Tag Archives: BIS

BoE Says G20 Nations To Enact Bank Deposits Theft Within 12 Months

1 Nov
"The UK at the heart of a renewed globalisation" - Bank of England, 24 October 2013, speech by Governor Mark Carney

“The UK at the heart of a renewed globalisation” – Bank of England, 24 October 2013, speech by Governor Mark Carney

In a speech given in London on 24th October, former Goldman Sachs alumnus, now Governor of the Bank of England and chairman of the internationalist Financial Stability Board, Mark Carney, announced the target date for completion of the new global bank “bail-in” regime (‘The UK at the heart of a renewed globalisation,’ page 5, pdf here):

Systemic resilience depends on being able to resolve failing banks in a way that does not threaten the entire system…

To avoid these risks, we need to make the resolution of global banks a real option…

At the St Petersburg summit in September, G20 leaders mandated the FSB to develop these proposals. The Bank of England is now working intensively with other authorities and the financial industry. Our aim is to complete the job by the next G20 Summit in Brisbane.

The G20 summit in Brisbane is on 15-16 November, 2014.

The terms “resolution”, “resolve”, and “resolving” will be quite familiar to regular readers.

Here at barnabyisright.com, for many months now we have (exclusively?) analysed, and publicised, the secretive international banker plan to “resolve” (ie, “bail-in”, a la Cyprus) insolvent banks across the globe — including Australia. Unsurprisingly, no one in the mainstream media has yet touched the subject.

For those interested to learn more:

G20 Governments ALL Agreed To Cyprus-Style Theft Of Bank Deposits … In 2010

Australia Plans Cyprus-Style “Bail-In” Of Banks In 2013-14 Budget

Australian Banks “Welcome” Cyprus-Style Bail-In Plan

IMF Tells Australian Lawmakers To “Prevent Premature Disclosure Of Sensitive Information” On Bank Bail-Ins

Australian Banks Demand Protection From Derivatives Losses Under Bail-In Plan

Crisis Management: APRA To Be Given Power To “Direct” Your Super

New Zealand Banks “Pre-positioning For Cyprus-Style Bail-In

Canada Plans Cyprus-Style “Bail-In” Using Depositors Money

Timeline For “Bail-In” Of G20 Banking System

IMF Calls For 10% “Tax” On All EU Households With “Positive Wealth”


My fail. Comprehension fail. I read it wrong.

It appears that the “job” freshly mandated by the G20, the one Carney aims to see completed by the G20 Summit in November 2014, is not the enacting of legislation enabling bank bail-ins. Rather, it is for the FSB “to assess and develop proposals by end-2014 on the adequacy of global systemically important institutions’ loss absorbing capacity when they fail”:

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Nonetheless, the FSB’s Narrative Progress Report on Financial Reforms to the St Petersburg G20 Summit makes clear (page 4-5) that “legislative reforms to implement the Key Attributes of Effective Resolution Regimes [TBI: which includes the plan for depositor bail-ins] are necessary… further actions are needed to give authorities additional resolution powers and … We therefore urge that all G20 countries change legislation as needed to meet the Key Attributes by end-2015” …

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And the St Petersburg G20 Summit Leaders Declaration (page 17) makes clear that our political leaders continue to write completely blank cheques to the private banking industry — using bank depositors’ accounts — by happily going along with every single thing they are told to do by the ex-Goldman Sachs alumni-chaired FSB:

“We renew our commitment to make any necessary reforms to implement the FSB’s Key Attributes of Effective Resolution Regimes for all parts of the financial sector that could cause systemic problems.”

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We will be watching the new laws submitted to Parliament by the Abbott government very closely in coming months. Especially given the banksters’ man, Joe Hockey, is Treasurer, and couldn’t wait to get over to Wall Street to receive his instructions immediately after the election.

Australia Plans Cyprus-Style “Bail-In” Of Banks In 2013-14 Budget

10 Jul
page 134, Portfolio Budget Statements, Australian Prudential Regulation Authority, Australian Government Budget 2013-14. CLICK TO ENLARGE

page 134, Portfolio Budget Statements, Australian Prudential Regulation Authority, Australian Government Budget 2013-14.

I found it.

As predicted. Apologies it took so long.

Unsurprisingly, the evidence was fairly well buried. Naturally, the government does not want you to know what they are doing.

Just like the Canadian government did in March, and just as Europe, the USA and the UK have now done, the Australian government too is now beginning to make good on its 2010 G20 commitment to implement the Goldman Sachs-chaired, internationalist Financial Stability Board’s new regime for bailing out the banks using depositors’ money.

On page 134 of the Australian Government Budget 2013-14 Portfolio Budget Statements, under the section for the Australian Prudential Regulation Authority, we find the first of APRA’s main strategic objectives for 2013-14.  It can be effectively summarised as “business as usual”.

Their second strategic objective for 2013-14, is to:

  • consolidate the prudential framework by enhancing prudential standards where appropriate, in line with the global reform initiatives endorsed by the G20 and overseen by the Financial Stability Board; [see image at top of this post]

Those “global reform initiatives endorsed by the G20” include the FSB plan to “bail-in” insolvent banks:

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FSB: ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’, Annex III (click to enlarge)

In the waffle that follows, we find further that:

APRA will focus on implementing the new global bank liquidity framework in Australia…

page 134, Portfolio Budget Statements, APRA, Australian Government Budget 2013-14

page 134, Portfolio Budget Statements, Australian Prudential Regulation Authority, Australian Government Budget 2013-14.

This is likely referring in particular to the Basel III International Framework For Liquidity Risk Measurement, Standards, and Monitoring.

When published in combination with the previously mentioned strategic objective to “consolidate the prudential framework… in line with the global reform initiatives endorsed by the G20 and overseen by the Financial Stability Board”, the implication is crystal clear.

“Global bank liquidity framework” is really just technocrat-ese for “global bankster plan to prop up insolvent banks using other people’s money, and so instantly impoverish everyone who still has any savings left”.

