Tag Archives: debt bubble

CDS Traders Agree – Barnaby Was Right

28 May

From the Financial Times:

Traders and investors have stepped up purchases of insurance against a US sovereign debt default, amid heated political wrangling over raising the US debt ceiling.

The gross value of derivatives contracts that pay out in the event of a US default has doubled from year ago levels, according to the Depository Trust and Clearing Corporation, which collects data on global trading of credit default swaps (CDS).

http://video.ft.com/v/959355486001/US-default-no-longer-unthinkable

Traders and investors are putting their money where their mouth is, in joining with 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, in conceding that when he forewarned of the risk of US debt default way back in 2009 (“Barnaby Warns of Bigger GFC“) …

Barnaby Was Right.

Grand Theft Pēnsiō – Europe’s ‘Economic Superstar’ Steals 5% Of Private Super Funds

25 May

Think the government of a “strong” economy like ours – running big budget deficits – would never steal some of your superannuation?

Don’t be deceived.  This is coming to Australia. Barnaby said so.

Just as Barnaby was right in 2009 when he warned of the possibility of the US defaulting on its debts, there is ever-mounting evidence from around the world that Barnaby is right about this too.

Poland was the only economy in the European Union to achieve economic growth through the GFC.  It then doubled economic growth in 2010. It is the sixth largest economy in the EU, and is considered “Europe’s new economic superstar“.

Despite all this, it has recently passed laws to start stealing its citizens’ private retirement savings.

From Warsaw Business Journal:

The government’s controversial pension reform plan, which slashes the percentage of workers’ salaries going to private pension funds (OFEs) from 7.3 to 2.3 percent, became law on May 1. OFEs will start receiving the reduced amounts from June.

The changes mean that the state-controlled social security and pension fund, ZUS, will now receive 17.22 percent of workers’ salaries, a five percent increase on the previous amount of 12.2 percent.

Critics have said the changes were nothing more than some creative accounting by the government to shore up its budget deficit

The critics include several respected economists, most notably Leszek Balcerowicz, the former finance minister and National Bank of Poland head.

Krzysztof Rybiński, a former vice president of the NBP, has gone even further and is collecting signatures for a class-action lawsuit against the government for “lost gains as a result of the changes in the pension system.”

Even the constitutionality of the law has been questioned. Jerzy Stępien, former head of the Constitutional Tribunal, said if he was still head of the court, he would question the constitutionality of the reform in its most important points.

Poland is far from being an isolated case.

More and more governments around the world have been enacting “reforms”, to get their hands on their citizens’ private retirement savings.

From Global Pensions:

It appears moving backwards on pension reforms has become the thing to do on both sides of the Atlantic.

Hungary last year moved much of its private pension assets to the state. Last month, new rules came into effect in Poland diverting 5% of the 7.3% of salary going to private pension funds to the state.

In both cases, the changes represented a step back from reforms that led to significant savings on the countries’ balance sheets.

But another recent reversal we’ve seen has come from Latin America. In the 1990s, Bolivia’s decision to move its pension assets from the state to private managers placed it among the most advanced pension systems in the region. However, the current government has decided to nationalise the assets once more claiming it is creating a pension system that is equal for all.

Last week we saw that heavily indebted governments in Argentina, Hungary, and Ireland have also resorted to super-stealing.

The most dramatic example of a government dipping into its citizens’ retirement savings is the once-mighty USA. Just last week, the U.S. Treasury began tapping the retirement savings of federal workers (public servants) to shore up government finances.

Barnaby Joyce has given early warning of the same thing happening right here in Australia:

Of course, the public servants will not be happy when we use their retirement savings, put aside in the Future Fund, to pay off some of Labor’s massive debt.

Learn all about Barnaby’s warning, and the growing wave of super-stealing, in these previous articles, “No Super For You!” and “Grand Theft Pēnsiō”.

Barnaby is right.

What Happens When Greece Defaults?

