Tag Archives: debt bubble

Is China Bankrupt?

3 Aug

From MSNBC:

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

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

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

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

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Swan Admits Borrowing $100m-a-day

26 Jul

From the ABC:

Federal Treasurer Wayne Swan has conceded the Opposition is correct when it claims Labor is borrowing $100 million a day to pay back Government debt.

Of course, it takes only a few seconds to keep tabs on Labor’s borrowings.

Just visit the Australian Office of Financial Management (“AOFM”) website to see the current total borrowings – listed as $150.533 million presently.

Don’t forget to add to this total, the amount listed at each link under the “Recent Tender Results” title, on the right hand side of the page. These are the extra amounts borrowed last week, but not yet added to the total.  So that’s another $1,800 million in the past week, giving us a grand total of $152.133 million borrowed up till last weekend.

Then, to see how much the Government plans to borrow in the next week, click on the “Forthcoming tenders” link, also on the right hand side of the AOFM home page. As you can see, on Thursday and Friday this week, the Labor Government will borrow a total of another $1,000 million.

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Complete And Definitive Guide To The Sovereign Debt Crisis

30 Jun

Professor Niall Ferguson, of the acclaimed book and ABC documentary series “The Ascent of Money“, has recently published a brilliant guide to the global sovereign debt crisis.  Click here to read it.

Back in February, Professor Ferguson had this to say in the Financial Times:

… it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the western world. Its ramifications are far more profound than most investors currently appreciate…

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BIS: Global Economy “Vastly Worse” Than In GFC

29 Jun

The latest report from the Bank of International Settlements (BIS) – the central bank to the central banks – warns that the global financial system is in a “vastly worse” position than 3 years ago.

From the Associated Press:

An organization bringing together the world’s major central banks warned Monday that the global economy risks a replay of the 2008-2009 financial crisis, with massive public debt in Europe and the United States replacing the private debt that fueled the credit crunch two years ago.

“A shock of virtually any size risks a replay of the events we saw in late 2008 and early 2009,” the Basel, Switzerland-based organization said in its 206-page annual report.

In a stark warning to governments to clean up their finances, the central bankers noted that “macroeconomic policy is in a vastly worse position than it was three years ago, with little capacity to combat a new crisis.”

The report recommended winding down stimulus packages, raising interest rates in the long term and forcing through reforms of the financial system to prevent sudden shocks from causing market-wide collapse as they did two years ago.

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46 US States In Debt Crisis

29 Jun

46 out of 50 US state governments are now technically bankrupt.  To understand how bad that is for the global economy – including Australia – consider the fact that California alone has an economy that is larger than that of Russia.

From Bloomberg:

California, tied with Illinois for the lowest credit rating of any state, is diverting a rising portion of tax revenue to service debt, Bloomberg Markets magazine reports in its August issue.

Far from rebounding, the Golden State, with a $1.8 trillion economy that’s larger than Russia’s, is sinking deeper into its financial funk. And it’s not alone.

Even as the U.S. appears to be on the mend — gross domestic product has climbed three straight quarters — finances in Arizona, Illinois, New Jersey, New York and other states show few signs of improvement. Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities, a Washington research institution.

State budget woes are a worsening drag on growth as the federal government tries to wean the economy from two years of extraordinary support. By Jan. 1, funds from the $787 billion federal stimulus bill will dry up. That money from Washington has helped cushion state budgets as tax revenue has plunged.

State leaders won’t be able to ride out this cycle the way they have in the past. The budget holes are too large.

What will the US do when nearly every state government is facing Greek-style deficits?

According to an RBS note to its clients, prepare for unprecedented money printing.

From the UK’s Telegraph:

As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve.

Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on “monster” quantitative easing (QE)”.

“We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable,” he said in a note to investors.

Societe Generale’s uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the “stinking fiscal mess” across the developed world. “The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant,” he said.

Barnaby Joyce began warning about a bigger GFC in October last year. No one wanted to listen.

He was roundly ridiculed by the “experts” – such as the genius academic who designed the controversial RSPT, Treasury secretary Ken Henry – for suggesting the possibility that the USA could default on its massive debts.

The simple fact is this.  The USA is defaulting on its debts.

Printing money (euphemistically called “Quantitative Easing”) is technically a form of sovereign default.  When you cannot pay your debts, printing money devalues your currency, and makes it easier to pay back your debts.

It also means high inflation.  Possibly hyperinflation.  Think Weimar Germany in the 1920’s.  Or Zimbabwe today.

Barnaby is right.

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Labor’s Debt: $3,500 Per Person

25 Jun

From the Federal Liberal Party’s Friday Facts –

Despite inheriting a $20 billion surplus, zero net debt and $60 billion in the Future Fund, Labor is delivering:

  • $78.5 billion of net debt in 2010-11 – $3,500 per person
  • $4.6 billion of interest paid on net debt in 2010-11 – $205 for every Australian (and as the graph below shows, it will get worse)
  • A Budget deficit of $40.8 billion in 2010-11 (the biggest deficit since World War II)
  • To fund its reckless and wasteful spending, Labor needs to borrow more than $100 million every day.

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Joyce: Gillard Set To Outspend Rudd

25 Jun

Media Release – Senator Barnaby Joyce, 25 June, 2010:

Rudd borrows $95 million a day, Julia set to break record

Senator Barnaby Joyce today said that the new Labor Government has a lot of work to do to get this country back on track.

