Mailbag, incl: What metrics should government use? June 28, 2026

24:00It's like, yeah, they do, actually much bigger. But China's landing an aircraft carrier every six months or whatever insane number it is. Yeah. You know, I've made the analogy for those gamers out there, you'll know, you know, if you've ever played Warcraft or Starcraft or, you know, any of these sort of strategy kind of games. Actually, the size of your army doesn't make any difference. It's how quickly you can turn the units out that makes sense. So on one, what matters, right? Like let's say there's a conflict and they both lose half their fleet. Well, the Chinese rebuild very quickly. They're back to where they were in a blink of an eye and you're still trying to, you know, get your first tank deployed again.

24:42Yeah, right. And that's why capital formation is everything. And you can have scenarios where you're, as a nation, you're getting more and more capital stock, but GDP is going backwards. You can actually have GDP going up while your capital stock is going down. You're actually strip mining the capital. Just like, you know what? I tell you what I'm going to do. Emperor of Page, the new emperor of Australia, we're going to stop all business investment. And any money you would have spent on investment, I want you to now give your employees a pay rise. And I want you to do all this extra stuff. Now, GDP is going to go through the roof.

25:16And we're just going to do that. That's the policy going forward. It is illegal to make any reinvestment in your business. And we are going to have an economic nirvana, the likes of which the world has never seen, at least through the Keynesian sort of lens, or let me sort of maybe say the neoclassical kind of lens. And that's stupid. It's dumb. That's like owning a farm and just saying, I'm just going to like pump the earth as full of as many chemicals I can because I'm going to get a couple of bumper harvests, yeah, I'll absolutely destroy the soil and this will be a salt plain before too long.

25:53So there are measures for all of these kinds of things. Net domestic investment is a good one there. So it takes away depreciation from your total investment. If this number is going negative or stagnant, then we are literally rotting away our capital base. We're becoming poorer regardless of what GDP says. So for me, that's sort of above. It's in a long-term sense, right? And everything's in the long-term. Yeah. How do you manage anything other than - I'm just making the point that in the short term, you may not be getting literally, you may be producing more stuff, but you're preparing for the ability to produce the stuff.

26:27I just want to kind of draw that difference of, in the short term, GDP will be lower, as you say, but you're getting richer. And you say, how is that possible? The answer is, because you're not saying richer now, you're saying richer in terms of the measurement of the ability to produce those future things. You make a point, I just wanted to kind of flesh it out for those who maybe are wondering how those two can be directed. I mean, once you start thinking about it, it becomes so obvious. I mean, who's richer? Me and my neighbour, right? We're both sort of identical. One works 60 hours a week and I don't because I'm mega rich and I've saved hard.

27:02I've got all the toys in the garage and my income is zero beyond what I can get from my investments, you know. Their income is massive. Who's richer? He's like, this is the thing that I think we just lose sight of. It's like, everyone's got to have a job. Jobs are important. It's like, yeah, jobs are super important. Don't get me wrong. But it's sort of like they're a means to an end. They're not an end in itself. So the sort of modern way of looking at it, as long as everyone's super busy and working and actually let's just make sure that both people in the household are working because if you stay at home and raise the kids yourself, you're not productive.

27:33Like there's a madness to it all, which doesn't like we've just got to all look really, really busy and we've got to be doing a lot of stuff. And if we're doing that and the level of consumption is going up, then everything is good. And it's a pernicious kind of misdirection because it is tangentially true. It is coincidentally true at points. So, you know, if you are increasing your capital stock, you've got a high savings rate, we're all becoming more and more leisure time. You know, we probably will generally see GDP and stuff rise over time, but it's just like, What measures get done is what you like to say a lot, which is such a great saying.

28:13And we've decided to measure unemployment and GDP. In fact, that's the core mandates of, that's what the RBA looks at. And that's all the RBA looks at. And that's the only thing that matters. And that's what we've got to make go up. And it's like, yeah, but there's things that are far, far more fundamental to all of that. Look, I'm going to shoot my shot here as well. And partly because why not? but also because I – do you want an honest answer to the question? No, no, not anymore. Okay, let's move on. I would track the money supply growth. Mate, I was actually going to say I thought you would say that.

28:47I think that's a very smart idea. I think – Like, why not? The National Debt Clock that the Yanks ran was a bit OG. It was all political. But the idea of, hey, this is how much it is, I think is useful. Like a number tells you some things. I don't know that people necessarily will be able to conceptualise even what that means. I don't make people stupid just because money supplies, it's a weird idea. But you're right. as a metric, it absolutely should. Whether you are Keynesian on inflation or not, publishing a number should be not a controversial thing to say. Well, it's never talked about, right?

29:17And it's almost because just, you're right, like it might be confusing, but that would be the point. The fact that it was just reported. It's like, what do you mean? What? M2, what's that? Oh, that's the amount of money in the system. Like, that changes? Yeah, it changes. Right, exactly. Oh, it goes up and down? No, it goes up. So, and it just, it leads you down like the five whys. Why? Why that? Why that? And then, and that's, even if you want to be on the other side of the ideological divide, at the very least it says, well, what are we, well, who gets to do? First of all, who's got the button?

29:56Can I have the button? Because I would love the button to print some more money. I don't get to have it. Okay. Well, who gets to have it? Okay. Well, what are they going to use it for? Oh, it makes us all better off. Okay. Well, that's fine. That's fine. But I want to see evidence of it because I tell you what, if you are diluting my savings and the value of my labor, I want a bloody good reason for it. If you're borrowing to such a degree that my kids are going to be, my grandkids are going to be paying, okay, fine. Not against it as a principle. But what am I getting out of that kind of thing?

30:31The fact that it would be on the radar, I just think, would alert people to the fact it's even a thing. And I can tell you just anecdotally, whenever I start, which is often, whenever I start going down this part, the number one reaction is, what do you mean? It's like, no one's dumb or anything like that. It's just like, because it's so nonsensical to think that that's even how it is done. and you'll never, it's never, it's not a conspiracy, but it's just never talked about. And when you say, oh, I had a conversation with someone the other day and he was talking about their money at the bank and I said, just offhand, I said, your money's not at the bank.

31:12What do you mean? And I said, wait a sec, precious. Are you telling me, do you think that there's a box with like money in it and your name on it? Like there's actually physical notes and coins in there? Like, well, you did. You did, didn't you? You thought that was it. And then you start going down this sort of path and it's sort of like, it's such a mind blow. And that itself is, again, it's not a question of you can go to the nth degree with all of that. But the fact that that is not even known and it is so fundamental, I can't think of where is a more fundamental layer than the money itself and that we don't even measure it.

31:49Actually, we do measure it. We never talk about it. We never highlight it. It's not common knowledge. there was i think it was marx who's carl marx who said that if people knew how money worked there'd be blood in the streets or some version of it like that it's just a lot of like it's it's so wild an idea of how we manage things that it's sort of it's if it was commonly known that there there really would be pickaxes and torches and stuff down the street so anyway i'll shut up at the rant i'm just like i would have that as i would i would report that i would report it I like it I'm going to add a question or another question I'm going to answer a different question one thing I would stop reporting is workforce participation I hate I hate it hate it hate it what you mean doing one hour a week no I mean in general we praise workforce participation isn't it great we want more people working now in what world do we think that's a good idea everyone else wants to retire everyone listening to this if you want Powerball tomorrow and you're going to turn up on work on Monday, I call you a liar or you just want one in a billion people who just happens to have lucked into like the best job ever.

