Archive | April, 2010

ANZ: Greece Could Affect Oz Banking

30 Apr

Yesterday I posted about how vulnerable Australia’s banking system is to the spreading debt contagion in the Eurozone. It seems that ANZ chief Mike Smith shares the concern for the same reason – our banking system’s heavy reliance on getting funding from the international markets, which are again beginning to freeze up due to concerns about counterparty risk.

From Business Spectator:

Australia and New Zealand Banking Group Ltd (ANZ) chief executive Mike Smith has warned that sovereign debt problems in Europe have the ability to affect Australian markets.

Speaking to reporters after the bank’s first-half results were released, Mr Smith said the “contagion issue is now very real”, in reference to Europe’s sovereign debt problems.

Mr Smith said the crisis may affect Australia in terms of its dependence on access to the international credit market, and said the concern was very relevant to businesses across the country.

“I think it will probably have an effect on equity and credit markets, but credit markets I think is more relevant to the Australian situation,” he said.

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Roubini: Rising Sovereign Debt Leads to Defaults

30 Apr

Nouriel Roubini, one of just a dozen economists who publicly forecast the GFC, and who recently declared that ‘risky rich’ countries are in greatest danger of default, comments again on the rapidly spreading sovereign debt crisis (from Bloomberg):

Nouriel Roubini, the New York University professor who forecast the U.S. recession more than a year before it began, said sovereign debt from the U.S. to Japan and Greece will lead to higher inflation or government defaults.

“The bond vigilantes are walking out on Greece, Spain, Portugal, the U.K. and Iceland,” Roubini, 52, said yesterday during a panel discussion on financial markets at the Milken Institute Global Conference in Beverly Hills, California. “Unfortunately in the U.S., the bond-market vigilantes are not walking out.”

“The thing I worry about is the buildup of sovereign debt,” said Roubini, a former adviser to the U.S. Treasury and IMF consultant, who in August 2006 predicted a “painful” U.S. recession that came to fruition in December 2007. If the problem isn’t addressed, he said, nations will either fail to meet obligations or see faster inflation as officials “monetize” their debts, or print money to tackle the shortfalls.

Roubini, who teaches at NYU’s Stern School of Business, told attendees at the Beverly Hilton hotel that “Greece is just the tip of the iceberg, or the canary in the coal mine for a much broader range of fiscal problems.”

“Eventually, the fiscal problems of the U.S. will also come to the fore,” Roubini said during the panel discussion. “The risk of something serious happening in the U.S. in the next two or three years is going to be significant” because there’s “no willingness in Washington to do anything” unless forced by the bond markets.

Barnaby Joyce began trying to draw attention to the dangers of growing sovereign debt – warning of a coming day of reckoning in the USA and Europe and here in Australia – as far back as October 2009. As I have shown in countless posts on this blog, many leading economists, financiers, and informed commentators in other countries have been raising almost exactly the same concerns as Barnaby.

Few in Australia chose to listen.

Instead, Barnaby was ridiculed by the government and the media for every minor gaffe or slip of the tongue, his every statement misquoted or twisted out of context. With the ultimate result that he lost his position as opposition Finance spokesman thanks to the relentless attacks on his economic credibility. Despite his being better qualified to comment on finance than the entire Rudd Government economic team.

Only weeks later, those who do choose to look and listen can see ever more clearly… Barnaby Is Right.

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Barnaby Ridicules Rudd’s New ETS

29 Apr

Media Release – Senator Barnaby Joyce, 29 April 2010:

ETS – the Extra Tax on Smoking – was it?

Well, this should allay our fears about the Prime Minister’s sincerity. He’s decided after 10 months of having the plans on hold to put a new tax on, wait for it – smoking. What a stroke of genius.  I suppose it’s a carbon abatement scheme of sorts, but I don’t think this is the one he took to the election. It is, though, a good reflection of the proportional relevance of his policy delivery. He talked about an emissions trading scheme to reduce billions of tonnes of carbon, but what he gave us was the removal of a few durries, with another moralistic sermon as a bandaid on his street cred which is more than a little bruised of late.

While in November last year, Mr Rudd said that any delay on climate change action would be “political cowardice … an absolute failure of leadership … and … an absolute failure of logic”, he has now managed to gather the courage to introduce what he called today “an unpopular” move to increase the cost of cigarettes by 25%.

This may be a good move in the interest of health, but it’s not going to cure Mr Rudd’s lack of credibility. It will be called for what it is – ‘a government desperate to do anything to avoid attention because the reality is that they’ve done nothing’ story.

