Tag Archives: debt and deficit

Labor Threatens Super Funds To Prop Up The Banks

5 Apr

Illustration by Zeg | Click to enlarge

I accept that some readers may not see the red flag that I see waving all over the following story.

So be it.

In my view, what we have here is a clear preliminary step down the path to government “intervention”, to “save your super” from the risks of the “volatile” sharemarkets.

First by “encouraging”, later forcing, your super fund to invest where the government dictates is a “safe” place for your retirement savings.

That could be the “safety” of government bonds.

Or perhaps, as strongly hinted at by this story, it could be the “safety” of bonds issued by our banking system … who just happen to be “overleveraged” according to the ratings agencies, and recently pitched threatened the government to help them with additional sources of funding in order to “save the mining boom”.

The ‘softening up’ process, the art of steadily planting seeds in the public mind and preparing them for a future event, is called “perception management”.

Here is Business Spectator’s Stephen Bartholomuesz making the argument for the government … prompted by a speech from the former Finance Minister Lindsay Tanner, in which he clearly threatened “government intervention” to force super funds to invest where the government wants them to (more on Tanner’s threat below):

Former federal finance minister Lindsay Tanner may have been overstating the risk of government intervention to correct a perceived bias towards equities within superannuation fund portfolios yesterday but the issue he was highlighting is worthy of further discussion because it contributes to the debate about the need for a developed corporate bond market in Australia.

In a speech to the Ownership Matters conference in Melbourne yesterday Tanner actually approached the issue of the overexposure of super funds to equities from that starting point – the absence of a developed domestic corporate bond market.

The disproportionately high levels of exposure to equities in most balanced fund portfolios is only one strand of the explanation for the absence of a functioning domestic bond market, albeit a material one.

During the great decades-long bull market in equities leading up to the global financial crisis, the bias towards equities in most super funds generated returns that, from a long-run perspective, were aberrational. The GFC reminded investors, and super fund members, that while equities might deliver higher returns relative to most other asset classes over the long term they do so because they carry greater latent risk.

As the population ages, the tolerance for risk will decline. Indeed, with the GFC as a wake-up call, it has already declined. Hence the deluge of funds that has poured into term deposits and other fixed interest securities as investors and super funds have been introduced, painfullly, to the concept of risk-adjusted returns.

Translation: For decades, everyone’s super went into the sharemarket; thanks to the GFC everyone has lost a fortune; now, everyone is more risk averse, and so their money is going into lower risk investments like term deposits.

For the foreseeable future the environment for equity markets is likely to be quite different to that which prevailed before the GFC.

That would suggest that, particularly for the demographic bulge moving towards retirement, the appetite for equities will diminish and therefore the proportion of equities within fund portfolios will trend and remain lower than it was pre-GFC.

As I was saying.

And now – for those with eyes to see – the red “danger!” flag appears (emphasis added):

We’ve already seen a flurry of listed corporate bond issues earlier this year as companies have capitalised on the risk aversion and desire for yield of investors, particularly the rapidly-growing self-managed fund sector.

If the major banks were to issue listed bonds, and the federal government ever delivers on its promise to facilitate the listing of Commonwealth government securities – which would provide a pricing benchmark for all other issues – a properly functioning, liquid corporate bond market that can be accessed by retail investors and SMSFs could be developed, one which might also encourage the large super funds to become bigger players.

As regular readers know, this clearly hints at exactly what I have long argued is the inevitable fate of Aussies’ super.  Our all-knowing, all-caring Big Brother government – whether Labor or Liberal matters not – will decide to “help” you, by creating mechanisms to redirect some (and eventually, all) of your super into “investments” that the government deems to be “safer” than the share market, and/or “investments” that are “in the national interest”.

They already tried last year, by “encouraging” super funds to invest in their “nation building” infrastructure programs like the NBN. Fortunately, the super funds were smart enough to resist.

But when push comes to shove, you can be sure that the government will move on from “encouraging”, to enforcing.

For your own good, of course.

Back to Batholomuesz:

Given the post-GFC environment for the major banks – they are holding a lot more capital, more and more expensive liquidity, experiencing higher funding costs and face the imposition of a simple leverage ceiling within an economy where households and businesses are deleveraging and demand for credit is therefore very weak by historical standards – it is unlikely that they will return to intermediating mid-teens credit growth any time soon.

