Tag Archives: China bubble

Still Pointing To The IMF’s Opinion Now, Wayne?

24 Jul

Remember when Treasurer Swan repeatedly pointed to cherry-picked comments by the IMF, as though they should somehow be construed as proof of Labor’s economic management throught the GFC?

In light of his government’s/the Treasury’s “truly extraordinary” assumptions underlying the “stratospheric” growth forecasts in the May budget, any bets that Wayne won’t be pointing out what the IMF is saying now, about China’s darkening economic prospects?

From Dow Jones Newswires via the Australian (emphasis added):

China’s manufacturing sector shrinks, HSBC’s preliminary PMI survey signals

HSBC’S preliminary survey of China’s factories indicated manufacturing activity in the world’s second-biggest economy in July declined from last month, the first such contraction in a year.

The survey comes at a time when various economic indicators in China are pointing in different directions, leaving market participants unsure if they should be more concerned about slowing growth or high inflation.

The International Monetary Fund released its annual review of China today, warning that inflation, real-estate bubbles and weak monetary controls pose “significant risks to financial and macroeconomic stability” in the world’s second-biggest economy.

“Significant risks” to the financial and economic stability of the nation whose massive, regional “shadow-banking” credit-fuelled “stimulus” in the GFC was almost solely responsible for our not following after the USA, UK, and Europe.

I think that I can safely guarantee that you won’t be hearing Wayne trumpet that comment from the IMF.

One Chart Debunks Treasury’s Growth Forecasts

21 Jul

Our erstwhile Treasurer keeps insisting that our economy is strong, that the budget growth forecasts are sound, that he roolly roolly will get that one year of budget surplus in 2012-13, and go back to sleep children, everything’s fine.

Even Dear Leader Julia has been in on the act, trying to instill con-fidence … while flogging the dead horse called “carbon tax” to the public.

Now, recently we brought your attention to the Macquarie Economic Research debunking of the Treasury department’s growth forecasts. That is, the assumptions underpinning the May budget “estimates” and “projections”.

“Truly extraordinary” assumptions for “stratospheric” growth, were some of the bold words they used.

In the RBA’s latest release Chart Pack, there is one single chart that tells you all you need to know about the Treasury assumptions of a neverending China-fuelled “boom” in investment in Australia – the quarry to the world.

And what is that tell-all chart?

China’s credit and money supply growth:

Sorry Wayne.

The credit-fuelled China boom is already over.

It’s just a matter of time before reality hits.

Not quite convinced?

Ok then, here’s another. China’s industrial production.

Is China producing as much steel? Or making as much crap, as it was pre-GFC?

Nope.

The key China trends are all down.

It’s just a matter of time.

As we have been pointing out here for quite a while.

Bye bye Swanny.

Bye bye economy.

UPDATE:

Lo and behold! Maybe Treasury is reading barnabyisright.com?

From the Australian this morning:

Treasury’s warning on China as IMF fears Eurozone debt crisis will infect global economy

Treasury has warned the Gillard government about emerging threats to the Chinese economy, which shielded Australia from the global recession and continues to underpin its resilience in the face of global economic weakness.

The warning about China’s runaway inflation, contained in a working paper posted on Treasury’s website yesterday, could have ramifications for Australia’s resources-rich economy, which is dependent on the highest terms of trade in 140 years.

Although the paper is understood to have been prepared in May, the situation has worsened and China’s efforts to control inflation have become more urgent in the past two months.

The warning on China came as the International Monetary Fund cautioned that the debt contagion in Europe could infect the global economy, and the nation’s largest supermarket operator, Woolworths, warned that the year ahead would be one of the company’s most challenging as Australians spent less and tried to save more.

Would that be the same “inflation” concern that gave rise to this RBA chart, by any chance –

Clowns.

Treasury, that is.

