Tag Archives: debt and deficit

IMF: US Faces Western World’s Biggest Crunch

18 May

From the UK’s Telegraph:

Earlier this week, the Bank of England Governor, Mervyn King, irked US authorities by pointing out that even the world’s economic superpower has a major fiscal problem –“even the United States, the world’s largest economy, has a very large fiscal deficit” were his words. They were rather vague, but by happy coincidence the International Monetary Fund has chosen to flesh out the issue today. Unfortunately this is a rather long post with a few chunky tables, but it is worth spending a bit of time with – the IMF analysis is fascinating.

Its cross-country Fiscal Monitor is not easy reading and is a VERY big pdf (17mb), so I’ve collected a few of the key points. The idea behind the document is to set out how much different countries around the world need to cut their deficits by in the next few years, and the bottom line is it’s going to be big and hard (ie 8.7pc of GDP in deficit cuts around the world, which works out at, gulp, about $4 trillion).

But the really interesting stuff is the detail, and what leaps out again and again is how much of a hill the US has to climb. Exhibit a is the fact that under the Obama administration’s current fiscal plans, the national debt in the US (on a gross basis) will climb to above 100pc of GDP by 2015 – a far steeper increase than almost any other country.

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Another issue is that, according to the IMF, the cost of extra healthcare and pensions will increase by a further 5.8pc over the next 20 years. This is the biggest increase of any other country in the G20 apart from Russia, and comes despite America having far more favourable demographics.

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But level of debt isn’t the only problem. Then there’s the fact that the US has a far shorter maturity of government debt than most other countries, meaning that even if it weren’t borrowing any extra cash it would have to issue a large chunk of new stuff each year as things are.

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What does this mean? Basically with a large financing need, you are particularly vulnerable if the market suddenly decides it doesn’t want your debt, since those extra interest rates they charge you mount much more quickly. Japan, by the way, is the one with a real problem on this front. It could hardly be any more vulnerable to a sudden drop in investor demand, and many over there fear that the moment domestic savers stop buying JGBs, the country is doomed to Greek-style collapse…

Read the entire article (including IMF charts) here.

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Labor’s $50bn Budget Fraud

13 May

Economist Terry McCrann exposes yet more of the same blatant fiddling the books in this year’s Budget from Labor.  $50 Billion worth of “fiddling”.

From the Herald Sun:

Wayne Swan’s budget is built on two great fiddles. Appropriately, the fiddles relate to the Rudd Government’s two great stupidities – the National Broadband Network and the Emissions Trading Scheme.

The fiddles enable the government to hide up to a massive $50 billion of new spending. So much for the claim they’ve pulled the pursestrings tight.

They also enable the government to ‘keep’ the growth in spending in the 2013-14 year to just 1.9 per cent. Without the fiddles, spending would actually have grown by at least 3.5 per cent in that year – shattering the government’s 2 per cent ceiling.

Now yes, the government’s second great stupidity, the ETS, has been ‘deferred’, while the first marches on…

Ditching the ETS enables the government to take up to $30 billion of proposed spending on it out of the budget and replace it – or most of it – by new spending. With, in an exercise of fiscal magic, no increase in the total spending number!

While separately the $26 billion-going-on-$43 billion to be spent on the NBN is just ‘disappeared’ almost completely from the budget! …

So, put the two together – the ditching of the ETS and the “no formal response” to the NBN – and the government has quite probably hidden as much as $50 billion of very real new spending out to 2013-14.

And blown its 2 per cent growth target right out of the very dirty fiscal water.

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Barnaby’s Reminder Of The Obvious

13 May

From AAP:

Nationals Senate Leader Barnaby Joyce said he would leave it to Mr Abbott to outline the coalition’s response to the budget.

But he did take a swipe at the government’s debt position, which he said was in the range of $141 billion.

“I know this is obvious, but you have to tell the Australian people this, just because you get a surplus, doesn’t mean you’ve paid off your debt,” Senator Joyce told reporters.

Barnaby is right, of course.

You need to achieve budget surpluses – lots of them – in order to pay down your debt.

I wonder how many mainstream reporters actually know that this is obvious?  And I wonder how many reporters will heed Barnaby’s advice, that “you have to tell the Australian people this“?

Few if any, I’ll wager.  I would happily bet that a poll taken now would show that most Aussies have been thoroughly hoodwinked by the Rudd Labor and media ‘spin’ lies campaign… and think that a (claimed) return to surplus in 2012-13 means that the debt wil be all paid off.

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‘Til Debt Do Tear Us Apart

11 May

Senator Barnaby Joyce writing for The Punch yesterday:

Well, I hope you all feel comfortable that you now owe $140 billion. If you take our population as approximately 22 million, that means you owe in excess of $6300 for each man, woman and child in Australia.

