speaker 1: a company badly, your shareholders would call an extraordinary general meeting.
[27:38] Speaker 1: They'd get rid of you. We only get an opportunity
[27:40] Speaker 1: to have an annual general meeting. It's every three years
[27:43] Speaker 1: with the government, and we get to vote once. So
[27:46] Speaker 1: there's not going to be a change until 2028. What
[27:49] Speaker 1: is your prognosis between here and then, assuming it just
[27:53] Speaker 1: stays the way it is? Because they're not going to
[27:55] Speaker 1: change anything.
[27:56] Speaker 2: No, it's going to be an absolute disaster. We're going
[27:58] Speaker 2: into recession. We're having the mother of all housing corrections.
[28:02] Speaker 1: Well, why is that a problem?
[28:04] Speaker 2: Well, let me explain what I think will happen and
[28:07] Speaker 2: then we'll figure out whether it's a problem because it
[28:08] Speaker 2: may not be. But what's going to happen is these
[28:13] Speaker 2: politicians who preternaturally can't help themselves but spend money to
[28:16] Speaker 2: buy votes aren't going to stop. That's the reflex of choice.
[28:21] Speaker 2: And the crazy amount of spending in Australia is just
[28:26] Speaker 2: crushing activity in parts of the economy that should be
[28:29] Speaker 2: surviving and thriving and they can't under the weight of government.
[28:32] Speaker 2: regulation is insane. Like when I come back to Australia,
[28:34] Speaker 2: like I've been through 70 cities in the last eight months,
[28:36] Speaker 2: 14 countries.
[28:39] Speaker 1: Around the world, yeah.
[28:40] Speaker 2: Yeah, four continents. And when you get to Australia, what
[28:44] Speaker 2: you immediately are struck by is world-class amenities, amazing country,
[28:47] Speaker 2: like city's best country in the world.
[28:49] Speaker 1: Beautiful.
[28:50] Speaker 2: Yeah, aesthetically stunning. But you immediately notice the stifling, suffocating
[28:59] Speaker 2: influence of government everywhere. The police... just the very regulated environment.
[29:05] Speaker 2: Whereas in the US, they're on fire because businesses have
[29:10] Speaker 2: now been liberated by massive deregulation. And if you want
[29:13] Speaker 2: to get something done and do something radical that requires
[29:15] Speaker 2: a little bit of disruptive change and a bit of
[29:17] Speaker 2: support from Washington... In the present administration, I mean, they're
[29:21] Speaker 2: going to green light everything under the sun, perhaps too
[29:23] Speaker 2: much so. Like the SEC is running a bit wild
[29:25] Speaker 2: right now with this deregulatory zeal. They're going to allow
[29:28] Speaker 2: people to raise any type of capital via tokens, as
[29:31] Speaker 2: one illustration, which is probably a step too far. So
[29:34] Speaker 2: the U.S. is not the perfect panacea, but coming out
[29:37] Speaker 2: to Australia, we're going to see crazy spending, which will.
[29:40] Speaker 1: continue- By government.
[29:41] Speaker 2: By government, which will continue to drive inflation. We are
[29:44] Speaker 2: going to see ongoing high levels of population growth and
[29:48] Speaker 2: migration until this debate ends up crushing that, which will happen.
[29:52] Speaker 1: That'll grow inflation.
[29:54] Speaker 2: Yeah, that'll grow inflation. We're going to see the RBA
[29:57] Speaker 2: having to reluctantly march rates higher. which will create more
[30:00] Speaker 2: and more problems in parts of the economy. Australia is
[30:02] Speaker 2: actually getting a lot of capital investment from the AI boom.
[30:05] Speaker 2: So that's actually powering a part of the economy. The
[30:08] Speaker 2: US economy until let's say in Australia looked a little
[30:10] Speaker 2: bit like the mining boom pre the GFC. In the
[30:12] Speaker 2: mining boom, 15% of the economy in Australia was going gangbusters.
[30:17] Speaker 2: The other 85% was more or less in recession.
[30:19] Speaker 1: But the mining boom carried us forward.
[30:21] Speaker 2: The mining boom carried the overall, exactly right, aggregate economy.
[30:24] Speaker 2: And the RBA responded to that by lifting rates up
[30:27] Speaker 2: to 7.25%, even through the early stages of the GFC. Anyway,
[30:30] Speaker 2: at some point what happens is the country understands we've
[30:34] Speaker 2: got to pull back on the migration. That happens. So
[30:36] Speaker 2: you lose all the demand and the income shocks that
[30:38] Speaker 2: that brings with it. The politicians... get placed in the
[30:43] Speaker 2: community's crosshairs. Because I think what now has happened is
[30:45] Speaker 2: there's been a galvanizing moment post-budget where the man on
[30:48] Speaker 2: the street said, gee whiz, I was loving making out
[30:51] Speaker 2: like a bandit from the NDIS and the NBN and
[30:54] Speaker 2: all the handouts and all the welfare. That was all really,
[30:57] Speaker 2: really good. But I don't really kind of fancy being
[30:59] Speaker 2: assfucked by this cost of living crisis. This inflation is
[31:03] Speaker 2: destroying my real income. So I'm really feeling the cost
[31:07] Speaker 2: of living one. Two, I'm also getting assfucked by these
[31:11] Speaker 2: you know, really high rates. Australia actually has today amongst
[31:14] Speaker 2: the highest interest rates in the world. And then I
[31:18] Speaker 2: thought my business was okay, but I've just been whacked
[31:21] Speaker 2: with a 30% tax on my family trust, which I
[31:24] Speaker 2: organized my business around. And I've now been hit by
[31:26] Speaker 2: the world's highest effective capital gains tax rate on the
[31:29] Speaker 2: property that was potentially securing the mortgage that I used
[31:33] Speaker 2: to fund my small business. And on top of that,
[31:36] Speaker 2: they're whacking me by a With the effective, like the
[31:40] Speaker 2: ban on negative gearing on our numbers is equivalent to
[31:43] Speaker 2: an interest rate increase of about 200 to 270 basis points.
[31:48] Speaker 1: No.
[31:48] Speaker 2: Yeah, yeah, yeah. What? Yeah, in terms of the reduction.