32:58But even if – I mean, retiring, just work – and particularly, I'm not going to get – I don't – absolutely don't want to get into family structure stuff because it's not about that at all. But the idea of like, oh, we've hit a record high of work, isn't it great that more women are working now? So, well, I don't – why would that be great? It is if they wanted to. Right, of course. It's a tragedy if they were forced to. We don't say, isn't it great that fewer blokes are working or – and look, yes, absolutely. this is and it'll be really really clear because it gets messy fast right i'll issue no obstacles to anybody black or white or brindle male female or otherwise working if they choose to and they want to that's great and if it's if it's if we're measuring the proportion of people who want to work versus can work that's i'm happy with that too that's fine sure when you simply say hey guess what a great proportion of us are working isn't that great are we doing well as an economy it's like what are you measuring you i mean people again if they want to work great The vast bulk of people, if you wanted to have one or both partner at home permanently or part-time, great.

33:51Knock yourself out. If you want to have people who are, you know, it blows my mind that we think that more people working is something. You know why they do? Because it helps GDP and it's all the pretend stuff we've just finished talking about. That's the ridiculous thing of the whole workforce participation. Again, if you want to work, you should be able to work. Measure that. 99 % of people who want a job can get one. Fantastic. That's a great result. But 5 % of people would rather not work but have to because of economic circumstances. That's not a great result. I'm 73 and I'm still working.

34:23Oh, you like to stay busy? No, I've got no choice because I have to work. I've got a kid at home. I'd like to actually be home with the kid, but both of us have to work because circumstances require it. And we sell it as a bonus, as a benefit. It's absolute nonsense. So I don't want your question, Lawrence, but I want to throw that in because some of the stupid stuff we report and pretend it's good because economic – People in economic units, that's, I mean, we're a finance podcast, right? But I think we hopefully can all agree, people in economic units first and foremost. They work because they enjoy it.

34:51They work because it gives them meaning. They work because they like what they can buy with the money. They're not working so that GDP can go up. Even per capita GDP can go up. They're working because they want to, and that's great. If they're working because they have to, they'd rather not. And by the way, no one wants to work. Everyone would not work if they chose. So I'm not saying everyone should be able to not work. I'm just saying, let's think about what we're saying when we're saying, oh, great. Work for participation is up. It's a record. That's wonderful. It's just absolute nonsense. One more metric I'd throw in is savings rate.

35:19I think savings are super important. Yeah. I think it's not like a lot, like in fact, all of these measures, it's not in and of itself going to encapsulate everything, but it's an indication of prosperity. If you can satisfy your material wants and needs and save for the future and that money then becomes, well, from an Austrian view, That is the feedstock for future investment and prosperity. A civilization that is unable to save is not in a good place. A civilization that can maintain its way of life and save more is actually an incredibly strong place. Just in the same way that my farm is much better than yours, if I've got like 10 silos full to the brim with grain and you don't.

36:07You know, it's like, I am richer and I am better. And it is just, you know, and yes, well, no, I'd even walk that back. The mainstream sort of way of thinking of it, and it does my head in when people talk about it like this. They'll say that saving, it's a dirty word. It's hoarding. You're keeping your money out of the economy. You know, you are starving investment. It's a completely ass-backwards way of looking at all of these things. And again, it's not that that one metric will tell you everything you need to know, but it's coincident, like I said before, if we were to observe over a long period of time the savings rate going down, it's not for a good reason.

36:51Unless we all have incredible and enduring and attractive investment opportunities, that's the one exception where that is acceptable. We're all saving less because we've got incredible high conviction, high potential return investments that we are pursuing with our capital instead. Other than that, savings going backwards is bad. And that's true for business. It's true for government. It's true for households, true for individuals. It matters. It matters. And I think the more you can save, you might not choose to, but the more that you could save if you wanted to, obviously the better off you are, right?

37:31Because what it does is actually it's that whole rainy day kind of thing. It's like, again, I've got silos full of grain. Drought comes for five years and just, you know, devastates our crop yields. I'm still eating every day. I'm fine. Well, you, you've eaten it all every year. You've sold it all. You haven't saved any of it. It's like you're in trouble, dude. We learned this, by the way, in COVID, just in time delivery and everything. Inventory was a dirty word and lazy balance sheets and all this. Exactly. You know, and it's one of those things, I just, I don't get it because people will, the only way that they can attack that rationale is by going to the nth degree or if everyone always saved and no one ever, you know, spent, then that would be bad too.

38:14But that's kind of one of those problems that solves itself. If the pool of capital that was saved was so substantial, the cost of credit would be virtually nothing. It gets to the point where it's like, I guess I'll borrow some money at 0.01 % interest rate because there's such an abundance of capital that's there to be left out, like to be lent out, I mean. It's a, yeah. But, I mean, you're probably going, why is Andrew so passionate? This seems like really obvious kind of stuff. Well, again, go to mainstream economics and even politicians, they will talk to about, it's just like this, saving is a bad thing.

38:53You are hoarding it. And, again, the other way of looking at it is in a very real accounting sense, All it means is that you have put more value into the economy than you have extracted. I was like, what's wrong with that? That seems like a really, what's the word, socially positive thing to do. Do you want me to take more out of the economy that I'm putting in? Like that doesn't sound sustainable. That sounds very selfish actually. But here we are in 2026, despite all we know and have learned over the years still parroting this absolute nonsensical stuff. There was a big conversation, Hal. I don't agree with you entirely, but we will move on just for the purposes of moving on.

39:36No, I disagree with you. I think there's nuance. Oh, I'd love to have that chat. I think there's nuance. There's a pre-record. We will. I'd love to explain why you're wrong. Thank you. I appreciate it. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

39:53Let's go to Vincent, who says, Dear Scott and Andrew, Andrew, thanks so much for the podcast you two produce every week. I'd love to listen to your opinions and indeed have changed my opinions after listening to you to discuss and debate many an issue. Andrew. Being able to change your mind is a source of great intelligence, I would say. Well done to you. I didn't used to think that, but now I do. I always thought it. When did you stop beating your wife? He said, Andrew, thank you for explaining what true capitalism is and should be. And Scott, thanks for being a finance and politics nerd. I can relate as I consider myself one in many aspects as well.

40:32So thank you for all the explanations of political history and legislation and simplifying things. And thanks to you both for the nonpartisan positions you take. With respect to your budget coverage, I know this is not a political podcast per se, but you do discuss politics. From the start, let me say, as you do, a pox on both their houses. You are a long-term listener, well done, Vincent. I agree the overall changes to tax are not necessarily a bad thing. and would generate some amount of extra tax income. But nothing has changed in the financial situation of Australia since the last federal election, when the government promised, yes promised, they would not touch capital gains and negative gearing.

41:09Indeed, last year we had a surplus. I'll talk about surplus later. You both seem to have excused the breaking of the promise based on the fact it was good for the country, based on the fact that it produced more revenue, and that revenue seems to even up the tax burden between income from selling labour versus income from investments. Firstly, is this a fair summary? I don't know if I was particularly cheerleading the budget. I thought I was negative on it. Did you agree to the changes for negative capital gains? I thought you did broadly with the exception of some of the startup stuff and the 30 % floor or am I?