I will keep talking about debt until people realise the dangerous position it puts us in. We are borrowing in excess of $1 billion each week. We see every night on the news the problems of other countries that have not dealt with their debt but have waited for the inevitable when the debt deals with you. How could we be so foolish as a nation to be mounting up debt the way we are?

Then, to all intents and purposes, nationalise half of the sector of our economy which has actually kept us from the jaws of recession – the mining sector. This is something that would be more appropriate for Hugo Chavez or Evo Morales or Castro in Cuba. Australia hasn’t experienced this sort of insanity since the failed approach by the Labor party when they decided to nationalise the banking industry in 1949.

The actions of our Government of late have been quiet bizarre – ceiling insulation, resource tax, BER, 2020 summit, fuel watch, grocery watch, war on obesity and the response to the Henry tax review that only accepted a few of the 138 recommendations.

The government has labelled these measures as a “revolution” or a “war” but really, it’s just been pandemonium.

People are genuinely getting worried that the Government has gone rogue and lost the plot.

Anyway, back to the debt. When will the Government come to the conclusion that as it keeps borrowing in excess of $1 billion a week that inevitably something is going to go “snap”?

The Government no doubt will tell us we should say “hip hip hooray” that our record deficit is not quite as big as they thought it was going to be.

Then they are going to tell us that at sometime in the future, when they cannot be pinned down, it will all get better, like the child who is going to clean up their room in three years’ time.

If there is one thing that Australians can do for themselves, it is not to get into excessive debt. There are no tricks in how you pay it off – it is just very hard work and lots of sacrifices and pain, where pain never needed to happen.

It’s always the same – the pain of paying it off is five times the joy of getting it and when you look at what the Labor Party has got us, they’ve really got us nothing, except for getting us into a lot of trouble. The resource profit tax looks like the last pill of insanity after a huge night on the town.

This budget will determine that either the Labor Party are going to start turning around the debt or it is going to confirm our worst fears about them. I clearly spelled these out at my National Press Club speech where I stated that the Labor Party has no respect for money, no capacity to handle money, and no knowledge of money.

All these fears have crystallised in their inability to grasp the nettle and immediately start turning around the debt – not in two or three years’ time, but now.

Barnaby Is Right.

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Eurozone Faces Bankruptcy, Disintegration

10 May

Could the Eurozone go bankrupt? One of Germany’s leading newspapers believes so.

From an excellent major article in Der Spiegel:

Huge National Debts Could Push Eurozone Into Bankruptcy

Greece is only the beginning. The world’s leading economies have long lived beyond their means, and the financial crisis caused government debt to swell dramatically. Now the bill is coming due, but not all countries will be able to pay it.

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The euro zone is pinning its hopes on (IMF negotiator) Thomsen and his team. His goal is to achieve what Europe’s politicians are not confident they can do on their own, namely to bring discipline to a country that, through manipulation and financial inefficiency, has plunged the European single currency into its worst-ever crisis.

If the emergency surgery isn’t successful, there will be much more at stake than the fate of the euro. Indeed, Europe could begin to erode politically as a result. The historic project of a united continent, promoted by an entire generation of politicians, could suffer irreparable damage, and European integration would suffer a serious setback — perhaps even permanently.

And the global financial world would be faced with a new Lehman Brothers, the American investment bank that collapsed in September 2008, taking the global economy to the brink of the abyss. It was only through massive government bailout packages that a collapse of the entire financial system was averted at the time.

A similar scenario could unfold once again, except that this time it would be happening at a higher level, on the meta-level of exorbitant government debt. This fear has had Europe’s politicians worried for weeks, but their crisis management efforts have failed. For months, they have been unable to contain the Greek crisis.

There are, in fact, striking similarities to the Lehman bankruptcy. This isn’t exactly surprising. The financial crisis isn’t over by a long shot, but has only entered a new phase. Today, the world is no longer threatened by the debts of banks but by the debts of governments, including debts which were run up rescuing banks just a year ago.

The banking crisis has turned into a crisis of entire nations, and the subprime mortgage bubble into a government debt bubble. This is why precisely the same questions are being asked today, now that entire countries are at risk of collapse, as were being asked in the fall of 2008 when the banks were on the brink: How can the calamity be prevented without laying the ground for an even bigger disaster? Can a crisis based on debt be solved with even more debt? And who will actually rescue the rescuers in the end, the ones who overreached?

So, the GFC is ‘over’, is it Ken?