[31:52] Speaker 1: Yeah, yeah, yeah.
[31:52] Speaker 2: The net. Purchasing.
[31:53] Speaker 1: The net position, yeah. Yeah.
[31:54] Speaker 2: So I've been whacked with massive rate hikes through the
[31:57] Speaker 2: ban on negative gearing. I've got another four rate hikes
[31:59] Speaker 2: from the RBA. I'm being told by Joy Boy and
[32:01] Speaker 2: Boris that you're going to get another two hikes with
[32:04] Speaker 2: the RBA cash, with the bond market saying the RBA cash. Anyway,
[32:06] Speaker 2: so everyone's saying, now get it. It's these fucking politicians
[32:10] Speaker 2: spending like drunken sailors, just taking from all of us,
[32:13] Speaker 2: the community, in order to line their own pockets and
[32:16] Speaker 2: build these empires and these institutions. It's an oligarchy. Canberra
[32:20] Speaker 2: is an oligarchy, right? These guys have never, as you know,
[32:25] Speaker 2: started a business, launched a product or service, hired a
[32:27] Speaker 2: single soul, and they just don't get it. They see
[32:30] Speaker 2: us as high-value targets, a zero-sum game, take from the
[32:33] Speaker 2: private sector in order to, Power the public sector.
[32:37] Speaker 1: But if I take all of those things you just
[32:40] Speaker 1: talked about then, add them all up, we are definitely
[32:43] Speaker 1: going to fall into a hole.
[32:44] Speaker 2: Yeah, because effectively, once the community acts like the binding constraint,
[32:49] Speaker 2: so really the binding constraint is very high inflation and
[32:52] Speaker 2: then very high interest rates, and then the man on
[32:55] Speaker 2: the street and the woman on the street saying, hey,
[32:56] Speaker 2: enough's enough. This is actually a political problem. I need change.
[32:59] Speaker 2: So the politicians pull back on the spending that destroys
[33:02] Speaker 2: the demand that that was once powering. And then the
[33:05] Speaker 2: immigration gets restrained, which also undermines demand. At the same time,
[33:09] Speaker 2: you've got these kind of crushingly high rates and these
[33:14] Speaker 2: precipitous plunges in property prices amplified at the margin by
[33:18] Speaker 2: another dynamic, which is there's been a huge surge in
[33:22] Speaker 2: non-bank lending in Australia. Massive. You run a normal non-bank lender,
[33:26] Speaker 2: Yellow Brick Road, but there's also been these private credit
[33:30] Speaker 2: funds that have extended loans to riskier borrowers who couldn't
[33:34] Speaker 2: get a loan from a bank.
[33:35] Speaker 1: Which we're seeing a lot of these fall apart at
[33:36] Speaker 1: the moment.
[33:37] Speaker 2: Fall apart. Like I heard this week that all the
[33:40] Speaker 2: borrowers to small-scale commercial property, I mean, there's mass liquidations.
[33:45] Speaker 2: We're seeing, as we, I think, already discussed, huge increases
[33:48] Speaker 2: in insolvencies. And we're seeing these private credit funds basically
[33:52] Speaker 2: have to pull back on lending because the guys investing
[33:55] Speaker 2: with them are pulling their cash And so you're going
[33:57] Speaker 2: to see what we used to talk about in past cycles,
[34:00] Speaker 2: which was credit rationing, where basically banks stopped lending. We
[34:03] Speaker 2: saw this in 1991. And the private credit market has
[34:05] Speaker 2: become such a big part of the property finance game.
[34:08] Speaker 2: That's why you're seeing all these resi developers blow up
[34:10] Speaker 2: because they can't get finance and there's no sales. So
[34:13] Speaker 2: the financier is not going to give them money because
[34:15] Speaker 2: there's no sales. The financiers have got defaults and delinquencies.
[34:18] Speaker 2: So the guys backing them are not going to be
[34:20] Speaker 2: supplying cash. They're net-net exiting the sector. So you get
[34:24] Speaker 2: this negative feedback loop. So Australia gets a recession. but
[34:27] Speaker 2: it's probably the recession we had to have because we
[34:30] Speaker 2: need a cathartic crisis. We need a significant increase in unemployment.
[34:34] Speaker 2: We need to take the 25% of the bureaucracy that
[34:36] Speaker 2: should not be working on the public purse. They need
[34:39] Speaker 2: to become tradies, doctors, nurses, and do something productive for
[34:42] Speaker 2: private society.
[34:45] Speaker 1: In relation to the recession we had to have, which
[34:48] Speaker 1: is Keating's famous words in the early 90s, in relation
[34:53] Speaker 1: to that, When you say we're going to have a recession,
[34:55] Speaker 1: most punters, mate, a lot of people who listen to
[34:57] Speaker 1: this don't really know what that means. I mean, how's
[34:59] Speaker 1: it going to affect me? A lot of people don't say, well, okay,
[35:02] Speaker 1: two negative quarters or five negative quarters, whatever it is,
[35:04] Speaker 1: in a row of negative growth of GDP. What does
[35:07] Speaker 1: that mean for me? Maybe we should sort of explain
[35:11] Speaker 1: to them what happened to unemployment during that period.
[35:13] Speaker 2: Well, this is a really important point. So the economists
[35:16] Speaker 2: like to talk about recessions meaning recession. negative GDP growth.
[35:19] Speaker 2: But another measure of recessions is just simply a significant
[35:23] Speaker 2: increase in unemployment. So I think what's going to happen
[35:25] Speaker 2: is our unemployment rate was in the high 3% vicinity.
[35:28] Speaker 2: That was historically close to all-time lows. The RBA's staff
[35:34] Speaker 2: told the RBA board that a normal rate of unemployment
[35:36] Speaker 2: is 5%. The RBA board and the governor and deputy
[35:39] Speaker 2: governor thought they were too smart by half, and they
[35:42] Speaker 2: rejected the staff.
[35:43] Speaker 1: And an experiment, by the way.
[35:44] Speaker 2: They ran this experiment with immaculate disinflation and the so-called
[35:48] Speaker 2: narrow path.
[35:48] Speaker 1: And they got there June 21, June last year.
[35:51] Speaker 2: Yeah, that's right. For a moment. Well, not exactly.