For further proof that what this all means is the Australian government planning to steal your money to “bail-in” so-called “systemically-important financial institutions” (SIFI’s) — under the orders of an unelected international body (of bankers and bureaucrats) you’ve never heard of; a body funded by the Bank for International Settlements (BIS), and chaired consecutively by Goldman Sachs alumni — then please study the detailed primary source evidence in this blog’s original breaking story published on April 1st –

G20 Governments All Agreed to Cyprus-Style Theft Of Bank Deposits … In 2010

That’s something else to thank our recently-deposed PM Julia Gillard for doing, without our knowledge or permission.


EU Confirms Plan For Cyprus-Style Theft of Bank Deposits

6 Jul

As warned here repeatedly…

G20 Governments All Agreed To Cyprus-Style Theft Of Bank Deposits… In 2010

Federal Reserve Governor Confirms – Bank Depositors Will Be Cyprused

Growing Political Deception On Bank Deposits Theft

The Bankers’ Net Is Closing

Federal Reserve Says Bank Bail-Ins Coming To The USA

… the internationalist banksters’ plan to set up a global regime for “resolution” of failing banks, wherein governments will give themselves free reign to “bail-in” the banks using depositors’ savings, is now slowly but surely being enacted by governments worldwide.

From The Telegraph (UK):

EU makes bank creditors bear losses as Cyprus bail-in becomes blue-print for rescues

New European Union “bail-in” rules to impose the losses of failed banks on shareholders, bondholders and some large depositors were agreed early this morning by Europe’s finance ministers.

…Jeroen Dijsselbloem, the chairman of the Eurogroup of finance ministers, hailed the agreement as a major step towards a “banking union” and away from state funded aid to recapitalise or bailout troubled banks across Europe.

…Greg Clark, the financial secretary to the Treasury, declared that Britain was happy with the new rules after securing concessions allowing governments flexibility on how to tailor bank “resolution” to national circumstances and existing British arrangements on banking levies.

…Under the deal, after 2018 bank shareholders will be first in line for assuming the losses of a failed bank before bondholders and certain large depositors. Insured deposits under £85,000 (€100,000) are exempt and, with specific exemptions, uninsured deposits of individuals and small companies are given preferred status in the bail-in pecking order for taking losses.

It is most important to recall what we have shown previously.

Do not be fooled into believing that, because Australia’s government has “guaranteed” (ie, insured) bank deposits up to $250,000, that this means your savings are safe, and that a failing Aussie bank will not be “bailed-in” using your money.

The government’s “guarantee” is limited, to just $20 billion per failed bank.

That’s less than one-tenth of the total amount of customer deposits — digital bookkeeping entries — actually “held” by Australian banks.

(see The Bank Deposits Guarantee Is No Guarantee At All )

To the best of my knowledge, Australia’s politicians have not yet begun to legislate the new, FSB-mandated and G20-agreed bank “bail-in” regime here.

But when they do, your savings will be exposed to confiscation.

Just as intended:

Earlier on Monday, Bank of England Deputy Governor Paul Tucker said the EU law on bank recovery and resolution would be a milestone towards a global system.

G20 Governments All Agreed To Cyprus-Style Theft Of Bank Deposits … In 2010

1 Apr
FSB - G-SIFI, Nov 4, 2011 (click to enlarge)

FSB – G-SIFI, Nov 4, 2011 (click to enlarge)

November 11-12, 2010.

Armistice Day.

That is when all the major governments of the G20 first agreed to implement the new, Cyprus-style “bail-in” regime, at the direction of the internationalist Financial Stability Board under its new, GFC-enabled “broadened mandate”

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The pretext?

Financial stability, of course.

“Addressing the ‘too-big-to-fail’ problem”.

With a “new international standard”.

Specifically, “to enable authorities to resolve failing financial firms in an orderly manner without exposing the taxpayer to the risk of loss.”

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One cannot help but laugh at the Orwellian doublespeak slogans used by the architects of this new regime.

To address the problem of “systemically important” banks, “without exposing the taxpayer to the risk of loss,” our puppet politicians have agreed to confiscate … the savings of taxpayers.

Yes, today is All Fools’ Day. And no, you can’t make this $h!t up.

You may be thinking that this excerpt from an FSB press release does not prove that the G20 have specifically agreed to confiscation of bank deposits. And you would be correct.

As with all such schemes, it is not intended that the public will easily discover what has been planned. You have to wade carefully through all the verbose (and deliberately obtuse) technocrat-ese, and cross-reference the supporting documents (and their annexes), in order to discover just what our G20 attendee politicians – geniuses like “World’s Greatest Treasurer” Wayne Swan – have actually signed up to.

And to find the smoking gun.

One with the word B A I L – I N stamped clearly on its barrel.


First, in the FSB press release of 4 Nov 2011 we are told that the G20 allegedly “asked the FSB to develop a policy framework to address the systemic and moral hazard risks associated with systemically important financial institutions (SIFIs).”

Next, in Seoul 2010, “G20 leaders endorsed this framework and the timelines and processes for its implementation.”

That framework is set out in the FSB’s “Key Attributes of Effective Resolution Regimes for Financial Institutions” (pdf).

In the preamble of that document, we learn that one of the objectives is to make it possible for “unsecured and uninsured creditors to absorb losses.”  Meaning, if your savings are not covered by some form of government guarantee or federal insurance (for all that is worth) – or if, as in Australia, the government bank deposits guarantee is limited to an amount significantly less than (ie, 1/10th) the total of actual bank deposits held by the public – then your bank account can be made to “absorb losses”. And as we will see shortly, this can be done entirely without your consent –

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In the sub-points of the preamble, we see that G20 governments are expected to “have in place a recovery and resolution plan (“RRP”) … containing all elements set out in Annex III.”

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Each jurisdiction is required to set up a “Resolution authority”, which is to be “responsible for exercising the resolution powers over firms…”

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The Resolution authority’s powers are most interesting. For example, we can all applaud the idea that such an authority could (not that they actually would) “claw-back” bankers’ bonuses –

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What is of serious concern though, is its power to “transfer or sell assets and liabilities, legal rights and obligations, including deposit liabilities and ownership in shares, to a solvent third party,”without consent

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This is confirmed in Key Attribute 3.3, where it is clearly stated that any transfer of a bank’s assets or liabilities (ie, deposits) by the authority “should not require the consent of any interested party or creditor to be valid”, and, that any such action will not be deemed a “default” of the bank’s legal obligations –

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Now if you are still sceptical that all this means the G20 have specifically agreed to a new regime that might include provisions for a Cyprus-style “bail-in” using depositors’ savings, then perhaps it is because you – like me – would be looking for this exact phrase in order to be fully convinced.