24 May

Andrew Lilico, an economist with Europe Economics and a member of the Shadow Monetary Policy Committee in the UK, outlines the coming domino effect.

From The Telegraph UK ‘Finance’:

It is when, not if. Financial markets merely aren’t sure whether it’ll be tomorrow, a month’s time, a year’s time, or two years’ time (it won’t be longer than that). Given that the ECB has played the “final card” it employed to force a bailout upon the Irish – threatening to bankrupt the country’s banking sector – presumably we will now see either another Greek bailout or default within days.

What happens when Greece defaults. Here are a few things:

– Every bank in Greece will instantly go insolvent.

– The Greek government will nationalise every bank in Greece.

– The Greek government will forbid withdrawals from Greek banks.

– To prevent Greek depositors from rioting on the streets, Argentina-2002-style (when the Argentinian president had to flee by helicopter from the roof of the presidential palace to evade a mob of such depositors), the Greek government will declare a curfew, perhaps even general martial law.

– Greece will redenominate all its debts into “New Drachmas” or whatever it calls the new currency (this is a classic ploy of countries defaulting)

– The New Drachma will devalue by some 30-70 per cent (probably around 50 per cent, though perhaps more), effectively defaulting 0n 50 per cent or more of all Greek euro-denominated debts.

– The Irish will, within a few days, walk away from the debts of its banking system.

– The Portuguese government will wait to see whether there is chaos in Greece before deciding whether to default in turn.

– A number of French and German banks will make sufficient losses that they no longer meet regulatory capital adequacy requirements.

– The European Central Bank will become insolvent, given its very high exposure to Greek government debt, and to Greek banking sector and Irish banking sector debt.

– The French and German governments will meet to decide whether (a) to recapitalise the ECB, or (b) to allow the ECB to print money to restore its solvency. (Because the ECB has relatively little foreign currency-denominated exposure, it could in principle print its way out, but this is forbidden by its founding charter.  On the other hand, the EU Treaty explicitly, and in terms, forbids the form of bailouts used for Greece, Portugal and Ireland, but a little thing like their being blatantly illegal hasn’t prevented that from happening, so it’s not intrinsically obvious that its being illegal for the ECB to print its way out will prove much of a hurdle.)

– They will recapitalise, and recapitalise their own banks, but declare an end to all bailouts.

– There will be carnage in the market for Spanish banking sector bonds, as bondholders anticipate imposed debt-equity swaps.

– This assumption will prove justified, as the Spaniards choose to over-ride the structure of current bond contracts in the Spanish banking sector, recapitalising a number of banks via debt-equity swaps.

– Bondholders will take the Spanish Banking Sector to the European Court of Human Rights (and probably other courts, also), claiming violations of property rights. These cases won’t be heard for years. By the time they are finally heard, no-one will care.

– Attention will turn to the British banks. Then we shall see…

How Australia Will Look When The SHTF

15 May

Want a glimpse of Australia’s future?

Watch this shocking story from America’s 60 Minutes:

http://www.youtube.com/watch?v=QwrO6jhtC5E

Pretty distressing, right?

It was exotic “mortgage-backed investments” that triggered the GFC in America. And as you just saw, they are still very much at the heart of their terrible ongoing crisis, where 1 in 7 (44 million) are now living on food stamps.

Just as in the USA and other countries, our Labor government responded to the GFC by “stimulus”.  And, by propping up our “safe as houses” bankstering system.

This is the same “best in the world” bankstering system that has just $2.67 Billion in On-Balance Sheet Assets, versus $15 TRILLION in Off-Balance Sheet “business”.  The bulk of that off-the-books “business” is exotic “derivatives” bets on interest rates, and foreign exchange rates.

How exactly did Labor prop up our bankstering system?

Amongst other things, by using taxpayer’s money to “invest” billions in … yep, Residential Mortgage-Backed Securities (RMBS).

$16 Billion, to be precise.