[35:55] Speaker 1: 2.6 and whatever.
[35:57] Speaker 2: They got one quarter of semi-soft inflation. Yeah, yeah, yeah.
[36:00] Speaker 2: But the RBA board and the RBA governor, Debney Governor, said,
[36:03] Speaker 2: we're not going to listen to our own analysts. We
[36:06] Speaker 2: think the right level of unemployment is not 5%. We
[36:09] Speaker 2: think it could be low 4%. And their hypothesis was,
[36:13] Speaker 2: that they wanted to preserve the fake job gains that
[36:16] Speaker 2: had emerged post the pandemic through the unprecedented amount of
[36:20] Speaker 2: public spending. So they said, we really want to preserve
[36:23] Speaker 2: the post-pandemic employment grants. But those gains were never real.
[36:27] Speaker 2: They had to go. They've now capitulated. They've bent the net.
[36:30] Speaker 1: Oh, really?
[36:30] Speaker 2: Yeah, they've totally swung 180 degrees. So the RBA has said,
[36:33] Speaker 2: in fact, Bullock has said, quote, unquote, I've retired the
[36:36] Speaker 2: narrow path idea, whatever that means. And basically, she's given up.
[36:40] Speaker 2: And they're now saying unemployment needs to get back to 5%.
[36:43] Speaker 1: But really, it's probably- But that's normal.
[36:45] Speaker 2: That's normal. Now, it's at 4.6 currently. But it probably
[36:48] Speaker 2: needs to go to 5 to 6. And we, as
[36:49] Speaker 2: you know, because we're a bit older than most, haven't
[36:52] Speaker 2: had a proper recession since 91, where the unemployment rate
[36:54] Speaker 2: hit almost 11%. And yeah, so I think we'll see.
[36:58] Speaker 2: A recession means a big increase in unemployment. A lot
[37:00] Speaker 2: of business is going to go bust. A lot of
[37:02] Speaker 2: people are going to lose their jobs. I think it's
[37:04] Speaker 2: going to be very tough for anyone in the public service.
[37:05] Speaker 2: They're going to need to retrain, reskill, which is not
[37:07] Speaker 2: a bad thing. I mean, the public service is chock-a-block
[37:10] Speaker 2: full of super smart folks, but the idea of the
[37:12] Speaker 2: lollipop boy or lollipop girl earning, you know, 250 grand
[37:16] Speaker 2: a year holding a stop sign at a construction site.
[37:19] Speaker 2: I mean, New Zealand can't find workers because all the
[37:21] Speaker 2: guys and girls want to become Aussie lollipop guys and girls.
[37:25] Speaker 1: And why wouldn't they?
[37:26] Speaker 2: Yeah, exactly. Funny story. In Christchurch, they built a stadium,
[37:30] Speaker 2: a new stadium for the Crusaders rugby team. I sponsor them.
[37:34] Speaker 2: And the architects were Australian, and they were shocked. and
[37:40] Speaker 2: they were in this meeting one day with the Christchurch folk,
[37:44] Speaker 2: and they said, well, what's the surprise? And they said,
[37:46] Speaker 2: we've never seen workers work in the rain in Australia
[37:49] Speaker 2: when it rains. There's no work. Whereas in New Zealand,
[37:52] Speaker 2: they put raincoats on. So I think that's kind of
[37:55] Speaker 2: a little tell in terms of the Australian productivity problem
[37:58] Speaker 2: that we have. But yeah, I think it's going to
[37:59] Speaker 2: be tough, and there'll be adversity, and your house is
[38:01] Speaker 2: not going to be worth as much as it was,
[38:03] Speaker 2: and your super's probably not going to be worth as
[38:04] Speaker 2: much as you thought it was going to be worth,
[38:06] Speaker 2: and You're going to have to work a little longer.
[38:07] Speaker 2: You maybe won't retire when you thought you were going
[38:09] Speaker 2: to retire. It's going to be tough. But the choice
[38:12] Speaker 2: of people is interesting, mate, because in the US, they've
[38:15] Speaker 2: got some people right, but they've got some people demonstrably wrong,
[38:18] Speaker 2: like this Scott Besson character. You see what happened with
[38:21] Speaker 2: him in.
[38:21] Speaker 1: The- What happened?
[38:22] Speaker 2: So basically, this is this dude that Trump put in
[38:25] Speaker 2: power as the US Treasury Secretary, which is like head
[38:29] Speaker 2: of the Treasury in Australia, but incredibly powerful position. And
[38:32] Speaker 2: he's an ex-hedge fund manager. He worked for George Soros,
[38:34] Speaker 2: the famous dude who managed to pull the British pound
[38:38] Speaker 2: out of something called the European exchange rate mechanism in
[38:40] Speaker 2: the early 1990s and made a billion pounds on that trade. Anyway,
[38:44] Speaker 2: Soros is a hard left guy. And this dude, Scott Besson,
[38:50] Speaker 2: who's openly gay, which is great, worked for Soros as
[38:54] Speaker 2: a junior burger and then tried to set up his
[38:56] Speaker 2: own hedge fund. Blew up, shut it down. Went back
[38:58] Speaker 2: to Soros, worked there for a while, tried to set
[39:00] Speaker 2: up his own hedge fund again, blew up, shut it down.
[39:02] Speaker 2: And then somehow ends up being treasury secretary. And he
[39:06] Speaker 2: came out, and this has been pretty astonishing stuff for
[39:09] Speaker 2: financial markets. He came out and basically said, I think
[39:13] Speaker 2: the US 30-year interest rate is too high. So I'm
[39:17] Speaker 2: going to try and manipulate it lower. And at the time,
[39:20] Speaker 2: the US 30-year government bond yield was 5.25%. And it
[39:25] Speaker 2: had risen by about 70 basis points. And the problem
[39:29] Speaker 2: in the US for Trump and Besson is the home
[39:31] Speaker 2: loan rate in the US is a 30-year fixed rate.
[39:34] Speaker 2: It's not like Australia where we have variable rates. And
[39:37] Speaker 2: the US 30-year mortgage rate had jumped from 6% to 6.7%.