Banging on about “inflation” in China (which as the chart shows, has been worse). When the real problem in China is that the massive amount of “credit” (ie, debt) issued to prop up their economy through the GFC, has simply fuelled overinvestment / malinvestment and thus the world’s biggest bubble in real estate … as we see in this RBA chart –

Did you notice that the chart on the right – “Floor space sold” – looks to have pretty much topped out?

Hmmmm, what happens to a property bubble when the amount actually selling ceases to rise … anyone, anyone?

Buehller, Buehller?

And what did Wayne have to say about the warning from Treasury about China and Europe?

The comments prompted the Treasurer to urge Europe to get its house in order.

ROFL.

Here Comes Swan’s Black Swans – Chinese Bad Debt “Bigger Than Stated”

8 Jul

Remember our Wayne’s tireless refrain on the economy?

That investment (mostly from China) in our resources sector will ensure a budget back in surplus (for one year), and “lasting prosperity” via an endless “boom”?

Remember how he remains ignorant of all the many warnings about China?

(And, about our second largest trading partner, Japan?)

Including this one, just before the May budget:

“The market is telling you that something is not quite right,” Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong today. “The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.

Faber joins hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff in warning of a crash in China.

China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s gross domestic product relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade.

Remember the devastating critique of the May budget by Macquarie Research? The one that said Wayne’s (ie, Treasury’s) forecasts for business investment – the key assumption underpinning all the budget projections – are “truly extraordinary”?

Upbeat growth forecasts from the Treasury and the Reserve Bank of Australia (RBA) are based on very optimistic forecasts for private sector business investment.

The RBA and Treasury forecasts for business investment over the next couple of years are truly extraordinary.

In our opinion, achieving such stratospheric growth would be extremely difficult.

By putting all their eggs in the mining investment basket, policymakers appear to have no Plan B for what will support the economy if investment disappoints. And this note provides three clear reasons why one should be cautious about counting those mining investment chickens before they are hatched.

Well, on July 4 the international ratings agency Moody’s – the same one that has downgraded our banks and effectively declared them “Too Big To Fail – dropped another bomb on Wayne’s parade.

It says that 10% or more of Chinese GDP is bad debt, and claims that the “China debt problem (is) bigger than stated”.

From Moody’s Investors Service, via ZeroHedge (emphasis added):

Moody’s Investors Service says that the potential scale of the problem loans at Chinese banks may be closer to its stress case than its base case, according to an assessment that the rating agency conducted following the release of new data by China’s National Audit Office (NAO).

Since these loans to local governments are not covered by the NAO report, this means they are not considered by the audit agency as real claims on local governments. This indicates that these loans are most likely poorly documented and may pose the greatest risk of delinquency,” the analyst adds.

Moody’s report estimates that the Chinese banking system’s economic non-performing loans could reach between 8% and 12% of total loans, compared to 5% to 8% in the rating agency’s base case, and 10% to 18% in its stress case.

But it’s not just Moody’s now warning about China’s banking system.

From MarketWatch (emphasis added):

China’s debt woes point to bank bailout

China’s banking system will require an eventual bailout by the central government, according to some analysts, who said figures released last week on the size of local-government borrowings point to the need for a rescue.

Credit Suisse economist Dong Tao said the numbers backed up concerns he’s been voicing for the past two years on China’s toxic loan problem.

“Ultimately, we believe that the central government will need to separate the local government’s bank debt from banks’ balance sheets and recapitalize the banks,” Tao said in a note following the release of data on China’s local-debt obligations by the National Audit Office.

Reuters reported last month that Beijing is considering a bailout that could see the central government accept to 2 trillion to 3 trillion yuan of local governments’ outstanding debt in an effort to ensure against a mass default, which could bring down the economy. See report on China’s initial bailout plans.

Stress is building within the system, Tao said, as local governments face a growing pile of debts coming due at a time of declining land sales, normally a key revenue stream for the provincial authorities.

Meanwhile, local governments are also having trouble finding new sources of lending as state-controlled banks grow increasingly wary of their deteriorating ability to service existing debt.

Standard Chartered said last week there were early signs of major financial distress building at the local government level.

