Australia On Target To Hit Debt Ceiling By Mid-2012

2 Nov

Click to enlarge | Source: Australian Office of Financial Management (AOFM)

Your humble blogger met Senator Joyce for the first time on 1 July this year.

On introducing myself and mentioning this blog, Barnaby’s very first words to me … were words of humility.

He immediately referred self-deprecatingly to his now-famous warning in late 2009 about the risks of rising US Government debt leading to “possible” default.

You remember. His was the warning that no one wanted to hear; that drew the wrath and mockery of Rudd, Swan, Tanner, Chris Bowen, then Treasury Secretary Ken Henry, and of course, all of our lamestream media economic “experts”. Ignorant, arrogant, foolish ridicule, that prompted the launch of this blog.

Barnaby was quick to volunteer that his warning about US debt was nothing special; rather, in his opinion it was simply obvious that the rising trajectory of US Government debt must eventually run smack into their debt ceiling.

As we all know from the early August kerfuffle over raising the US debt ceiling, a political crisis that threatened to blow up the world economy … Barnaby was right.

Since this blog began in early 2010, we have seen time and time again, that when it comes to matters financial, Barnaby is the only one on the ball.

Doubtless a big contributing factor is that he is an experienced Chartered Accountant, and not a lawyer cum union hack, or a career political hack with an Arts degree.

In May, for example, Barnaby was the first to rail against the Green-Labor minority government quietly sneaking in a budget provision to raise Australia’s debt ceiling by 25%, to a quarter of a Trillion dollars ($250 Billion). Even though no one is supposed to dare question Wayne’s authority:

As Treasurer Wayne Swan was congratulated by colleagues after Tuesday’s budget speech, Assistant Treasurer Bill Shorten introduced draft laws allowing the government to increase the amount it can borrow from $200 billion to $250 billion.

The proposed legislation would also remove a requirement that the Treasurer explain why the extra money is needed.

In recent weeks, Barnaby has upped the ante in continuing to make good on his pledge to never rest in pointing to the dangers of rising government debt.  And fair enough too, when they’re continuing to borrow on the national “credit card” at a staggering rate.

Indeed, Wayne and Co have blown out our total Gross Debt Outstanding by over $7 billion a month in September and October, to a new record $215.6 Billion.

Which begs the question, “When will we run into our new debt ceiling of $250 Billion?”

That is, the new one Wayne set only 5 months ago, in May this year.

The chart above tells the story.

Our debt trajectory suggests that our Green-Labor government will bang into our new debt ceiling around mid-2012.

Unless something goes pear-shaped first, of course.

Like, say, a big fall in our Terms of Trade? Due to a big fall in the price of our biggest export, the iron ore sold to Chinese steel mills, perhaps?

Steel China Iron Ore Fines cfr main China port USD/dry metric tonne (MBFOFO01:IND)

Oops.

Like, say, a 32 month low in the latest measure of Chinese manufacturing? (h/t ZeroHedge)

China Manufacturing PMI prints at 50.4, down from 51.2, when consensus was expecting an increase to 51.8. This is the lowest print in 32 months, and the lowest since February 2009. But wait, before concluding that this is very bad news, uh, ahem… well, sorry, we haven’t taken the CNBC spin school yet. It’s bad news and the hard landing is coming. We leave the spin to the professionals.

Click to enlarge

Oops.

And there’s a lot more “oopses” where they came from. Including internal “oopses” … like Australian house prices and sales both falling … and the Reserve Bank starting to cut interest rates again; which means trouble’s afoot, and they are hoping their action will prompt you to be a complete idiot and start borrowing and spending like a drunken sailor Green-Labor politician.

Dear reader, the signs are all there that a real SHTF moment draws near once again, a la 2008.

Only worse.

Much worse.

Can you say “stimulus”?

Wayne can.

Do you think our government will stop spending more than they bring in from taxing us when they smack into our new debt ceiling?