[39:41] Speaker 2: And Besson said, enough is enough. And this is a
[39:43] Speaker 2: good example of people in positions of power having total
[39:46] Speaker 2: brain explosions and He said, enough is enough. I'm going
[39:49] Speaker 2: to bully it lower. I'm going to take on the
[39:51] Speaker 2: bond market. And if there's one market you probably don't
[39:53] Speaker 2: want to take on, it's the bond market. And he
[39:55] Speaker 2: gave this famous interview. This is like weeks ago, months
[39:58] Speaker 2: ago maybe, but recently, where this guy said, so kind
[40:02] Speaker 2: of how's life? He goes, oh, I'm loving it. I've
[40:06] Speaker 2: got edge. I've got asymmetric information. He's talking like a trader,
[40:09] Speaker 2: but he's a treasury secretary. And the guy, the journalist says, well,
[40:11] Speaker 2: what do you mean by this? And he says, well,
[40:13] Speaker 2: I know exactly what the Japanese are going to do.
[40:15] Speaker 2: So he tried to intervene. as the U.S. Treasury, in
[40:17] Speaker 2: setting the level of the Japanese exchange rate of currency.
[40:21] Speaker 2: And that kind of blew up in his face. And
[40:23] Speaker 2: he said, don't you think I know more about what
[40:25] Speaker 2: Japanese policymakers will do than the markets? You know, I've
[40:27] Speaker 2: got inside information. And then he said, the same applies
[40:30] Speaker 2: to the U.S. Treasury market. I am the U.S. Treasurer.
[40:32] Speaker 2: And then he said, I am the House. And then
[40:37] Speaker 2: he said, and don't bet against the House. So what
[40:40] Speaker 2: he tried to do was increase his purchases of U.S.
[40:44] Speaker 2: Treasuries to reduce their yield. And he threatened to double
[40:47] Speaker 2: these purchases. And they were purchasing about $ 2 billion over
[40:51] Speaker 2: a particular period. And he said, I'm going to increase
[40:54] Speaker 2: it to $ 4 billion. The day he did it, he
[40:56] Speaker 2: increased it to $ 6 billion. So he tripled the purchases.
[40:59] Speaker 2: And instead of the bond yield going from 5.25% down,
[41:03] Speaker 2: it actually rose. It jumped. It's now up at like 5.6%, 5.7%.
[41:05] Speaker 2: So it's had exactly the opposite effect. And it's been
[41:09] Speaker 2: incredibly humiliating for the US Treasury Secretary. Which is disappointing
[41:13] Speaker 2: because at the same time, the US economy is booming.
[41:15] Speaker 2: There's a lot of good things happening in the US economy.
[41:17] Speaker 2: Trump's got a lot of good things right. But I
[41:19] Speaker 2: think him front running personally through his family office, a
[41:22] Speaker 2: lot of the announcements. So all this insider trading around
[41:24] Speaker 2: Trump is really unseemly. And similarly, the choice of people
[41:28] Speaker 2: that you put into power, in the case I gave you, Besant,
[41:33] Speaker 2: is profoundly important. That's why the country would do well having,
[41:35] Speaker 2: I think, you pulling some of these reins, mate, because-
[41:40] Speaker 2: I don't think you'd let this stuff blow up in
[41:42] Speaker 2: your face in the same way.
[41:44] Speaker 1: Well, I've got plenty of good advisors sitting around me
[41:46] Speaker 1: to tell me not to. Just on that, let's just
[41:48] Speaker 1: talk about midterms. What effect do you think the midterms
[41:51] Speaker 1: are going to have globally? For a start, what do
[41:54] Speaker 1: you think is going to happen in the midterms? Both
[41:56] Speaker 1: are probably not going to be an issue in the Senate,
[41:59] Speaker 1: and in any event, maybe something in the lower house,
[42:04] Speaker 1: the Congress, what do you think is going to happen?
[42:05] Speaker 2: I have absolutely no idea what's going to happen in
[42:07] Speaker 2: the midterms. All I... No.
[42:09] Speaker 1: What about if? Give me an if.
[42:10] Speaker 2: Yeah, so what I know is that the US economy
[42:13] Speaker 2: is really benefiting from the focus on profit maximizing, research
[42:20] Speaker 2: and development, innovation. I mean, the tech sector's on fire,
[42:23] Speaker 2: the AI sector's on fire, businesses are on fire.
[42:26] Speaker 1: AI adoption's on fire.
[42:27] Speaker 2: Mate, US manufacturing is just absolutely booming. Massive revolution in
[42:34] Speaker 2: US manufacturing. Now that they can digitize everything, uh, 3d
[42:37] Speaker 2: printing robotics. They don't have the problem of having a high, uh,
[42:41] Speaker 2: labor cost base. They compete with anyone. They can compete
[42:44] Speaker 2: with anyone in the world. Look at Elon, uh, with
[42:46] Speaker 2: monopolies in rocketry, low earth, uh, orbital satellites. He obviously
[42:50] Speaker 2: kicked off the whole, uh, electric car revolution. He's about
[42:53] Speaker 2: to kick off the robotics revolution.
[42:56] Speaker 1: Change the phones.
[42:56] Speaker 2: Yeah. It's, it's incredible. Um, If we don't get a
[43:00] Speaker 2: second Republican administration, if we don't have a Republican succeed Trump,
[43:05] Speaker 2: I think that will be diabolical for the US economy.
[43:07] Speaker 2: And if we have anyone like Gavin Newsom, the Californian governor,
[43:13] Speaker 2: prevail in his pursuit of power, I think it will
[43:15] Speaker 2: be cataclysmically problematic. So there's a lot of bifurcation in
[43:19] Speaker 2: the US. California and New York are dying. Texas and
[43:22] Speaker 2: Florida are booming. They're both running budget surpluses. Businesses and
[43:26] Speaker 2: people are moving to those states. There's a net sort
[43:29] Speaker 2: of departure of people and businesses from California and New York.