“The new appointee of the faceless factional bosses, Prime Minster Gillard, has already stated that she wants to get the Government “back on track”, and it certainly is a long way off-track at the moment” said Senator Barnaby Joyce, Shadow Minister for Regional Development, Infrastructure and Water today.

When this Government came to power Australia’s gross debt was $59 billion. It is now $147 billion. This Government has spent $88 billion in 935 days. This is a new record for Australian Prime Ministers.

“This Government has been an unmitigated disaster for our country, and even the Labor party now agrees. They have been racking up debt on the national credit card at $95 million a day.

“Every day of the Rudd Government, that money could have built almost 500 km of sealed country roads or repaired and refurbished over 100 bridges in regional Australia. Instead, thanks to Julia Gillard and her team we have overpriced trinkets at the back of school yards. .

“If the new PM really wants to get this great country back on track, she needs to stop this reckless and wasteful spending. The budget that the Deputy Prime Minister handed down less than two months ago forecast borrowing of $150 million a day for the next financial year. Gillard is already on track to smash Rudd’s record and things look like getting worse before they get better.”

“Australia can’t afford another term of pandemonium from the Labor party.”

More Information – Matthew Canavan 0458 709 433

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China Brakes, Australia Breaks

14 May

From Business Spectator:

In an ominous sign for Australia, the Chinese sharemarket is slumping on worries that the Chinese government will soon lift interest rates in response to rising inflation and surging property prices. Such a move would slam the brakes on Chinese growth, and deal a cruel blow to Australia, which is counting on Chinese growth to keep commodity prices high.

Although it rebounded by 2 per cent yesterday, China’s Shanghai Composite Index is down more than 20 per cent from its peak in August 2009, which means that it is still technically in a ‘bear’ market.

The market’s gloom has been deepened by signs of mounting inflationary pressures in the Chinese economy. Inflation figures released this week showed consumer prices rose by 2.8 per cent in April from the year before, an increase from the 2.4 per cent rise in March. Meanwhile, home prices in 70 large and medium-sized Chinese cities rose by 12.8 per cent from a year earlier in April, picking up pace from the 11.7 per cent rise in March. There are also worrying signs that the property price bubble is spreading beyond the major cities and into the country-side.

So far, the Chinese government has held off raising interest rates – which are currently negative after allowing for inflation – in order to cool the super-charged economy. Instead, its ordered banks to hold more deposits on reserve, as well as lifting the minimum deposits that home buyers require to make to get access to home loans, and raising mortgage rates for second and third home buyers.

But there are intense worries that these steps won’t prove sufficient. Earlier this week, the Chinese central bank reported that banks lent 774 billion renminbi ($113 billion) in April, which is about 30 per cent more than in the same month last year. Lending for the first four months of 2010 has now reached 45 per cent of the total quota of loans for the year.

This explosion in Chinese bank lending has led to worries that the country will eventually be saddled with a mountain of bad loans. These concerns were heightened after China’s National Audit Office reported that it had uncovered lending irregularities amounting to tens of billions of renminbi in its latest audit of the Agricultural Bank of China.

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BIS: Western World Spending Its Way To Disaster

13 May

From the UK’s Globe and Mail:

The Swiss-based Bank of International Settlements (BIS), the oldest international financial institution in the world, has functioned as the central bank of central bankers for 80 years. In a working paper written by three senior staff economists (“The future of public debt: prospects and implications”), released in March, BIS warns that Greece isn’t the only Western economy with hazard lights flashing.

Indeed, it names 11 more: Austria, France, Germany, Ireland, Italy, Japan, the Netherlands, Portugal, Spain, Britain – and the United States. Without “drastic measures,” BIS says, all of these countries will hit a wall of debt.

When the senior economists at BIS warn 12 of the richest countries on Earth that they must take drastic action to reduce debt, you know that it’s time to check the air bags. The only thing you don’t know, that you need to know, is the precise time of the crash. The lesson is already obvious: Governments can’t drive recklessly, use only the accelerator for braking and not eventually crash.

By the end of 2011, the BIS economists calculate, U.S. government debt will have risen from 62 per cent of GDP in 2007, not quite three years ago, to 100 per cent. Britain’s debt will have risen from 47 per cent of GDP to 94 per cent. Italy’s debt will have risen from 112 per cent of GDP to 130 per cent. All together, the public debt of the 12 countries will have risen from 73 per cent of combined GDP to 105 per cent.

At this debt level, the risk of sovereign default rises rapidly. But the BIS analysis says this unprecedented debt level will itself increase “precipitously” in coming years. It will not, as each of these countries separately insists, fall.

For one thing, the BIS report says, countries that proclaim spending restraint generally do not actually do it. Normally, they hold the line – temporarily. Normally, they slow the rate of increase – temporarily. All pronouncements aside, the BIS report says, these 12 countries have made such grandiose spending commitments that they are predestined for higher debt. The U.S. debt-GDP ratio will hit 150 per cent in the next decade. Britain’s debt-GDP ratio will hit 200 per cent. Japan’s debt-GDP ratio will hit 300 per cent.

These increases in debt, the BIS report says, are untenable. The financial markets, of course, won’t permit them. The only mystery, the BIS report says, is exactly when the markets will intervene. History shows, the report says, that when the markets do rebel, they often do so instantaneously and decisively – often without much warning.

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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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