Mr Rudd says this is not a diversion from the ETS, so why wasn’t it announced as part of his health reform package or the budget?  He doesn’t have the conviction to get the “Great Big Tax on Everything” up through a double dissolution, but he can put a tax on the individual emissions from the smokers of Australia. Maybe a tax on cigarettes is a more authentic exposé of the depths of his political complexity and belief.

More Information- Jenny Swan 0746 251500

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OECD: Greek Crisis ‘Like Ebola’

29 Apr

From Bloomberg:

European policy makers may need to stump up as much as 600 billion euros ($794 billion) in aid or buy government bonds if they are to stamp out the region’s spreading fiscal crisis, said economists at JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc.

With Greece’s budget turmoil infecting markets from Rome to Madrid, economists are urging German Chancellor Angela Merkel, European Central Bank President Jean-Claude Trichet and other officials to come up with unprecedented measures. Other steps could see governments guaranteeing bonds and the ECB abandoning collateral rules or reviving unlimited lending to banks, the economists said.

As OECD head Angel Gurria likens the crisis to the Ebola virus, Europe may need to come up with a plan equivalent to the $700 billion Troubled Asset Relief Program deployed by the U.S. after the collapse of Lehman Brothers Holdings Inc. “It is perhaps time to think of policy options of the last resort in the current sovereign crisis,” said David Mackie, chief European economist at JPMorgan in London.

“This is like Ebola,” Organization for Economic Cooperation and Development Secretary General Gurria told Bloomberg Television yesterday. “It’s threatening the stability of the financial system.” The World Health Organization calls Ebola “one of the most virulent viral diseases known to humankind.”

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‘Shock And Awe’ Needed To Save Eurozone

29 Apr

Following close on the heels of the extraordinary revelation by Ben Bernanke that the US Federal Reserve has printed $1.3 Trillion out of thin air to buy toxic Mortgage Backed Securities and prop up the US economy, now the European Central Bank may have to invoke emergency powers in order to engage in massive money printing to prop up the collapsing European bond markets.

From the UK’s Telegraph:

The European Central Bank may soon have to invoke emergency powers to prevent the disintegration of southern European bond markets, with ominous signs of investor flight from Spain and Italy.

“We have gone past the point of no return,” said Jacques Cailloux, chief Europe economist at the Royal Bank of Scotland.“There is a complete loss of confidence. The bond markets are in disintegration and it is getting worse every day.

“The ECB has been side-lined in the Greek crisis so far but do you allow a bond crash in your region if you are the lender-of-last resort? They may have to act as contagion spreads to larger countries such as Italy. We started to see the first glimpse of that today.”

Mr Cailloux said the ECB should resort to its “nuclear option” of intervening directly in the markets to purchase government bonds.

This is prohibited in normal times under the EU Treaties but the bank can buy a wide range of assets under its “structural operations” mandate in times of systemic crisis, theoretically in unlimited quantities.

The issue of the ECB buying bonds is a political minefield. Any such action would inevitably be viewed in Germany as a form of printing money to bail out Club Med debtors, and the start of a slippery slope towards in an “inflation union”.

But the ECB may no longer have any choice. There is a growing view that nothing short of a monetary blitz — or “shock and awe” on the bonds markets — can halt the spiral under way.

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Greek Default Could Have Lehman-Like Impact

29 Apr

The rapidly spreading Greek debt contagion poses a very real and present danger to the Australian banking sector, and thus to our economy. Why? Because our banking system is desperately overreliant on sourcing its funding from the global capital markets.

From The Big Chair:

The chief executive of National Australia Bank, Cameron Clyne, referred last week to Australian banks’ dependence on wholesale funding markets as their Achilles heel.

The Treasury secretary, Ken Henry, has also talked about Australian banks not being “well insulated” from the fallout of events like the Lehman Bros collapse, and the International Monetary Fund has said Australian banks are exposed to rollover risks on their short-term wholesale funding.

On average, Australian banks are sourcing just under a third of their funding from overseas wholesale markets and still too much of their existing borrowings are short term.

Australian banks are among the more vulnerable plays in the world to another Lehman-style event because of their dependence on overseas wholesale markets, which have proven already they can freeze up for extended periods.

It is these very same wholesale markets that are now trembling with trepidation at the consequences of the Greek – and now Eurozone – debt crisis.