Indeed, having had a nasty experience during the GFC, when their own overexposure to wholesale funding markets highlighted their own vulnerabilities, it is likely that the banks will manage their balance sheets far more conservatively in future than they have in the past, with an acute focus on the stability of their funding.

One of the reasons the major banks built up their reliance on offshore wholesale funding was the increasing diversion of Australian savings from bank accounts to super – and a majority of it into equities – as the super system grew over the past quarter of a century.

Bartholomuesz clearly argues that the banks are overreliant on offshore funding because you and I preferred to have our super in the stock market. The thinly-veiled implication is that the banks’ current problems are really our fault, you see. And the unstated implication being, that it makes sense for our super to fix that problem now, by redirecting it into bonds issued by those “safe as houses” banks.

More of those funds within the super system will, if fund members and their trustees shift to a more balanced and defensive posture and (thanks to the GFC) have a better understanding of risk-adjusted returns, become available to both the banks and corporate borrowers.

And there you have it.

We all just need to “have a better understanding of risk-adjusted returns”, and everything will be rosy … we will want to have our super invested in bonds issued by the big banks.

Even if it is just a “relatively modest” amount of our super:

Given the size and growth rate of the super system, relatively modest re-weightings of fund portfolios away from equities to fixed interest securities could have very significant impacts and could – indeed, should – occur without any need for government intervention.

That red flag is waving a little more strongly now.

And if we still don’t want to have our super propping up the banks?

Bartholomuesz’ final sentence rings out like the death knell I believe this article signals:

There probably aren’t too many super fund members who’d be enthusiastic about the prospect of Wayne Swan dictating how their savings were deployed.


Won’t stop him though.

Take the carbon tax CO2 derivatives scam as a case in point.

And if we consider closely what Lindsay Tanner wrote in the Australian Financial Review yesterday, then I think it is crystal clear what the government has in mind:

As the vast sums involved here are compulsorily directed to a particular form of saving which enjoys preferential tax treatment, those managing the funds can hardly go on about the sanctity of the free market. As concerns about corporate funding rise, and worries about risk in our super system mount, the only guaranteed way to avoid government intervention is for the major players to deal with the issues themselves.

For those with eyes to see and ears to hear, that is a clear threat to super fund managers.

Redirect Aussies’ super into propping up the banks.

Or the government will make you.

Our Media In $140 Billion Lie For Wayne

4 Apr

What hope is there, dear reader?

If it is not Wayne Swan himself telling lie after lie about the economy, and the government’s financial record, then it is the mainstream media telling lies for him.

Here’s a classic example:

Last Thursday Wayne Swan said tax revenue had fallen $140 billion since the GFC, $90 billion of which has been due to lower company tax.

That was Alan Kohler in Business Spectator. Who we already picked up for inaccurate parroting of Wayne’s lies yesterday.

Here’s Sky News whistling the same false tune:

… having come through such tremendous global turbulence, one of the after-effects has been the revenue impact, with some $140 billion lost over five years.

Thanks to news wire service AAP, this lie was repeated across the mainstream media over recent days.

And the truth?

The truth is that Wayne did not actually say this in his speech last Thursday. What he did say, was that there was a write-down of $140 billion in revenue:

The bulk of the tax receipts write-down post GFC can be explained by write-downs in company tax. Out of a total write-down of $140 billion, company taxes contributed around $90 billion over the five years to 2012-13.

And what that really means, in simple truth, is that the Treasury “experts” over-estimated likely revenues by $140 billion in their original budget estimates. And then, they later had to “write-down” the amount they did not actually get. Which the media then lazily reported in the form of a tacit excuse for this government’s massive budget deficits. As though money you only hoped to get, and then didn’t, is somehow a “loss”.

But can we really blame the media entirely?

After all, here’s Wayne today – after the media had been dutifully reporting the $140 billion writedown as a “loss” for days now – himself repeating their $140 billion lie in a formal statement:

…the global financial crisis and the revenue challenges it brought to state and federal budgets meant it was unrealistic for any treasurer to pretend a drop in revenue was unique to their state.

‘Nor is it realistic to suggest state revenue losses are anywhere near the $140 billion the federal government has lost due to the global crisis,’ Mr Swan told AAP in a statement.