Anecdotes of local-government investment vehicles in Shanghai and in Yunnan province struggling to meet loan payments “signal the beginning of the wave of difficulties,” Standard Chartered’s China economist Stephen Green said in a note Thursday.

And Bloomberg reports that both Fitch Ratings and Standard & Poors have also flagged serious concerns:

Fitch Ratings lowered its outlook on China’s AA- long-term, local-currency rating to negative from stable on April 12 because of the risk the government would have to bail out banks. As much as 30 percent of loans to local government entities may go bad, accounting for the biggest source of banks’ non- performing assets, Standard & Poor’s said that month.

Now, are you one of those who doubts that China’s “boom” is/was driven by massive borrowing by local (regional) Chinese banks to finance over-investment in “infrastructure” – the mother of all real estate bubbles world wide?

Then take a look at these pictures from Time magazine, showing just how massive speculative over-investment in property construction has left China with literal ‘ghost cities’:

Click to visit the complete Time photo series

If like many readers you have skimmed over this article and not bothered to click on … and carefully read … all of the links embedded in this article, then you are doing yourself and your loved ones a disservice.

Because you are about to leave this site … ignorant.

With only part of the story.

Do not be a Goose.

Like Swan.

Educate yourself.

Lots of labour has gone into collating all these news articles from around the world.

Over many, many months.

Do yourself a favour, and become better educated about reality than the buffoon who lives in Wayne’s World.

So that you too can see with crystal clarity the gaggle of Black Swans that are soon to blot out our Aussie sun.

Then you too can help to warn others.

Because rest assured – just as with the GFC – you will get no forewarnings from our “expert” economists when the SHTF.

Or from our “authorities”.

Or from their sycophants in the mainstream “business” media.

Your superannuation depends on your being properly informed.

Because both “sides” of politics are planning to steal itwhen the SHTF

Barnaby Was Right – U.S. Congressional Budget Office, China Central Bank Confirm

20 Jun

From Bloomberg:

A U.S. government default on its debts would be a “dangerous gamble” that could easily cost taxpayers billions of dollars, the head of the Congressional Budget Office said today.

Doug Elmendorf told reporters that if the investors who buy federal debt begin demanding even modestly higher interest rates, to compensate for additional risk, it could quickly add more than $100 billion to the interest payments the government must make on its debt.

“It is a dangerous gamble because any government that has borrowed as much as ours has borrowed, and will need to borrow as ours will need to borrow, cannot take the views of its creditors lightly,” Elmendorf said today…

Indeed. One certainly can not take one’s creditors views lightly.

And America’s #1 creditor has said the USA is “playing with fire” in even considering a “technical” default on its debts (from Reuters):

Republican lawmakers are “playing with fire” by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China’s central bank said on Wednesday.

The idea of a technical default — essentially delaying interest payments for a few days — has gained backing from a growing number of mainstream Republicans who see it as a price worth paying if it forces the White House to slash spending, Reuters reported on Tuesday.

But any form of default could destabilize the global economy and sour already tense relations with big U.S. creditors such as China, government officials and investors warn.

Li Daokui, an adviser to the People’s Bank of China, said a default could undermine the U.S. dollar, and Beijing needed to dissuade Washington from pursuing this course of action.

I think there is a risk that the U.S. debt default may happen,” Li told reporters on the sidelines of a forum in Beijing. “The result will be very serious and I really hope that they would stop playing with fire.”

Of course, the reality is that the USA is already defaulting on its debts.  By printing hundreds of billions of new dollars, they are devaluing the USD … meaning that holders of US Treasury bonds will be repaid in money that cannot buy as much as it used to.  2012 US Presidential candidate, and Chairman of the House Financial Services Subcommittee on Domestic Monetary Policy, Congressman Ron Paul has confirmed that this is exactly what is happening:

America is defaulting on its debts.  And the Chinese are not happy.