Not if new Treasury Secretary and former student of US Federal Reserve chairman “Helicopter” Ben Bernanke has anything to do with it.

We already know his views on endless debt.

Here’s what happened back in June, when Barnaby kicked up a stink over our government jacking up Australia’s debt ceiling on the sly:

On Wednesday in Senate Estimates, our [new Treasury Secretary] Martin Parkinson was challenged by Senator Barnaby Joyce over this utterly incompetent and reckless Labor/Green government’s decision, just before the Budget, to sneak in new legislation to raise our debt ceiling too.  By $50 Billion – a 25% increase. To a new all-time record debt level of $250 Billion.

Just like America. The only difference is the scale.

And what did Mini-me Parkinson have to say?

Nationals senator Barnaby Joyce wanted to know what would happen if the government was prevented from lifting its gross debt ceiling by a further $50 billion to $250 billion, as proposed in the budget.

“I couldn’t imagine that parliament would be so foolish,” Parkinson replied.

It would have “serious ramifications” for the operation of government.

So, dear reader, you already know what is going to happen in this country.

Green-Labor are firmly on course to bang up hard against our new debt ceiling, in 2012.

Even without another round or two of “stimulus” borrow-and-spending, to prop up the economy.

The all-knowing genius of Treasury Secretary Mini-me Parkinson will (of course) support the government in raising the debt ceiling even higher.

Our interest-on-debt bill of $1.59 million per hour will rise even higher.

And at some point … sooner rather than later, your humble blogger would suggest … the great external debt-driven forces of the USA, Europe, and/or China, will send the wave that collapses our own financial house of cards.

You can bet your falling house price on it.

“If you do not manage debt, debt manages you”
~ Barnaby Joyce, February 2010

Barnaby is right.

UPDATE: 12:41am

Ummmm, what was that I was saying? … “the signs are all there that a real SHTF moment draws near once again, a la 2008. Only worse. Much worse”

Greek Prime Minister George Papandreou plunged the euro and stock markets back into crisis on Monday [evening, northern hemisphere time] with a shock announcement that he would put a hard-fought rescue deal to a referendum…

All of Europe’s main stock markets registered sharp falls at the new risk of Greek default and contagion, with the German blue-chip DAX 30 stocks index slumping by more than five percent, French shares were down over four percent and London’s stocks fell more than three percent.

Athens witnessed a meltdown as stocks plunged 6.31 percent amid warnings that a rejection of a deal that is deeply unpopular in Greece would force it to leave the 17-nation bloc which uses the euro single currency.

“This is a referendum, in which they’re effectively voting on Greece’s euro membership,” Alexander Stubb, the Europe minister for Greece’s fellow single currency member Finland, told the commercial MTV3 network.

In a sign of the deep unease in European capitals, French President Nicolas Sarkozy and German Chancellor Angela Merkel were to hold talks by phone.

Italian Prime Minister Silvio Berlusconi, another leader under pressure as a result of the eurozone crisis, registered his sense of shock and annoyance.

“There is no doubt the Greek decision to hold a referendum on the European Union’s rescue plan is having a negative effect on the markets,” he said. “This is an unexpected decision that generates uncertainties after the recent European Council and on the eve of the important G20 meeting in Cannes.”

Italian stocks plunged 6.12 percent, led by big falls for banks…

In an online commentary, the Moneycorp currency broker said Papandreou had presented Greeks with “the ultimate Hobson’s Choice”.”

“They could either have their financial eyes ripped out by austerity measures or by the chaos that would follow the total bankruptcy of Greece and the wipe-out of its financial institutions,” it said.

Nicola Rossi, an opposition senator in Italy, warned the mounting cost of borrowing for the government in Rome had the potential to further scupper attempts to safeguard the euro.

Under last week’s deal, the eurozone plans to increase the stockpile of cash in a bailout fund to some one trillion euros but many observers suspect that it will be an insufficient firewall if a country of the size of Italy collapses.