41:41Yeah, the 30 % floor was an – I think my broad view on it was that – I mean, I'm worse off afterwards, so selfishly – Me too. No, I hated it. I prefer to pay less tax. So, yeah, I doubt it. But if we're going to take the stance of making commentary beyond ourselves and looking at a higher level and - We shouldn't be unusual and need explanation, but this is the world we're living in. Well, our view was because the eternal debate on this front is who bears the burden? Is it labour or is it capital? And I think maybe I'll - How much of each is the burden? Not all, it's and, but yes. Yeah, yes, yes.

42:18Which proportion is born by which part? Yep, yep, yep. And we just basically said, I think, well, why, way unfairly, like they're both important. They're two sides of the same coin. So if you get, I think the amount of tax you pay on your labor should be similar to what you pay on your capital. So something like a 30 % floor was stupid. Don't like that at all. The idea of having indexation, if you're going to do it that way, that seems reasonable. But, yeah, I would change a lot with the budget. I guess I would just add that in. I think he demands those particular pieces. Vincent, you've summarised my thoughts almost perfectly, and Ram has done a great job of adding to that.

43:02So I think that, yes, the burden is unfairly on labour compared to capital. There's also, and fair, by the way, is such a loaded word, but I'll use fair, reasonable if you prefer. Don't add me on to the word fair. Also, I mean, the argument is about between types of capital, between types of labour too, by the way. So there's lots of those moving parts, not as simple as just either or, But broadly, yes, I see no justifiable reason for income from labor to be taxed more heavily than income from capital. And so people look at it the other way and go, well, okay, reduce tax on labor, then. It's like we can have that conversation.

43:37But broadly, as I said, a lot of times the tax burden is X. Should it be less? Probably. Is there waste? Yes. But it costs us X. And so what proportion of X should be paid by which groups? And without getting into absolutes of how much each group should pay, I don't see any reason why you advantage capital over labor. Now, self-interestedly, I can make lots of arguments why I would if I wanted to, so I could keep more money. But if I had to do your first principles, Andrew's got this great, you haven't said it for a while, mate, but you said, you know, if you were going to be born into a system, you didn't get to choose which position you were born into, how would you design the system?

44:08And so I've always loved that framing, mate. It opened my eyes to - I started that from somewhere for the record. That wasn't my original insight. Yeah, but you said a lot. It's a really useful way to think about it. I think about it and I say, okay, there's the nurse and there's the investor. and the investor pays less tax than the nurse on a given level of income, does that seem reasonable? And my answer simply is no, I don't think so. I don't, I don't, I can't. I would pay more tax under the new system. Can I justify paying less tax than a nurse? No. I mean, she's working, he's working 60 hours a week and looking after wiping backsides and keeping people alive and, you know, on the feet all day, I'm sitting back in my rocking chair and I'm saying, no, I should pay less tax than you because my money is productive capital and I'm doing things.

44:46Now, I'm not, you put out productive capital is valid before, Rem, as you were talking about it, But in terms of this context of like, no, I don't think it's right. So, okay, I think we've probably summarised that. Let's go to these questions. One more bit of context that I'll just double down on what you mentioned there before is that, yeah, my main gripe with it is like the whole conversation and analysis is around how we need to tax more. So that's the starting point. Where I would go, you know, and I made the point we're taxing more Or back to GDP. As a proportion of GDP, we're taxing more than we ever have before.

45:21Yes, correct. And there's a very long-running trajectory of more and more and more spend by government at the same time where the quality of service delivery is at best flat. And so that's – I feel as though, yes, we absolutely need to have a conversation on how we fund it all, but can we just start what we do have and can we just spend that better, you know, and if there is going to ever be an increase in the tax burden, however it is shared, there needs to be a really good reason for it. Not because I'm anti-tax or anything like that. But I don't know how anyone could not get behind that idea.

45:52It's just like I want to pay more tax and get worse or the same services. And you shouldn't have to justify it. Exactly, yeah. Yeah, no, I want better bang for my buck. And if you're spending my buck, then, you know, show me what you can do with that. And if you're going to continually just wee it up against the wall and then turn around and say, no, I'm going to actually, I need more from you. I want some more, yeah, exactly. That's where I get angry. That's where I get really angry. Totally. And look, if we're in a situation where we as a community decided we should spend less on stuff and or get rid of waste, as you said, mate.

46:24But I'd be happy with reducing tax on labor down to the level of tax on capital if that was the preference as well. Yeah, me too. I don't care which way it goes. Just be fair. I mean, you can't literally do it that way because the old system had 50 % discounts. No matter how far you reduce the tax on labor, capital would have to fall because you couldn't actually literally do it on the old system. But that idea of it doesn't need to be more for the sake of it. The one thing I would say, mate, and this is – it's not – it's exactly – well, it's unrelated to what both of us just said, but it's worth adding quickly, is we've still got significant and growing debt.

46:52So even with these increased taxes, we're still not washing our own face and we're putting more money. It's ridiculous. All right. Let's go to Vincent's questions. Question one. Don't you think they deserve criticism for breaking a promise? The Treasurer has already flagged more changes to taxes of investment income. What these will be, who knows? But we have a good idea. Further trust changes, franking credits and death duties, name a few. As you so often say, the lack of certainty is what kills. Reinvestors may restructure to higher dividend yields, but they get taxed on franking credits, for example.

47:23Don't you think with the majority they have, they could have gone to the electorate with their proposed changes and sought a mandate? Yeah. Thoughts? Yeah. I mean, here's the thing. I know you've got some really good thoughts on it, so I'll let you run with it. I've got a lot of thoughts. I wouldn't say they're good thoughts. Yeah, well, I mean, I think a lot of the anger and people being upset isn't necessarily fair in the way they present it, but I can very, very strongly empathise with the level of discontent out there. I was just telling you off air this morning, I was just driving in the car and One Nation is now the top preferred political party.

48:07I'm not even, a lot of people like, I'm not trying to say it's a good thing or a bad thing. I'm just trying to say it is very, very noteworthy. And all the polling seems to suggest that there's a large protest vote in that there's a large sort of nihilistic despondency in all of that. And so while we can talk about this in a pretty intellectual way, I think it's a very accurate thing to say that an increasing number of people are more and more, rightly or wrongly, perceiving that they are being left behind or that their prosperity is being reduced and their opportunity is being reduced. And that's not a good thing.

48:49And then when the government sort of indicates they're going to do one thing and then doesn't do that, whether that's a lie or whatever it happens to be, there is, it's going to stick in your craw unless there was a good reason for it. We made the point, I think, in a recent pod was just sort of saying, well, you've got to be careful with promises because situations change. You don't want to stick to a promise just because you said when it's like makes no sense to stick to it anymore. Yeah. But I don't see as though the world changed that much between when they said they weren't going to do the thing and they did the thing.

49:22It was like so at best you were disingenuous. I think at best they changed their minds. All right, okay. Best they changed their minds. But it's always been that through to a line. and we don't know where they are on that continuum with that evidence, but you're absolutely right, yes. But there was no obvious thing that would cause you to change your mind. Like what happened between then and now, other than you really didn't think your position very carefully, you didn't think it through very carefully originally and then you did think it through more carefully, which that doesn't reflect on you particularly well, or you were never genuine in the first place.