Yes, it is there. 

Lucky number (ix) in the “powers” (page 7-8) of the Resolution authority that each of the G20 governments agreed to establish, back in 2010 –

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Note that not only can the Resolution authority use a “bail-in” to support “continuity of essential functions” of a failing bank; it can also do so in order to finance the setting up of a new third party or “bridge” institution, into which the failed (“non-viable”) bank’s assets or liabilities (ie, your savings) can be transferred. Not so you can get your money back, but for the purpose of “capitalising” the new institution.

At that other elite lucky number (xi), we see another power; to shut banks, suspend payments to customers (except for payments to “central counterparties”, ie, to central banks, quelle surprise), and impose a “stay” on actions by creditors (eg, deposit holders) to “collect money”

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You may have noticed that the “bail-in” power at (ix) referenced Key Attribute 3.5. There, we see that the power to carry out a bail-in “should” (how comforting) be performed “in a manner that respects the hierarchy of claims in liquidation.” This no doubt will reassure the more gullible reader that there is nothing nefarious in this plan; that it is clearly intended that the traditional hierarchy of claims in a bank insolvency would be respected

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So, what exactly is the “hierarchy of claims” under this new FSB-dictated regime? Again we have to refer to another section (Key Attribute 5.1) to find the answer.  Which does indeed appear to support the traditional hierarchy of claims. Except for this stunning caveat –

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It is worth repeating –

“Resolution powers should be exercised in a way that respects the hierarchy of claims while providing flexibility to depart from the general principle of equal (pari passu) treatment of creditors of the same class…”

Moral relativism at its finest.

This is what has happened in Cyprus. While the final details are still evolving as to exactly how much Cypriot depositors holding more, or less, than €100k will have stolen from them, what is clear is that this FSB template for bail-ins in G20 nations or “jurisdictions” (EU), is the one being followed.

What is also clear, especially in light of recent revelations that Canada has expressly identified “bail-in” procedures in their 2013 Budget, is that all Western governments have, unbeknown to their citizens and without their consent, agreed to the imposition of the same new regime for managing insolvent banks.

A regime devised, and dictated by, an unelected central body.

Feel free to check these documents for yourself, here (pdf) and here (pdf).

Are you wondering who and what is the Financial Stability Board?

According to their website:

The FSB has been established to coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. It brings together national authorities responsible for financial stability in significant international financial centres, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.

A list of institutions represented on the FSB can be found here .

The FSB is chaired by Mark Carney, Governor of the Bank of Canada. Its Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Got that?

A kind of “super regulator”. Chaired currently by a Goldman Sachs man. With membership comprising the central bankers, treasury department heads, and prudential regulators of 24 nations, along with the IMF, World Bank, and a cavalcade of others.

Including – and “hosted by” – the central bank of central banks.

The Bank for International Settlements (BIS).

According to its Articles of Association, the FSB is also funded by the BIS –

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According to its updated Charter (pdf), the FSB received its original mandate from the central bankers and Finance Ministers of the G7 nations in 1999.

It then received a “broadened mandate” from the “Heads of State and Government of the Group of Twenty” at a meeting in London on April 2, 2009 –

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At the same meeting, another now-infamous Goldman Sachs alumnus and current President of the European Central Bank, Mario Draghi, was appointed Chairman of the FSB

FSB - History (click to enlarge)

FSB – History (click to enlarge)

So… the hapless G20 heads of government, panicking in the midst of the GFC, gave the fonts of central banking wisdom at the FSB a “broadened mandate”, and “asked” them “to develop a policy framework to address the systemic and and moral hazard risks associated with systemically important financial institutions”, did they?

And under the consecutive chairmanships of Goldman Sachs men, these unelected bankers and bureaucrats – not one of whom warned of the approaching GFC – devised this “bail-in” policy for the whole of the G20, to solve the problem of Too-Big-To-Fail banks?

As the Machiavellian-minded so often say:

“Never let a good crisis go to waste”

See also:

Imagine A World With No Banks

The People’s NWO: Every Man His Own Central Banker

World Banks’ $707.5 Trillion Derivatives Time Bomb

12 Dec

No, dear reader. That headline is not hyperbole.

It’s based on official Bank Of International Settlements data.

For what that’s worth.

Money Trends Research has the story (emphasis in original):

$707,568,901,000,000: How (And Why) Banks Increased Total Outstanding Derivatives By A Record $107 Trillion In 6 Months

While everyone was focused on the impending European collapse, the latest soon to be refuted rumors of a quick fix from the Welt am Sonntag notwithstanding, the Bank of International Settlements reported a number that quietly slipped through the cracks of the broader media. Which is paradoxical because it is the biggest ever reported in the financial world: the number in question is $707,568,901,000,000 and represents the latest total amount of all notional Over The Counter (read unregulated) outstanding derivatives reported by the world’s financial institutions to the BIS for its semi-annual OTC derivatives report titled “OTC derivatives market activity in the first half of 2011.” Indicatively, global GDP is about $63 trillion if one can trust any numbers released by modern governments. Said otherwise, for the six month period ended June 30, 2011, the total number of outstanding derivatives surged past the previous all time high of $673 trillion from June 2008, and is now firmly in 7-handle territory: the synthetic credit bubble has now been blown to a new all time high. Another way of looking at the data is that one of the key contributors to global growth and prosperity in the past 10 years was an increase in total derivatives from just under $100 trillion to $708 trillion in exactly one decade. And soon we have to pay the mean reversion price.

What is probably just as disturbing is that in the first 6 months of 2011, the total outstanding notional of all derivatives rose from $601 trillion at December 31, 2010 to $708 trillion at June 30, 2011. A $107 trillion increase in notional in half a year. Needless to say this is the biggest increase in history…

Which brings us to the chart showing total outstanding notional derivatives by 6 month period below. The shaded area is what that the BIS, the bank regulators, and the OCC urgently hope that the general public promptly forgets about and brushes under the carpet.