From the UK’s Independent:

Why does Greece’s debt crisis matter to the rest of us? The answer, in a word: contagion.

If Greece defaults or crashes out of the euro it will send an almighty shockwave through the global capital markets. First of all, French and German banks, which are estimated to hold up to 70 per cent of Greece’s debt, will register writedowns. If their exposure is great enough, they could even go bust.

The fear that commercial banks were on the verge of failure was responsible for the last credit crunch as financial firms grew wary of lending money to each other at anything other than penal interest rates. If that fear of failure returns, we might witness another savage contraction in lending. And another credit crunch would open the way for the long-feared “double dip” recession.

Most Australians remain oblivious to this threat of another, much larger wave of the GFC. Doubtless this is largely because our “experts” continue to tell us that the GFC is “over”, while preaching the dawning of a “period of unprecedented prosperity”, and downplaying any concerns for this country. Just as they did in 2008 when they all completely failed to foresee the onrushing first wave of the GFC.

From The Australian (Feb 2010):

Investor confidence was roiled in recent weeks on fears of sovereign default in Europe and some signs that the broader global economic recovery was slowing as policy stimulus measures wound down.

Dr Debelle (Assistant Governor of the RBA) said risks that still existed did not relate to Australia or Asia, however, where bank balance sheets remained in sound condition – instead they referred to banks in Europe and the US, where poor macroeconomic conditions were expected to weigh on loan books.

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Cost of Living Pressures Increase

28 Apr

Media Release – Senator Barnaby Joyce, 28 April 2010:

Senator Barnaby Joyce noted today that the release of the latest consumer price index figures show that electricity prices have increased by 26%, in real terms, since the election of the Rudd Government. These results are partly due to their Minister for Infrastructure’s complete failure to build on the Howard Government’s legacy of successful National Competition Policy, as shown by reports in the Australian Financial Review today.

Senator Joyce said that “The Labor party are incapable of decisive outcomes because of their insatiable desire to put polls ahead of statesmanship. Even their own core issues, such as the ETS, are jettisoned as the need requires.

“This government has shown that they cannot deliver on bread and butter issues such as infrastructure. The implausible and pathetic episodes of spending on the home insulation program and the building the education revolution are part and parcel of Australia’s debt currently reaching almost $137 billion. But real investment to bring real outcomes in power, water, roads and rail has been left wanting.

“Minister Albanese’s claim yesterday that the infrastructure reform agenda was “as full as it ever was” simply reflects the Rudd Government’s inaction in this important area. The COAG Reform Council has reported that this government is failing to progress reform in 4 out of 8 competition areas, including energy and transport.”

Reports today in the Australian Financial Review today suggest the government is trying to reinvigorate National Competition Policy.

In response Senator Joyce commented, “What has taken them almost three years? This government has been busy announcing flashy projects and big spending but ignored the hard work necessary to get more out of our existing infrastructure stock. We have waited 12 months for the National Freight Strategy and where is the greater transparency and cost-benefit analysis that this government promised? Greater efficiency, not bigger spending, is what will help reduce electricity, gas and water prices.”

Electricity prices have increased 11 per cent a year on average, in real terms, since the election of the Rudd Government. In comparison, during the Howard Government, electricity prices increased by an average of 0.5 per cent year, in real terms.

More Information- Jenny Swan 0746 251500

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Rudd Destroys His Minister’s Beliefs

28 Apr

* This April 28, 2010 post has since been revised, updated, and expanded with new developments in the ongoing Turnbull saga, in the following articles –

“Compassion For Malcolm – He Just Wants His Balls Back“
“Malcolm’s Motive: His ETS Lie Unravelled“
“Doing God’s Work – Turnbull An Angel Of Death Derivatives“
““Turnbull Once Said To Me, ‘You Capitalise On Chaos'””
“Spread The Word – ‘Untouchable’ Turnbull Is A Goldman-plated Turd”
“Malcolm Turnbull – The Goldman-churian Candidate?”

********************

The following media release by Barnaby just goes to show that he isn’t always right.  There is plenty of evidence to strongly suggest the true reason why Malcolm Turnbull really “believed” in an emissions trading scheme.

Simply take the time to review the history of the HIH collapse.  Consider the highly questionable role that Goldman Sachs Australia – of whom Malcolm Turnbull was chairman at the time – had to play in this, the biggest corporate failure in Australian history.

Consider the subsequent $500 million lawsuit brought against the key players in the HIH collapse… including named defendant Malcolm Turnbull.