As we saw yesterday (“Wayne’s ‘Per Cent Of GDP’ Lies Debunked”),  the real truth, hidden behind a smokescreen of half-truths, cleverly worded misleading and deceptive statements, accounting tricks, and outright lies, is that the government is not making a “loss” on tax revenues at all. Indeed, they are pulling in tens of billions more Total Revenue now, than they were in the 2007-08 year, pre-GFC.

The real reason why the budget is in such a parlous state, and why our sovereign AAA rating is now in jeopardy, is because the ALP’s rarely-mentioned spending is still totally out-of-control. As I reported yesterday:

According to Wayne’s Treasury’s most recent published figures, in 2011-12 this government will rake in $37.41 billion more revenue than in 2007-08, pre-GFC.

But they will spend $91.64 billion more than in 2007-08, pre-GFC.

I have not seen a single journalist or economic commentator in the land actually report the simple, plain truth about this government’s actual budget position.

Instead, they lazily report repeat the Government’s lies. Or, lazily report lies all by themselves.

It is inexcusable.

It does not matter what the government says, in speeches or press releases. Indeed, this government is so adept at twisting words, glossing over facts, and using misleading and deceptive statements, the smartest thing to do is to assume that everything they say is a half-truth, misdirection, or blatant lie, and go check the data for yourself.

Every time.

Anyone can go to the government’s Budget website, look up the Past Budgets information, compare the basic Revenue and Expenditure figures, and see the simple truth. In mere minutes.

The low calibre of our supposed “experts” and intellectual “betters”, whether they be in politics, or the commentariat, truly causes me to despair for our country.

Labor’s Inbred, Debt-Fed Chickens Coming Home To Roost

3 Apr

As long predicted by your humble blogger, Labor’s economic chickens are coming home to roost.

It looks like the first chicken entering the coop as our long economic night begins to fall, is the sovereign AAA credit rating.

All the other inbred, debt-fed chickens mentioned here over the past two years, will be following close behind.

Houses and Holes at MacroBusiness has the story (my emphasis added, in quoted story):

From S&P and Fitch via the AFR this morning comes the hard, cold truth about the trap in which the Australian economy is caught:

Federal Treasurer Wayne Swan has been put on notice by ratings agencies to deliver a tough budget next month to protect Australia’s coveted AAA credit standing.

Australia is one of only 14 countries in the world with a top ranking from each of the three major agencies but analysts at Standard & Poor’s and Fitch Ratings are concerned about the banking system’s reliance on overseas funding.

The AAA rating is pinned on the strength of the government’s fiscal position and if it doesn’t have that, we have less cause to see it as a AAA-rated sovereign, given how weak the banking system is in terms of its external liquidity,” said S&P credit analyst Kyran Curry.

“To be consistent with maintaining a AAA rating . . the government would really need to stabilise its fiscal position as soon as possible.”

Mr Curry said the external liquidity of Australia’s banking system was“quite weak” and the industry was overleveraged.

Exactly what your humble blogger has been arguing, ever since launching this blog over 2 years ago. Our real economic weakness, is the fundamentally immoral, fraudulent, parasitical, house-of-cards banking system, whose continued existence and blood-sucking profits has been guaranteed by the government (meaning, by you, the taxpayer). Just like it has in the rest of the now-slowly-collapsing Western world.

“If there is stress in the banking system like in Europe, [its] liabilities could migrate on to the government’s balance sheet,” he said.

Fitch Hong Kong-based director Art Woo said banking sector liabilities were always a “potential concern”.

…“The reality is that, if they don’t bring the budget back into surplus, we have to judge why,” Mr Woo said. “Is it because they haven’t put the right measures in place or because you get a cyclical downturn and the revenues don’t come through?”

…“This budget is very important to us,” Mr Curry said. “We will be looking more broadly for the government to demonstrate that it can remain committed to stabilising its debt dynamics over the medium term. This government needs to have a strong balance sheet to offset some of the weaknesses that we see for the sovereign,” he said.

“The main issue is the importance of maintaining a strong balance sheet and running surpluses over the cycle to give the government the sort of flexibility it had pre-2009 to respond should the external environment weaken and present a problem for the banking system, which is highly leveraged.”