49:59It's kind of one of those two, right? It's like, well, neither is great. So you and I were speaking before the podcast. This is a pre-record. So a couple of weeks ago, I was on Twitter because I'm an idiot, arguing with people about what a lie actually is. And the number of people who choose to believe a lie has a different definition because they don't like elbow blows my brain out. But then I get accused of being partisan. Oh, you're just defending him. It's like, no, no, no, it's a definition, right? And so I think it's because I'm an idiot. Somehow I've appointed myself as the person who needs to actually say the things that need to be said if they're not unpopular because who cares what I think but apparently I think I do.

50:33So that's why I do it. But to your point, I give that preamble, mate, because the problem with this is we don't know. So we can assume, we can say, we can vote according, we do whatever. What we know, to Vincent's point, it's a broken promise. It costs a broken promise. And should it be because I saw it? Yes. I think, frankly, the promise is worse than the breaking of it in this context. Like, don't make stupid promises, you idiots. Like, just stop doing it, right? And again, idiots, I say, bipartisanly, because they're all idiots and they all do the same thing. Just stop making promises. It's stupid.

51:02or keep the promise or as you said nothing not enough to change now can we say nothing's changed make them change their mind probably again this is this is the problem with the heuristic or not heuristic with the theoretical answers is the heuristic was the point i was going to make about you know it was like that quacks like a duck you can make your own decisions but is it possible they said we might put some policies in place before the election we thought they'd help they haven't helped we need to do more that's effectively the line they're running it's possible yes is Is that the most likely outcome?

51:28If you're politically motivated, you're already yelling yes and no into the pod machine right now. If you're not, you're looking at going, I don't know. Even if that was the case, then say it. Don't say, oh, no, we never did that. And like now you're just gaslighting us, right? They've made the argument. That's what I'm saying. That's the argument they made. If things got worse, we had to do more. Here's what we've done because things got worse. This is what they've said, right? So, again, I'm not saying this is the reason for the preamble. I'm not saying they offend them. I'm saying it's okay they did it because of these reasons.

51:53I'm saying if you're saying there's a world in which they go, Shorten took it into an election. He got voted out. We're never going to do this. We don't want the political pain. And we're going to do some things to try and fix the housing affordability issue. That hasn't worked. Hey, guys, should we reconsider this? I suppose we should. Okay, let's do it. Okay, we broke a promise, but we did it for the right reasons. That's the very, very, very positive possible, right? And again, if you're politically motivated, you'll have absolutely views either way. Of course they did. Of course they didn't.

52:19I don't care. That's possible right through to they always knew they'd do it. They wanted to wait until their second term in the year. They had enough time until the next election. They'd get away with it. and they didn't want to take it to an election. And that's the really cynical view on the other side. The truth is probably somewhere in between. So, Vincent, they broke the promise. They absolutely shouldn't. Well, here's the problem, right? My only challenge to your question, Vincent, is should they have broken the promise or not? Now, on one hand, we've said this in the previous one, so I won't do it in too much more detail.

52:46Should they have broken the promise? I don't know. It's a really difficult one, right? And again, put the policy aside. It's not about Labor. It's not about capital gains. Put the whole thing aside because otherwise it becomes, I don't like Labor. I don't like this change. I love them. I love the changes. Put the whole lot aside. Should a politician ever break a promise? Now, making the promises is a stupid thing. If you promise to do something really horrible and you don't do the thing, you're breaking the promise, but you're not doing a horrible thing, and that's a win. So should you do a horrible thing you promised to do?

53:11Probably not. Is it right to break that promise? Probably, yeah. If you promised a really, really wonderful thing and didn't do it, that's also really bad. So ideally, you wouldn't break a promise, no. But in the – I say real, I don't mean that condescendingly at all, Vincent, just as I was thinking, I thought that sounds like I'm being, you know. In the real world, we've got to decide which way to go. Are these changes better than what we have now? Yes. Are they worth doing? In my opinion, yes. Should they break a promise? Well, I'd rather they didn't make the promise in the first place, but would it justify waiting two years to make the changes if they're needed?

53:41No. Are the electorate justified in being really, really annoyed with them to break the promise? Yes, absolutely. I think they're all true at the same. In my mind, they're all true at the same time. I don't know that if this is genuinely needed and wanted, and by the way, house prices have already started falling. So maybe it's, and you can never know whether it is these changes, interest rates or inflation are all three. Of course, it's all three, but you can't know the proportions. So if house prices fall 10 % in the next 12 months and more young people can buy a house, I'm okay. I'm not okay that they broke a promise.

54:11I'm okay with the action they took and they can wear the political fallout for making a stupid promise. Would I have wanted them to wait two years to take it to an election? This is really hard. I mean, people are, again, ideology and politics, you'll have your own views. I think changing the policy is the least worst of the choices, personally. That's my honest view. Do they deserve criticism for breaking the promise? Yes. Do I think they did the right thing anyway? Yes. And so those two have to stand in some form of cognitive dissonance side by side because that's my honest view. I don't disagree.

54:41I just, yeah. I'm built in a way that I more naturally lean towards the cynical take. I know you might be right. I'm not saying it's not. I don't know. We can't know, right? Unless you're a fly on the wall. That's literally it. Yeah, yeah, you can't. I mean, you said something earlier that made me think, actually. You said the word fair and you said, oh, maybe that's not right. Reasonable is a better term. And I totally get what you're coming from there. But within all of that, it's kind of like, yeah, but it's kind of the same thing. No, it's not the same thing. It's not like, did they lie or did they break a promise?

55:15It's in that territory where - Sorry about the tax being fair or reasonable, not the broken promise. Just so you really can't. No, I mean as a distinction. Yes, okay. Yeah, I was trying to avoid the term. No, no, go for it. No, but, and it's not, Samantha, like I very much agree, words have meanings. A lie is a different thing to a broken promise. Of course it is. Like it just is. I promise I'll pick you up from school, honey. You didn't pick me up from school, you lied. No, I meant to, I just bloody forgot. I mean, it's not a lie, it just isn't, right? Totally different thing. Of course it is.

55:46But it is, I guess I'm just saying it's understandable in a political arena that people will conflate the two. Yeah. And all just assume it's a lie because they don't like the person. And this is why the politics is so hard on this one, right? I always joke about being technically right is the best kind of right. Because it is, it's like, it just pisses everyone. Pardon my French. It just annoys everyone because it's like, I know you're right. However, there is a broader point to be made here And whether you use that word, I kind of feel as though it would be, you can imagine, maybe he's done it.

56:21I just, I say tune out these days. But if Albo gets up and says, actually, no, we didn't lie. We just broke a promise. I think for 90 % of people in the election, right or wrong, they would go same diff, bro. Same diff. You still do something you said you wouldn't do. We still have a crappy outcome. I still don't like you for it. I think it's perfectly reasonable. I think it's perfectly reasonable to say you suck either way. It's just, it's also not the same thing. and one's not obviously proven, but I completely agree. Well, because people said that to me in response on Twitter. I was like, well, the Italian worker promised.