Consider that only a few years after the collapse of HIH, even as those legal proceedings were being prepared, Malcolm Turnbull’s (again, questionable) takeover from Peter King as the Liberal candidate for the seat of Wentworth gave him a ready made entrance into Parliament in 2004.  Consider his rapid elevation to the key role of … Environment Minister. Followed by the first suggestion that the Howard Government should adopt an ETS.

Consider the revelation only a short time later that then Opposition Leader Malcolm Turnbull was to be spared from appearing in court as a defendant in that $500 million lawsuit.  Why?

Because his former employer Goldman Sachs had made a “confidential” settlement on his behalf.

Finally, consider which massive international banking power has been behind all the great bubbles in modern history – and is again behind the global drive for a new derivatives-based trading bubble, the likes of which the world has never seen.

It hardly takes a rocket scientist to put two + two together.

Malcolm Turnbull, the former Goldman Sachs chairman, named co-defendant, and beneficiary of a “confidential” settlement by his former employer, “believed” so strongly in Australia having an emissions trading scheme for a very good reason indeed.

But I personally harbour the gravest of doubts that “saving the planet” had anything whatsoever to do with it…

Media Release – Senator Barnaby Joyce, 28 April 2010:

“My heart actually felt for Minister Wong being dragged through the public teeth pulling exercise on radio this morning explaining that the Labor Party no longer has a carbon reduction scheme of any sort,” said Senator Barnaby Joyce. “In fact, it is now apparent that the only scheme likely to get up at the next election is the Coalitions as the Labor Party does not have a CPRS policy. Mr Rudd has yet again destroyed another one of his colleagues by revealing his lack of a political soul and his mercenary ambivalence that puts polls over statesmanship.”

“How can he possibly hold any credibility when he publicly denies the fundamental tenant of his political faith so illustriously espoused at the previous election? Mr Rudd has jettisoned the ETS as one would put aside a paper plate at a picnic.”

“One can now see that at least Malcolm Turnbull, although he had a view I fervently disagreed with on the ETS, was willing to put his job on the line because he believed it was right*. Likewise, Brendan Nelson. I don’t believe Tony Abbott is going to change his view to be in favour of an ETS because the polls say so, or Ron Boswell for that matter.”

“Mr Rudd is a philosophical soldier of fortune who chameleon like uses faux earnestness as a key tool of deception. He has made Peter Garrett completely recant all his former beliefs, he has handed Combet his ceiling insulation problems in a modern version of the ‘loaded dog’, and now he is piece by piece dissembling the belief structure of Penny Wong. Why? Because the poll monster told him to do so. Mr Rudd is a political bric-a-brac shop of kitsch philosophies – overpriced, under planned and dispensed at will.”

More Information- Jenny Swan 0746 251500

UPDATE:

Post reorganised to lead with Turnbull/Goldman connection, followed by Barnaby’s media release.

UPDATE 2:

Interesting. Less than a month after announcing his intention to retire from politics, Turnbull changes his mind.

Or should that be, has it changed for him.

(There are numerous anecdotal reports that Turnbull’s “overseas” trip was for a meeting with Goldman Sachs in NY)

UPDATE 3 – 19 May 2011:

h/t Twitterer wakeup2thelies –

@BarnabyisRight Thats a fantastic write up Head of CSIRO also Fmr director of Aus arm of of Rothschild 2001-03 resume http://bit.ly/mqpJx9

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Labor Can’t Balance Fiddled Books

28 Apr

It seems Rudd Labor’s massive, panicked, and bungled response to the first wave of the GFC – roof insulation, the horrendously wasteful school buildings rort – is now making it difficult for them to keep yet another promise, to keep spending growth below 2% of GDP.

From The Australian:

The government is facing a battle to keep costs under its self-imposed 2 per cent growth cap, with blowouts in some programs and higher interest payments adding to the deficit.

Spending in the federal budget, to be released in two weeks, could be at least $10 billion higher in 2010-11 than was forecast when Treasury updated the government’s accounts last November.

Government officials confirm that the budget will forecast economic growth in excess of 3 per cent, which will trigger the rules devised by Treasury for returning the budget to surplus.

These rules dictate that once growth returns to normal, the government will keep spending growth below 2 per cent after allowing for inflation. They also require it to cover the cost of new spending with savings elsewhere in the budget and to bank any increase in tax revenue.

When the mid-year budget update was released six months ago, it looked as though the spending growth target would be easy to reach in 2010-11 because spending on the stimulus program was expected to fall by about $9bn in that year.