…“It’s important that the government stabilises its fiscal position as soon as conditions allow,” Mr Curry said. “We are not necessarily looking for a return of the balance to surplus this year but we would be looking for a continued path to stabilise its fiscal position.”

Through galactic incompetence, pathological self-interest, rampant self-deception, and mindless obeisance to the “bozos” (h/t Alan Kohler) in the Treasury department, the Labor government has now firmly wedged itself.

And the nation.

If Labor does actually (ie, not just on paper, in the budget ‘forecast’) cut government spending by the enormous amount necessary to achieve a budget outcome (not ‘forecast’) that would keep the ratings agencies happy, Australia is absolutely assured of a recession. Why? Because the private sector economy is too weak already to cope with a huge cut in government spending. Meaning … unemployment up => government revenues (income tax) down => government expenses (unemployment benefits) up => government budget deficit worse => credit rating cut more, PLUS mortgage arrears up => defaults up => bank “asset” values down => bank wholesale funding costs up => mortgage interest rates up => more arrears & defaults => bank/s collapse => government bailout/s => sovereign credit rating cut more => economic death spiral, a la Ireland.

If Labor does not actually cut government spending by the enormous amount necessary to achieve a budget outcome (not ‘forecast’) that would keep the ratings agencies happy, Australia is also absolutely assured of a recession. Why? Because as seen above, the ratings agencies will slash the sovereign credit rating. Meaning … bank wholesale funding costs up => mortgage interest rates up => mortgage arrears up => defaults up => bank “asset” values down => bank wholesale funding costs up => mortgage interest rates up => more arrears & defaults => bank/s collapse => government bailout/s => sovereign credit rating cut more => economic death spiral, a la Ireland.

It is all over bar the loud squawking and fighting for an elevated perch and shitting ourselves everywhere, folks.

We are stuffed.

Now, more than ever, it is just a matter of time.

Barnaby was right:

“If you do not manage debt, debt manages you” – Feb 2010

What a terrible shame for each and every one of us, that all the “experts” in politics, Treasury, the RBA, the Canberra Press Gallery, and the leftarded twittering armchair commentariat, poured torrents of rabid scorn and ridicule on the unpolished, plain speaking, “little old bush accountant” from St George way back in late 2009 and early 2010.

If only we had all listened to Barnaby then – when the total Gross Debt was $117 billion, versus $237.5 billion today – then perhaps, just perhaps, we would have had a slim chance of getting out of the enormous hole that Kevin and Julia and Wayne and Lindsay and the Treasury department #JAFA’s have collectively dug for us.

Big Banks Call For Government To Raid Your Super To Give To Them To “Save The Mining Boom”

31 Mar

Well, no. That’s not exactly what they said.

But if you have the ability to look beyond the end of your nose; if you have seen that governments across the “developed” world have been stealing their citizens’ super to prop up their own and their banks’ finances; if you have seen the dire state of the Federal budget; and if you have seen the sneaky policy quietly introduced by the Liberal Party, and now implemented by the Labor Party, then the unstated implication is clear.

Some day soon, a tapped out Australian Government – whether Labor or Liberal – will “borrow” your super to give to the banks.

In our “national economic interest”.

In the opinion of your humble blogger, this is as clear and as inevitable as the rising of the sun on a crisp cloudless morning.

The rays illuminating this truth have been faintly flickering over the horizon, ever more brightly, for well over a year.

Now, it is dawning.

The only question is this – Who is awake early to see it?

From the Australian (emphasis added):

Funding shortfall threatens resources projects

THE economy’s ability to reap the full benefits of the once in a generation resources boom is in jeopardy, with major projects facing a funding gap as more foreign banks leave the Australian market and local lenders struggle with ongoing turmoil in financial markets.

The big four banks all warn that a record pipeline of hundreds of billions of dollars worth of resources-related projects cannot be met by the banking sector alone while it is being crunched by current economic instability and is being forced to raise its capital levels to comply with new global banking rules.

A range of submissions from the major banks to a Productivity Commission inquiry into the future of the Export Finance and Insurance Corporation (EFIC) show the banks are worried the funding shortfall is set to worsen.

There are fears that a funding gap will exacerbate the “hollow nation” notion that Australia is not capitalising on the boom.

Oh dear! Where to begin?