Try not to laugh. Or cry. Or gloss over, because when it comes to visualizing $708 trillion most really are incapable of doing so.

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(click here for the full article)

What is the Aussie bank(ster)ing system’s share of that total?

According to the RBA, at June 30 2011 our banks held … wait for it … $16.97 Trillion in “Consolidated Off-Balance Sheet Business”.

An all-time record total. And a record increase of $2.14 Trillion in just 6 months.

Including almost $9 Trillion in OTC derivatives bets on Interest rates. And $2.2 Trillion in OTC bets on Foreign Exchange rates.

Can you say “galactic-scale casino”?

Seems our little Milky Way galaxy just isn’t big enough for our bank(st)er ‘masters of the universe’.

Because the dream of global carbon dioxide derivatives trading has always promised an intergalactic expansion of Big Bang proportions.

As your humble blogger has argued for so long, our Green-Labor government is playing their part in the banksters’ dream.  Despite being presented as a “tax” for the first three years, the truth is that derivatives trading is the real goal of a scheme purportedly designed, and certainly fronted, by Trilateralist “economist” Ross Garnaut. A new form of wholly unregulated derivatives trading that will begin from Day 1 … before the so-called “fixed price” period ends, and the “ETS” begins.

Here’s a Bloomberg news article I missed back in November, reporting on an ASX announcement that adds further proof to that already presented in previous posts.

That the Clean Energy Future scheme, is the bankers’ carbon derivatives scam from Day 1 (emphasis added):

ASX Group, operator of Australia’s main stock exchange, plans to offer secondary and futures markets for carbon allowances before the country’s emission trading system begins in 2015, the exchange said.

Key to the success of the ETS will be the introduction of second and futures markets for carbon permits and any fungible carbon-related products,” the Sydney-based company said today in a statement. “The markets will generate the short and long- term price signals and risk mitigation required to underpin investment certainty.”


For any readers wondering whether the ASX’s reference to “secondary and futures” markets does mean “derivatives”, take a look at the European Energy Exchange’s website, under “Market Data” – “Emissions Rights”:

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And consider the words of our own bankers:

Australian banks are eyeing opportunities to cash in on the proposed carbon tax by developing new financial products and services that capitalise on a market seen to be worth billions of dollars annually, according to a report by the Australian Financial Review…

ANZ’s head of energy trading said the value of the derivatives carbon market would dwarf the $10 billion initially raised by the government, according to the AFR.

For more, see my earlier article “Ticking Time Bomb Hidden In The Carbon Tax”.

Barnaby: It’s Time To Get Real

7 Sep

Senator Barnaby Joyce – speech to the Sydney Institute, 5 September 2011.

Long. And worth every minute of your time.

Behold, dear reader!

Behold and understand, just why Barnaby Joyce may very well be the only politician in our entire Parliament who is worth feeding.

I’ve taken the liberty of highlighing a number of points that I believe show just how insightful and ‘on the money’ Barnaby is:

It’s time to get real

Australia is currently living in some form of fantasia, a Wizard of Oz like existence where everybody wears their Green glasses but lately the startling realisation of the truth has brought a clearer view of our present reality.

Almost 60 years ago to the day, an independent Member of Parliament rose to deliver a second reading speech on the first budget of Arthur Fadden’s minority government. It did not take long for Arthur Coles to make an impact when he said:

I have decided to vote against the Government on the amendment moved by the Leader of the Opposition. This country must have stability of government.

Coles explained the reasons for his momentous decision:

The reason for that lack of confidence is, that this Government has proved that it has not the numbers necessary to enable it to exercise that strength of control …

And he went on to say that:

The electors of my division will deal with me as they think fit. I take that risk, as will many other honourable members, should there be an election. … It might not be a bad idea to go to the country and allow the people of Australia to give expression to their opinion by returning a government which would be workable. That would be far better than that we should continue as we are at present, with a Gilbertian assembly which might not be workable if we were to run into a period of serious national emergency.

While there was a war in Europe, the bombing of Pearl Harbour was still two months away when Arthur Coles said this.

Australia does not face World War II at the moment but the sentiments expressed by Arthur Coles during Australia’s last experience with minority government would be instantly recognisable to many Australians today.

Once again we have a government that lacks confidence, that is unworkable and fails to command a majority on the floor of the House of Representatives. As I said the other day, this is not a government; it is a perverse form of Romper Room.

This government lacks authority because it has trashed the principle of respecting the 13 million votes in the electorate to chase six disparate votes in the Parliament.

The Gillard government’s principle policy initiatives, the carbon tax, the Malaysian solution and the live cattle solution, are not ones that it took to the last election but ones that have been forced on it due to the pressure of minority government. The authority of the majority determined by the minority leads to the complete and utter confusion we see on our television every night.

To say the world economy remains fragile is an understatement. Germany is checking if its constitution allows it to bail out others this week, Greece and Italy are racing to be the first domino to fall, jobs data in the US is at a standstill and our market as we speak is absorbing that news.

After being elected to the Senate as an accountant, I was continually harassed by my colleagues around me in Question Time for advice on where to invest money. In 2007, whilst on a holiday in Noosa, I went to a bookshop and bought three copies of The Keynes Mutiny and I handed them to my friends and told them to be very careful with their investment strategies because the world was becoming overleveraged.

This was a view also being discussed by Eric Janstz in The Next Bubble, Paul Woolley in a paper on ‘Financial Market Dysfunctionality’ and Dr William White from the Bank of International Settlements.

So I would love to say that I was some kind of financial Cassandra but I was simply an observer of those with more financial acumen than myself, and with more financial acumen than some others domestically.

The Keynes Mutiny described how Keynes made millions on commodity and equity trading until the ‘mob’ turned against him and in the words of the author “American prosperity proved to be top-heavy and teetering, perched precariously on the sandy foundations of instalment credit and margin loans.”

Nothing much has changed in our world today. Private debt has become public debt and our government remains oblivious to the global challenges. Labor has become so focused on “catastrophic climate change”, that they cannot manage, but has barely discovered the much more real and present prospect of “catastrophic global economic upheaval”, which they could prepare for.