As a gentle reminder, here is what Senator Barnaby Joyce had to say about the US and its debts, almost 18 months ago (from the Brisbane Times, October 23, 2009):

The Nationals Senate leader Barnaby Joyce is openly canvassing an economic upheaval that would dwarf the current global financial crisis, triggered by the US defaulting on its sovereign debt within the next few years.

In unusually pessimistic comments for a senior political figure, Senator Joyce said the US Government was running such large deficits and building up so much debt that it was in a similar position to Iceland or Germany before World War II.

Senator Joyce insisted yesterday that the dangers to the global economy from the run-up in US private and public sector debt were real and should be debated.

”It is the elephant in the room,” Senator Joyce said. ”This is a huge risk that Australia faces. What is the game plan, what happens if it comes unstuck?

And from the Sydney Morning Herald, December 11, 2009:

The Opposition finance spokesman, Barnaby Joyce, believes the United States government could default on its debt, triggering an ”economic Armageddon” which will make the recent global financial crisis pale into insignificance.

Senator Joyce told the Herald yesterday he did not mean to alarm the public but there needed to be a debate about Australia’s ”contingency plan” for a sovereign debt default by the US or even by a local state government.

”A default by the US means complete economic collapse around the world and the question we have got to ask ourselves is where are we in that,” Senator Joyce said.

His warning came as the Rudd Government ramped up its attack on Senator Joyce as an economic extremist…

Senator Joyce said the chances of a US debt default were distant but real and politicians were not doing the electorate a favour by refusing to acknowledge the risk.

Barnaby was right.

100% right.

Swan: Not Drowning, Waving

19 Jun

No, no … everything’s fine!  Really it is!  Just peachy!!

From AAP via Yahoo!7 News:

Economy strong despite global woes: Swan

Treasurer Wayne Swan says Australia’s economic prospects remain strong despite uncertainty about the recovery in the global economy.

Mr Swan said proximity to Asia would continue to fuel the national economy.

“Australia remains well positioned to benefit from robust growth in our region,” Mr Swan said in a statement on Saturday.

“Strong demand for our commodities is underpinning an unprecedented pipeline of business investment, with ABARES estimating a pipeline of $430 billion in resources alone.”

Australia’s economic prospects “remain strong”, ‘eh?

We are “well-positioned to benefit from robust growth in our region”, ‘eh?

An “unprecedented pipeline of business investment”, ‘eh?

Macquarie Bank begs to differ.

As does Michael Byrne, head of Linfox Logistics.

As does Nouriel Roubini, the economist made famous for predicting the GFC.

And many more.

Ever reliable Wayne Swan. Nothing changes.

Same hot air, every time.

Just remember to bookmark this page.

For the day fast approaching, when Wayne’s waving turns to drowning.

Economist Who Predicted The GFC Warns Of “Perfect Storm”

15 Jun

From Bloomberg:

A “perfect storm” of fiscal woe in the U.S., a slowdown in China, European debt restructuring and stagnation in Japan may converge on the global economy, New York University professor Nouriel Roubini said.

“There are already elements of fragility,” he said. “Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest.”

Nouriel Roubini is the New York University professor who came to fame as one of the dozen or so economists – including Australia’s own Dr Steve Keen – who predicted the GFC.

Mind you, he was running a little late. Dr Keen began publicly warning of a GFC in December 2005.  Roubini issued his warnings from mid-late 2006.

Now he’s running a little late again, with this warning of a “perfect storm”.

Barnaby Joyce began warning of the risk of “economic Armageddon” nearly 18 months ago. And for exactly the same reasons – rising levels of public and private debt in the USA, and around the world.

It’s worth taking a minute or two to clearly recall just what Barnaby had to say.

From the Brisbane Times, October 23, 2009 (emphasis added):

The Nationals Senate leader Barnaby Joyce is openly canvassing an economic upheaval that would dwarf the current global financial crisis, triggered by the US defaulting on its sovereign debt within the next few years.

In unusually pessimistic comments for a senior political figure, Senator Joyce said the US Government was running such large deficits and building up so much debt that it was in a similar position to Iceland or Germany before World War II.

