Tag Archives: GFC

China Biggest Worry For Markets

17 Mar

Fromt the Wall Street Journal:

Nervousness is growing in the financial markets about China, which might seem odd when there are so many other places to worry about.

There’s still Greece, for example, which is likely to be the focus of this week’s meetings of European finance ministers. There’s Germany, and its trade surplus. And there’s the U.S., the U.K. and all the other places with triple-A-rated debt that may not be rated triple-A for much longer.

So why the focus on China, where shares closed Monday at their lowest in five weeks, with the benchmark Shanghai Composite ending below 3000 at its weakest since Feb. 9? Well, as one bank put it on Monday: “Are we facing a ‘growth miracle’ or will China be the next bubble to burst?”

Even the markets are more cautious on China than Australia’s financial powers, the RBA and the Treasury department. They still believe we are headed for 40 years of “unprecedented prosperity” on the back of a new China-fueled mining boom.

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Is Mr Stutchbury Waking Up?

16 Mar

On February 28th I firmly criticised The Australian’s economics editor Michael Stutchbury’s column, “Chinese Can Fund Our Boom” (see my article here).

Well, it seems Mr Stutchbury may be (reluctantly) waking up to reality, if his column today is anything to go by. Though he cannot yet bring himself to let go of the fantasy entirely:

China Won’t Boom Forever

The big risk now is that, having escaped the global crisis, the Lucky Country thinks it’s bulletproof and the rebound in our iron ore and coal export prices means there is no penalty for bad policy.

The airbag of a US50c-US60c dollar cushioned the economy from the 1997 Asian financial crisis and the 2000 Wall Street tech-wreck. Our new China fortune pulled us out of last year’s global recession.

As a result, Australia is about to enter its 19th straight year of economic expansion, possibly the longest unbroken growth in our history. We appear to be heading into a bountiful decade or two of high commodity export prices driven by the rise of China and India.

But now, no doubt in reaction to Chinese Premier Wen Jiabao’s warning yesterday of a global double-dip recession, Stutchbury hedges just a little on his previous blind confidence:

But this new growth phase is bound to be volatile. And there is a smaller probability but higher impact risk that the mega China boom – like the 1980s Japanese bubble, the 90s Asian boom, the technology boom or the US housing bubble – could burst. We can’t count on being able to avoid a fair dinkum recession during the next decade.

Indeed. The fact is, many authorities around the world are predicting the China bubble may burst by 2012. Including some, like former chief economist for the IMF Ken Rogoff, who did predict the GFC in the first place.

I wonder how long it will take for Mr Stutchbury – and many others in the Australian mainstream economic media – to stop publishing reactions to the latest proclamation by an “authority”, and start researching widely in order to  think for themselves?

Perhaps he might take a lead from the Sydney Morning Herald’s Paul Sheehan, and his excellent and insightful article yesterday.

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Batten The Hatches

16 Mar

From the Sydney Morning Herald:

The ominous word ”boom” appeared last week, in large type, on the front page of the local newspaper. Given the nature of this paper, the word could only refer to one thing: property. While the signals from the property market are mixed, it appears we are springing back to normalcy without absorbing the reality: the global financial crisis is far from over. All the elements are in place for a second crash.

The world has become an economically unstable place, with enormous unresolved issues. Australia’s economy is fundamentally sound, but the global economy is fundamentally unsound. Even a good boat can be swamped by a bad sea and Australia, as a middling economy, will be buffeted by forces beyond its control unfolding in the United States, the European Community and Asia.

The Bank for International Settlements, the central bank for central banks, is warning of ”unstable dynamics”. Ominous language. The International Monetary Fund estimates the world’s 20 largest economies, the G20, will have a combined debt equal to 118 per cent of their combined gross domestic product by 2014, meaning debt will have exploded by 50 per cent in just seven years. To fund what? In Australia, debt is being used for expansion of the mining sector, which is good, but also for the ill-disciplined spending of the Rudd government and the chronically overpriced housing sector. As a result, Australia’s economy is more vulnerable to economic stress from abroad…

While the obvious and prudent response of government in a financial crisis is to provide social and economic shock absorbers by increased spending and borrowing, it is also important not to overreact. If you believe the global financial crisis is still unfolding, the key is not to overshoot, but to conserve resources and policy options.

The Rudd government, as it has proved in every area of major policy, overspent. It threw money around with undisciplined panic when faced with the global economic crisis.

A must read article.

Perhaps Mr Sheehan might like to point all this out to the overpaid, short-sighted, know-it-all idiots in the Treasury department, and at the Reserve Bank of Australia.

They all failed to see and forewarn of the GFC.  So, thanks to their incompetence, millions of Australian citizens lost literally billions in retirement savings and investments during late 2007 through to early 2009.

Now they are saying that the GFC is “over”, and that we are set for a multi-decade China-fueled mining boom that will provide a “period of unprecedented prosperity”.

Sack Ken Henry. Sack Glenn Stevens.

And abolish the RBA.