We need a government that has authority to make the tough decisions to protect Australia from these challenges.

The two independents, Oakeshott and Windsor, I believe have shown a lack of judgment thus far by reason of where they have placed the nation. The rather sordid statements of Mr Windsor of late, in commenting on private discussions, also bring into question his character. I do not know what was said, but what I do know is that it was said in private.

I believe Oakeshott and Windsor are doing the last dance before the curtains.

Now back to Arthur Coles. The two independents in 1941 who voted against a government that wasn’t working went on to retain their seats.

Tonight I would like to talk to you about three things, debt, how to make money and the National party’s vision for Australia.

Most of you have probably heard me say why the current debt is a bad thing for Australia. I will play devil’s advocate with my own arguments though. The question always is the source and application of funds.

When Joh Bjelke-Petersen became Premier of Queensland in 1968 he did borrow money and he did accrue debt. But this money was invested in dams to promote agricultural wealth and, industrial and residential development.

He built and electrified railway lines to new coalfields in central Queensland. He built new airports at Cairns, Townsville and the Gold Coast to open these centres up for tourism.

He established James Cook University and Griffith University to decentralise and expand tertiary education. And he expanded and upgraded the beef development roads to develop the vast grazing lands of central Queensland.

These investments were worthwhile things. They, along with the other decisions of the Joh Government, such as the removal of probate, helped propel Queensland from a backwater to a powerhouse.

Joh may have used debt to begin with but by the time he left office the Treasury was overflowing with funds. The application of funds was proved prudent.

We have another Queensland government now, a government that has also taken on debt. It is heading towards $85 billion in debt and has managed to lose Queensland’s AAA credit rating during a time in which the state is receiving record prices for its major export, coal. This Queensland government has fundamentally failed to invest in the sort of infrastructure which generates wealth.

Ships at Queensland’s ports have gone from waiting 14 days to 28 days. Trucks instead of rolling stock transport coal, destroying the fragile roads that are hard enough to maintain on the shifting black soils of the Darling Downs. Tourism venues are being shut down or falling into disrepair and becoming outdated. A classic example is the fading Japanese translations at Queensland airports. I am always surprised when I get off at Brisbane airport that there has not been more attention paid to the Middle Kingdom in the last 20 years of signage.

The sort of things that Joh would have fixed in 48 hours this government does not even consider.

Once the economic powerhouse of the nation, Queensland now has the highest unemployment rate in the country.

But this the same state, with the same resources, only with better prices and the same people that Joh had. It is the management that is the crucially flawed issue and this is the management that is not only managing the State of Queensland but now the nation.

Just the other week, our Federal Government’s gross debt passed $200 billion. Labor has borrowed in excess of $140 billion over the 1,381 days they have been in office. In other words, on average, this Government has borrowed over $100 million a day. In the last three weeks we have extended the debt by $2.5 billion, $3.2 billion and another $3.2 billion.

The legal luminaries, who told us that the Malaysian solution would work, are in the room next to the economic luminaries who tell us that the debt is not a problem.

However, according to Dr Ken Rogoff, Professor of Economics at Harvard University, only Iceland and Ireland have increased debt at a faster rate than Australia since 2007.

Surely we must have been investing in some nation-building infrastructure to justify the trajectory of our debt. But I cannot think of one major infrastructure program that comes close to explaining this government’s record on debt. There is no new Snowy Mountains scheme, there is no new Indian-Pacific railway, there is no inland rail, there are no new Northern dams, there is no major public infrastructure in the Kimberley and there are no new trans-Dividing Range motorways. Whatever you think of the NBN, it only explains a small fraction of the government’s borrowing to date.

There is a golden rule that my family has and that most accountants have. Those who invest in productive capital make money and those who invest in chattels don’t.

A flat screen TV is not a better investment than BHP shares and an HSV Clubsport is not as good an investment as a pen of pregnancy-tested, in-calf Santa Gertrudis cows.

$900 cheques to buy flatscreen TVs did not reboot the Australian economy. A ceiling insulation program, which eventually set fire to 194 homes with four fatalities, did not improve the Australian economy and $16.2 billion on school halls has not assisted one iota the general academic extension of the student body.

The fact is that if we were going to spend money then surely we should have spent it on real, productive capital. But we didn’t. If you say you couldn’t get the money out quick enough then may I remind you that we are still building the school halls.

The debate on Keynesian stimulus in other countries is basically settled. The debate here seems to be occurring on a different planet.

Commentators in Australia see a strong economy associated with large government spending and conclude one caused the other. So why didn’t it work in other countries?

The United States put together a stimulus package of 2 per cent of GDP and it failed. Unemployment was 7.2 per cent before the stimulus package and is 9.1 per cent today. Maybe like Australia they found that it is not much use if you don’t produce what people want to buy with your stimulus. Maybe that is why they are taking approach 2, that is devalue the dollar, so that in the future they do produce it.

At the time, Germany was criticised by other European and American countries for not embarking on a large enough stimulus package. Yet its economy grew faster than Australia in 2010. Indeed, the strength of the German economy is about the only thing that is protecting Europe from wider economic calamity.

If Keynesian economics had to pass the rigours of a randomised drug trial then the debate would be over. Keynesian stimulus in this instance was no more effective than a placebo.

Australian economist Tony Makin has shown convincingly that Australia was saved by a boost in its net exports not domestic or public investment. As Tony Makin concluded about the critical March 2009 quarter:

… the net contributions of private and public consumption totalling 0.4 per cent was insufficient to offset the negative contributions from private and public investment and was minor in relation to the contribution from net exports of 2.1 per cent.

By definition an increase in our exports or reduction in our imports cannot be due to the spending of the Australian government.

Australia avoided recession because of the export of red rocks (called iron ore) and black rocks (called coal) in record volumes at record prices, record shipments of wheat, a 425 basis point drop in interest rates and a comparatively low dollar.

Unless Mr Swan can explain how a $900 cheque shipped one tonne of iron ore or planted an acre of wheat his argument does not stand that he had much to do with South East Asia not going into recession.

