Stutchbury Sees The Angel Too

Brandishing the headline “Chinese Can Fund Our Boom”, The Australian economics editor Michael Stutchbury sees that Chinese cyclical angel descending from heaven too… and joins in the smearing of Barnaby Joyce:

The method and madness of Barnaby Joyce won’t lie down because it strikes at the heart of Australia’s economic risks and opportunities amid the mother of all mining booms…

The opposition finance spokesman has tweaked his reckless claim that Australia could default on its sovereign debt…

His incoherence invites ridicule. “He does not have a clue what he is talking about,” Wayne Swan responded, mocking Joyce’s reference to “net debt gross, public and private”. The Nationals senator was saying “ridiculous, stupid and damaging” things about Australia’s debt position. Swan’s Treasury head Ken Henry has accused Joyce to his face of “a gross oversimplification of economic understanding”.

Doesn’t have a clue, ‘eh Wayne?  Remind us again how your Bachelor of Arts (thence career political hack) compares with Barnaby’s qualifications?

As for Ken Henry’s arrogant comments, perhaps Mr Stutchbury might care to do a little research. He might learn just how many international economists directly refute Henry’s confident visions of a multi-decade China Miracle.

Mr Stutchbury goes on to imply that Barnaby poses a threat to that Chinese angel descending, thanks to his warnings about Australia’s ever-rising levels of debt:

So Joyce now begins with private debt, particularly Australia’s gross foreign debt of $1.2 trillion, or about 100 per cent of gross domestic product.

At $638bn or 47 per cent of GDP, Australia’s net foreign debt is one of the highest in the developed world and much higher than in 1986 when Paul Keating warned that Australia could become a banana republic.

You’d think that fact might concern Mr Stutchbury. Not at all. Immediately comes the justification:

It’s partly the result of the surge in household debt during the past two decades from 50 per cent to 150 per cent of household income. Households don’t borrow offshore. Instead, they borrow from banks, which borrow offshore.

Oh? Well of course, a massive surge in household debt to 150% of household income is nothing at all to worry about, is it. We’ll not mention the fact that this is considerably worse than the USA prior to its housing bubble bursting.

But it’s also the result of the economy’s China-fuelled mining investment boom. This delivered the tax revenue surge that allowed John Howard and Peter Costello to eliminate public debt. And it encouraged households to gear up.

But Australians simply don’t save enough to finance this investment boom…

Not enough savings? Really? Big surprise.  You just told us that household debt is 150% of household income.

Foreign money is required to fund it and the accompanying current account deficit on the balance of payments…

One way to spread the financing risk of this investment boom while the budget defence is repaired is to encourage foreign investment in the form of equity rather than debt…

Perhaps Mr Stutchbury might suggest an actual plan to Wayne and Lindsay for repairing the budget defence. They are resting all their hopes on Ken Henry’s vision of that cyclical angel coming back.

Unfortunately, Joyce also is campaigning against the most prospective source of such foreign equity: direct investment by Chinese government-owned companies in Australia’s mining boom.

If Mr Stutchbury believes that we need Chinese investment money so badly, then before again perpetuating the anti-Barnaby smears, perhaps he might consider a couple of questions.

What if the China Miracle does not continue? What if the “cyclical angel” does not descend and “make everything better”? What would happen if, instead of boom, China were to crash?

One would hope that he might carefully consider the warnings just this week from former IMF chief economist Ken Rogoff, one of the economists who correctly predicted the GFC:

China’s economic growth will plunge to as low as 2 percent following the collapse of a “debt-fueled bubble” within 10 years, sparking a regional recession, according to Harvard University Professor Ken Rogoff.

“We would learn just how important China is when that happens. It would cause a recession everywhere surrounding” the country, including Japan and South Korea, and be “horrible” for Latin American commodity exporters, he said.

Oops. Australia is a huge commodity and resource exporter too. The implications of a China crash are pretty obvious.

Mr Stutchbury might also take a moment to consider identical warnings from numerous Asian economic experts:

Former Morgan Stanley chief Asia economist Andy Xie and hedge fund manager James Chanos say the country’s property market is in a bubble.“There’s a monumental property bubble and fixed-asset investment bubble that China has underway right now,” Chanos said. “And deflating that gently will be difficult at best.”

A glut of factories in China is “wreaking far-reaching damage on the global economy,” stoking trade tensions and raising the risk of bad loans, the European Union Chamber of Commerce in China said in November.

Digesting the debt from a popped property bubble may slash bank lending and drag growth lower for years in an economy that Nomura Holdings Inc., Japan’s biggest brokerage, says will provide more than a third of world growth in 2010.

The risks are so great that a decade of little or no growth, as Japan experienced in the 1990s, can’t be dismissed, said Patrick Chovanec, an associate professor in the School of Economics and Management at Beijing’s Tsinghua University.

And:

“It’s simply a matter of time before the Chinese real estate bubble bursts,” insists Yi Xianrong, longtime student of Chinese property trends at the finance department of the Chinese Academy of Social Sciences. “A bubble burst in China would not only deal a fatal blow to our own economy, but would also extinguish the world’s hope for recovery.”

And this, from his own colleague at The Australian:

China’s economy is facing a breakdown, one of the Asian giant’s most influential economists warned last night.

This would derail Australia’s dependence on China’s rapid growth to drive it clear of the global downturn.

Yu Yongding, economics professor at the Chinese Academy of Social Sciences, said China was suffering resurgent asset bubbles, overcapacity and inflation, likely to be followed swiftly by overheating, a breakdown of its rapid growth, and deflation.

Professor Yu, formerly a member of the central bank’s monetary policy committee and of the committee that drafted the current national five-year plan, said: “China’s investment-driven and export-led growth pattern is not sustainable.

Like almost everyone in Australia’s public commentariat, Mr Stutchbury cursorily dismisses Barnaby’s warnings.

Does he also pay similarly scant regard to the warnings of all these international economic luminaries… including China’s own experts?

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2 Responses to “Stutchbury Sees The Angel Too”

  1. Farmer Ted March 5, 2010 at 12:20 am #

    Doesn’t anybody remember 1980/83?

  2. Barry March 16, 2010 at 3:03 pm #

    Actually it gets worse;
    China has already started importing coal but peak coal in China is only about five years away and its consumption has
    exceeded production and it is now on the import market.
    They are increasing their imports and this is putting strains
    on the international coal market so prices will jump
    considerably if China’s demand keeps up. The prices they are
    now paying for iron ore and now coal is what has prompted
    their attempts to buy Australian mines so as to fix the price
    internally for themselves and so remove any profits from
    Australia.

    China is in an energy bind with the transport of coal as their
    railways are at maximum stretch. They just cannot move any more coal.
    To make things worse they have little high quality coal left and they have to deliver multiple times the amount to get the
    same energy.

    If the property bubble bursts, it will tip over the whole of
    their economy, just like what happened in the US.

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