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Roubini: Rising Sovereign Debt Leads to Defaults

30 Apr

Nouriel Roubini, one of just a dozen economists who publicly forecast the GFC, and who recently declared that ‘risky rich’ countries are in greatest danger of default, comments again on the rapidly spreading sovereign debt crisis (from Bloomberg):

Nouriel Roubini, the New York University professor who forecast the U.S. recession more than a year before it began, said sovereign debt from the U.S. to Japan and Greece will lead to higher inflation or government defaults.

“The bond vigilantes are walking out on Greece, Spain, Portugal, the U.K. and Iceland,” Roubini, 52, said yesterday during a panel discussion on financial markets at the Milken Institute Global Conference in Beverly Hills, California. “Unfortunately in the U.S., the bond-market vigilantes are not walking out.”

“The thing I worry about is the buildup of sovereign debt,” said Roubini, a former adviser to the U.S. Treasury and IMF consultant, who in August 2006 predicted a “painful” U.S. recession that came to fruition in December 2007. If the problem isn’t addressed, he said, nations will either fail to meet obligations or see faster inflation as officials “monetize” their debts, or print money to tackle the shortfalls.

Roubini, who teaches at NYU’s Stern School of Business, told attendees at the Beverly Hilton hotel that “Greece is just the tip of the iceberg, or the canary in the coal mine for a much broader range of fiscal problems.”

“Eventually, the fiscal problems of the U.S. will also come to the fore,” Roubini said during the panel discussion. “The risk of something serious happening in the U.S. in the next two or three years is going to be significant” because there’s “no willingness in Washington to do anything” unless forced by the bond markets.

Barnaby Joyce began trying to draw attention to the dangers of growing sovereign debt – warning of a coming day of reckoning in the USA and Europe and here in Australia – as far back as October 2009. As I have shown in countless posts on this blog, many leading economists, financiers, and informed commentators in other countries have been raising almost exactly the same concerns as Barnaby.

Few in Australia chose to listen.

Instead, Barnaby was ridiculed by the government and the media for every minor gaffe or slip of the tongue, his every statement misquoted or twisted out of context. With the ultimate result that he lost his position as opposition Finance spokesman thanks to the relentless attacks on his economic credibility. Despite his being better qualified to comment on finance than the entire Rudd Government economic team.

Only weeks later, those who do choose to look and listen can see ever more clearly… Barnaby Is Right.

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Cost of Living Pressures Increase

28 Apr

Media Release – Senator Barnaby Joyce, 28 April 2010:

Senator Barnaby Joyce noted today that the release of the latest consumer price index figures show that electricity prices have increased by 26%, in real terms, since the election of the Rudd Government. These results are partly due to their Minister for Infrastructure’s complete failure to build on the Howard Government’s legacy of successful National Competition Policy, as shown by reports in the Australian Financial Review today.

Senator Joyce said that “The Labor party are incapable of decisive outcomes because of their insatiable desire to put polls ahead of statesmanship. Even their own core issues, such as the ETS, are jettisoned as the need requires.

“This government has shown that they cannot deliver on bread and butter issues such as infrastructure. The implausible and pathetic episodes of spending on the home insulation program and the building the education revolution are part and parcel of Australia’s debt currently reaching almost $137 billion. But real investment to bring real outcomes in power, water, roads and rail has been left wanting.

“Minister Albanese’s claim yesterday that the infrastructure reform agenda was “as full as it ever was” simply reflects the Rudd Government’s inaction in this important area. The COAG Reform Council has reported that this government is failing to progress reform in 4 out of 8 competition areas, including energy and transport.”

Reports today in the Australian Financial Review today suggest the government is trying to reinvigorate National Competition Policy.

In response Senator Joyce commented, “What has taken them almost three years? This government has been busy announcing flashy projects and big spending but ignored the hard work necessary to get more out of our existing infrastructure stock. We have waited 12 months for the National Freight Strategy and where is the greater transparency and cost-benefit analysis that this government promised? Greater efficiency, not bigger spending, is what will help reduce electricity, gas and water prices.”

Electricity prices have increased 11 per cent a year on average, in real terms, since the election of the Rudd Government. In comparison, during the Howard Government, electricity prices increased by an average of 0.5 per cent year, in real terms.

More Information- Jenny Swan 0746 251500

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Labor Can’t Balance Fiddled Books

28 Apr

It seems Rudd Labor’s massive, panicked, and bungled response to the first wave of the GFC – roof insulation, the horrendously wasteful school buildings rort – is now making it difficult for them to keep yet another promise, to keep spending growth below 2% of GDP.

From The Australian:

The government is facing a battle to keep costs under its self-imposed 2 per cent growth cap, with blowouts in some programs and higher interest payments adding to the deficit.

Spending in the federal budget, to be released in two weeks, could be at least $10 billion higher in 2010-11 than was forecast when Treasury updated the government’s accounts last November.

