Tag Archives: DFAT

Is Our Biggest Economic Danger Hiding In Plain Sight?

14 Jun

In recent days we’ve looked at threats to Australia’s economic future from China and the USA.  And, we’ve looked closely at the internal threats from our over-indebted government, massively risky banking sector, and housing market bubble.

Now, a genius short-seller who made $500 million betting against the US housing market in 2007 has pointed out what may be Australia’s biggest external economic threat of all.

From Bloomberg:

Buy a farm house in the middle of nowhere, pick up a gun or two, prepare for hyperinflation and brace for a catastrophic bankruptcy. Thirty minutes with hedge-fund manager J. Kyle Bass has you wanting to do all of the above.

The head of Dallas-based Hayman Advisors LP isn’t thinking about Greece or even Spain but Japan, the world’s third-biggest economy. He says his bet against Japanese government bonds is even “more compelling” than his gamble to sell short U.S. subprime-mortgage debt, which earned him $500 million in 2007.

Shorting Japan has been a losing proposition in recent years. But the earthquake, tsunami and nuclear crisis altered the outlook for a nation whose debt is more than double the size of the economy. Bass says a collapse is inevitable, making Japan’s 10-year bonds — they yield 1.3 percent, among the lowest in the world — a natural for a bear investor.

His argument is this: Japan now spends half of its central- government revenue on servicing debt. This task won’t get any easier as the country’s population ages and shrinks — provided rates stay the same. What’s more, the price tag for the earthquake and its effects will far exceed Japan’s initial $300 billion estimate, pushing the country over the edge. In Bass’s view, the biggest asset bubble ever is hiding in plain sight.

According to the Department of Foreign Affairs and Trade (DFAT), Japan is our second largest export market, and trading partner.  Not far behind China:

DFAT - Australia's Top Export markets and Trading Partners to April 2011

If J. Kyle Bass is right … and remember, he made a cool half a billion from correctly picking the weakest link back in 2007 … then we can chalk up Japan on our Ever-Present Threat board as well.

Possibly at the top of the list.

Japan: ‘Extremely Little’ Room For Stimulus

20 Mar

From Bloomberg:

National Strategy Minister Yoshito Sengoku said Japan has “extremely little” room for further stimulus spending because of the country’s financial condition.

“From a fiscal point of view, there’s extremely little room for such a thing,” Sengoku said in an interview in Tokyo yesterday when asked about the prospects for another spending plan. “We need to carefully watch whether the situation would go to such lengths.”

His remarks contrast with comments made this week by Financial Services Minister Shizuka Kamei, who urged the government to compile a stimulus package to bolster the deflation-plagued economy. Prime Minister Yukio Hatoyama said on March 17 that he hadn’t discussed such a proposal.

Standard & Poor’s cut its outlook on Japan’s AA sovereign rating to “negative” in January, a move Sengoku described at the time as a “wake-up call” to repair the nation’s finances. Japan’s ratio of debt to gross domestic product is approaching 200 percent, the highest among developed nations, according to the Organization for Economic Cooperation and Development.

Japan is closer to the edge than any other major economy,” said Julian Jessop, chief international economist at Capital Economics Ltd. in London. “There is the risk that the higher the debt numbers are, the more another stimulus package is going to backfire by pushing up interest rates or by making people worry about the need for even bigger fiscal tightening in the future.”

Japan is Australia’s second largest trading partner.

While China has become our largest trading partner in recent times, it is interesting to note the latest trade figures from the Department of Foreign Affairs and Trade

It seems our export trade with China has fallen sharply from Dec ’09 to Jan ’10.  And has been in slow decline since March 2009. That is a trend to watch closely.

There are many grave questions being raised about the sustainability of the China boom. And Japan’s economy is clearly in very deep trouble indeed.

So it is gross incompetence for our financial authorities – such as RBA Governor Glenn Stevens and Treasury Secretary Ken Henry – to continue to plan on our two largest trading partners being able to sustain our economy and get us out of debt in the years ahead.

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