56:51Yeah, they did. Well, that still sucks. Yeah, it does. Don't at me, bro. I'm just saying it's not also a lie. That's okay. Two things can be true at the same time. That's fine. Yeah, yeah, yeah, yeah. But I'm just saying it's an unsatisfying distinction. It's a correct distinction, but it's like I don't feel any better after having that pointed out to me. It's sort of like, yeah, they still suck. Yeah. All right. I think we've done that for Vincent. How do you deal with it? I mean, well, you deal with it in the way that the polls are saying you deal with it, which is you abandon them, which happened to the libs, and now it's happening to Labor.

57:30And it's like, well, you make your bed. You've got to sleep in it. Yep. You don't like the broken promise. You don't like the tax changes. Bode gets them. That's democracy. That's what we do. Exactly. Yep, 100%. I do. Yeah, we'll move on. Vincent said, I've got to remember this. So there you go. You also mentioned on the Q &A show after the budget, you would do a show on how you would balance the labour versus capital tax debate. I look forward to hearing about this. I can't remember saying we were going to do that, but if we're going to, we probably should. Did we say that? I can't remember what I had for breakfast.

57:57You're going to ask me what I said many weeks ago. I'm not sure the whole episode in trying to balance labour and capital tax, but maybe there is. Well, I think we could do it right now. I mean, as we said before, we would have it the same. The same burden, right? The same tax, but whatever it is, you know, however you make your money, then it's a proportionally. It just gets rid of, it diffuses the whole debate. Then we can start talking about absolute levels of taxation. Yeah, I understand. And that's a good discussion. I'd really love to have that discussion. But I just, you know, should Labor be, I mean, people on the left will say Labor should be taxed more because they're the ones doing all the work.

58:30And the people on the right will say, no, that capital should be taxed less because that's what creates the investment that actually creates the job in the first place. And you know who's right? Both of them are right. Yeah. We're both right. Which is why they should be the same. Yeah. If you want to make an argument, you can absolutely make the argument. You can absolutely say, oh, there's a reason to tax capital less. Well, less than what? Less than labour. Is there a reason to tax labour less? Yeah. Okay, less than what? Less than capital. We're in the same. That's why this has become so partisan so quickly.

58:56I had people tell me, well, founders won't start businesses. It's like, well, okay. Well, people don't work at businesses. It's like, God. Turns out no one likes paying tax. How about that? Welcome to 2026 and 1926 and 1826. We've never liked paying tax. The question is just, and I've said before, mate, My formula is really simple. What's the bill? So what do we want government to do? What's the bill for that? And how should we reasonably split it or fairly split it to usual? I wasn't trying to be – the reason that fair has the – fair is just a really loaded word because we have a lot of different – reasonable is just – Oh, I totally – I'm not – yeah, you're 100 % right.

59:29I was playing the point with listeners. The reasonable is kind of like a nuanced way of approaching a topic rather than what's fair, what's not fair. It becomes very binary. Reasonable isn't as binary. It probably will be eventually because words change over time, speaking of lying. But, yeah. Yeah, so who should bear the burden? I think marginal taxation, progressive marginal taxation is fair, and there's no obvious reason why you could tax capital more or less than labour or labour more or less than capital. You can make arguments for both, but there are equally dominant, persuasive arguments on both sides, in which case, guess what?

1:00:01We're back to pretty even, which is kind of the point. Yeah, and I just go one layer, just flesh it out, and then we don't have to do it. Vincent, we don't have to do the episode. We've given our thoughts, and I've said it before. For me, it's not even about the level of taxation. It's the return on investment. So there is a theoretical world in which I actually pay 100 % tax and I'm very happy with it because I effectively, you know, I don't even get a salary. I just go to work and then the government provides everything that I need and they do it in such an incredibly efficient way that I'm as happy as Larry.

1:00:33That reality will never exist. Correct. But it's a theoretical argument it is. And there's another world where I pay zero tax and I'm living, you know, I'm battling in the Thunderdome every evening to try and get some human flesh to eat to say a lot. Like there's a big spectrum amongst all of that. So it's not like, it's not, for me it's sort of, we miss the, it's like with investing, right? We miss the point with things like I always rail against people who get upset about capital raises. Oh, they're diluting the shareholders. But maybe for a good reason. Yes, exactly. Maybe they're going to dilute you and make you more money per share.

1:01:09Yes, yes, yes. Right? Like it's a more fundamental question. They want more money so they can go and grow the business faster. So you're against more tax. That's a great analogy, actually. I'm not against more tax. I'm against whatever I pay in tax being spent very, very effectively. That's what I'm for. I'm against tax being spent wastefully. That's what I'm against for. Anyway, episode done. Well, you're welcome, Vincent. Let's finish off with a question from Luke. Slash comment, slash something. And again, speaking of future topics, we may have made a touch on this one. Good morning once again to the rightful but as yet uncrowned chairman and CEO of Australia.

1:01:45You two can decide which one takes which title. Do you know chairman or CEO? Chairman every day I'll take if I had a choice. Executive chairman or executive chairman? You have to be executive chairman. You couldn't keep your hands off the monetary system. I have to be executive chairman. Plus you get a better paycheck, right? And you get to tell the CEO what to do. What's not to like? I mean, you're the boss. The board is the boss and the chairman is the boss of the boss. There you go. The big boss. Hell yeah. As per usual, says Luke, with one knee to the ground and a deeply bowed head, I thank you for your tireless efforts to educate the masses.

1:02:16By the way, Lawrence, this is how it's supposed to be done. Without your influence, my financial future would look a lot more hopeless and I certainly wouldn't be as driven as I am today. I know you're probably partly kidding and making it up, Luke, but that's about the best compliment you can give us, mate. if we're helping people just a little bit, kind of point in a better direction and move with a little more velocity, then that's literally about as much as we can hope for. For me, if it can make you think, I think that is always, and I think this is my litmus test for any pod I listen to.

1:02:46If you press stop and then an hour later you're still thinking about it, it's a good podcast, right? Yes, yeah. Well, conversely, if you've forgotten what we've already talked about, then we're not helping anybody. It's just not very memorable, yeah. In a recent mailbag, he says, You requested some evergreen episode suggestions. You've touched on universal basic income before, but I would love to hear a proper deep dive. Could you unpack the theory, explain how it's meant to work in practice, and give your opinions on its actual economic viability? Of course, with the non-negotiable tangents that we all love.

1:03:16Kind regards, Luke. I think we should. I think we should. So put that down. The reason I posted this out, it was just a question for us, but partly he gave us lots of credit and nice compliments. I had to read them out. But secondly, Luke suggests something else. He says, P.S. Assuming Scott has planned another camping trip, may I suggest a mailbag fool fest? Beer, campfire, tents with unaudited rants and constructive disagreements sounds about as close as you can get to the perfect weekend getaway. A live podcast has been talked about before, a live camping podcast. It may be a little too alcohol involved.

1:03:49I'm not sure we should do that. We either embarrass ourselves or be four hours long or probably both, I would imagine. I mean, the good thing about the campfire rant is that you don't have to be as worried about facts. You know, you're just coarse. Coherence. Just because they think. That's coarse. That's why. We're a couple of a love you, mate. Throw in the middle of a little bit. Be as deep we are at that point. No, respect you. But. We will do our best, Luke. Yeah, we'll probably do a UBI episode, I suppose. Let's do it. We talked about it long enough. Let's lock that in. Yeah. Not that I'm an expert on it in any way, shape, or form.