On the one hand, there are many (including your humble blogger) who have cogently argued that both the Treasury Secretary’s and RBA Governor’s economic policy settings are deliberately geared to hollowing out the rest of the economy to “make room” for the mining boom. Both Treasury and the RBA have openly admitted this. Their deliberate high AUD policy is the most disastrous example. But now, the new claim is that the Big Banks need an extra source of funding, or else the nation will be hollowed out by not maximising a mining boom?! Orwell would be proud.

The biggest bank, the Commonwealth, predicts that the number of banks lending in the Australian market will shrink further.

Translation: We know that Wayne has made “increased bank competition” a mantra, hoping to placate voters’ anger; what better way to pitch for government “help” than to warn (threaten) of a future with reduced competition.

National Australia Bank’s group executive of wholesale banking, Rick Sawers, said there was a risk that funding to the resources sector could become constrained, which would ultimately hold back the sector’s growth.

“As project capital costs have increased, particularly in the infrastructure and natural resources sectors, maximum individual bank exposure amounts are being tested,” Mr Sawers said.

He said “additional sources of capital” were required.

Mr Sawers said Australia needed to ensure that international sovereign wealth funds were encouraged to invest in the local market.

The banks argued that there was a role for EFIC to provide funding to ensure export-oriented projects could be developed.

So if it is true that the big banks are going to have difficulty accessing enough money from overseas to finance Wayne’s oft-touted “massive investment pipeline” in mining, where do you think the extra money is going to come from?

If investment by international sovereign wealth funds in Australia’s mining boom was such an obvious winner for them, there would be no problem, and no need to “encourage” them, now would there?

There is another “sovereign wealth fund”, that could more easily be “encouraged” by government to “invest” in the Big Banks.

Consider: What is by far the biggest pool of “savings” that could be quickly and easily tapped, by a tapped out Federal Government?

Why, the fourth largest retirement savings pool in the world, of course! The $1.3 Trillion in Aussies’ combined superannuation savings. The pool of funds described by Minister for Superannuation and PM-in-waiting, Bill Shorten, as “our” “sovereign wealth fund”, a “significant national asset” that “strengthens our financial sector“:

Superannuation is our sovereign wealth fund

This week marks 12 months exactly since the government announced plans to take compulsory superannuation from 9 per cent to 12 per cent.

… our superannuation savings place Australia fourth in the world. Its $1.3 trillion in funds under management through superannuation significantly boosts national savings and provides greater retirement security for millions of Australians. Superannuation is also a significant national asset because it strengthens our financial sector.

It is the same pool of funds that Gillard has already tried “encouraging” to invest in government “infrastructure projects”, like the NBN –

The Gillard government’s 2011-12 budget has proposed a raft of initiatives aimed at encouraging superannuation fund and private investment in infrastructure projects.




Back to the Big Banks’ veiled threat:

Westpac warned that the major Australian banks were already facing “considerable pressure” because of large resource-related projects and the ongoing squeeze in global financial markets, while other funding sources “cannot meet the demand for funding created by the historically strong project pipeline in Australia at present”.

ANZ said an estimated $109bn in debt would be needed to finance projects this year and Germany’s Deutsche Bank said the impact of the global financial crisis was still being felt four years on as banks were forced to restrict their lending.

The banks’ warnings are contained in new submissions to Julia Gillard’s chief micro-economic adviser in a bid to convince it to reverse a recommendation that EFIC be cut back.

The Productivity Commission has accused EFIC, the government’s export credit agency, of handing out damaging subsidies to big exporters.

Now do you understand why the ALP government has passed legislation to increase the compulsory superannuation levy on employers by 33.3% – from 9% to 12% – and is using the blatant lie that the mining tax will pay for the increase to smear over the truth, that it is small business who will wear the extra cost, even though the Treasury and RBA’s policy settings are already sending small businesses bankrupt in record numbers?

Now do you understand why Tony Abbott claims that he does not support the superannuation increase, but has refused to repeal it on becoming PM?

Make no mistake, dear reader.

That is the new dawn coming over the horizon.

What has already happened in countries like the USA, UK, France, Ireland, Portugal, Poland, Hungary, Argentina, and many more, will happen here too.

It is just a matter of time.