But $16 Billion wasn’t enough. Just last month, Wayne Swan authorised the AOFM to “invest” another $4 Billion in these “mortgage backed investments”:

Click to enlarge

According to numerous sources including The Economist magazine, Australia has the most overvalued housing in the world.

And earlier this month, we learned that house prices fell by the most in 12 years in the March quarter.

That $20 Billion pumped into Residential Mortgage-Backed Securities is not looking such a great “investment” now, ‘eh Wayne.

Let there be no mistake.

Rudd/Gillard Labor did not “save us” from the GFC.

They simply kicked the can down the road a couple of years.

And in doing so, all they have achieved is to dramatically weaken our government’s financial position.

Nearly $200 Billion in gross debt.

$20 Billion in “mortgage-backed investments”.

A $50 Billion budget deficit – that’s for this year alone.

A $50 Billion increase in our national debt ceiling, to $250 Billion.

And borrowing more than $2 Billion a week.

But look on the bright side.

When GFC 2.0 strikes, we’ll not need to worry about what’s hitting the fan.

Because thanks to Labor … and the banksters … we’re already in the ____ right up to our necks.

Barnaby is right.

UPDATE:

For more shocking revelations on this story of bankstering corruption of the mortgage finance markets – and now even the courts of law – see this exposé by Rolling Stone’s Matt Taibbi:

The foreclosure lawyers down in Jacksonville had warned me, but I was skeptical. They told me the state of Florida had created a special super-high-speed housing court with a specific mandate to rubber-stamp the legally dicey foreclosures by corporate mortgage pushers like Deutsche Bank and JP Morgan Chase. This “rocket docket,” as it is called in town, is presided over by retired judges who seem to have no clue about the insanely complex financial instruments they are ruling on — securitized mortgages and laby­rinthine derivative deals of a type that didn’t even exist when most of them were active members of the bench. Their stated mission isn’t to decide right and wrong, but to clear cases and blast human beings out of their homes with ultimate velocity. They certainly have no incentive to penetrate the profound criminal mysteries of the great American mortgage bubble of the 2000s, perhaps the most complex Ponzi scheme in human history …

And if you missed it, check out Matt’s infamous exposé of one of the big banks at the heart of the ongoing mega-fraud, Goldman Sachs:

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who’s Who of Goldman Sachs graduates …

What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy

Goldman Sachs is the puppeteer of our very own Emissions Trading Scheme leading proponent, former GS Australia chairman Malcolm Turnbull MP.

CIA: The ALP Are Donut Punchers

14 May

While our lamestream media continue to look the other way, the CIA says that our Labor government is right up there with the Greeks at punching donuts:

There is no doubt Australia is one of the most heavily indebted countries. A list compiled by the American Central Intelligence Agency puts us at No. 14 on the foreign debt scale with about $1.2 trillion owing to offshore lenders.

When you consider our relatively small population, and our strong but comparatively tiny economy, that means we are punching well above our weight in the spendthrift stakes. In fact, total foreign debt easily outstrips national income. The CIA reckons we owe the rest of the world 132 per cent of our annual gross domestic product.

That’s not too far behind Greece which, at 165 per cent, finally appears to have tipped the balance and is heading towards bankruptcy (more politely expressed these days as a debt refinancing).

Yes, the ALP are good at punching O’s.

As are our “safe as houses” Big Four banks.

Bend over Australia, and grab your ankles.

This won’t hurt a bit.

Trust us.

Barnaby: You Can Count On Swan’s Debt Pile

5 May

Barnaby Joyce in the Canberra Times today:

Next week’s budget is shaping up as another rollicking frolic on the road to pandemonium.

Almost a year ago, Wayne Swan delivered a budget for 2010-11 with what he predicted would be a $40.8 billion deficit which is a massive loss on the nation’s books. Next week he will reveal that the financial morass is more than $50 billion out the back door.