[43:33] Speaker 2: So I worry about the ramifications of the midterms for
[43:37] Speaker 2: Trump's ability to put in place his program. One thing, interestingly,
[43:42] Speaker 2: about Trump that was a surprise to many was when
[43:47] Speaker 2: the Fed lifted rates in September, the guy that's running
[43:50] Speaker 2: the Fed is called Kevin Walsh. He's Trump's appointee and
[43:53] Speaker 2: his predecessor, Powell, Trump had had this monumental clash with
[43:56] Speaker 2: and Trump more or less dusted him up. And Trump's
[43:59] Speaker 2: been relentlessly calling for lower rates. Wash raise rates. But interestingly,
[44:02] Speaker 2: when you raise rates, Trump didn't excoriate him. He actually
[44:05] Speaker 2: came out on the day and said, I told him
[44:06] Speaker 2: to raise rates because he's got a dovish board. They're
[44:08] Speaker 2: full of Democrats and he just has to fall into line.
[44:11] Speaker 2: I think Trump is doing a Reagan redux. Reagan in
[44:14] Speaker 2: the 80s unleashed Volcker, who was running the Fed, and
[44:17] Speaker 2: they got double digit rates that eventually crushed inflation. And
[44:20] Speaker 2: that was because I'm told by my advisors that in
[44:24] Speaker 2: the US, Republican voters are much more sensitive to their
[44:27] Speaker 2: cost of living than unemployment. And so you would rather
[44:30] Speaker 2: have low inflation and high unemployment than high inflation and
[44:35] Speaker 2: low unemployment. And I think that's the calculus that Trump
[44:39] Speaker 2: may have engaged with. So I think we could see
[44:42] Speaker 2: a pretty ferocious hiking cycle from the Fed. And here's
[44:46] Speaker 2: another little interesting historical anecdote. Second hiking cycles tend to
[44:50] Speaker 2: be savage. So we kind of forget that this isn't
[44:54] Speaker 2: the first rodeo. So the Fed went from 0% to
[44:57] Speaker 2: 5.5 odd percent, down to 3.6%, and it's now hiking again.
[45:00] Speaker 2: Here in Australia, we went to 0.1% in November 2020.
[45:03] Speaker 2: We started lifting rates in May 22. At 0.1, we
[45:09] Speaker 2: went all the way to 4.35 in November 23, sat
[45:12] Speaker 2: there till February 25. Then they cut three times. That
[45:15] Speaker 2: triggered a house price boom and got Labor elected. And
[45:18] Speaker 2: now they're reversing out those cuts and trying to get
[45:20] Speaker 2: rampant inflation under control. But now these central banks are chastened.
[45:24] Speaker 2: The message for listeners is they're going to go back
[45:27] Speaker 2: to being what we call hard money men. And hard
[45:29] Speaker 2: money men are laser-like focused on crushing inflation with high
[45:33] Speaker 2: interest rates, more or less buggering the consequences. And the
[45:36] Speaker 2: collateral damage, unfortunately, will be Main Street. But what people
[45:40] Speaker 2: need to understand is they're not to blame. It's 100%
[45:43] Speaker 2: the responsibility of the professional politicians.
[45:46] Speaker 1: Well, Friedman said that many times. Consumers never create inflation.
[45:50] Speaker 1: Governments do.
[45:52] Speaker 2: We don't.
[45:52] Speaker 1: I mean, we consumers, we don't. If we were doing
[45:59] Speaker 1: the same analysis in Australia between a choice between unemployment
[46:03] Speaker 1: and cost of living, do you think there's any research
[46:06] Speaker 1: on that that you've heard about similar to what you're
[46:08] Speaker 1: talking about in the US?
[46:09] Speaker 2: Well, I think, yeah, it's a really interesting question. I
[46:11] Speaker 2: think that people today are really wilting under the weight
[46:16] Speaker 2: of the high cost of living and the high interest
[46:19] Speaker 2: rates which are responding to the high cost of living. Yeah,
[46:22] Speaker 2: at the same time, unemployment is still very low at 4.6%.
[46:24] Speaker 2: So I'm not sure.
[46:25] Speaker 1: People will back themselves to get a job.
[46:27] Speaker 2: Well, I think for 90% of people out there, unemployment
[46:30] Speaker 2: is not an issue. It's really at the margins. We're
[46:33] Speaker 2: not talking about huge increases in unemployment, but we do need,
[46:36] Speaker 2: the RBA is basically saying, I need to get into
[46:38] Speaker 2: the demand destruction business. This Goldilocks bullshit of being able
[46:42] Speaker 2: to crush inflation without really lifting interest rates sufficiently high.
[46:46] Speaker 2: without having an impact on unemployment and without sending the
[46:49] Speaker 2: economy into recession has been repudiated. And they're now in
[46:52] Speaker 2: the demand destruction game, which basically means kill growth, raise
[46:57] Speaker 2: unemployment to create a bit of capacity and encourage capital.
[47:01] Speaker 2: And basically you need to move money and people away
[47:04] Speaker 2: from bad businesses to good businesses. So let's take Firmus.
[47:07] Speaker 2: I have no idea about Firmus, but hypothetically imagine that
[47:11] Speaker 2: they might be a business that is... massively overinflated in
[47:16] Speaker 2: value and has way too much capital and high value
[47:20] Speaker 2: talent tied up in it, if that business for whatever
[47:22] Speaker 2: reason doesn't have a reason to exist, we would want
[47:25] Speaker 2: those people and that money to move to other more
[47:27] Speaker 2: productive firms that have much more viable growth prospects. And
[47:31] Speaker 2: that's basically the mission. The issue is the elephant in
[47:35] Speaker 2: the room is Canberra because Canberra is really the key
[47:40] Speaker 2: agent that is burning through all this cash, this $ 60
[47:44] Speaker 2: billion a year. And Canberra has been the single biggest
[47:48] Speaker 2: driver of employment and growth since the pandemic. And it's
[47:52] Speaker 2: really Canberra that needs to be shut down. But the
[47:55] Speaker 2: professional politicians have a huge conflict of interest. They don't
[47:58] Speaker 2: want to pay their mates less. They don't want to
[47:59] Speaker 2: pay themselves less. They don't want to threaten their retirement incomes.
[48:02] Speaker 2: They don't want to wind down their hobby horses, the NBN,
[48:07] Speaker 2: the NDIS, because it's all, you know, jobs for the mates.
[48:10] Speaker 2: They're all on these boards and committees and they're all
[48:12] Speaker 2: earning hundreds of thousands.