In a Senate estimates hearing on Wednesday night, he asked Treasury secretary Ken Henry what would be the implications of an American debt default for the Australian economy.

Dr Henry warned that canvassing extreme scenarios could alarm the community.

”I don’t mind discussing hypotheticals in general … [but] one has to be careful not to discuss publicly hypotheticals that are that extreme,” Dr Henry said.

”I don’t, myself, consider that outcome to be a high probability outcome, certainly not one that I would want to say much about in a public forum.”

But Senator Joyce insisted yesterday that the dangers to the global economy from the run-up in US private and public sector debt were real and should be debated.

”It is the elephant in the room,” Senator Joyce said. ”This is a huge risk that Australia faces. What is the game plan, what happens if it comes unstuck?

And from the Sydney Morning Herald, December 11, 2009 (emphasis added):

The Opposition finance spokesman, Barnaby Joyce, believes the United States government could default on its debt, triggering an ”economic Armageddon” which will make the recent global financial crisis pale into insignificance.

Senator Joyce told the Herald yesterday he did not mean to alarm the public but there needed to be a debate about Australia’s ”contingency plan” for a sovereign debt default by the US or even by a local state government.

”A default by the US means complete economic collapse around the world and the question we have got to ask ourselves is where are we in that,” Senator Joyce said.

His warning came as the Rudd Government ramped up its attack on Senator Joyce as an economic extremist…

Senator Joyce said the chances of a US debt default were distant but real and politicians were not doing the electorate a favour by refusing to acknowledge the risk.

Senator Joyce said that if the US recovered, global funds would flow back into North America. ”There will be only one way Australia will be able to keep funds here and that is by putting up interest rates, which will therefore bring real costs back to households,” he said.

”That is the first scenario, which is extremely bad for Australia. The worse scenario is where the US doesn’t repay its debt – the $2 trillion in debt it owes to the Chinese, the $1 trillion in debt it has to the Japanese and the $US1 trillion in debt to others – and then we are really nailed.

”The outcome is a shift away from the US dollar as the international trading currency and a shift to the Chinese yuan, and China becomes an immensely powerful player overnight.

”It’s the real financial crisis, and the real financial crisis will mean this preamble we have just had pales into insignificance.”

Asked what sort of contingency plan he would advocate, Senator Joyce said it was like trying to prepare for a tidal wave but the local economy should have more self-reliance.

”Things you look for in that economic Armageddon are the capacity to feed ourselves, the capacity to provide the fundamentals in medicines and basic fundamental requirements for our nation.”

Barnaby was right.

And noone took any notice.  18 months later, Australia has no contingency plan.  Just a dramatically weakened government financial position.

This blog was created for the express purpose of sourcing and sharing information from around the world, in support of Barnaby’s prophetic warning.

If you browse the pages here, especially over the past month or so, you will find many news articles referencing the US debt default crisis.

Watch and listen to this interview just 8 days ago, where respected US congressman and 2012 Presidential Candidate Ron Paul, the Chairman of the House Financial Services Subcommittee on Domestic Monetary Policy, openly confirmed that the US is defaulting on its debts.

The big risk event that Barnaby predicted was “distant but real” in late 2009 … is happening right now.

Barnaby was mocked and ridiculed out of his new job as Opposition Finance spokesman, for daring to speak out. For daring to talk publicly about risks contrary to the “received wisdom” of the “experts”.

Who were those “experts”?

Let’s begin a Name ‘n Shame list of all the pompous, know-it-all cretins who now owe Barnaby a wimpering, grovelling apology.

Naturally, we’re talking about the likes of former Treasury secretary (and now unconstitutionally-appointed personal adviser to Gillard) Ken “The GFC is over” Henry.

RBA Governor Glenn “I don’t know anyone who predicted the GFC” Stevens.

Treasurer Wayne “Half a million new jobs” Swan.

And former Finance Minister Lindsay “dark arts” Tanner.