We are getting used to this unfortunately, the 25% Swan-error factor, incompetence, massive deficits and now massive debt.

If Labor can not manage the nation’s business, balance income to expenditure, in the middle of a resources boom, how on earth will it do it when the boom comes to an end?

When the Government announced the $90 billion spree in response to the North Atlantic financial crisis, Treasury officials told me that our debt would reach its $200 billion ceiling in 2013-2014. We are already at $190 billion in debt and rising.

Australia never went into a recession because China never went into a recession. School halls did not put any coal on a boat, ceiling insulation did not sell one tonne of iron ore and $900 cheques did not plant one acre of wheat.

In the parallel universe of Wayne Swan hocking the Australian credit card up with rubbish increases demand for soft and hard commodities in south-east Asia. The same way, I imagine that buying a new Playstation helps you get a wage rise at work.

Half of Mr Swan’s life is a promise; the other half is an excuse. Next week we will get both.

The promise will be a surplus, not now, but later. Labor will start paying the debt back not now but later. The excuses will be the GFC, the Tsunami, Yasi, Swanny and trust me.

He will tell you about new jobs and you might need one as his profligate spending will start to put the screws on the capacity for expenditure on government services.

The Treasurer will promise to cool the planet from a room in Parliament House by reducing carbon dioxide usage domestically, while selling record amounts of coal overseas. He will take you on a guilt trip about the price of power in Australia. He will try to convince you that it is morally just that the fundamentals of life become prohibitive for the average Australian consumer and that the trade advantage of our industry, cheap power, is an evil that should be removed and sent overseas. This is the Green-Labor-Independent economic miracle, future alternate “green” jobs in their future alternate green universe.

Earlier this week, Wayne Swan had the temerity to accuse the previous Coalition government of wasting the mining boom. Remember that terrible time? It was when we had tens of billions of money in the bank. Wayne just has massive debts.

He will say that it is not the gross debt that matters but the net debt. Yet he has never explained the difference between the two. He has never explained it because I don’t think he knows the difference.

Now maybe he might not know but his department does. In response to a question I put in Senate estimates, Treasury revealed that $64 billion of the difference between our gross debt and our net debt is made up of the cash and non-equity investments of the Future Fund. The Future Fund is there to cover the otherwise unfunded costs of public servants’ superannuation.

That is a little fact that the people of Canberra might be interested in. When Wayne mentions net debt translate that to, I am going to pay his debt off with my retirement savings.

If you want to test the competency of Mr Swan then it is similar to how you test the competency of anyone in any field. Pay a little bit of attention to their promises but pay immense attention to their delivery.

The last Coalition government delivered 10 surpluses in 12 years. A Labor treasurer has not delivered a budget with a surplus in it since 1989.

In the 21 years since, Labor delivered 9 budgets and racked up a cumulative debt of $200 billion.

The Coalition delivered 12 budgets producing cumulative savings of $97 billion.

Labor borrows at double the rate that Coalition governments can save.

The Coalition left Labor with a $60 billion Future Fund and a $20 billion surplus. We are now racing towards $200 billion in gross debt.

Next week’s budget is shaping up as another rollicking frolic on the road to pandemonium.

Another $2.2bn In Debt This Week

5 May

Yesterday, the AOFM auctioned another $600 million in Treasury Bonds. Lumping the taxpayer with a (weighted-average) interest-burden of 5.35%.

Today, the AOFM will auction another $1 Billion in Treasury Notes.

Tomorrow, the AOFM will auction another $600 million in Treasury Bonds.

How much will this week’s national credit card binge add to last year’s “Estimates” and “Projections” of Interest-on-debt?

MYEFO 2010-11, Appendix B, Note 10: Interest Expense

According to their own “Estimate” just for this year 2010-11, we’re paying $1,201,712 per hour in Interest-on-debt.

UPDATE:

Today’s $1 Billion Treasury Notes auction completed.

Slug to taxpayers? 4.73% interest rate (weighted average yield).

