Archive | March, 2010

Victory Declared At Half-Time

4 Mar

From Business Spectator:

‘Declaring victory at half-time’ is a syndrome which afflicts the entire debate over our current economic situation: optimists are of the opinion that the crisis is all over now, while pessimists think it’s only just begun. On this front, as always, I regard history as the best indicator of who may be right.

On this front, I can’t commend highly enough the site New from 1930, which from January 1 2009 began publishing summaries of the Wall Street Journal from January 1 1930. The last few entries include these pearls of wisdom from February 1931:

An Old-Timer believes the market rally “will do more to restore prosperity than anything else.” Total security values have increased over $20B since start of year; barring another dive in the market, this assures a recovery since the 10M-15M US owners of stock feel richer. Bulls say the ease with which considerable profit-taking has been absorbed recently is “the surest indication of a strong healthy market.” Market has rallied very substantially; “if it runs true to form, it will have one of those ‘healthy reactions’ that will, according to the bulls, strengthen its ‘technical position.’” “The buying power of the people and the corporations still is large … In other words, the country never was in a better position to stage a comeback after a depression … (Feb. 25)

One banker cites plenty of evidence that the backlog of consuming power is largest its been in years: corp. inventories are down 20 per cent from a year ago, and even more from 2 years ago; corps. are holding more cash; production of many products is below requirements; products have been wearing out for 18 months of deferred buying; security values up $20B since Jan. 1; easy credit; record-breaking savings deposits. Last year there were few rallies on which to sell; this year there have been few dips on which to buy. Public interest has grown this year, but is still small compared to 1928 and 1929; “a market with a growing public interest is a dangerous market to sell short.” (Feb. 26)

Yeah, right:  in both 1930 and 1931, the belief was widespread – at least in the financial community – that the Depression was over, and recovery was just around the corner. As Alan Kohler noted, at least early on during the Great Depression, people didn’t realise that they were in it. They too, were declaring victory at what turned out to be not even half-time.

A fascinating and highly detailed analysis follows, including a number of interesting charts that show just why Australia ‘appears’ to have done so well – up to half– time.  And why the Debt-Deflation which causes depressions has not been solved, but instead, simply made even worse by government intervention.

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Aussie Banks Not So Safe

4 Mar

From Money Morning:

We dropped the line yesterday about the banks having $13 trillion of off-balance sheet business. We’ve mentioned this number several times over the last year, but if you’re a new reader to Money Morning, here’s a link to the Reserve Bank of Australia spreadsheet that contains the awful truth.

To be precise, it currently runs to $13,058,814,195,842.70.

Just to put that in perspective, the banks have a total of $2.59 trillion of on-balance sheet assets. We’re sure the banks and the RBA will claim that all the off-balance sheet business is completely offset, so that losses are contained.

Personally, we don’t think you should believe a word of it. The number one risk with the off-balance sheet business is counterparty risk. As long as each counterparty can keep the ponzi scheme going then sure, everything will be tickety-boo.

But as we all know, that can’t happen. We’ve seen counterparties collapse before (Lehman, Bear Sterns, etc…) and they’ll collapse or need bailing out again.

There’s only so long that banks can keep the ponzi going. They’ve scraped through by the skin of their teeth thanks to an unprecedented bail-out by the taxpayer.

You see, $13 trillion is $13 trillion. It’s the big unspoken risk that the banks have created for themselves.

You can see the growth in off balance sheet business for yourself here:

$13 Trillion - AU Banks' Off Balance Sheet "assets"

$13 Trillion Off Balance Sheet Business = RISK

So let me make one thing clear. When you hear all the talk about banks deleveraging and de-risking, don’t believe a word of it. As you can see from the chart above, they’re in as deep as they’ve ever been.

The issue of counterparty risk is precisely why the Greek debt crisis is a threat to Australia – despite what Ken Henry and Glenn Stevens would have us believe.

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Trust Rudd on Health?

3 Mar

Media Release – Senator Barnaby Joyce, 3 March 2010:

Barnaby Joyce, whilst campaigning with Andrew Lamming, Member for Bowman, said that he was astounded to hear a headline speech on the reconfiguration of health policy by the Prime Minister. It is obviously one of the major issues that Mr Rudd wishes to take to an election. On Sunday he was apologising that he didn’t understand health and that it was more complicated than he expected.

On Sunday he wanted “whacking”.  On the same issue, today, Wednesday he wants backing and has left all of us scratching as to which Kevin Rudd to believe today.  No doubt it is this ad- hoc and erratic approach to policy that led to the mad hatter insulation policy and one would have to presume that the same management criterion that was taken to the ceiling insulation program will be taken to health.

One has to ask the question how he managed to get a huge turnaround in his grasp of the subject matter in three days.

More Information- Jenny Swan 0746 251500

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IOU Australia: Debt Clock

3 Mar

How much is YOUR share of Australia’s national debt?

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Greece Now, UK Next

3 Mar

From Bloomberg:

While the eyes of the world focus on Greece’s debt crisis, investors in Edinburgh are busy preparing for the U.K. to be next.

Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt. Sterling slid to a 10- month low versus the U.S. currency today.

“Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The U.K. is in a similar predicament. It could be hit very hard.”

The Rudd Labor government is currently borrowing more than a billion dollars a week.

And we can’t pay it back.

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Labor: Hide The Increase

3 Mar

Australia’s much-heralded “low” debt-to-GDP ratio statistic appears to be a fraud. Deliberately “adjusted” by the Rudd Government, in order to make their massive debt-funded spending binge appear less than it is.

