MORRISON: Negative bond yields are an 'absurdity'

Australian federal treasurer Scott Morrison. Photo by Ryan Pierse / Getty Images (File)

Australian treasurer Scott Morrison delivered a keynote speech, the Bloomberg Address, in Sydney today, saying the government had a mission to “coax private capital out of its cave”.

He said the nation had an “earnings problem” and needed “to earn more from what we do and what we produce”.

“This is how we lift real incomes. This is not just an Australian problem, but a global one, and we are faring better than most,” he said.

The gap between “the taxed and the taxed-nots” was growing, Morrison said, warning that after 25 years of continuous economic growth there was a complacency that made “achieving necessary change will be more frustrating and more difficult”.

Turning his attention to the global economy, the treasurer said the effects of the GFC were still being felt and would continue “for years to come”.

“In this global economy we have to fight for every inch of growth and for every dollar, yuan, yen and euro we can get,” Morrison said, saying private investment levels needed to lift to make up for the end of the mining boom.

Private sector capital expenditure in Australia has collapsed to record lows, when measured as a percentage of GDP, following the huge pipeline of investment that built during the China-driven mining boom.

Morrison also said negative bold yields currently seen on some government debt – most notably for Switzerland, Germany and Japan, among others – were an “absurdity”.

Here’s Morrison’s warning on the impact:

Global capital is sitting dormant. How else do you interpret the absurdity of negative bond yields – where it is apparently better to give the German or Japanese Government your own money for a decade only to just get it back and pay for the privilege rather than invest in a productive enterprise.

The response of Central banks and Governments around the world has been to exhaust monetary policy with rate cuts and QE and collapse their budgets with fiscal stimuli in the hope that it can replace the vacuum created by the evacuation of private capital.

The outcome has been private capital remaining on the sidelines while public debt soars to new records and cash rates go negative as central banks push against the string.

Private capital is looking for something to invest in. Something that creates value. Real income earning projects and enterprises. An economy where growth is organic, rather than fabricated and reforms are unlocking value and creating opportunity.

Bonds in Australia currently sit at around 1.9% and have risen ever so slightly since Morrison’s address.

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