[48:13] Speaker 1: When they want to retire, when they want to leave Canberra,
[48:14] Speaker 1: they get a job.
[48:16] Speaker 2: Greg Conbay is running the Future Fund.
[48:17] Speaker 1: Yeah, totally.
[48:18] Speaker 2: Happy days.
[48:19] Speaker 1: Just, if I could quickly ask you about something in relation.
[48:23] Speaker 2: As Costello did, you know, both sides of politics.
[48:25] Speaker 1: Yeah, but it happens, you're not sort of jumping all
[48:27] Speaker 1: over Labor in particular, but it happens across the board
[48:30] Speaker 1: and Costello became the chairman of the Future Fund or
[48:32] Speaker 1: the managing director or whatever it was of the Future
[48:34] Speaker 1: Fund for a long, long time. But just on the
[48:36] Speaker 1: unemployment thing, um, do you think that the Reserve Bank
[48:41] Speaker 1: governor and everybody else who makes the decisions will be
[48:44] Speaker 1: prepared to go against the so-called thesis that was introduced
[48:49] Speaker 1: in 2024 by the Treasurer as a result of the
[48:52] Speaker 1: so-called independent inquiry into the Reserve Bank or review of
[48:55] Speaker 1: the Reserve Bank, whereby he's now given unemployment or full
[49:00] Speaker 1: employment equal sort of gears as he has given to inflation?
[49:05] Speaker 1: Because that's a big thing. Will they And he's gone
[49:08] Speaker 1: and appointed a new board.
[49:09] Speaker 2: Yeah, this is really Chalmers doing. And that's the other thing.
[49:12] Speaker 1: I'd say this is Chalmers doing.
[49:14] Speaker 2: Yeah, the soft RBA and the fact that rates weren't
[49:16] Speaker 2: raised as high as they should have been. I think
[49:19] Speaker 2: we've spoken about this before. but they stopped at 4.35%
[49:21] Speaker 2: in November 23, and over 24, I argued publicly, you've
[49:24] Speaker 2: made a mistake, you need to go to five. Our modeling,
[49:25] Speaker 2: which was, we were using the RBA's modeling, the RBA's
[49:28] Speaker 2: internal staff modeling, all suggested you should be at five.
[49:31] Speaker 2: They said, no, no, no, no, we're too smart by half.
[49:33] Speaker 2: We know better. Torboy's wrong. the staff are wrong. We're
[49:37] Speaker 2: going to keep it at 4.35. We're going to thread
[49:39] Speaker 2: the needle. We're going to have this so-called narrow path
[49:41] Speaker 2: they talked about where everything would be in a price
[49:44] Speaker 2: of perfection. And then she came out in late in
[49:47] Speaker 2: December 2024 and said, of course, I won't cut rates
[49:50] Speaker 2: until I have six solid months of soft inflation data.
[49:54] Speaker 2: But she cut it after only three months because that
[49:56] Speaker 2: was in February 2025 by that time. And it was
[49:59] Speaker 2: perfectly timed to lend some support to the Yeah, you're right.
[50:06] Speaker 2: Chalmers basically sacked the governor and deputy governor, appointed his
[50:12] Speaker 2: own personal proxies, has appointed most of the voters on
[50:14] Speaker 2: the interest rate committee, and de facto has exercised huge
[50:17] Speaker 2: influence over that organization. I've said it before. I've got
[50:19] Speaker 2: no problems with that. Most people in his position would
[50:22] Speaker 2: do exactly the same thing. But we have had a
[50:24] Speaker 2: whipped RBA as a consequence. It's pretty naturally dovish. I'll
[50:28] Speaker 2: tell you something that's absolutely ridiculous. You've got this massive
[50:31] Speaker 2: rampant inflation. Six-month annualized inflation in Australia is 3.9%. They
[50:37] Speaker 2: target two and a half. 12 months, it's 3.6. I
[50:40] Speaker 2: think the three-month annualized rate is 4.7. Basically, we have
[50:43] Speaker 2: the highest, amongst the highest rate of inflation in the
[50:45] Speaker 2: developed world. So you've got a big problem. And you
[50:47] Speaker 2: just cut rates three times, and you got it horribly wrong,
[50:49] Speaker 2: and the RBA has consistently made poor decisions, and the
[50:52] Speaker 2: rest of the world think that. So if anything you
[50:53] Speaker 2: want to be is hawkish as heck, get out there,
[50:57] Speaker 2: scare the bejesus out of everyone, and say, okay, we're
[50:59] Speaker 2: going to raise rates, we're going to get onto the
[51:00] Speaker 2: you know, the war path and we're going to get
[51:02] Speaker 2: this inflation back to target. The first time she hiked,
[51:05] Speaker 2: she basically said it was going to be one and
[51:06] Speaker 2: done and completely undermined all the messaging. Times past, when
[51:10] Speaker 2: a central bank hiked, they engaged in a lot of
[51:12] Speaker 2: moral persuasion and jaw-burning where the message was, this is
[51:15] Speaker 2: going to be a long campaign and unless you capitulate
[51:17] Speaker 2: and unless we can depress these consumer price pressures, it's
[51:23] Speaker 2: going to be pain and misery for everyone. And every
[51:26] Speaker 2: single time she's lifted rates, there's been this mixed messaging,
[51:29] Speaker 2: which is, I think, her kowtowing to Canberra and kowtowing to.
[51:33] Speaker 1: Or not wanting to upset them. 100%. Not wanting to
[51:36] Speaker 1: get political.
[51:37] Speaker 2: Yeah.
[51:37] Speaker 1: Because she'd be trying- But by not being independent, she
[51:40] Speaker 1: is being political. I guess I can say, you can't
[51:43] Speaker 1: sit on the fence. You have to be strident about
[51:45] Speaker 1: this sort of stuff.
[51:46] Speaker 2: Correct.
[51:47] Speaker 1: Like, I'm the independent reserve bank governor, and I've got
[51:49] Speaker 1: to do my job. And my job is to fix inflation.
[51:53] Speaker 1: But where I was sort of getting to is I
[51:55] Speaker 1: thought what it was an attempt by the treasurer to
[51:58] Speaker 1: make sure that she never undermined unemployment. And in fact,
[52:02] Speaker 1: she was always mindful of trying to do this experiment.