1:04:29I was about to say, I'm not sure if we get a full episode out of it. We get full episodes out of lots of things, including a recent one where the whole episode was actually about nothing we wanted to talk about. So we could probably get a full episode out of UBI or at least a reasonable, maybe a little shorter than average if it comes to it. But, yeah, we'll do it. All right, there you go. Thanks, Luke, for the suggestion. We'll make sure we get that done. And because I've got a bit of time, mate, one more question from Tom. Hi, Scott and Andrew. Long-time listener, first-time questioner. I know I am obliged to bend the knee and kiss the ring, but despite my young bastard status, I fear my knees may not allow me to get back up again.

1:04:59You can't be young bastard in that sort of situation. No. I love listening to the pod, but often have neck pain from furiously nodding in agreement to your rants. It is refreshing to know there are still rational thinking people in the world. There are, as well as Andrew and I. If I see one more elbow business partner AI post, I'm going to throw my phone in the river and go live in a forest. Can I suggest, Tom, do it anyway? I love my family and I will not leave my family, but if, you know, there's a world in which I live in a forest somewhere. That's all I'm saying. All right. Tom says, I'm not currently invested outside of super as I've just finished digging myself out of a hole from a failed business.

1:05:36He says, don't worry, at least GDP went up. Well done, Tom. By the way, I used to own a cafe, so I'm now qualified to give opinions about the economy on TV. You are indeed, mate. You'll be in high demand. Former cafe owner. You've probably heard a bit about, you know, why the business went broke, sob stories. There's plenty of those. Current affair, I'll chat to you. And you've got something in common with Andrew as well, who also owned a cafe last part of time. Previously, he says, Luke, I've been an ETF investor as I haven't had the time or knowledge to assess individual companies. Now I'm in a position to start investing again, I was planning to take that same broad ETF approach.

1:06:08However, it occurred to me that with a benchmark of 9 % to 10%, I might actually be better keeping my monopoly money for now. With my current mortgage interest at 6.24 % and a reasonable chance of it increasing closer to 7 % in the near future, I'm not sure the 2 % to 3 % spread is worth the risk. If I just put my regular investments in an offset account, I will earn that 6 % to 7 % guarantee, the interest savings, tax-free. If I invest in an ETF and make the market average minus tax, I'm not much better off over the next decade. Using the offset account also allows me to redeploy those funds if the situation changes in the future.

1:06:42I know the ETF allows for the possibility of greater returns, but possibly lower returns. Who knows? What am I missing here? What are your thoughts on this approach when the spread between the mortgage and the tax-adjusted investment return is so small. Keep up the good stuff. Cheers, Tom. Oh, he's right. He did right. He's done the maths. You know, like there's, I mean, hubris would say go the investing because you can do better than that. Yeah. And I guess I would make, it's not just like, well, it's theoretically possible, but, you know, it's not, But even with ETFs, I think you could get 10%.

1:07:22And yes, there's tax on that. But if that's compounding away for many, many years, that can add up. But I'm not critical of it. The observation is a very good one. And I actually wouldn't fault anyone who decided to use the extra savings to pay down the mortgage. It's got to return a very direct financial or an indirect financial return. but it's also got other returns in terms of peace of mind and less stress and that kind of stuff. So it's hard to answer that without knowing the degree of the debt and the burden that it represents or personality-wise, how comfortable you are with all of that.

1:08:01But in terms of the way you've approached it, I think you bang on. I think you've laid out the dilemma or the two choices very, very well. It's a tough one. And I do come back often. I know I say this a lot, but it's like there is a middle path. It's like, well, I save, I don't know, whatever it is, $100 a week, I put$50 on an ETF and I'll put$50 against the mortgage. You can do it that way too. I think you're right. I think Tom is right. But I'm going to call out one thing I think, and again, we're back in the 90 % of people are above average driver situation, so Tom, bear with me here and every other listener as well.

1:08:41You guys are both 100 % right. the one thing i fear is that you're right as long as after the mortgage is paid off or paid down you put the same amount of money that you are saving now into investing in other words you make sure you're disciplined enough to take the extra mortgage payments now and turn them extra investing later and i say that and tom i know you will intend to i will intend to and will intend to i won't say the average person so and a lot of people will intend to and then the mortgage is paid off and they go oh thank god we should put the whole lot in investing now it's like we could but the kitchen needs work and and we haven't had a holiday for a while and the cars probably need to be replaced at some point and you'll always find reasons not to invest and i say always i don't mean you i don't mean everybody but there's always in temptation not to invest the one benefit i've said this before about buying a house rather than renting there was always that kind of you know do you rent and then invest the difference um rather than buying is that a better return and that they're all true and they mathematically make sense and this is i'm talking about both sides of my mouth here.

1:09:41So I'm saying renting rather than owning makes sense, but also paying down the mortgage rather than investing makes sense. Financially, absolutely. Behaviourly, you've got to make sure you're going to actually follow through and then continue to save that amount of money and invest that amount of money once the mortgage is paid off or paid down. And I think Andrew's point of why not both is a really good one. But I just think it's really important because it's so easy to not do it now, or to pay the mortgage off now, not invest now, and then find a reason not to invest later. So even if my gut fit, here's the thing, you've got to pay the mortgage off either way or you lose your house, right?

1:10:13So that's going to be non-negotiable. The negotiable is the investing money. If it was me, I don't know about my mouth because I've talked about paying off the mortgage before and kind of having less debt and all that kind of stuff. So I don't know about both sides of my mouth, but I think it's worth just keeping a bit of a behavioral reality check and just making sure that you know you're going to follow through. Otherwise, you may well find it's better long-term, even though it's financially not that different if the circumstances flow through as you expect them to. The reality may well be by doing it now, you do lock that away and that can compound away in the background over time.

1:10:51So yes, the dollar amounts, if you would do exactly, put them side by side. I can chat to you, but it'll say the numbers are the same. You go, yep, they are. If you meet the preconditions. So I think I flunked the dead horse. Just be careful that you don't, if you're going to do this, and I'm not going to tell you what you should do or shouldn't do, Tom, but if anyone's going to do this, you've got to, when you finish paying the mortgage off, then put all of that money without fail, without questioning, without whatever, into the investing so you can compound that up to a reasonable level in enough time.

1:11:17If you think you might or will or not sure if you will, maybe just take the thought of the accelerator once the mortgage is paid off and don't quite invest as much as you think you should, then you're probably going to go off investing now as well as, yes, it'll take you longer to pay the mortgage, yes, you'll pay more in interest, but when the mortgage is paid off, you'll also have a nest egg and you won't have to then make yourself or try and make yourself be disciplined when the discipline of the compulsory repayments goes away. So just some thoughts around. You're not right. Mathematically, I agree completely.

1:11:49I suspect I would probably personally, I wouldn't trust myself to go back and do it afterwards. So I probably personally do both to make sure I was building a nest egg at the same time. It's also, there's some psychological benefit of that too, right? You see the nest egg growing, which is also kind of cool, and you kind of feel better over time. Again, you don't want to be forced to liquidate, Tom, but if at some point you had the chance to liquidate in an orderly fashion, you could always move the money across if you ever needed to on the mortgage for some reason. Again, maybe it's a bad time to sell and you get caught.