A Treasury paper last week concluded that the increase in household savings has helped to reduce interest rates and lower exchange rates from what they otherwise would be. If lower private consumption can reduce interest rates and the exchange rate then lower public consumption would surely do the same. If Labor had kept government’s share of GDP at the level it was when it came to office, then we would have spent $126 billion less over the last four years, equivalent to over 8 per cent of GDP.

Wayne Swan likes to regularly point to Australia’s $400 billion investment pipeline but he doesn’t control that. That is a promise of someone else’s benevolence. What he does control is the public sector debt and it is going through the roof.

If investment in mining is one of the reasons that interest rates and the exchange rate are increasing, then the government’s borrowing must have the same affect.

As the shopper said to Julia Gillard, “people are not stupid”. In Labor’s four budgets government spending has equalled $1.36 trillion. Compare that to the $988 billion spent in the last four budgets during the supposedly profligate period of the last government. This money has to be repaid and you are going to repay it.

The Australian people as a group are better at managing the affairs of the nation than our Treasurer is. They are increasing their savings. They are doing what the government should be doing, the Australian people are de-leveraging.

The Australian Government is increasing debt when debt is precisely the core problem.

The Global Financial Crisis has largely been the story of too many individuals, banks and governments taking on too much debt. There is nothing unique about this phenomenon. It has been repeated with Dutch tulips, railroad stocks, Florida real estate, dot-com stocks and now collateralised debt obligations.

Governments go to great lengths to hide their true positions, such as Greece recently. Our own government is not immune from such criticism. You always hear our government talk about net debt but they never explain how they get from gross to net. In doing so they net off around $70 billion of the non-equity investments of the Future Fund, even though these are set aside to pay the superannuation of public servants, over $130 billion of liabilities that are not included in the government’s debt figures.

Our government publishes graphs of our net debt compared to other countries even though the Australian data does not include the debt of state governments, when the debt of the other countries does. Our debt would approximately double if you included these amounts.

In 2008, Ireland had net debt equal to 12.5 per cent of GDP. The parliamentary library estimated last year that Australia’s net debt, including that of State governments, will hit 12.3 per cent of GDP in 2012-13.

When I warned 18 months ago that the risk of the US default was “distant but real” people dismissed the possibility. I didn’t think what I suggested at the time was all that remarkable. A static debt ceiling and an escalating debt, sooner or later the two lines intersect.

Our government seems fixated on the risk of catastrophic climate change, when the clearer risk is catastrophic global economic change.

It is time for our government to get real.

The next thing I want to talk about tonight is how a country really makes money and generates wealth.

There are really only two ways to make money. Concentrate on output or concentrate on cost. You must also play to your strengths, stay away from your weaknesses and minimise gambling on unknowns.

Most importantly, success in business is nearly always determined by pragmatism, perseverance and prudence.

Subsidies to any industry have to be seen through a very forensic and honest assessment of outcomes. There are occasions were certain industries should survive in the national interest, but occasional is the operative word.

What is anathema are frolics into such things as renewable energy. These subsidies are not only uneconomic in their own right, but you cannot isolate them like some peculiar pot plant in the corner of your office, they are an inherently inefficient and malignant growth, moving into every sector of the economy.

The Productivity Commission estimates that the multiple subsidies that we give to renewable energy amounts to around $600 million every year, and that is set to increase as the renewable energy target increases. The main effect of these subsidies is to make electricity more expensive for households and businesses.

Why are we giving such large subsidies to methods of generating power which are double to four times the cost of coal and gas fired power stations? China is building a coal fired power station every week on average, while we are barely investing anything in greater coal fired generation despite happily selling tonnes of the stuff overseas. It is absolute madness to think what is sinful in Australia is virtuous in China.

We spent twenty years in this country getting our power stations more efficient. Power generators were corporatised and in some states privatised. Union influence was removed. Productivity improved. Joh was part of this process in his famous battles with the electricity unions in Queensland.

By the end of it all we had some of the cheapest power in the world. In 2006 Australian electricity prices for businesses were the third lowest in the world. Electricity prices in real terms fell by 19 per cent from the early 1990s to 2005.

But since Labor was elected in 2007 electricity prices for businesses have almost doubled from 6 cents per kWh to 10 cents per kWh. Our electricity prices for business are now more expensive than those in South Korea and India, even though they use our coal.

You can have cheap power, cheap wages, or no jobs. Take your pick.

Australia must take a serious look at the excessive subsidies it is giving to renewable energy. These policies are not going to cool the planet but they will make us poorer.

We have the coal and we have the technology. Cheap power will help us make money and create jobs. Alternatively you can go to your spiritual church in the scrub and dream about green but you will do it as a far poorer person than you otherwise would be.

Three cheers for efficiency in power, that is very commendable, but you do not get more efficiency because you demand it from an MRET any more than you get wings on a horse because you demanded it.

The person who develops the photovoltaic cell that is more efficient than coal will be the richest person on the planet. What more motivation do they need?

If Mr Howes wants to truly help manufacturing jobs, then he should stoically stand for cheap power.

The government, at the behest of the Greens, plans to spend $10 billion in off-budget financing to fund clean energy projects. The money is “off-budget” because the government expects these investments to make a commercial return. So while Bob Brown, Lee Rhiannon and Sarah Hanson-Young are picking winners, I can smell a provision coming on.

The experience of green energy investments, particularly those by governments, gives little hope that this money will stay off-budget.

Just last week a solar panel manufacturer in California shut down despite the US government granting it a $535 million loan guarantee in 2009. The Australian government has identified loan guarantees as one of the ways it will support clean energy investments.

There is no such thing as a green job, there are high-paying jobs and low-paying jobs. By definition, the carbon tax will shift production away from otherwise profitable businesses, which offer otherwise high-paying jobs.

Australia has to invest in the products that the world wishes to buy off us, and that is mining and agriculture. Together they represent about three-quarters of our exports. So where Australia should invest is in new ports, new railway lines, new dams and remove the plethora of Kafka-like legislation that inhibits the creation of new food bowls.

Once more there are people like Fred Pascoe, an indigenous Mayor voted for by all constituents, in the Gulf of Carpentaria, who screams out for dams not wild rivers legislation. There are dam sites on the Gilbert, there are dam sites on the Flinders. The O’Connell creek diversion would give the capacity to exploit the deep, self-cracking loams around the towns of Hughenden and Richmond.