And, pretty much the entire Canberra press gallery.

They were all wrong. Totally, utterly, catastrophically wrong.

Time is proving our country accountant Senator from Queensland to be a veritable modern day prophet.

With more wisdom, commonsense, foresight, and courage, than the entire Labor Party, Treasury department, RBA Board of governors, and Canberra press pack of financial “journalists” combined.

So let us all pay close heed to his most recent warning – that the government plans to steal our super to pay down debt.

Barnaby is right.

China Lending Tumbles, Signals Slowing Economy

14 Jun

From Bloomberg:

China’s lending tumbled in May and money supply grew at the slowest pace since 2008, adding to signs that the world’s second-biggest economy is cooling.

“This provides another data point highlighting the growth risk,” said Tao Dong, a Hong Kong-based economist for Credit Suisse Group AG. “I think the economy is heading to a soft landing in the second half of 2011, but the risk of a hard landing seems to be on the rise,” Tao said, adding that small companies are short of credit.

A moderating expansion in the Chinese economy is adding to concerns that global growth is faltering.

How’s that promised single year of budget “surplus” in 2013 looking, Wayne?

McCrann: America Is Now Turning Darker, China Can Crash The Whole Economy

13 Jun

From the Daily Telegraph’s National Finance Writer, economist Terry McCrann:

The good news is that the Reserve Bank didn’t lift its official interest rate at its meeting on Tuesday and there’s now no prospect of a rise at its next meeting in July.

The bad news is that the RBA may – and I stress, may – have to turn to contemplating a rate CUT.

How’s that bad news? Just remember the circumstances when the RBA was last cutting – actually, slashing – rates in 2008. Your super was being shredded and we wondered whether we faced Great Depression Mark II.

How also does that square with my comments last week that Australia was in the middle of a boom? Albeit, a weird one, with many feeling it was more like a recession?

That’s the critical, connecting part. If we thought we were hostage to China for our future prosperity, we are now even more hostage to China to fend off chilling winds coming out of America and another potential meltdown.

We got a taste of that downside in the March quarter when the Queensland floods temporarily cut off coal exports and sent our economy diving at an annual rate of nearly 5 per cent. It is springing back now, right? Right?

Yes, of course. But what if it became a case of China not wanting to buy, rather than we not being able to ship the stuff out?

America is now turning darker. The visible evidence of that is Wall St. It has now fallen for six weeks in a row – something it didn’t do even through the global financial meltdown.

While, the overall fall isn’t anywhere near as big, the problem is that the US Government and the US Fed have fired off all their anti-recession ammunition.

Worse, all the problems caused by, or just revealed by, the GFC are still festering.

The US is running a budget deficit of close to $US1.5 trillion. That would be the equivalent of about $100 billion down here – and we think $50 billion is huge. They have a zero official rate, ours is 4.75 per cent. And the Fed has just finished printing $US600 billion of paper money.

The one thing all that seemed to achieve was to put the stock market up and now it’s going down. And all Fed head Ben Bernanke can say is that economic recovery has been “frustratingly slow”.

That brings us back to China and Martin Place in Sydney. That’s where the RBA resides and your home loan rates are set.

Right now the RBA believes the China boom is the biggest thing in our future. On that basis it believes it’s going to be fighting an inflation problem through 2012 as the money pours in and demand for skilled labour threatens a wages-price breakout.

On that basis it believes it will have to raise rates by at least 50-100 points over the next year and a half. Even if that’s brutal to large parts of the economy.

The initial key will be the June quarter inflation date at the end of July.

A bad number would see it raise at its August meeting.

It will watch events out of the US – and Europe and Japan – very closely. If the US turned seriously dark, if Greece imploded, all rate bets would be off.

It will also be watching China very closely. The US can send our market down as it did in 2008.

China can do it to the whole economy.

We’re toast.

Terry McCrann is right to point to the USA … as Barnaby did nearly 18 months ago … and voice concern that an implosion in America may well mean that China stops buying raw materials from us.