1:12:16So I wouldn't max out the mortgage. I'd pay some of it down to give some buffer, but investing-wise, I'd still invest personally, just to make sure you don't accidentally not follow through on what you plan to do in 15, 20 years' time when it's finally paid off yep well the only the only i mean i don't disagree and i just my evolved evolved makes it sounds like it's it's more accurate the way my thinking has evolved whether or not it's more accurate or not because i'm very seriously at a point mate where i don't think i'll ever pay down the mortgage and i know that's a deeper conversation and it's just like it's diametrically opposed to the way i live most of my life and i what i always would give is sensible.

1:12:59But I think you're right. It's a question of how the degree of the leverage and the rest of it. But I just feel as in the system that we have and in the manner in which credit is given against things like houses and the conditions of it, it's kind of descriptionally and literally free money in a way in real terms. Yeah, that's going fast in the debt, yeah. You know, there's something that it's like I would be, there's a bit of hindsight bias with all of this, but I think my financial situation would be radically better if I wasn't so anti-debt as a younger person. It feels to say those words. It's like, what?

1:13:46It's like, yeah, I always thought you should pay down your debt and, you know, all debt should be productive and that's, yeah, I think my thinking on how our money system works has just changed. Honestly, it's not going in that direction, you think. But even without an alternate kind of option that was out there, I just think those who strive as best they can to pay down the debt as fast as they can will be a far, well, I wouldn't even say far, would be a less risky proposition but would also be one that is detrimental to your full wealth creation ability. And I think that's the reasons for that.

1:14:33Everyone always the trade-off. Yeah, they're deep reasons and they're stupid reasons. Nevertheless, here we are. So what do you do when you find yourself in a crazy system? I guess you play the game, you know? Don't hate the player, hate the game, right? I think you'd be too harsh on yourself as a younger person because I don't think you could have foreseen the last six years of fiscal and monetary policy. I think it was more – if I was more well-read on history, maybe. But even then, yeah, you couldn't have seen it. Exactly. And it came – I mean, GFC arguably started it. But, I mean, the massive money printing, the massive fiscal deficits of COVID are kind of once-in-a-century pandemic stuff.

1:15:06Even to try and time that would have been hard. I don't know. I'm just – I think you – I understand your view now. I don't – I think it would be nice to the younger Andrew because I don't – realistically, 2018, you're sitting there going, and she's taken a lot of debt. It's like, well, I don't know what Reeds Rate's going to do. I don't know what – it's like, again, look back the following six years, you go, oh, if I'd known that I could have done something different. I'm not sure you did the wrong thing at the time, I guess is all I'm saying. I'll put it this way. There is one entity out there that has more debt than any other entity and there is one special way it has of getting rid of that debt burden.

1:15:37And they will do it because every entity like that in history has gotten around that problem in the same way by just inflating the debt away. It's like, well, you buggers. Well, I guess I'll take some debt. I'll do that too. If that's how you're going to play, if you're going to inflate your debt away by allowing, if that's the best word for it, a lot more inflation on the rest of us, then I guess I want that to work. If I'm going into a lower growth, higher inflation environment, which everyone listens to this pod knows is my firm view over the next decade or two, makes a bit of sense to have some debt.

1:16:13That's the only good thing about inflation is if you've got debt. So, take some debt. Don't buy debt and, you know, get some debt and buy a Porsche or something. I was going to say, yes, it's got to be an – I appreciate it faster than the debt, but yes, yeah. That's what it's got to be. But again, there's a lot of good, reasonable options that will give you that. And you'll be better off. Can I ask you a question? I don't want to make this about that because we'll end up with a half an hour doing the conversation, which we can't, but I'm not trying to drag you down that path. I just – so directionally, I understand your point.

1:16:47If the cost of the money, though, is more than the growth in the money, can I just come backwards here or am I misunderstanding? Because I think you – Tom just talked about paying 7 % on the mortgage. At some point – I know the expense of the money will be in future, but I suspect your argument would be more clear or more certain or more likely to play out at 4 % rates than at 7%, just almost mathematically by definition. Am I understanding you correctly? Yeah, no, there is a point where the lines cross over for sure. Okay. I'm extraordinarily confident that that won't happen though. Interesting.

1:17:18Not for any sustained period. Well, just because, again, math. The math ain't going to math. They did like - But the bond yield is different from your interest rate though, that's what I'm saying. Like, you know, so bond yields might go to four and a half or five or something and if it's usually going to eight, the government may still do it, but you might still not get - like the gap between those two is kind of meaningful, I think, I'm wondering. Well, that's a deeper conversation because I would say the bond market drives interest rates more than central banks and central banks just... I think they're the margin on top though.

1:17:44So if the bond yield is five, you're going to pay eight anyway. Even if the bonds are driving, I mean more, your hurdle rate is higher than the government's hurdle rate when it comes to that inflation bit is all I'm thinking. But it almost... Sorry, it was a genuine question. I wasn't sure what the... No, it's actually the most sensible question you can ask him and it's a brilliant question. I'm just trying to think how I answer it quickly. But the reality is if the fact that I'm going to say it this way just blows my brain, that they will allow that to happen. Like you would sort of say in a sane world, it's just like you can't force people to lend you money at a particular rate.

1:18:19Like you either do you want to lend me money or do you not want to lend me money? The government's just in a very privileged position where it's like if the market doesn't want to play ball, then they will just tap their central bank on the shoulder and say, hey, about printing up some money? You know, it's an emergency. We need to do it. Greater good. And they need, they have to because they will bankrupt themselves. So it's not, there's no other reason than it's just sort of like, I mean, I keep pointing this fact out because it just seems so stark that, I mean, the second biggest expense item in the US's budget is interest.

1:18:52Yeah. You know, and they're adding a trillion dollars every five months or something like that. Now, to whatever degree that is manageable, and I would say we're well past the point of it being sustainable and manageable. There's literally, I think, one or two examples in history where debt to GDP has gotten above this point and you haven't had some degree of financial repression and whatever.

1:19:21But they're in a debt trap. And you go, well, we need to put interest rates up because of X, Y, and Z. what every talking head is saying at the moment is like, yeah, but you're going to make the problem that you're dealing with now is going to be 10 times worse. Yeah, yeah. And so it's like, well, how do I get out of it? It's like, well, I'll tell you how to get out. You default and everything falls in a heap and probably actually the better way of doing it in all fairness, but politically it'll never happen. So you pay it back. I was like, well, that'd be nice too, but let's be real. Or you inflate it away.

1:19:56You're going to inflate it away. You're going to do it. You're going to do it every single time. It's not, and it's just, it's, and you don't inflate it away by taking interest rates to such a level that you crush it. Because don't forget there's a dual mandate here. It's like we want to keep inflation under control, but we also want to not crater the economy. And you just, you can't have both. You can't have your cake and eat it too. And so I still stand by it. I've had a couple of friends with a recent interest rate where I said, you said interest rates would never go up. And I said, no, I said, they'll never materially and sustainably go up.

1:20:30And don't forget of all the jumping up and down and screaming and all of the stuff that's happened, what if we had 0.75 % of an increase from a record historical? We're not even at 1 % up and people are losing their mind. So 100%, I stand by my, like, you know, to go back to - We're at historical levels, correct. We're not going back to like 18 % interest rates. Like we can't just do the maths on that and see what that means and you realise how impossible it is. In fact, could you imagine if official interest rates went to 7 %? Yeah. Like that, again, I haven't done the math, but I'm pretty sure everything breaks at that point.