These investments are no better exemplified than my own town of St George, where last year we produced $750 million worth of renewable income, predominately from irrigation. Not bad for about 5,000 people.

The third way to make money is to inspire the movement of people to where you make the money. Fly-in and fly-out is an inefficient use of capital. It is like the 27 year old kid who refuses to leave home. If that is where the nation is making money then we should be encouraging people in every way shape and form to move to where the money is made.

The standard of living is what frightens some people, so you will have to create some kind of incentive in lieu of the fact that the investment of the public dollar is not as evident there as what it is presently in Sydney, Melbourne and Brisbane.

If I don’t live near multiple hospitals, suburban railway lines, public parks, multiple billions of dollars of public infrastructure, then why should I be on the same rate of tax as someone who is? Especially if my privations of being without are the actual mechanism that creates the source of the GDP that maintains our nation’s standard of living.

If there are nine people sitting on a table and one person walks up, carrying with him, a $100 note, and devises a transaction to move that note around the other nine, then the GDP of that table becomes $1000. Ninety per cent of it from those who were initially sitting there. But if the person with the $100 did not show up the GDP of the table would be zero.

That person is regional Australia. That is where the coal mines are, that is where the iron ore mines are, that is where the wheat fields are, that is where the cattle are, that is where the cotton fields are and that is where many of the premier tourism venues are. And that is where you must invest if you want to make money.

Finally, and most importantly, is the role of government. Sometimes I believe that there is a person in both state and commonwealth governments who puts a map of Australia on the wall and says how do I devise legislation that sends this place broke.

Even on the conservative side we have made excuses for things that should, if we were philosophically sincere, be anathema to us. We have not only sat idly by but have participated in the removal of property rights. We justified it by saying it was good for people to have their vegetation rights stolen by the government. We agree with the closure of fisheries because of arbitrary lines on a map looked good and made us feel good that we created marine parks.

We seem to have progressed to this pseudo-religious belief that every tree is sacred. Not only is every tree sacred, but so is every drop of water and is owned by government even though it was delivered by God. We are listening to people who honestly want to shut down the Murray-Darling basin rather than calling it for what it is, barking mad legislative lunacy. If you carry on like that, not only will you go broke, you deserve to go broke.

We now even have the quite unbelievable proposition that bats have more rights than people. You can’t move the bats, you must move the school.

The latest piece de resistance of lunacy is a carbon tax. Yes Craig Thomson is doing a fine job, the Malaysia solution is tickety boo and we can engineer a change in the climate from Canberra.

I have always wondered what I would say to a client who walked in and said “I have this great idea; I am going to change the climate via a new tax”.

In Charleville, I used to stare for ages, during lunch, at what was a rain-making machine from around about 1900. What fascinated me was not the engineering of the conical blunderbuss, what intrigued me were the suckers who paid for it.

What doesn’t surprise me is the vitriol you receive if you don’t believe in their marketing plan.

Property rights are essential, no one is going to work to pay off something that they don’t actually own. Core costs should be minimised, you don’t inspire innovation by putting people’s power through the roof. We didn’t invent the wheel because we taxed walking. We didn’t invent the car because we taxed horses.

As George Orwell once said “there are some ideas so preposterous that only an intellectual could believe them.”

The answers are never black and white that is why the Nationals remain such a relevant force in Australian politics and I would like to finish tonight by talking about our role.

The Nationals have always been a pragmatic party that wants to deliver results not impose an ideology on the masses. We are not beholden to Smith, Marx, Keynes or Friedman. We are the exception to Keynes’ comment that practical men are the “slaves of some economist”, defunct or otherwise.

I think that means that the Nationals are uniquely positioned to provide the commonsense judgments that others sometimes ignore because they are blinded by the theoretical lights, where acting stands in proxy for real life, small business and owner-operator experience. Make it work or lose your house is always good motivation.

Most of the big blunders in public policy come from the triumph of theory over practical commonsense. Tulips are worth lots and lots of money, except when in seventeenth century Holland someone discovered how you can propagate them. Paul Keating raised interest rates to 17 per cent because of something called the current account deficit, which is hardly been heard of since. Wayne Swan spent $90 billion because Keynes told him to. And we are now imposing a $9 billion tax per year because self-appointed experts warn that if we don’t, we face imminent self-combustion or drowning or both.

It is quite ironic for the Nationals to be lectured at by others about the purity of free trade and unfettered commerce. The Country Party is the only party in Parliament today that advocated lower tariffs at its inception. The early Country Party under Earle Page was not completely anti-tariff but it recognised the high cost of the tariff increases of the 1920’s on the production costs of primary and secondary industries and argued against these increases.

As Paul Davey points out in his history of the National party, it was not a philosophical conversion that caused the Country Party to move away from its commitment to freer trade. Rather it was the political reality that it was unable to convince either of the major parties to support its lower tariffs platform. Instead, the Country Party adopted a “protection all round” view to provide assistance to both primary as well as secondary industries.

We still have both sides wishing to protect wages, protect the environment, protect free services to the cities, subsidise public transport, protect occupational health and safety standards. Apparently these are all meritorious so why would it be unreasonable to protect Australia from Fireblight from imported apples.

There is nothing that induces biliousness more than someone who talks free trade but you only have to scratch the surface to find that they are first to baulk at what real free trade means.

It seems that it was the same for Black Jack McEwen as it is now. As he stated in his autobiography:

It was my belief then — and still is now — that the whole of the Australian economy is protected in one way or another. It has to be once some protection has been given to certain sections of industry. You cannot logically protect one section and not protect other sections, given basically similar circumstances.

At the heart of McEwen’s philosophy was an urge to develop Australia. As an under-populated country, Australia needed to attract migrants to become a stronger nation. Migrants could only be attracted if there were jobs available, and the increasing mechanisation of the primary sector meant that the focus needed to shift to developing Australia’s manufacturing sector.

McEwen’s great achievements in opening up trade with Japan, only a decade after the end of World War II, demonstrated his commitment to developing Australian industry.