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China Warns of Double-Dip Recession

15 Mar

From The Australian today:

China’s Premier, Wen Jiabao, has warned that the world risks sliding back into recession and says his country faces a difficult year trying to maintain economic growth and spur development.

“The unemployment rate of the world’s main economy is still high, some countries’ debt crises are still deepening, and the world’s commodity prices and exchange rates are not stable, which are most likely to become the cause of any setback in the economic recovery,” Mr Wen said yesterday in Beijing’s Great Hall of the People.

China’s and Australia’s economies have become more intertwined in recent years: the country is now our largest trading partner with two-way trade surging to $83 billion in the year ending last June 30, and in December it passed Japan as our largest export market.

Any trouble in China’s economy would quickly resonate in Australia.

Perhaps Treasury Secretary Ken Henry might care to revise his recent declaration that the GFC is ‘over’?

Perhaps Henry, along with RBA Governor Glenn Stevens, and all their many mindless cheerleaders in the media, might pause to reconsider their claims that ‘the risk of serious contraction‘ has passed, and that Australia is now set to enjoy a multi-decade China-fueled mining boom?  One that will fix the massive Rudd hole in the Budget, and provide a “period of unprecedented prosperity” for Australia?

Please… inform yourself.  Understand what is really going on in the financial world. Unlike the lazy, short-sighted economic illiterates who are running this country.

Please browse through the posts on this blog, and follow the links that catch your eye.

You will find references and links to literally dozens of articles from around the world.  You will see that international economists, investors, financiers, world leaders, and many others, have been increasingly warning of the many threats to the global economy. And thus, to Australia’s economy too.

Our Australian economic “authorities” are living in La la land.

Only Barnaby is on the ball.

Rudd Labor, Ken Henry, RBA and friends

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Australia Only OECD Nation With Rising Debt

11 Mar

From Marketwatch:

Australia’s seemingly bulletproof economy could soon face fallout from high debt levels and purportedly misguided policies designed to pump up asset prices, according to an outspoken skeptic of the nation’s housing boom.

Economist Steve Keen of the University of Western Sydney, who claims* to have accurately foreseen the global financial crisis, said he’s been dismayed by what he sees as a growing nationwide housing bubble stoked by government efforts to forestall economic pain.

Keen points to a first-time homebuyer subsidy program, various other stimulus programs, and a 4-percentage-point reduction in interest rates — policies introduced in the wake of the 2008 crash and which he termed “The Boost” — as having helped fueled a new housing boom and a 6% rise in mortgage debt last year.

“The Boost has … given Australia a dubious distinction when compared to the rest of the OECD. Yes, we are the only country that avoided a technical recession; but we are also the only country where debt levels are rising once more compared to GDP, rather than falling” …

*Proof of Professor Keen’s “claim” can be independently verified in this research paper, which references a handful of economists who did predict the GFC in advance.

UPDATE:

On April 15th through 23rd, I will be joining Professor Keen in his 230km “Keenwalk” from Parliament House to Mount Kosciuszko, in protest against Australia’s property mania that has been driven directly by insane – and in my personal opinion, immoral – Federal Government and RBA policies.

Please consider joining us, for the whole trek or even just for an afternoon section of the walk.

If you’d care to assist a genuinely worthy cause, then please consider sponsoring Professor Keen, or indeed myself. Funds raised will support the wonderful charity Swags For Homeless.

Thanks!

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Debt Bubble Has To Burst

10 Mar

From Business Spectator:

This week is the one-year anniversary of the historic stock market rally which has seen US shares climb by almost 70 per cent – and we’re getting set to celebrate in style…

After all, what’s to worry about? Governments across the world are continuing to run massive budget deficits and interest rates are close to zero. The markets aren’t worried about the massive explosion in government debt, because they figure it’ll just mean that governments will have to keep interest rates at historic lows while they continue to pour liquidity into the system.

But while the markets continue to party, one dark thought presents itself. What happens if someone looks outside and sees that the real US economy is still in deep trouble? It is plagued by high unemployment, continuing weakness in the housing market, and faces mounting problems in commercial real estate that threaten to further destabilise the banking system.

What happens when the penny drops that massive government spending packages, combined with unprecedented money printing by central banks, have not produced a sustainable economic recovery?

As RBS strategist Bob Janjuah points out in his latest newsletter, the “gap between the fantasy in markets…versus the reality of the real economy/private sector, is already worryingly large, but risks becoming dangerously large.”

Janjuah says that there hasn’t been any sustainable recovery in private sector demand, and there won’t be for some years to come. Furthermore, there is nothing that can be done about it. Major economies can not generate growth by devaluing their currencies and trying to export their way out of trouble, because this is a strategy that everyone is using. All the big economies are trying to devalue and every country is looking to export. The problem is that there’s no obvious candidate to buy all these exports.

Janjuah also takes aim at those who believe that the massive build-up in government debt isn’t a problem because governments can simply erode the value of the debt through higher inflation. This strategy, he says, only works when inflation is unanticipated. When the market is expecting higher inflation, it pre-emptively prices in this risk of inflation in the form of higher interest rates. And already half the market is expecting to see governments try to inflate away their debts.