For more, here is a selection of previous articles, in reverse chronological order:

Grand Theft Super – A Very Subtle Form Of Theft

Another Government Raid On Citizens’ Super

It Has Begun – Labor Steals Liberal’s Idea To Steal Your Super

“And Now They’re Coming For Your F***ing Retirement Money”

Stealing Our Super – I DARE You To Ignore This Now

Money Morning Agrees – Your Retirement Savings Under Threat

Now The UK Government Is Stealing Super Too

US Treasury “Borrowing” Of Federal Pensions Brings Theft Of Private Pensions One Step Closer

Liberal Party’s Sneaky Plan To Steal Your Super To Pay Labor’s Debt

No Super For You!!

$12.5 Billion And Then It’s “Credit Transaction Declined”

31 Mar

From the Australian Office of Financial Management (AOFM), 30 March 2012:

Debt ceiling?

$250 billion.

Typical weekly borrowings?

Around $2 billion.

With any luck, the government will just make it to the May budget before hitting the debt ceiling.


So you can be certain that, just like last year, there will be a little piece of legislation quietly slipped into the May budget, to raise the debt ceiling.


For the fourth time in five years.

Looks like I was right:

2 November 2011 – “Australia On Target To Hit Debt Ceiling By Mid-2012”

13 March 2012 – “Australia Debt Ceiling Hit By June”

Oh yes … did I forget to mention that on latest RBA figures, around 84% of our debt is owed to “non-residents”?


Thanks to Kelly in comments who correctly notes that the title should read “$17.15″ billion till credit transaction declined, as the actual amount issued subject to the Commonwealth Inscribed Stock Act 1911 is $232.85 billion, as noted in the fine print in the last line of the screenshot above. Of course, this begs the question “what kind of debt instrument have they issued to the value of $4.59 billion, that is not subject to the Act”? My first guess would be bonds used to finance the NBN, which I seem to recall reading will be listed Off Balance Sheet in the Budget (to achieve that “surplus”, you see).

Wayne’s Half-Year Earnings Report: $30 Billion Loss

1 Mar

Remember the Labor Government’s record $51.5 billion deficit in 2010-11?

They are on track to do it again this year too.

According to the RBA, Labor has racked up a $30.26 billion loss for the first half of 2011-12:

Source: RBA Statistics - E1 Australian Government Budget - Monthly | Click to enlarge

That’s just $3 billion less than the record deficit they racked up for the first half of 2010-11:

Budget Surplus/Deficit Compared - First half 2010-11 vs 2011-12 | Click to enlarge

Now, it is worth recalling that in the November MYEFO budget update, Wayne had to revise his original May budget “estimate” for a $22.6 billion deficit this year. He told us it would blow out to $37.1 billion.

Just four weeks after that new claim from the World’s Greatest Treasurer, RBA records show that he had already managed to achieve a $30 billion headline loss for the first half of this financial year.

But he is going to deliver a $1.5 billion surplus next financial year.

Honest he is.

Labor’s Budget Made Simple

31 Jan

Twitter follower @cr0atz recently brought to my attention an interesting picture of the US budget made simple. He asked me to make an Aussie version.


Click to enlarge

Now don’t let anyone tell you that debt and deficits don’t matter.

Or, that government and household budgets are “different”.

Just remember, dear reader.

Those spruiking such claims – their ideological Articles of Faith – are the same “experts” who didn’t see the GFC coming.

And now, can’t fix it either.

#JAFA’s, in other words.

Barnaby is right:

“If you do not manage debt, debt manages you” ~ Feb 2010

Pfffffffftttt! That’s The Sound Of The China Bubble Deflating

20 Dec

From Bloomberg:

China Local Debts Dwarf Official Data Prompting Too-Big-to-Complete Alarm

Click to enlarge

A copy of Manhattan, complete with Rockefeller and Lincoln centers and what passes for the Hudson River, is under construction an hour’s train ride from Beijing. And like New York City in the 1970s, it may need a bailout.

Debt accumulated by companies financing local governments such as Tianjin, home to the New York lookalike project, is rising, a survey of Chinese-language bond prospectuses issued this year indicates. It also suggests the total owed by all such entities likely dwarfs the count by China’s national auditor and figures disclosed by banks.