[52:06] Speaker 2: You're exactly right. He changed the RBA's mandate to put
[52:09] Speaker 2: much greater weight on full employment.
[52:11] Speaker 1: Which no one knows what it means, but anyway.
[52:13] Speaker 2: Which basically means keeping unemployment really low. Yeah, yeah. And
[52:16] Speaker 2: that then forced the RBA to run this experiment of
[52:19] Speaker 2: cheap money and artificially low unemployment. which gave us artificially
[52:23] Speaker 2: high inflation.
[52:23] Speaker 1: So I don't blame her. I think she's just done
[52:25] Speaker 1: what she's– because he said, here's your mandate.
[52:27] Speaker 2: Go for it.
[52:29] Speaker 1: Unemployment was important before, but now it's up there, equal
[52:32] Speaker 1: with inflation. And then he put his own board members there.
[52:34] Speaker 1: She has no casting vote. So she's got to go
[52:37] Speaker 1: along with the group. But what's interesting, the last Reserve
[52:41] Speaker 1: Bank board decision was unanimous, which is quite interesting. Maybe
[52:45] Speaker 1: they're starting to get a bit nervous. What do you
[52:46] Speaker 1: think is going to happen in November?
[52:48] Speaker 2: I think in November.
[52:50] Speaker 1: The November meeting.
[52:51] Speaker 2: Yeah, I think in November they hike. I think they
[52:53] Speaker 2: hike at least once more this year. I'm not sure
[52:56] Speaker 2: if they have two hikes in them. I think they're
[52:58] Speaker 2: going to be scared shitless about the house price action.
[53:01] Speaker 2: Like Aussie house prices falling at a 16% annual rate
[53:04] Speaker 2: is not something we've ever seen before. And the RBA
[53:05] Speaker 2: historically has been very sensitive to house price movements.
[53:09] Speaker 1: But they're not supposed to be.
[53:10] Speaker 2: They're not supposed to be. And they say they're not
[53:12] Speaker 2: influenced by that. And to their credit in this cycle,
[53:15] Speaker 2: they have been indifferent to house price. changes. But I
[53:18] Speaker 2: think at some point they're going to be concerned it
[53:20] Speaker 2: acts like a binding constraint and there'll be a wealth effect,
[53:22] Speaker 2: a negative wealth effect. And there's just no doubt that
[53:25] Speaker 2: people are shitting themselves right now. The penny's starting to
[53:29] Speaker 2: drop and you're seeing these rate hikes propagate through the economy,
[53:34] Speaker 2: through liquidations, through insolvencies, through private credit blowing up, through
[53:39] Speaker 2: precipitous house price falls, through the consumer sentiment data. So
[53:43] Speaker 2: I think you're going to get at least one hike.
[53:45] Speaker 2: Fear made though, that they're going to hike once or twice,
[53:50] Speaker 2: sit back, and because of the public spending and population
[53:53] Speaker 2: growth and because of the poor productivity, you still have
[53:55] Speaker 2: high inflation. Mate, the sobering canary in the coal mine
[53:58] Speaker 2: is freaking New Zealand. So the New Zealanders, they're tough
[54:01] Speaker 2: as mustard, right? And their central bank, after the pandemic,
[54:05] Speaker 2: lifted rates to 5.5%. They put the freaking economy in recession,
[54:09] Speaker 2: a real recession, two quarters of negative GDP growth. The
[54:12] Speaker 2: jobless rate lifted from high 3% territory all the way
[54:16] Speaker 2: to 5.6%. So they had the real mother effing deal.
[54:21] Speaker 2: And guess what? Inflation today is still above the RBNZ's target.
[54:26] Speaker 1: Wow.
[54:26] Speaker 2: Now, they cut rates from 5.5% down to 2.25%. So
[54:28] Speaker 2: they had these big rate cuts thinking it was all
[54:30] Speaker 2: one and done. And they put the inflation genie back
[54:34] Speaker 2: in the bottle. But now they're staring down the barrel
[54:37] Speaker 2: of core inflation that's at 2.5%. They target 2%, which
[54:40] Speaker 2: is a reasonably big miss for a central bank. Now, remember,
[54:43] Speaker 2: we target 2.5% and right now we're running at 4%.
[54:47] Speaker 2: But this is a scary thing. In the UK, they
[54:50] Speaker 2: had a similar situation. They lifted rates much higher than us.
[54:53] Speaker 2: Unemployment has risen in the UK much higher than in Australia.
[54:56] Speaker 2: There's actually a decent amount of spare capacity, but they
[54:59] Speaker 2: too can't hit their inflation target. So the scary thing
[55:02] Speaker 2: to consider is we may see a stop-start hiking cycle
[55:07] Speaker 2: like we did before the GFC that runs for years
[55:09] Speaker 2: and years and years, and that just slowly kills off
[55:12] Speaker 2: parts of the economy until people have enough and really
[55:14] Speaker 2: vote government out and get radical change. One of the
[55:18] Speaker 2: smartest economists in the world that I speak to is
[55:20] Speaker 2: a guy called Murray Scott, who is the richest gentleman
[55:25] Speaker 2: in New Zealand's advisor. And he said something scary to me.
[55:29] Speaker 2: And he's got, I think, more or less everything geopolitically
[55:32] Speaker 2: and economically since the pandemic relentlessly right. And he said, Chris,
[55:37] Speaker 2: I think the Fed's going to have to go to 7%. Whoa.