The other massive delusion that is buoying markets is that governments can keep pumping/printing/borrowing for long enough to compensate for the slump in demand from the private sector as it cuts back spending and tries to pay back debt. According to Janjuah, the time limits on this strategy are drawing nigh. “Those limits are pretty much already with us (Greece), or are soon to be with us, give or take a few months (in the United Kingdom), or at best, give or take a few quarters (in the case of the United States).”

The conclusion is inevitable; the bubble must burst. And Janjuah fervently hopes that that this happens sooner, rather than later. “The longer we are forced to wait, the bigger the bubble will be and the more horribly damaging the bursting process will be. And if we are forced to wait and the bubble gets anywhere like the one that went pop in late 2007 I have zero idea who will credibly be able to bail us all out the next time round. Certainly not our governments.”

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China’s Banks In Trouble

9 Mar

From Bloomberg:

China plans to nullify all guarantees local governments have provided for loans taken by their financing vehicles as concerns about credit risks on such debt surges.

China’s local governments are raising funds through investment vehicles to circumvent regulations that prevent them from borrowing directly. A crackdown on local-government borrowing, estimated at about 24 trillion yuan ($3.5 trillion) by Northwestern University Professor Victor Shih, could trigger a “gigantic wave” of bad loans as projects are left without funding, Shih said this month.

“Beijing’s fiscal situation probably isn’t as good as it looks at first glance,” said Brian Jackson, an emerging markets strategist at Royal Bank of Canada in Hong Kong. “Perhaps at some stage the central government is going to have to bail out the banks or the regional governments and take it on its own balance sheet.”

Premier Wen Jiabao recently warned of ‘latent risk’ in China’s banking system due to the massive speculative loans taken on by local governments in China.

Warnings of an inevitable crash in China’s real estate market have been growing louder, with former chief economist for the IMF, Ken Rogoff, predicting that China’s property market is in a speculative bubble that will burst ‘within 10 years’, triggering a regional recession.

In Australia, our economic authorities such as RBA Governor Glenn Stevens, and Treasury Secretary Ken Henry, are banking on a China-fueled multi-decade mining boom to carry Australia out of debt.

They both failed to predict the GFC.  It seems they still cannot see, or will not hear, the warning signals today.

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China: ‘Large Financial Crisis’ By 2012

9 Mar

From the Times Online:

Recently there have been even more alarming views on China. Victor Shih, of America’s Northwestern University, looked into 8,000 local governments in China and warned that a wall of “hidden borrowing” could push Chinese government debt to 96 per cent of GDP next year. He feared a “large financial crisis” as a worst case scenario by 2012. Kenneth Rogoff, of Harvard, fears that a Chinese asset bubble, fuelled by the recent surge in debt, could trigger regional recession within a decade.

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Official: China Bubble ‘Undisputable’

4 Mar

From China Daily:

China’s real estate industry is in an “undisputable” bubble with its skyrocketing property price fermenting an imminent structural inflation that might hijack the country’s booming economy into violent fluctuations, a high-ranking official said on Wednesday’s Beijing News.

“The over-speedy price hike is evident of an undisputable bubble in the property market, which is a major propeller behind the current inflation,” said Yin Zhongqin, deputy chairman of the Financial and Economic Affairs Committee of the National People’s Congress.

Famous international financier George Soros has said that he is “very cautious” on China.

Last week, former IMF chief economist Professor Ken Rogoff predicted that the China bubble will bust “within ten years”, sparking a regional recession and hammering commodity exporters.

Despite measures being taken by the Chinese central authorities, leading authorities on Asian economics say that the China real estate bubble cannot be cooled, as it is being driven by trillions of dollars borrowed for speculative, leveraged investments by local municipal governments.

In Australia, our economic authorities are again asleep at the wheel, having confidently predicted a “Golden Age” of “unprecedented prosperity” from a multi-decade mining boom.

Barnaby is right.

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Markets Chief: No Escape For Australia

4 Mar

From the Sydney Morning Herald:

Australia is unlikely to avoid an imminent economic downturn caused by excessive government debt, a top European markets regulator says.

”Prepare for a very difficult economic time, which you will not be able to escape,” Netherlands Authority for Financial Markets chairman Hans Hoogervorsttold the Australian Securities and Investment Commission summer school yesterday.

The debt taken on by governments around the world to bail out banks and stimulate domestic economies would take ”a tremendous toll on the world economy for a long time to come”, he said.

”The problem is that there is now too much on the shoulders of government. They have basically taken on all the problems caused by the financial crisis, with the effect that most of them are in really, truly horrible budgetary shape.”

He said the only way out was for the public and private sectors to tighten spending and repay the debt.

”The problems are so serious there are no easy ways out any more,” he said. ”It is simply inevitable that economic growth for a long period will be very meagre.” And Australia’s economic luck during the financial crisis would run out, he said, because the stimulus programs running in Asian countries, which had fuelled demand for Australian resources, could not last forever.

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