And The Nationals retain this basic driving philosophy. The Nationals are a party that embraces the vision of a stronger, bigger and more prosperous Australia. It is unusual in The Nationals party to hear people talking about the benefits of a smaller population for Australia. That is something for the chattering classes of the illuminated crescent, another form of protection for the sophisticate.

The Nationals have been at the forefront of developing the policies that will deliver Australia the courage of a new vision.

The vision to build dams, the vision to create new areas of wealth and opportunity. The vision to pilot zonal taxation as a mechanism to open up new areas where people don’t fly-in and fly-out, but fly-in and stay. The vision to create the infrastructure so that we evolve from a crescent moon economy, where all the light is merely on the south east edges and all the potential remains in darkness.

I think the Australian people are crying out for a government that has the strength to deliver on such a vision, in the face of the inevitable complaints from Greens and others who want Australia to turn its back on opportunity and aim for the quiet and selfish life of no economic or population growth, and therefore no strength to endow our values, which I believe are good, in a more prominent way in a world in which our area will soon be dominated by a totalitarian superpower, whether we like it or not.

Australia can aim to achieve the accomplishments that we have in the past but we won’t if we continue to focus on the theoretical mirage that government spending can make us productive and that a carbon tax will unleash a green job creating machine.

Such fairytales are divorced from reality. If we do not as a nation begin to “get real” then we will do immense damage to our prosperity and economic strength.

Australia has more than an opportunity it has an obligation to be pragmatic. The world is changing and it is changing before our eyes. It is changing before you on your television tonight. Maybe those who cheated won but they won and there is not much we can do about it. If we believe that the freedoms that are in this room are worthy of a greater future beyond our days, then we must place our nation in the strongest possible position to protect the vital organ that will promulgate these views which is our people.

The only way that that event can come about is if we are strong. And the only way we will be strong in this new world is if we put aside our fanciful distortions created by well meaning but quite naive visions of the global economic reality.

Those who win the economic race write the rule book. The question for Australia will be do you want such things as a carbon tax or do you want to be able to pay for your vision of justice to have a greater voice in the global future.

Do you want the reality of security or are you happy to live with the bitter disappointment that you can’t actually conjure up a steel industry, when at that critical moment, your nation is at threat?

Do you want to go to the global dinner table with the strength of knowing that you have money in your wallet, or do you wish to beggar your nation and be the servants of the others who are there?

It is all happening before us and unfortunately, currently, we are not on the pragmatic, prudent path.

There’s not a single MP or Senator in Parliament who can hold a candle to this man’s shining light of wisdom, insight, commonsense, knowledge, and pragmatism.

My opinion?

We don’t need (or want) any of the rest of ’em.

My vote – Barnaby for Dictator.

Our Banks World’s Most Profitable, Adding Insult To Injury

27 Jun

More confirmation – if any were needed – that our banks are as greedy and reckless as we have shown recently (eg, “Our Banks Racing Towards A ‘Bigger Armageddon'” ).

h/t to journalist Peter Martin and the latest Bank Of International Settlements (BIS) data, for showing that our banks are the world’s most profitable:

BIS: Global Economy “Vastly Worse” Than In GFC

29 Jun

The latest report from the Bank of International Settlements (BIS) – the central bank to the central banks – warns that the global financial system is in a “vastly worse” position than 3 years ago.

From the Associated Press:

An organization bringing together the world’s major central banks warned Monday that the global economy risks a replay of the 2008-2009 financial crisis, with massive public debt in Europe and the United States replacing the private debt that fueled the credit crunch two years ago.

“A shock of virtually any size risks a replay of the events we saw in late 2008 and early 2009,” the Basel, Switzerland-based organization said in its 206-page annual report.

In a stark warning to governments to clean up their finances, the central bankers noted that “macroeconomic policy is in a vastly worse position than it was three years ago, with little capacity to combat a new crisis.”

The report recommended winding down stimulus packages, raising interest rates in the long term and forcing through reforms of the financial system to prevent sudden shocks from causing market-wide collapse as they did two years ago.

BIS: Western World Spending Its Way To Disaster

13 May

From the UK’s Globe and Mail:

The Swiss-based Bank of International Settlements (BIS), the oldest international financial institution in the world, has functioned as the central bank of central bankers for 80 years. In a working paper written by three senior staff economists (“The future of public debt: prospects and implications”), released in March, BIS warns that Greece isn’t the only Western economy with hazard lights flashing.

Indeed, it names 11 more: Austria, France, Germany, Ireland, Italy, Japan, the Netherlands, Portugal, Spain, Britain – and the United States. Without “drastic measures,” BIS says, all of these countries will hit a wall of debt.

When the senior economists at BIS warn 12 of the richest countries on Earth that they must take drastic action to reduce debt, you know that it’s time to check the air bags. The only thing you don’t know, that you need to know, is the precise time of the crash. The lesson is already obvious: Governments can’t drive recklessly, use only the accelerator for braking and not eventually crash.

By the end of 2011, the BIS economists calculate, U.S. government debt will have risen from 62 per cent of GDP in 2007, not quite three years ago, to 100 per cent. Britain’s debt will have risen from 47 per cent of GDP to 94 per cent. Italy’s debt will have risen from 112 per cent of GDP to 130 per cent. All together, the public debt of the 12 countries will have risen from 73 per cent of combined GDP to 105 per cent.

At this debt level, the risk of sovereign default rises rapidly. But the BIS analysis says this unprecedented debt level will itself increase “precipitously” in coming years. It will not, as each of these countries separately insists, fall.

For one thing, the BIS report says, countries that proclaim spending restraint generally do not actually do it. Normally, they hold the line – temporarily. Normally, they slow the rate of increase – temporarily. All pronouncements aside, the BIS report says, these 12 countries have made such grandiose spending commitments that they are predestined for higher debt. The U.S. debt-GDP ratio will hit 150 per cent in the next decade. Britain’s debt-GDP ratio will hit 200 per cent. Japan’s debt-GDP ratio will hit 300 per cent.

These increases in debt, the BIS report says, are untenable. The financial markets, of course, won’t permit them. The only mystery, the BIS report says, is exactly when the markets will intervene. History shows, the report says, that when the markets do rebel, they often do so instantaneously and decisively – often without much warning.

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