How Gillard’s Use Of The Credit Card Makes Rudd’s GFC Spending Spree Look A Model Of Financial Prudence

5 May

A few days ago I wrote an article titled “The Real Reason Why Gillard’s A Spinster“.  It ruffled feathers.  Not for the intended reason, unfortunately.

Humourless critics were so rankled by my [insert self-righteous PC perjorative] that they did not see the point.

So here’s a follow up.  Without the creative literary device/s for decoration.

The following chart is an updated and extended version of the one used in the previous article.  This shows Treasury Note auctions from 2000 through to end April 2011 (the previous chart began at March 2009).

The other difference, is that the previous chart listed each individual auction separately.  It escaped my notice that there has been as many as 3 auctions p.w. in recent times.  So this new chart sums the total of all auctions of Treasury Notes in a given week into a single bar on the chart (click to enlarge):

Source: Australian Office of Financial Management (AOFM)

Some key points to note.

Firstly, there’s clearly quite a difference between how much the Howard Government relied on short-term debt (Treasury Notes), compared with the subsequent Labor Government.  The period when the largest block of Howard-era short term debt auctions occurred was through the year 2002 – coinciding with the 2002-03 global recession, which Australia largely avoided.

Secondly, for four (4) full years between October 2003 and the Rudd election win in November 2007, the Howard Government raised no short-term debt. Not one cent.

Neither did Kevin07.  For 16 months.  Until the GFC.

Thirdly, you can see clearly the period from March 2009 through around September 2009, during which the Rudd Government was regularly raising around $800m to $1,500m a week from short-term debt auctions. I assume that this reflects (at least in part) the government’s urgent need for cash to fund their “stimulus” response to the GFC.  Stimulus 1 – $10.4 billion in cash handouts in late 2008 (goodbye 50% of Howard surplus).  Stimulus 2 – another $42 billion in cash handouts and “nation-building”, beginning in … February/March 2009.

You remember. “Swift and decisive”. Rushed and bungled. $900 cheques to dead people. Electrifying foil insulation. Blazing pink batts. Rorted “green” schemes. Overpriced school halls. Literally billions more, to investigate and repair these Rudd-made disasters.

Finally, note the significant jump in both the frequency and the totals of short-term debt auctions, coinciding exactly with Ms Gillard’s rise to power. The fact is, she has presided over a $10.1bn (31.5%) increase in issuances of short-term debt in just 10 months, compared to the previous 12 months of the Rudd Government.

The big unanswered question that I have is this: WHY would a Gillard-led government suddenly need to bash the nation’s short-term credit card 31.5% harder than even the profligate Kevin Rudd did? After all, he had a GFC “stimulus” package or two to finance.

What is Ms Gillard’s excuse?

According to the government’s own budget records, we-the-taxpayers are already wearing an Interest-on-debt bill of more than $10 Billion per year:

MYEFO 2010-11, Appendix B, Note 10: Interest Expense

According to the AOFM, short-term Treasury debt is supposed to be used for financing “within-year”, daily cashflow requirements of the Government. And then there’s this official prediction:

Treasury Notes are not expected to make a major contribution to overall funding for the 2010-11 financial year as a whole.

Why has the Gillard-led government apparently been so incapable of planning their week-to-week expenses, that since that statement was published they have resorted to bashing the national credit card more than 31.5% harder than Kevin Rudd “needed” to?

The data supports the increasingly widespread view that the Gillard minority government is a shambles.  They have no financial plan – even over the short-term.  And so, from Day 1, have had to pull out the national credit card 31.5% more than Kevin Rudd, just to manage the week-to-week cashflow requirements of government.

One can only wonder just how much Interest-on-debt we will end up paying in total over the coming years.

While Gillard and Co comfortably retire.  On mega-buck, index-linked, taxpayer-funded pensions.