But I fear Mr McCrann is missing the wider dangers in focussing on the USA. Because China may well fold up like a playing card pyramid, all on its own. Without any “help” from America at all.

As we saw yesterday, Nouriel Roubini, the economist who gained the most fame for having predicted the GFC – predictions that RBA Governor Glenn Stevens claims not to have known anything about – has now sounded the alarm bell on China.  On the weekend he predicted a “hard landing” for the Chinese economy in 2013, just two years away. For reasons unrelated to America’s woes.

Moreover, we have our own internal risks to consider.

One could almost be forgiven for thinking that Mr McCrann’s fellow Finance Writer for the same paper, Nick Gardner, has been reading barnabyisright.com, in light of the following article published right above Mr McCrann’s column in The Sunday Telegraph yesterday (sorry, no link):

A bubble market

According to new data from RP-Data Rismark, the housing analysts, property prices have been declining in “real” terms since 2004 – in other words, they have been failing to keep up with inflation.

In terms of capital growth, you’d have been better off stashing your money in the bank than buying a home.

As The Sunday Telegraph reported last February, a quarter of people who bought and sold their properties within the past five years lost money.

The average shortfall was $54,000, but in some areas the losses reached almost $300,000, according to Residex, another property analyst.

Such statistics stand in sharp contrast to the broader public view that house prices have been consistently shooting up, and reveal signs of market weakness that, if continued, could undermine the entire economy.

Although experts are split about the outlook for property, it is clear the Reserve Bank needs to tread carefully.

… it is a delicate balancing act; a hike too far could cause the housing market to crash as it has in the USA and UK.

Shane Oliver, chief economist at AMP Capital, says the housing market is Australia’s “Achilles heel”.

“House prices here are overvalued by about 30 per cent, and it would not take too much to tip them over the edge.” Oliver says.

Overseas, many big institutional investors such as pension funds and hedge funds – which our banks rely on to borrow money which they lend out on mortgages – share Oliver’s concerns.

That’s one reason why the Big Four were downgraded by credit-ratings agency Moody’s from AA1 to AA2 last month.

Trevor Greetham, asset allocation director at Fidelity International in the UK, which has $3.4 Trillion under management, said: “If the global economy recovers strongly, that could push interest rates up a lot. That’s a real risk for Australia, because house prices are becoming an issue.”

The London-based Russell Investments fixed-income portfolio manager Gerard Fitzpatrick said he was more cautious about lending to Australian banks, citing the recent catastrophe in Ireland, where the house-price bubble effectively broke the banking system.

“I’m not saying Australia is the same as Ireland but there are definitely similarities.”

With such powerful voices becoming so worried, a credit crunch in which mortgages are rationed and buyers must put down much bigger deposits remains a possibility. The consequences could be disastrous.

That’s exactly what this blog has been arguing.

Basically, we’re screwed no matter what happens.

“Good” news or “bad” news, is all bad news for us.

If the global economy recovers, then we’re screwed because rising interest rates will crash the housing market (if it hasn’t already), and wipe out our banks. Meaning, the government will come after our super to prop them up.

If the global economy stalls, then we’re screwed because China will suffer the “chilling winds coming out of America”, and crash our economy. Meaning, the government will come after our super to prop up the economy through more ‘stimulus’.

Both sides of politics know they will do that. Both sides of politics are already implementing policies for it.

Barnaby has often warned that we cannot rely on a never-ending China boom to pay down Labor’s never-ending debt. Former Treasury secretary Ken Henry pompously disagreed. Labor and the mainstream media all climbed aboard the “Barnaby is wrong” train.  And Barnaby lost his job as Shadow Finance spokesman

Once again … as always … Time tells.

Barnaby warned of a bigger GFC almost 18 months ago. He said that Australia needed to stop borrowing and wasting billions, and make a “contingency plan” against the very real risk of more trouble hitting our shores from abroad.

Barnaby was right.