[55:39] Speaker 2: And it's going to have to lift rates in line
[55:42] Speaker 2: with what we call nominal GDP. And nominal GDP is
[55:45] Speaker 2: real GDP plus inflation. Now, real GDP in the US
[55:48] Speaker 2: is about three and a half. Inflation was, until they
[55:52] Speaker 2: started fiddling with the numbers in the last week, because
[55:54] Speaker 2: they lowered all the inflation numbers in the US by
[55:56] Speaker 2: fiddling with them, inflation was three and a half. So
[55:59] Speaker 2: here we're sort of saying seven. The Fed cash rate
[56:06] Speaker 2: in the tech boom in the late 1990s, which we
[56:08] Speaker 2: talked about, did go to six and a half. So
[56:11] Speaker 2: currently we're expecting the Fed to kind of go to
[56:15] Speaker 2: 4.75 to five. I think there's a risk they go
[56:16] Speaker 2: above five, back to five and a half. But if
[56:20] Speaker 2: Murray's right, they're moving into the sixes and sevens. And
[56:22] Speaker 2: what that means is global recession. US economy goes into recession,
[56:25] Speaker 2: we go into recession. And it's really, really ugly. From
[56:29] Speaker 2: a portfolio perspective, can I say, the only place you
[56:33] Speaker 2: get protected is cash and cash like assets. You need
[56:35] Speaker 2: to be super liquid. you need to be floating rate,
[56:39] Speaker 2: which means variable rate cash-like assets like floating rate bonds,
[56:43] Speaker 2: their interest rate moves up with the RBA cash rate.
[56:45] Speaker 2: It benefits from rate hikes. So floating rate assets, maximum liquidity,
[56:49] Speaker 2: you want to avoid illiquid assets like the plague, and
[56:54] Speaker 2: you'll want to avoid cyclical risk or default or insolvency
[56:57] Speaker 2: risk like the plague. So that's what I do from
[57:00] Speaker 2: a portfolio perspective. Obviously, that's not personal advice to.
[57:02] Speaker 1: You, Mark. No, no, I understand that. And by the way,
[57:07] Speaker 1: I think the point I'm trying to make here is
[57:08] Speaker 1: we're going to be in for a big dip. Who
[57:10] Speaker 1: knows what asset class is going to be good value
[57:13] Speaker 1: to buy or who knows what asset class is the
[57:15] Speaker 1: one you shouldn't be holding.
[57:16] Speaker 2: No one's going to know that.
[57:17] Speaker 1: But you should be in a position where you're not
[57:20] Speaker 1: going to be affected and you have the ability to
[57:21] Speaker 1: dip in and dip out as opportunity arises. And the
[57:24] Speaker 1: only way you do this is cash-based assets.
[57:27] Speaker 2: Yeah, I think so. And high-grade cash-like assets at a
[57:31] Speaker 2: floating rate that are.
[57:31] Speaker 1: Liquid, Liquid being you can get your money back reasonably quickly.
[57:36] Speaker 2: And think about equities. Like we know their P multiples
[57:39] Speaker 2: are on a cyclically adjusted basis at like 200-year highs.
[57:43] Speaker 2: We know what happened in the last cycle in the
[57:45] Speaker 2: tech boom.
[57:45] Speaker 1: Yeah.
[57:46] Speaker 2: And equities fell 50 and 80. We know what's happening
[57:50] Speaker 2: to house prices right now. I'll also talk about commercial
[57:52] Speaker 2: property in a second. So Aussie house prices are in
[57:55] Speaker 2: line for record falls by Christmas. Sydney prices will be
[57:59] Speaker 2: off by 17%. So why wouldn't Aussie equities– potentially suffer
[58:04] Speaker 2: a similar fate. And I'll give you another number that's interesting.
[58:07] Speaker 2: I was with a, I guess, a billion-dollar family office recently,
[58:12] Speaker 2: and they own office property. And I said, what rate
[58:15] Speaker 2: of return do you get on your A-grade office property?
[58:18] Speaker 2: And they said about 6.5%. And I said, how do
[58:22] Speaker 2: you feel about that, given you can get 5.5% on
[58:24] Speaker 2: a AAA rate of Aussie government bond? And they said, yeah,
[58:27] Speaker 2: it's a pretty skinny margin. Well, when you look at
[58:29] Speaker 2: the RBA's research on what extra return should A-grade office
[58:33] Speaker 2: property give you over risk-free AAA-rated government bonds, historically, it's
[58:38] Speaker 2: been about 3% to 5%. So an A-grade office, it
[58:41] Speaker 2: has normally paid you 3% to 5% above the risk.
[58:45] Speaker 1: The lowest risk.
[58:46] Speaker 2: Yeah, the risk-free rate, the 10-year government bond yield. Now,
[58:49] Speaker 2: that would mean at 5.5%, you need to get 8.5%
[58:51] Speaker 2: return from A-grade office property. To go from 6.5% to 8.5%,
[58:57] Speaker 2: The price of the property has to fall by potentially
[59:00] Speaker 2: as much as 20% plus.
[59:01] Speaker 1: Either you get your tenants to pay more rent, one
[59:03] Speaker 1: or the others. The first, second one's not going to happen.
[59:05] Speaker 2: Yeah, that's right. So, you know, it looks grim for
[59:08] Speaker 2: commercial property as well, mate. Really, really grim.
[59:09] Speaker 1: Yeah, I don't like it.
[59:10] Speaker 2: Particularly, let me tell you one other final thing that's
[59:13] Speaker 2: fucking interesting. Everyone says we have a housing shortage. You
[59:18] Speaker 2: zero migration and you have no population growth like they
[59:21] Speaker 2: have in the US. Like they had- You solve it overnight.
[59:23] Speaker 2: You have no housing shortage, buddy.
[59:25] Speaker 1: You solve it overnight.
[59:26] Speaker 2: The housing shortage- is all predicated on these projections for
[59:30] Speaker 2: super strong population growth. And it vaporizes the housing shortage, right?
[59:35] Speaker 2: So all these resi-spookers, they're constantly talking about the structural
[59:41] Speaker 2: housing shortage. As you know, I advised Prime Minister John
[59:44] Speaker 2: Howard on housing back in 2003. And it's a funny
[59:48] Speaker 2: thing to think about. Like forever and a day, we've
[59:50] Speaker 2: heard about these housing shortages. But if you have a
[59:53] Speaker 2: state of execution like you just cut your population migration
[59:56] Speaker 2: growth down to nothing like the US have done. You
[59:58] Speaker 2: don't have a problem.
[1:00:00] Speaker 1: Well, maybe Poland is looking good in that regard. Chris Choi,
[1:00:04] Speaker 1: as usual, mate.
[1:00:05] Speaker 2: Brilliant.
[1:00:05] Speaker 1: Thanks very much. Awesome.

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