Bloomberg News tallied the debt disclosed by all 231 local government financing companies that sold bonds, notes or commercial paper through Dec. 10 this year. The total amounted to 3.96 trillion yuan ($622 billion), mostly in bank loans, more than the current size of the European bailout fund.

There are 6,576 of such entities across China, according to a June count by the National Audit Office, which put their total debt at 4.97 trillion yuan. That means the 231 borrowers studied by Bloomberg have alone amassed more than three-quarters of the overall debt.

The fact so few of the companies have accumulated that much debt suggests a bigger problem, says Fraser Howie, the Singapore-based managing director of CLSA Asia-Pacific Markets who has written two books on China’s financial system.

“You should be more worried than you think,” he said of Bloomberg’s findings. “Certainly more worried than the banks will tell you.

“You know how this story ends — badly,” he said.

The findings suggest China is failing to curb borrowing that one central bank official has said will slow growth in the world’s second-largest economy if not controlled. With prices dropping in China’s real estate market, economists warn that local authorities won’t be able to repay their debt because of poor cash flow and falling revenue from land sales they rely on for much of their income.

Provinces and cities are going deeper into the red to finish projects, from the Manhattan on the east coast, to highways in northwestern Gansu and a stadium fronted by Olympic rings in Hunan, central China. Many were started as part of China’s stimulus program to beat the 2009 world recession. The financing companies accounted for almost half of the 10.7 trillion yuan in all local government debt tallied by the official audit.

The 231 borrowers whose public filings were reviewed by Bloomberg raised a combined 354.1 billion yuan by selling securities this year. They have credit lines from banks of at least 2.3 trillion yuan that have yet to be drawn down, the documents show.

And in other news from Bloomberg:

China’s November Home Prices Post Worst Performance This Year Amid Curbs

China’s home prices posted their worst performance this year with more than half of the 70 biggest cities monitored in November recording declines after the government reiterated plans to maintain property curbs.

New home prices dropped from the previous month in 49 of the cities monitored by the government, compared with 33 posting decreases in October, the national statistics bureau said in a statement on its website yesterday. Only five cities had gains in home prices, according to the statement.

“Home prices will fall further as the government’s tightening continues,” said Jinsong Du, a Hong Kong-based property analyst for Credit Suisse Group AG. “We’ll see more small developers file for bankruptcy or sell off their assets next year.”

Hmmmm. About Saxo Bank’s “Outrageous Prediction” #4 that we saw yesterday:


The Chinese locomotive has been losing steam throughout 2011 as investment and real estate led growth becomes harder and harder to come by due to diminishing marginal returns. The effects of the slowing of the up-and-coming Asian giant ripple through Asia Pacific and push other countries into recession. If there ever was a country dependent on the well-being of China it is Australia with its heavy dependence on mining and natural resources. And as China’s demand for these goods weakens Australia is pushed into a recession, which is then exacerbated as the housing sector finally experiences its long overdue crash – a half decade after the rest of the developed world.

Not so outrageous, methinks.

Indeed, precisely what we have long been forewarning.

Pedal To The Metal – Gillard Shows Rudd How To Drive Up Debt

13 Dec

As an avid motorcyclist and former GT Falcon owner, your humble blogger can certainly vouch for the thrilling adrenalin rush one experiences from serious acceleration.

But it seems I have a thing or two to learn from our flame-haired PM about getting thrust in the back.

Former PM Kevin Rudd knows all about it, as the chart below demonstrates:

Click to enlarge

Interesting, is it not?

The epic acceleration in government debt under Kevin Rudd abruptly halted for two months, immediately after Gillard knifed him.

She was distracted, you see. Eyes off the road.

Too busy bending over trying to quickly tune in radio 1ETS and 2MRRT before the 2010 election.

Election over, and deal done with the Greens and “Independents” to form government … then instant pedal to the metal.

Given it was then 2 years since the first GFC peak had passed us by, one can only wonder just what Julia was accelerating away from.

It is certainly clear what we are now rapidly accelerating towards.

In case you were wondering, that little flat spot about $20 billion below the $200 billion line?

Yep … it’s the period around the May 2011 budget.

Can’t be racking up the debt at a rate of $1 – $2 billion per week when the big Budget night is coming up. Especially when you are trying to distract everyone’s attention from the upcoming record deficit announcement, by lying about jobs creation.

