The land down under! Best known for its Kangaroos, political coups, and economic commentators!
Australia is a major world economy, with highly developed
industries and close to 25 million of the wealthiest citizens in the world.
But Australia is harboring a deep, dark secret.
It is an American company…
And no, this is not a joke about Australia being America’s sidekick
for any geopolitical scuffle they get into. (That goes without saying).
Nope, The Commonwealth of Australia is literally an incorporated American company.
Unbeknownst to even the citizens of this corporation, The Commonwealth of Australia
is a Limited Liability Company, registered in the United States,
with shareholders, a board of directors, and everything else that makes up a company.
Still don’t believe it?
Here is the registration document with the American Securities and Exchange Commission.
This shows that the Commonwealth of Australia LLC was registered on the 29th of June 2009,
by Mr. David Pearl, its registered office is the Australian Embassy in Washington DC,
with a mailing address here in Sydney.
So what is going on here?
Has corporate globalization really gone that far?
Could someone buy a majority share in Australia?
And why would Australia do this?
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The incorporation statement of the commonwealth of Australia goes into incredible detail.
Here is the business in question.
Here is a table of contents with things like income statements, balance sheets,
workforce details, and even corporate initiatives.
So now that we understand Australia is a company in every detail, what does this actually mean?
How to invest?
Could someone technically acquire the Commonwealth of Australia LLC
and become the first President and Chairman of the land down under?
Hypothetically, yes!
In reality, however, this company is owned entirely by the Treasury Department of Australia,
and the shares are not listed on any public stock exchange and none have ever been sold.
Making matters ever-more confusing,
the Treasury Department of Australia is an institution of the Commonwealth of Australia.
And while it may sound cool to own a controlling share of Australia,
it would actually be a pretty terrible investment.
To understand why, you need to understand its constitution.
No, not the American Constitution,
or the Australian Constitution, but rather its Corporate Constitution.
Very simply, a corporate constitution is very similar to a nation’s constitution;
It has a list of rules and provisions which specify the
powers and rights of all of the stakeholders in the enterprise.
Every registered company has one, whether it be your local corner store, or a public company.
Corporate constitutions also list the rules that the company must
adhere to, outside of the standard state-mandated legal requirements.
These rules typically pertain to how many shares are created,
when directorship meetings are conducted, and what the companies’ primary business will be.
It’s fairly mundane stuff, to say the least. Which is probably to be expected, since expensive
corporate lawyers are usually the ones capable of deciphering these complex documents anyway.
But the corporate constitution of the Commonwealth of Australia LLC has a
peculiar clause, which specifically forbids the
company from raising revenue from or distributing revenue to shareholders.
In plain English, that means you are not allowed to buy shares in Australia LLC,
and even if you are gifted shares, you can never sell them or receive dividends from them.
As far as investing goes, these restrictions are certainly less than ideal.
But we still haven’t answered the biggest question of all.
Why was Australia turned into a company?
Why incorporate?
In response to the 2008 global financial crisis,
the Australian Government rolled out the Deposit Guarantee Scheme.
As the name suggests, the legislation guaranteed the safety of deposits in Australian Authorised
Deposit-Taking Institutions, or put simply: banks. For our viewers in the states, you know
this in your country as the FDIC and there are similar policies in many other countries as well.
The global financial crisis saw the demise of many banks around
the world that most people would have previously considered indestructible.
If people panic and start trying to get cash out of these banks to pre-empt their downfall it only
accelerates the problem. This is called a run on the bank, the economic equivalent of doomsday.
This law was the Australian Government saying to its people that “She’ll be right mate”,
even if your bank does fail we will make sure you get your money back
Fortunately, due in part to this law, Australia remained rock-solid throughout the 2008 Global
Financial Crisis, meaning that the government never actually needed to pay up on this promise.
But in the event that it would need to, Australia wanted to make sure that it could!
This is actually harder than you might imagine. During an economic downturn,
liquidity dries up, and cash becomes extremely hard to get a hold of.
The government of Australia could have just
made it’s reserve bank print more money. But this causes problems.
The first problem being that unchecked printing causes inflation,
devaluing the currency in foreign exchange markets.
Runaway inflation is never good but in australia
This was a major problem. Because at this time,
Australia was greatly benefiting from selling its natural resources to China.
Having a strong dollar meant that they made more money on this trade. Losing
foreign exchange value through quantitative easing would have done more harm than good.
The second problem is that when the Australian Government “makes” more money,
it does so by giving treasury bills to the Reserve Bank of Austral,
in return, the Reserve Bank gives them cash.
These government bonds are then sold to the
general public in an attempt to maintain the cash supply.
This causes issues because if extremely safe government bonds
go up for sale in the midst of a global economic crisis,
they are going to be very popular and people are desperately going to try and buy them.
Where are they going to get the money to buy these bonds?
Well from their bank accounts of course.
This starves Australian institutional banks of cash, which is the same thing
as the bank run the government was trying to avoid in the first place.
This effect is called “crowding out”.
No matter how clever a government scheme sounds,
it will achieve nothing by borrowing from the same pool of funds it is planning to give back to.
So the government needed a solution.
What they needed was to be able to borrow money directly from the United States.
The U.S at this time was not doing well,
but it was still home to a much larger capital market than Australia.
Australia could not go to American Institutions directly,
especially not in the middle of the Global Financial Crisis.
Institutions wouldn’t invest in the country because there was nothing to
stop them from changing their own laws to say “we don’t need to pay this back now”
Investors in the United States want to know that what they are investing
in has rules. Like the rules that are listed in a corporate constitution.
So, Australia solved these issues by incorporating itself.
It formed a registered company, in the name of the Commonwealth of Australia,
with the financial backing of the Treasury Department of Australia.
The Corporate Registration Statement effectively lists all
of the reasons why people should invest in Australia through this corporation.
It details the Countries credit rating, workforce,
tax revenue streams, and makes sure potential investors know that this company is Australia.
In turn, American institutions could lend money to Australia LLC
with the same confidence they would have lending money to IBM, Walmart or Apple.
This corporation was never used because the Commonwealth of Australia did not need to raise
this money. To date, no authorized deposit guarantee payout has ever been made because
no bank has gone under in Australia since this measure was put in place.
If it had been used, the types of institutions lending this money would be pension funds,
insurance companies, and sovereign wealth funds. The types of institutions
that like having a registered company, regulated by the SEC to do business with.
Final Thoughts
Australia LLC is a company that has never been put to work, which you can’t invest in,
nor receive any dividends from, or any return whatsoever for that matter.
This is not some useless piece of pub trivia though.
It’s actually a great case study of the ins and outs of a lot of interesting policies.
It’s a fascinating example of something rather unusual being used for practical applications.
Oftentimes we explore macroeconomics as a vague discipline that happens
in a theoretical world that no mere mortal will ever get to be a part of.
Quirky insights like these are a great way to actually see the mechanics of
policies you would otherwise only read about in textbooks and newspapers.
If nothing else, maybe it is foreshadowing a future
where we all live in a world run by corporations.
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