Tag Archives: China Miracle

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.

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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 it … when the SHTF

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Macquarie Bank Shreds Labor’s “Truly Extraordinary” Budget Growth Forecasts

17 Jun

Not wanting to recap the insult to intelligence that was the May Budget. But when one comes across a critique from Macquarie Economic Research that so comprehensively rips to shreds the Government’s all-important economic growth forecasts, one feels strangely compelled to share it.

You can read the entire paper here, but following are the choicest morsels (emphasis added):

Could Australia’s policymakers be too optimistic on our growth forecasts?

Upbeat growth forecasts from the Treasury and the Reserve Bank of Australia (RBA) are based on very optimistic forecasts for private sector business investment. But, if the RBA’s investment forecasts are too optimistic, not only will investment be weaker, but so too will consumption and housing, as weaker growth results in less income growth and declining confidence. This would not only mean that tighter policy was not required, but even that current policy settings could be too restrictive.

But hang on … wasn’t it only a couple of days ago that our blithering idiot RBA Governor was out spruiking the case for hiking interest rates even more?

The RBA and Treasury forecasts for business investment over the next couple of years are truly extraordinary. Treasury expects non-residential construction to double by mid 2013, while the RBA forecasts are predicated on mining investment doing the same thing.

To put this in perspective, the expected lift in mining investment is equivalent to doubling new housing construction from 150,000 units per year, to 300,000 dwellings in the next two years. Another way to look at this is that the value of mining investment in the next two years is expected to be the same as all the mining investment that took place between 1989 and 2006.

Seven years worth of all-time record high mining investment … in just two years?  Perhaps we should give them credit for positive thinking.

But is it realistic thinking?

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

We’ll take that as a polite “No”.

For example, during the largest mining investment boom in Australia’s history, investment increased from about one per cent of GDP to three per cent of GDP. That is, it took five years for mining investment to increase by two percentage points of GDP. Now, the RBA and Treasury expect mining investment to rise by three percentage points of GDP over a couple of years.

Has anyone mentioned to the #JAFA‘s in the RBA and Treasury, that the economist who gained most fame from predicting the GFC has now predicted a “perfect storm” for the world economy “by 2013 at the latest”? And said that he expects China’s economy to have a “hard landing”?

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.

Pretty much exactly what Senator Barnaby Joyce has been saying  from Day 1.

That we can’t rely solely on selling “red and black rocks” at record-high prices forever; that we need to become “more self-reliant”; and that we need a “contingency plan” against economic dangers from abroad.

So Wayne, about that “forecast” for a single year of budget surplus in 2013?

~ crickets ~

You’ve had your lackeys in Treasury cobble together a budget chock full of utterly unrealistic growth assumptions, hoping to keep the media and the great unwashed masses docile and con-fident in your economic management, right?

And then, when you make a pigs breakfast of it again, you’ll just fake up the actual growth numbers down the track, right?

Just like before … right? (see “Labor Fakes GDP By 4.5%” )

This economic forecasting game is too easy.

So before you dispose of those pig entrails … can anyone play?

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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.

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Barnaby: “God help you when the prices go down”

18 May

Senator Joyce rips into the government’s economic “plan” this morning:

Opposition frontbencher Barnaby Joyce has taken a swipe at the Gillard government’s approach to the economy, saying it had an unbounded belief in Asia’s demand for Australia’s resources.

“God help you when the prices go down,” he told reporters in Canberra on Wednesday.

The government’s approach to economics was “a clever ability to charge people to dig up red and black rocks“.

“They (government) have an unbounded belief that the people in South-East Asia will have an eternal gratitude to pay an excessive price for red rocks and black rocks.”

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Swan Hides Budget Risk

17 May

Well done Michael Stutchbury.

But you’re not forgiven until you retract the smear. And join the chorus now recognising that Barnaby was right about the risk of US debt default.

From The Australian:

The confused reaction to Wayne Swan’s budget stems from its refusal to properly spell out the risks of relying on Australia’s China-fuelled terms of trade remaining close to their 60-year or even 140-year highs.

This commodity price bonanza has delivered eight years of tax cuts, a big expansion in middle-class welfare, billions of dollars of wasteful spending – and this year’s $50 billion budget deficit.

Yet all our previous commodity export price spikes have swiftly reversed, typically ending in double-digit inflation and recession.

A must read.

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Bloomberg: ‘Down Under Hypocrites Bet All On China’s Boom’

13 May

Bloomberg savages the hypocrisy and incompetence of Labor’s budget:

All in.

That’s essentially the message Treasurer Wayne Swan is sending about Australia’s odds-defying bet on Chinese growth. The government’s latest budget pledges to deliver the quickest improvement in the nation’s finances on record — without specifics about how that will happen.

The absence of such detail is telling and can be boiled down to one thing: an even bigger gamble on China’s 10 percent growth and its voracious appetite for Australia’s resources. It’s risky to so fully hitch the hopes of 23 million people to a single nation that’s still developing.

Hypocrisy was in the room last month when Australia rejected a Singaporean offer for its stock exchange. Swan called slapping down Singapore Exchange Ltd. (SGX)’s $8.8 billion bid for ASX Ltd. a “no brainer.” The whole shareholders-come-first vibe that pervaded before the global crisis lost its oomph among voters.

The debate distracted attention from a far bigger takeover happening by stealth: China’s designs on all things down under. Down under the ground, that is.

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Is China Bankrupt?