Budget passed, provisions to steal your super enacted, debt ceiling raised by 25%, financial year ended … and it’s pedal to the metal again.

On the fast track to hit the $250 billion debt wall by mid-2012.

The chart above shows monthly CGS outstanding up to end November 2011.

So far this month, Julia has added another $4.5 billion to the total – now $223.4 billion.

With another $3 billion to be added this Thursday 15th.

$7.5 billion in a fortnight.

Forget CO2 … I reckon she’s flicked on the N2O.

Otherwise known as “laughing gas”:

“Our Debt Has A Life Of Its Own And Is Out Of Control”

7 Dec

Barnaby writes for The Drum, on Their ABC (h/t @margotdate):

What to do with all this water

Why is it that every time the Labor party involve themselves with anything that relates to competency it turns into an unmitigated disaster?

Why is it that every time you look to the details behind their doorstop interview they are just never there? There is a pattern of behaviour that is quite evident in this Green-Labor Party administration. When they announced the NBN, the largest infrastructure program in the nation’s history – larger than the Snowy Mountain Scheme – there was no cost benefit analysis, and of course we are now suffering the affliction of a monster that is starting to commercially wander around the yard in a very similar fashion to a big white elephant.

Our desire to cool the planet via a carbon tax works on the rather peculiar premise that there will be a global climate change agreement by 2015. There is not even a sign of that, but we handed away one of our greatest strategic advantages, cheap power. Australia’s plan is nothing more than a mad gesture which no-one else is following and no-one cares about. On top of this, the only climatic effect it will have is inside buildings rather than outside, as people find they can’t afford to keep themselves warm in winter and cool in summer.

Our debt, which as I stated years ago would get a life of its own and go out of control, now has a life of its own and is increasingly out of control. We are heading towards our third debt ceiling. We have increased the ceiling from $75 billion to $200 billion to $250 billion and it is not stopping.   Lately we have been borrowing $2 billion a week and our Gross Debt is now $221 billion. If we don’t depressingly extend the nation’s credit limit again, then soon the presentation of our nation’s credit card at the checkout will result in the attendant telling us that “transaction declined, see bank for details.”

Now this pathological ineptness in management has arrived in water policy. Your government is now the biggest irrigator in the country through the Environmental Water Holder, Ian Robinson, but instead of watering spuds and onions, they water 2,400 venues for frogs and swamps.

In the very last sentence of the Commonwealth Environmental Water Holder’s 2010-11 annual report, Mr Robinson states that “the Commonwealth environmental water is required to be managed in accordance with the Environmental Water Plan, which will be set out in the Basin Plan.”

Mr Robinson only wrote this in July this year but it is already out of date. The draft Basin Plan released last month does not include an environmental watering plan.  Instead, that task will now be flicked to state governments, who won’t need to come up with one for another three years.

A farmer will tell you exactly how they get their water, exactly how much water is stored in dams, how much water is lost when it is moved to a field to water a crop and how much water it takes to water a crop through the season.  They will also be able to tell you how much is left to start next year’s crop.

Every farmer has their watering plan. If a farmer didn’t have a watering plan, they wouldn’t be much of a farmer.  The Commonwealth Environmental Water Holder currently has 1,075 GL – 1,075 billion litres – of water. Quite a bit; in fact more than what would fill Sydney Harbour twice and they are buying much more. This is to water 2,442 environmental assets, 2,442 environmental crops so to speak.

But when the very valid question is asked, “where is your watering plan?” the predictable answer comes back – they don’t have one. It’s obviously in the draw with the cost benefit analysis of the NBN, the global modelling of the carbon tax, the plan to control our debt, and a myriad of other incredible statements that come without a clue of how to deliver them.

Australia is merrily spending billions of dollars buying an asset but there is really no plan of where exactly it will come from, how it is to be used or where it will be stored. There is a rough idea, but that’s as good as it gets. When there is no plan, the environmental water is dropped arbitrarily in the river from public dams to flood out farms and close public bridges like it did on the Murrumbidgee earlier in the year, at a time when there was not a cloud in the sky. The environmental benefit of these actions is at best vague most likely unknown.

If I was back with my accountancy hat on, I would make sure I got my money off this Green-Labor client prior to starting their work; from what I have seen they are not going to be with us as a business for long.

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