In one of the most popular articles I’ve written – “Labor Fakes GDP By 4.5%” – I showed from the government’s own budget documents how Rudd Labor have “revised” the historical data to artificially increase Australia’s GDP figures. Why is that important?

Because it has allowed the government to hoodwink the public and the lazy “we-check-nothing” media that they can keep spending growth below 2% of GDP.  That seems like an easy promise to make, when you’ve simply faked the GDP numbers upwards.

I also showed in “Labor: Hide The Increase” that, according to the government’s own “adjustments”, if they were required to abide by the previous traditional deflator method for calculating the effect of inflation on government spending, they would fail to meet their own 2% spending cap.

Now, we see from today’s article in The Australian, that even with all their massive fiddling of the nation’s accounts and historical records, the government is still struggling to balance their books.

Perhaps they might ask for the assistance of a qualified, experienced, and honest Accountant?

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Greece Downgraded To Junk Status

28 Apr

Readers will be aware that I’ve been highlighting news about the Greek debt situation for some months. As a member of the European Monetary Union, and the Eurozone country with the gravest debt situation, it was always likely to be the first domino to fall.  Now it has.

From AAP:

Greece’s debt has been downgraded to junk status by Standard & Poor’s amid mounting fears that the debt crisis in Europe is spiralling out of control.

In a statement on Tuesday, the agency says that it is lowering its rating on Greece’s debt to BB+ from BBB- – that means that the country’s debt does not carry the investment grade tag.

The agency is also warning debtholders that they only have an average chance of between 30 to 50 per cent of getting their money back in the event of a debt restructuring or default.

European stock markets and the euro sank on Tuesday amid growing fears that the Greek debt crisis will spread to other weak eurozone countries, with Portugal now in the firing line.

“It can really be summed up in one word – contagion,” said CMC Markets analyst Michael Hewson.

The markets fell after Standard & Poor’s, a leading international ratings agency, downgraded Greek sovereign debt to junk status and cut Portugal’s long-term credit score by two notches.

The London stock market dived 2.61 per cent, the Frankfurt DAX sank 2.73 per cent and the CAC 40 in Paris plunged by 3.82 per cent. The Lisbon stock market sank by 5.36 per cent and Athens plunged six per cent.

The euro, which has been rocked for months over the debt drama in Greece, plunged again against the US and Japanese currencies, falling to $1.3250 from $1.3378 a day earlier and to Y123.46 yen from Y125.72 on Monday.

….

“Greece’s fiscal problems, and the market’s lack of confidence in dealing with them, are spilling over to other countries seen as having a kindred fiscal spirit,” said Patrick O’Hare at Briefing.com.

Greece has asked the European Union and International Monetary Fund to activate a three-year rescue package worth up to E45 billion ($A64.98 billion) in the first year.

However, the bailout is shrouded in uncertainty, with Germany insisting that Athens must first demonstrate how it plans to get its public finances in order before it gets the money.

“It is still the uncertainty surrounding this Greece bailout,” added Spreadex trader David Rees.

To compound matters, the EU/IMF rescue package may not be enough to resolve the wider problem of debt, according to VTB Capital economist Neil MacKinnon.

“The markets are worried that any fresh EU/IMF package to cover Greece’s funding needs in the short term are not enough to resolve the problem of worsening debt sustainability,” MacKinnon told AFP.

“Double digit interest rates and triple-digit debt levels are a recipe for debt restructuring and eventual default.”

The Greek debt crisis also unnerved Wall Street, with the Dow Jones Industrial Average sliding 1.24 per cent, Nasdaq shedding 1.44 per cent and the Standard & Poor’s 500 index declining 1.57 per cent.

The first domino has fallen. Who will be next? And just how far will the contagion spread?

Barnaby Joyce began speaking out about the risks to our economy from excessive debt both here and in other countries as early as October last year. For this, he was ridiculed and smeared by our know-nothing media and “expert” economic commentariat, and by the pompous “authorities” in government, the Treasury, and the RBA.

All of these utterly failed the Australian public, by their complete failure to foresee the on-rushing first wave of the GFC in 2008.

Now they are failing us all over again, by their naïve and arrogant dismissal of the potential global impacts of the rapidly spreading Eurozone debt crisis.  They seem to believe that because our island “escaped” the first wave, that somehow means we will miss the next (bigger) one as well.

Barnaby Is Right.

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