“The Greek government’s decision has unleashed havoc on the markets. It wasn’t very well thought through,” Rossi, an economist, told SkyTG24.

“The problem is that Italy is the weak link in the euro chain so we are under particular scrutiny.”

“We all know that when our borrowing rate is close to seven percent our debt risks becoming unsustainable. The situation is extraordinarily serious.”

And from Bloomberg:

Greece’s referendum poses a threat to financial stability in the euro region and increases the risk of a “disorderly” default, Fitch Ratings said. Papandreou’s grip on power weakened before a confidence vote on Nov. 4 as six senior members of the ruling party called on the prime minister to step down, state- run Athens News Agency reported, without citing anyone.

The risk of a Lehman-style disorderly default now looms a bit larger than before, including some residual risk that Greece may leave the euro zone if it rejects the offer of orderly debt relief in exchange for harsh new spending cuts and reforms,” Holger Schmieding, chief economist at Joh. Berenberg Gossler & Co. in London, wrote in a note…

The cost of insuring against default on sovereign debt surged the most in almost four months with the Markit iTraxx SovX Western Europe Index of credit swaps linked to 15 governments jumping 29 basis points to 333 basis points. Contracts on Italy soared 46 to 498 basis points, France was up 16 at 192 and Germany climbed 10 to 94 basis points.

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16 Responses to “Australia On Target To Hit Debt Ceiling By Mid-2012”

  1. Tomorrows Serf November 2, 2011 at 8:57 am #

    This last several years has been just a terrible dream- perhaps more like a nightmare. From virtually ZERO DEBT in 2007 to $212.5 Billion!! (and trending higher and higher.)

    Can anyone say PIIGS???
    Can anyone say BANKRUPT???
    How about “loss of sovereignty?” (ask the Greeks if you’re not sure)

    With the inevitable collapse of Europe and the massive financial and social disruption it will cause internationally, coupled with a slowdown in China, which will mean the end of the gravy train for Australia, just how will we keep the lights on here??? Our “2 speed economy” seems about to experience gear failure.

    So let’s drop interest rates to encourage more borrowing for housing before the last great bubble in the Western Hemisphere bursts. Let’s bring in a Carbon Tax/Derivatives Trading Platform to give the financial world a dangerous new toy to play with. Let’s encourage GIllard and Swan to keep borrowing on our behalf to the tune $50 billion plus per year. Let’s cut off the water to the Murray Darling Basin farmers to put them out of business. Let’s shut down the live cattle trade in the North. Let’s spend(borrow) $40/$60/$80 (who knows how much??) BILLION on the NBN so we can download movies faster. Let’s build massive Federal bureaucracies to loot the productivity of what’s left of Australia. Let’s support “FREE TRADE” so we can ship more production and jobs offshore..

    Makes perfect sense! That is if your agenda is to wreck the joint.

    Or am I being simplistic???

    Hey, I’m a simple guy, but if it walks like a duck, sounds like a duck, looks like a duck, there is a very good chance that it IS a duck.

    Comments anyone?

    • The Blissful Ignoramus November 2, 2011 at 10:17 am #

      “From virtually ZERO DEBT in 2007 to $212.5 Billion!!”

      Just to really make you cranky, it’s actually $215.6 Billion as of Friday last … with another $2.4 Billion in T-bond and T-note auctions this week.

      “Or am I being simplistic???”

      No. You’ve just nailed the issues.

      • Jim November 7, 2011 at 4:15 pm #

        Actually you are being simplistic, since the majority of T-Note issuance is to cover t-note maturities in the coming months. When you factor in more than 30 billion of bond maturities occuring in the next 18 months, the chances of breaching the debt cap are low, although not zero of course.