3 Aug

From MSNBC:

All governments lie about their finances. At worst, as in Greece and the United States, the lies are bold and transparent. Everybody knows the emperor has no clothes, but no one want to say so. At best, as in Canada and China, the lies are more subtle – more like a magician’s misdirection than a viking raider’s ax. Look at these great numbers, the lie goes, but don’t look at those up my sleeve.

There’s a good argument to be made that if you look at all the numbers, instead of just the ones the budget magicians want you to see, China is indeed broke…

… China has a history of taking debt off its books and burying it, which should prompt us to poke and prod its numbers.

A must-read article. Poke and prod China’s numbers here.

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Joyce: Rudd Expects Miners To Pay Off The Debt

20 May

Media Release – Senator Barnaby Joyce, 19 May 2010:

Senator Barnaby Joyce, whilst on his “Straight Talking Tour” in Deniliquin said, “It was interesting to read the answer given yesterday to a question I asked on notice at the Senate Standing Committee on Economics in February as to what our debt position is.”

In 2008, there were six countries in the OECD that had higher net foreign debt as a proportion of GDP than Australia. These countries are Iceland (355 per cent of GDP), Portugal (72 per cent of GDP), Hungary (72 per cent of GDP), Greece (68 per cent of GDP), Spain (66 per cent of GDP) and New Zealand (60 per cent of GDP). In the same year, Australia’s net foreign debt amounted to 56 per cent of GDP. Around 10 per cent of Australia’s net foreign debt is held by the public sector. In the US, around 64 per cent of its net foreign debt is held by the public sector while in Greece, the public sector holds more than 100 per cent of the stock of net foreign debt.

“I also note that our Commonwealth gross public debt has gone from $139.182 billion to $141.282 billion in the last week. In addition to this is the fact that the aggregate borrowing of the states’ non-financial public sectors is expected to be $164 billion in 2009-10. There is also the money owed by entities such as utility companies that have borrowed money to pay state so-called ‘dividends’. As these debts do not come under the government sector financial reporting, who knows how much they owe.

Are we to believe that this government with their current track record has the capacity to fix things up over the next three years?

The Labor government solution is to go to the only section of the community that is making good money and to impede them on the capacity to pay off the debt. Australia has to maintain the vibrant integrity of its mining sector especially if the global economy starts to peel off through the ructions that are currently being seen in Europe. A resource tax would have to be the most foolish decision that a government could make at this point of time in global economics.

The Labor Party members have to ask themselves one question. If the mining sector is not bringing in money to our nation, and the agricultural sector, which they have managed to tie up with green and red tape, is not bringing in the money, then where exactly are our export dollars going to come from? Export dollars underpin the service industry where the vast majority of Australians work. You may not work in an export industry, but your pay depends on them.

In simple terms, if no money turns up on the table from export dollars, there is no money to pass around the table to reflect our GDP and ultimately to pay the debt on what is one on the most indebted nations on earth.”

More Information- Jenny Swan 0746 251500 / 0438 578 402

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Is The China Bubble Starting To Burst?

14 May

We’ve just seen the Rudd Government present a truly fantastical budget.  One that relies completely on the hopeful fantasy that the Chinese building boom will continue for a decade to come, and so, a “great big new tax” on the “super profits” of mining companies can return the budget to surplus.

A lovely story.

But what do professional strategists on the China economy have to say about China’s prospects?

From MarketWatch:

China’s economy is teetering on the edge of a major slowdown … according to a noted China strategist.

David Roche, an economic and political analyst who manages the Hong Kong-based hedge fund Independent Strategy, says the world’s third-largest economy is now on the brink, faced with the inevitable reckoning that follows an extended bank-lending binge.

“We’ve got the beginnings of a credit-bubble collapse in China,” said Roche, predicting the economy will likely cool from its stellar double-digit growth rate to a 6% annual expansion as a result.

While that may not sound bad, Roche believes the collateral damage from the cooling will be anything but mild, as the banking sector comes under pressure from cumulative years of bad investment and mispriced capital.

The emerging picture is one of a substantial contraction in credit growth and infrastructure expenditure, he says.

The shrinkage is grim news for an economy heavily dependent on such outlays. China managed to escape recession during the global crisis mainly because of bridges, railways and other infrastructure-project spending, estimated to have accounted for about 90% of economic growth last year, according to Roche.

About 85% of the funding for these projects was arranged by local government financing vehicles “borrowing money they can never repay” from state-owned banks, says Roche. Nearly 3 trillion yuan ($440 billion) of the 11 trillion yuan extended to these entities has been wasted or stolen, he estimated.

***

More worryingly, as bank lending dries up, there won’t be the firepower to sustain new investments in infrastructure, eroding a core pillar of China’s growth model, he said.

Much of the focus on potential asset bubbles in China has been on the property sector, but Roche suggested that housing-price inflation is intertwined with unsustainable gains in other areas.

***

A slowing Chinese economy could also have ramifications for the resource sector.

A scaling back of the infrastructure-building binge is negative for industrial commodity prices such as copper and iron ore, with the latter potentially slumping 50%, he said.

“I would not own resource stocks,” Roche said.

Iron ore prices to fall by 50%?

Hmmmmm… any guesses what that would do to the “super profits” of mining companies? And to the “great big new tax” that Rudd Labor is relying on to get the budget back to surplus?

UPDATE:

Calculated Risk notes that the Shanghai Composite Index is falling already –

Keep an eye on the Shanghai index (in red). It appears China’s economy is slowing.

Shanghai SSE in red (click to enlarge)

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