Government officials confirm that the budget will forecast economic growth in excess of 3 per cent, which will trigger the rules devised by Treasury for returning the budget to surplus.

These rules dictate that once growth returns to normal, the government will keep spending growth below 2 per cent after allowing for inflation. They also require it to cover the cost of new spending with savings elsewhere in the budget and to bank any increase in tax revenue.

When the mid-year budget update was released six months ago, it looked as though the spending growth target would be easy to reach in 2010-11 because spending on the stimulus program was expected to fall by about $9bn in that year.

In one of the most popular articles I’ve written – “Labor Fakes GDP By 4.5%” – I showed from the government’s own budget documents how Rudd Labor have “revised” the historical data to artificially increase Australia’s GDP figures. Why is that important?

Because it has allowed the government to hoodwink the public and the lazy “we-check-nothing” media that they can keep spending growth below 2% of GDP.  That seems like an easy promise to make, when you’ve simply faked the GDP numbers upwards.

I also showed in “Labor: Hide The Increase” that, according to the government’s own “adjustments”, if they were required to abide by the previous traditional deflator method for calculating the effect of inflation on government spending, they would fail to meet their own 2% spending cap.

Now, we see from today’s article in The Australian, that even with all their massive fiddling of the nation’s accounts and historical records, the government is still struggling to balance their books.

Perhaps they might ask for the assistance of a qualified, experienced, and honest Accountant?

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Barnaby Attacks Julia’s BER

12 Apr

Last night Senator Barnaby Joyce appeared on Channel 7’s Sunday Night program, and blasted the massive waste in Julia Gillard’s “Building The Education Revolution” program (click here for the shocking video) –

The Building Education Revolution (BER) has become the Blatant Enormous Rip-off. This is money borrowed from overseas and off other Australians that you, the taxpayer, are going to have to repay. You repay it by going to work and paying your taxes, which are then sent off to the people we owe the money to.

When the Government does not control costs on these projects you end up working a lot longer than you needed to, to pay the debt back.

It is well worth the question whether many of the BER projects stacked around school yards are needed at all.

Are they really going to make your kids better at mathematics or english? Are they going to help them learn a second language? Or are they, in many instances, just over priced trinkets?

The big black signs that are adorning the perimeters of these schools where these projects are, say that this is part of an “Economic Stimulus Package”.

Now I don’t know whether you are getting stimulated by it but you are certainly getting touched.

People have seen the Labor Government coming and they are taking them for all that they are worth.

A fool and his funds are soon parted friends. Every week our nation borrows a billion dollars extra. When you look at projects such as these, it becomes really frightening as to where the management of our nation is off to.

While travelling around the countryside and in the cities, I am shocked at how easily we have been ripped off. It appears that no one in the Government wants to ask the hard question as to whether we are getting value for money and because others know the Government are not asking the questions, the bills for these buildings go unchallenged.

Like quarter of a million dollar shade cloths over playgrounds and millions of dollars in demountables.

Local builders are asking why they did not get a better go at the major contracts, rather than having to build them second hand, as subcontractors.

P&C’s are asking why the Government did not listen to them when they said they would prefer some other form of expenditure rather than a hall. Many are saying we just didn’t need it at all and we are really worried of the debt we are getting because of this.

On a positive note, it is good to see that Australians do care about the waste of money. Australians truly understand that there is something wrong with the mindless throwing of money to the wind for the shrewd and the cunning to take advantage of. This is what happens when you do not properly control costs.

How on earth is this waste helping any body?

How will you feel about it when you are sitting back late at night stacking shelves or driving cabs or stacking bricks in real buildings for real people or shearing sheep or driving earthmoving equipment, to pay off this complete waste of money where even in the waste you have been ripped off.

Barnaby is right.

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US Banks Understating Debt

11 Apr

From AFP:

Major US banks have been masking the size of their debt, and thereby their risk levels, by temporarily lowering it just before reporting it to the public, the Wall Street Journal reported Friday.

The newspaper, citing data from the Federal Reserve Bank of New York, said 18 banks have understated the debt used to fund securities trades by lowering them an average of 42 percent at the end of each of the past five quarterly periods.

The banks included Goldman Sachs Group Inc, Morgan Stanley, JP Morgan Chase and Co, Bank of America Corp and Citigroup Inc, the Journal said.

It said the practice was legal but gave investors a skewed impression of the level of risk that financial firms are taking the vast majority of the time.

It noted that overborrowing by banks was one of the causes of the financial crisis.

Barnaby Joyce has been warning about the dangers of rising US debt since October last year.

Now we see that not only is the US Government going deeper into debt by the month.  We also learn that the Wall Street banks are fiddling the books to mask their true debt and risk levels.

Barnaby is right.

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