China’s Economy At Risk Of “Hard Landing”, 60% Chance of Banking Crisis By Mid-2013

12 Jun

Nouriel Roubini, one of the dozen or so economists who predicted the GFC, has just given an ominous warning for all those – like Wayne Swan, the Treasury department, former Treasury secretary (and now personal adviser to Gillard) Ken Henry, and the RBA – who are blindly banking on a never-ending China boom, with continuous record high terms-of-trade, to get us out of their $1.59 million per hour Interest-only debt hole.

From Bloomberg, 11 June 2011:

China’s economy is at risk of a “hard landing” after 2013 as efforts to spur growth through investment cause excess capacity, said Nouriel Roubini, the New York University professor who predicted the financial crisis.

“China is now relying increasingly not just on net exports but on fixed investment” which has climbed to about 50 percent of gross domestic product, Roubini said in Singapore today. “Down the line, you are going to have two problems: a massive non-performing loan problem in the banking system and a massive amount of overcapacity is going to lead to a hard landing.”

The nation faces a 60 percent chance of a banking crisis by mid-2013 in the aftermath of record lending and surging property prices, according to Fitch Ratings. A record $2.7 trillion of loans extended over two years has pushed property prices in China to all-time highs even as authorities set price ceilings, demanded higher deposits and limited second-home purchases.

Anything else?

There is increasing evidence of a potentially “excessive” slowdown in the world economy and crude prices may climb to as much as $150 per barrel if unrest in major oil-producing nations intensifies, Roubini said.

Roubini in July 2006 predicted a “catastrophic” global financial meltdown that central bankers would be unable to prevent. The collapse of Lehman Brothers Holdings Inc. in 2008 sparked turmoil that led to the worst financial crisis since the 1930s.

Oops.

There goes the neighbourhood.

And your super.

Hmmm, what was that warning Barnaby gave us around a year ago? Something about “a bigger GFC”?

Barnaby is right.

Foreign Powers Pull Out Of USD$, Agree That Barnaby Was Right

30 May

From the Huffington Post Business:

As lawmakers in Washington delay authorizing additional public debt, investors are treating the prospect of a U.S. government default — while still highly unlikely — as growing in probability.

With Congress showing little progress on a deal to raise the debt ceiling, some economists say the possibility of a default by the Treasury, once unimaginable, has now become a factor in investment decisions.

“It’s still extremely unlikely, but it is now something that can be talked about. That moves us into a different world,” said Mark Vitner, a senior economist at Wells Fargo. “It was unthinkable not too long ago.”

In the last couple months, investors have piled into bets that the Treasury will default. The cost of holding one-year credit default swaps on U.S. debt — insurance that pays out if the government misses a debt payment — has skyrocketed, more than tripling since the beginning of April, the Wall Street Journal reported this week.

Nervousness apparently isn’t limited to derivatives investors. Treasury securities held in custody at the Federal Reserve for foreign accounts this week experienced their biggest drop in four years, Zero Hedge noted Thursday. While the precise meaning of the drop isn’t clear, it could suggest foreign powers are scaling back investment in the U.S. government.

So that’s “foreign powers” and Wells Fargo Bank’s senior economist now adding their voices to that of CDS traders and investors, Ronald Reagan’s budget director David Stockman, the Wall Street Journal, the U.S. Treasury, Southern Cross Equities’ Charlie Aitken, ANZ chief Mike Smith, global currency expert Savvas Savouri, ABC’s Inside Business and Business Spectator Alan Kohler, credit rating agency Standard & Poors, CNBC, Deutsche Bank, and Barack Obama.

All these agree that when he forewarned of the risk of US debt default back in 2009 (“Barnaby Warns of Bigger GFC“) …

Barnaby Was Right.

It’s time for a BIG apology from Wayne Swan, former Treasury Secretary Ken Henry, RBA Governor Glen Stevens, and the Australian media, to the only political figure in this country with the foresight, wisdom, and courage to speak out and warn of this very real mega-threat to the global economy, and thus to Australia.

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