In the 2009-10 Mid-Year Economic and Fiscal Outlook (MYEFO), the government refers to a change in the methodology used to calculate GDP  for the previous 2008-09 year, and for the historical data series.  This change results in a “substantial increase” in the published level of GDP.

The flow-on result from this change is obvious. The government’s spending, as a percentage of that artificially increased GDP figure, will appear lower than if the change had not been made.

And because all of its spending is being done using borrowed money, the debt-to-GDP figure will also appear lower too. Perfect cover for a government that needs to defend itself from Opposition attacks, and smooth over public fears, about rising government debt.

But there’s more.

In the 2009-10 MYEFO, the Rudd Government changed the methodology used to “adjust” government spending for inflation. The result is that the government’s “real” spending growth % figure is artificially reduced… by a whopping 30.1% for 2009-10.

How can we know this?

In the fine print – isn’t it always? – on the Rudd Government’s Budget 2009-10 MYEFO website, we read:

…

Continue reading ‘Labor: Hide The Increase’

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Labor Borrowing A Billion A Week

2 Mar

Abbott tells it how it is:

QUESTION:

Interest rates are expected to go up again, um… Who would you blame?

TONY ABBOTT:

Well, if you’ve got the government out there borrowing more than a billion dollars a week that puts a lot of pressure on interest rates. Now, plainly interest rates will always be higher than they otherwise would be when you’ve got the government out there in the market borrowing as dramatically as this government is.

Keep informed of Australia’s sovereign debt level… unlike Finance Minister Lindsay Tanner, who doesn’t bother.

See for yourself just how much this wastrel Government is borrowing every week, by clicking here. To see how much they intend to borrow in the next few days, click here.

Already, you are better informed about Australia’s debt than the Finance Minister.

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Stevens: ‘Risk of Serious Contraction’ Passed

2 Mar

The man who did not see trouble all around in 2008, continually raising interest rates right into the teeth of the GFC, has raised rates again today:

RBA governor Glenn Stevens said the “risk of serious economic contraction” had passed, and an economy that was growing faster than expected would warrant higher interest rates for the rest of the year.

Stevens clearly believes that the Australian economy is magically immune from the sovereign debt crises in the Eurozone, UK, USA, and Japan, and the massive speculative real estate bubble in China.

However, the Rudd Labor government no longer has a $20+ Billion budget buffer inherited from the previous government. Instead, they have put Australia into unprecedented debt that we can never pay back.

Stevens, allegedly a devout Baptist, had best start praying fervently that all the ongoing financial crises in the rest of the world somehow resolve themselves.  Else he will again be shown as a fool… at a terrible price to the Australian public.

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Bernanke: US Debt Crisis

2 Mar

From The Washington Times:

With uncharacteristic bluntness, Federal Reserve Chairman Ben S. Bernanke warned Congress on Wednesday that the United States could soon face a debt crisis like the one in Greece, and declared that the central bank will not help legislators by printing money to pay for the ballooning federal debt.

Recent events in Europe, where Greece and other nations with large, unsustainable deficits like the United States are having increasing trouble selling their debt to investors, show that the U.S. is vulnerable to a sudden reversal of fortunes that would force taxpayers to pay higher interest rates on the debt, Mr. Bernanke said.

Australian banks source almost all their funding from the international capital markets. It is inevitable that a debt crisis in Europe, or America, will drive up funding costs for Australian banks too, who will (of course) put the squeeze on Australian borrowers.

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Stevens’ Nonchalance ‘Stunning’

2 Mar

This excellent article by David Uren at The Australian suggests that he may be the only mainstream journalist in Australia who is awake to international developments, and not in awe of every utterance from RBA Governor Glenn Stevens:

If the Reserve Bank raises rates again tomorrow, it will risk repeating the mistake it made in early 2008, when it failed to see the global financial crisis coming.

Now, as then, it is beguiled by soaring commodity prices and believes Australia can shrug off what it sees as essentially local woes in the industrialised world.

In 2008, it was the subprime crisis, and today it is the sovereign debt crisis, focused for the moment in Europe.

Glenn Stevens’s nonchalance about the Greek debt crisis at the recent parliamentary hearings was stunning.

It had been no more than a marginal influence on the RBA’s decision to hold rates steady in February, he said.

“There is a bit of uncertainty about how all of that is going to be resolved. I do not think, myself, at this point, that those issues will directly present a serious problem for Australia. After all, it is a sovereign debt issue for Europe.”

Europe still represents about a quarter of world GDP and its unity and sound finances matter a lot for global financial stability.

US academics Kenneth Rogoff (a former IMF chief economist) and Carmen Reinhart have been among the most influential analysts of the developments of the past two years because of their analysis of crashes in 66 countries stretching back two centuries. “Serial default remains the norm,” they say.

There is often a lag of some years, leading policymakers to believe “this time it is different”.

Rogoff, who did predict the GFC, is currently warning that China is in a bubble, one that he believes will burst within ten years. If so, then so much for the belief that Australia is on the verge of a new China-fuelled mining boom.

Glenn Stevens appears to be in a bubble of his own, oblivious to the ever-growing warnings from leading international economists about the Eurozone crisis, and/or a new Asia Crisis triggered by the inevitable bust of China’s real estate bubble.

A man who apparently does not learn from his epic failures of the past, should no longer be permitted to retain such enormous power over the economy, and the lives of 22 million Australian citizens.

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