    • bushbunny November 2, 2011 at 7:14 pm #

      Absolutely right. The EU have not resolved their debt crisis, with the Greeks, now wanting to hold a referendum in January. Spain, Italy, Portugal are in financial trouble too. UK has cut solar subsidies, wind turbines next. Well NBN should be shelved. Carbon taxing shelved to next election, and put their money into up dating the coal fired electricity plants that would be a lot cheaper in the long run.
      And the Malaysian solution? Why not send them to PNG and Nauru for example. Both countries could do with the extra income.
      Live export, well Wilkie has put a bill forward that all Indonesian slaughter houses must stun prior to killing. (I agree with that too) However, he forgets that there are Kosher and Islamic abattoirs in Australia who do not do this. Also Silex that produce optic fiber and also cold fusion have made a loss of 31 million. The Geo-thermal people have gone bust. The big American solar panel manufacturer, Solydra (not sure of the spelling) has gone bankrupt. And are being investigated by the FBI as they were given 453 million by the American government, and 1300 employees lost their jobs. The Carbon bubble is about to burst, and people will be hurt.

  2. Jazza November 2, 2011 at 2:25 pm #

    Sends shivers of fear up and down one’s spine

    Just glad I don’t have credit cards. mortgage or car loans to pay.

    Pity the youth of this nation having to pay for years for the excesses of Krudd, Swanthe Goose , giggle Gillard ,the elongated dwarf Shorten and their troupe of circus clowns

    • The Blissful Ignoramus November 2, 2011 at 2:47 pm #

      Merely having to pay off debt for generations is arguably the least of the causes for concern, Jazza. As our govt continues rapidly down the path of the rest of the West – unsustainable sovereign debt – we too face becoming a vassal state to our creditors, who can and will become the shadow government of this country. As prime example, consider the IMF taking ownership of national assets and dictating terms of governance, budget policy etc to Ireland, Greece et al in exchange for a “lifeline” of more debt. There lies our future too.

  3. JMD November 2, 2011 at 5:48 pm #

    Well, well, well…. I go away for a week & the RBA cuts the interbank rate behind my back.

    Actually it’s been bloody obvious for months what was the story. Kudos to anyone who front-ran the RBA by buying up bank bills. Ultimately the RBA dances to the tune of the financial speculators & the financial speculators demand profits in the form of rising bond prices (lower yields). There is more to come.

  4. JMD November 3, 2011 at 12:46 pm #

    See here the bankers calling for more profit – http://www.businessspectator.com.au/bs.nsf/Article/One-rate-cut-not-enough-Westpac-boss-N8W3B?OpenDocument&src=hp1

    They of course ignore the fact that rising bond prices increases the burden of their own existing debt but why worry when you don’t have to mark the value of your own debt to market? They will eventually pass it off on the taxpayer anyhow.

  5. Anthony Smith July 4, 2012 at 9:30 pm #

    The tragic thing is that the general Australian population really doesn’t understand any of this.
    They accept the handouts from the Govt as if it was a natural entitlement.
    The fact is, change has to occur.
    The change will shock many, but as usual, the politicians will still take their pensions ((indexed of course!).
    We all have to get really angry.
    Gillard, Swan, Rudd and that idiot Brown and his cohorts are ALL RESPONSIBLE….but they won’t accept any responsibility….but they’ll except all the perks once they are sacked from office…and thats just as bad !!
    Added to this the millions wasted on these “illegal” immigrants……oh, its a frightening scenario.

  6. Paul August 15, 2012 at 7:02 pm #

    Ar we following the Americans even in this?Great models for us!

  7. Gary Firman October 10, 2012 at 2:31 pm #

    I wonder if there is any significance to the fact that whilst Juliar was beratting the opposition leader in the house yesterday the Governments Debt hit $230B, maybe she should be spending less time (and money) blaming everybody else for her incompetant government and a little more time fixing the problems they have created.

    • JMD October 10, 2012 at 11:02 pm #

      $230B? According to to RBA, total commonwealth government securities on issue totals $249.121B as of last friday.

      Wasn’t there a ceiling at $250B? Maybe it is one of those skylights that open.

      • JMD October 12, 2012 at 7:00 pm #

        Make that $256.386B

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