1:21:08So it's like - It would have to. It has to. It has to. But by the way, which is also why they won't can be done two ways. It can either be done with -

1:21:21You say, well, they won't go up to that rate, but they don't need to go up to that rate because it's both at the same time. They won't go up to 18 % because it'll break everything. That's why they don't need to go up to 18 % because it'll break earlier than that. So it's a function of repayment dollars rather than interest rate. And that's why affordability should always be measured, in my opinion, as repayments as a proportion of disposable income, not price to income or anything else because the moving factor here is the interest rate. So a million-dollar house at 5 % is more expensive than a$200 ,000 house at 15%.

1:21:48It might not be the truth. I'd have to work that out. But you know what I mean, it's the size of the debt and the cost of the debt. It's the cost of the debt that matters. That's why it breaks earlier, as you said. Yeah, the cost of the debt is a function of the size of the debt. Correct. So that's why the size of the debt matters, yeah. 100%. Yeah, exactly. But that's why they can't go back up. They also need to go back up, is my point, I suppose. So it's both at the same time, right? They can't go to 18, but you don't need to because you're going to break things at 8. You would have had to go to 18 to break anyway.

1:22:16So it's just – they're having a – each percentage, each quarter of a percent is far more impactful now than it was in 1991. Oh, gosh, yeah. And that's a really key – At the household level, at the government level. Right? Yes, yes. It is because the level of debt is already so high. So the amount of extra money you need to pull out of the economy, a quarter point would have pulled X dollars out of the economy 20, 30 years ago. It's going to pull five times as much as that out now. And that's the critical difference. So a 1 % interest rate increase in 1991, I call you only a quarter percent now to have the same sort of impact.

1:22:50And that's why it's so important. That's why they won't go back up because it'll break anything, as you said, but also don't need to because the RBA can have a bigger impact with a smaller rate increase. And it's funny, right, because they can't say that out loud. Right, okay. Because I need a threat to be credible. I'll put your interest – you better stop spending. I'll put interest rates up. You can't put interest rates up. Yes, I can. don't test me. It's like every parent you've ever seen in a playground telling little Johnny to stop doing like, you're not going to follow through on that. You know where you could follow through on that.

1:23:25But, but if you turn around and say, well, we prefer you if you don't, but actually we can't put it, we're not going to put interest rates up that much because we just physically can't. It's like, oh really? Like it's, it's such a, it's hilarious when you think about it. It's kind of like, it's true. You know, it's true. But you can't say that though, because you just, you, You deaden the only thing that you really have in your arsenal is the illusion of credibility, right? And the second that you - That's right. The threat needs to be credible. That's right. And as soon as you acknowledge that actually we can't follow through on some of these threats, it's like, oh, inflation is like, we will tackle that.

1:24:06Will you now? Will you now? Right? Right. Okay. We'll see. We'll see how that goes. I mean, let's see if I'm right or wrong, but I'll just say this, that I have structured things in such a way that I really hope I'm right. But I'm pretty confident. What could possibly go wrong? Everything in both directions. So fingers crossed. Well, I mean, maybe I should flesh that out a little bit. It's a directional bet. All I'm saying, you're off 0.3 % of your interest rate forecast and now you're living under a breed. No, no, no. I just, I will, I would be extraordinarily, well, I'll put it this way. I understand what it would mean for interest rates to get to a level where I'm in serious trouble with interest rates.

1:24:52Yeah. The powers that be would be seriously shooting and knowingly and deliberately shooting themselves in the foot. So it's not impossible. Yeah. I just don't, political self-interest will never allow that to happen. And history gives you a lot of conviction and confidence on that. I think your biggest risk is a genuinely gutsy central banker. Yeah. Like one who just, oh, Volker's been there before. I know you laugh, but in some range of outcomes, Michelle Bullock wakes up one day and goes, well, stuff this for a game of soldiers. I'm just going to go, I'm frigging do it, and you guys can deal with it.

1:25:26And then, I mean, look, the Treasurer still has the ability to cast it a fire if he chose to, for example. But I think that would be the one. Phil Lowe didn't play ball. How'd that work out for him? Right. Well, he didn't get renewed. But, you know, if she could do it, it's a five-year turn. How did that work out for him? You do it inside a term. Look, you could, but don't forget, even if - You would do it. If I made you central bank governor tomorrow, you'd do it. Other than disbanding the entire organization. Yeah, I would absolutely disband. But don't forget, they've got a dual mandate. I know, I agree.

1:25:59So even if Michelle was able to, and she was like, actually my number one priority is inflation. and it's like if she, God, given how much money and power she has, I would hope that she's got recognition of the fact that in doing that, if that's what you really deliberately want to do, just know that when you do that you are pushing us into a very deep, deep recession. Yeah. And maybe, and look, so maybe that happens. No, no, I'm not suggesting. I just don't. I don't think so. Your thesis breaks down if and when. Because you're worried about the politicians wouldn't let it happen, which I think you're right about.

1:26:34Yeah. But it feels like to me, and it was not a criticism or something that's going to happen. Oh, you're right. If you were playing that out, the bare case is this all happens and the central banker actually discovers a bit of guts and a bit of gumption and says, no, not on my watch. We're done here. And then at that point you would probably look at it and go, okay, I need to change what I'm doing, which is also not fatal. It's just one of those. I'm just thinking out loud and thinking that would be the point I suspect at which you would kind of go, this feels like a time to change that. See, it's funny, right?

1:27:00Because, I mean, I do with all investments, I think through the what if. and what could and the edge case and that. And it's interesting because if that was to happen and it got to such an extent where I just could not meet my monthly mortgage repayments and servicing my debt, just because of where I sit on that spectrum, it would mean that probably 60%, 70 % of households would also be in that scenario. And so it's a relative game here as well. So I was like, I'd probably be hurt, but on a relative basis, probably not. Do you know what I mean? where it's kind of like objectively my situation is worse, but everyone else's situation is equally worse or worse.

1:27:40Yes. And, you know, and that is the brutal calculus that these people are sort of facing at this point in time. And the other thing is as well is that hope springs eternal, right? So it's like even if you want to drink the Kool-Aid, as they all have it at every central bank around the world, you know, it will just be not on my watch. I mean, everyone's got a legacy and we're all just monkeys, right? You just want to make yourself look good and be liked. And it's just like even if you did recognise the impossibility of the situation, it's just like I just got to kick this can a little bit further and then it can collapse, right?

1:28:19Exactly, exactly. So she will do – anyway, I would bet very – and have very significant amounts of money on the fact that when push comes to shove, you know, there's one viewpoint that's very likely to win out. Very good. Which is always a long addendum to the point of, you know, be careful. Well, not be careful. Consider the very sane proposition of paying down debt as quickly as possible isn't as clean and as obvious as you might initially think. No, I agree. That's great. All right. On that note, that's been a good podcast. Will you come back on Friday? Yeah, man, for sure. Of course you will.

1:28:57Have a wonderful Sunday. Enjoy your week. We'll see you on Friday. Rants at the ready. Until then, Fool on. Cheers.