Goose’s $2Bn Shock ‘N Awe Intervention

28 Apr

Just checking the AOFM website to confirm any changes to tomorrow’s scheduled $700M Treasury bond auction, and found this bombshell announcement:

(click to enlarge)

So, another $2 billion (that’s $2,000,000,000) in short-dated Treasury debt was auctioned off today.

Did anyone see that coming?  And why the shock ‘n awe of a previously-unannounced auction, to the tune of $2 billion?

Could it be that the rapidly rising Aussie dollar, combined with fast-growing inflationary pressures, has forced this incompetent government into a “necessary” money markets intervention – (ie) selling extra AUD-denominated government debt, in an attempt to keep a lid on the AUD?

Yahoo! Finance - Charts - AUD/USD (click to enlarge)

If so, then when (if ever) will Goose and his fellow incompetents be held to account for driving those inflationary pressures in the first place, with their hundreds-of-billions in reckless and wasteful spending on overpriced school halls, ceiling insulation, the NBN, etc etc?

UPDATE:

If this was an intervention in money markets to cap the rapidly rising AUD, it seems to have worked. For now –

(click to enlarge)

For interest, here’s how the AOFM describes its Cash Management program:

Short-term funding needs can be met by increasing the volume of Treasury Notes on issue…

And here’s how they describe the Issuance Program for auctions of Treasury notes (as distinct from Treasury bonds):

Treasury Notes are short-term debt securities used primarily to meet within-year funding flows. Issuance decisions are made weekly and depend on the Government’s projected daily cash position for the weeks ahead. Treasury Notes are not expected to make a major contribution to overall funding for the 2010-11 financial year as a whole…

Tenders for the issue of Treasury Notes will be held on Thursdays, with details of the tenors (sic) and amounts to be offered announced at noon on the Friday of the preceding week.

Unless I missed something, the AOFM did not pre-announce today’s $2bn T-note auction at noon last Friday.  Granted, it was Good Friday. But I did not spot an announcement at any time during this week either.

Given the obvious immediate effect on the AUD this afternoon (see charts), and particularly in consideration of the media storm in recent days that followed the shock inflation figures, I smell a money market intervention – for pure political expediency.

With the public already concerned about rising cost of living, a growing revolt against the carbon tax, and plummeting polls for Labor, the last thing this government needs right now is the public spooked even further by the spectre of further rises in interest rates to hold back inflation.

So could it be that this government is going from bad, to worse, to calamitous, on fiscal management?  Could it be true that they are now compounding their first error of creating inflationary pressures by wanton borrowing-and-spending, by engaging in an ad hoc currency intervention – one that throws us into yet another $2bn of debt – solely in order to cap the rising AUD and calm inflation fears, a few days before the RBA meets to decide on interest rates, and, less than a fortnight out from the Budget?

UPDATE 2:

April 29, 9.14am –

From FXStreet:

AUD/USD Closing In On Yesterday’s High

Well now, that went well, didn’t it Wayne?  $2bn more debt just to save face before the Budget .. and the effect lasts less than 12 hours.

(click to enlarge)

Same Old Labor Govt – Same Old Debt

9 Oct

Media Release – Senator Barnaby Joyce, 4th October 2010:

Senator Barnaby Joyce says that the Labor government seems to be getting back to normal. “Our gross debt went up by $3 billion last week, the week before it went up by $4 billion. The gross Federal debt is now $163.152 billion.

This is the issue that should be front and centre of Labor Government’s attention, beyond private members bills for euthanasia, same sex marriage and a bid to cool the planet with a new carbon tax.

The reality is there in the numbers. The debt is racing ahead; it is not under control, it is not going to stop.

There is no argument for this profligate waste of money. How much money do we want to owe people overseas?

This money does not include the states’ debt which is on its miserable way to $240 billion, as noted in front page articles of recent weeks.

We also have to note now that local governments too are expected to borrow money.

If we do not get on top of the debt, these debts will get on top of us.

More Information – Jenny Swan 0746 251500

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