Tag Archives: GFC2

Why The Global Financial System Is Broken, Explained In Under 3 Minutes

25 Nov

Humour + Truth = Genius.

China’s Vice Premier “Certain” Of Long-Term Global Recession

24 Nov

Really looking forward to seeing Waynes’ massaged MYEFO now.

From Business Spectator:

China triggers the recession alarm

Last night’s fall in global share and commodity markets plus the slump in the Australian dollar will affect not just Australian superannuation balances and consumer confidence, but will extend deep into sectors of the Australian dwelling market. If you are about to buy or sell an apartment or house, you need to be aware of the forces that have been unleashed.

The most dramatic contributor to last night’s drop, from an Australian point of view, was not the growing frustration with Europe; it was not the global banking crisis; and it was not the fact that the US must introduce mandatory spending cuts. All of those events were very important, but what spooked our part of the world was the statement by Chinese Vice Premier Wang Qishan that a long-term global recession is certain to happen and China must focus on domestic problems.

And from CNN Money:

European stocks were getting slammed Monday, after Moody’s Investors Service issued a dire warning on French bonds, and Asian markets were dampened by pessimistic remarks made by a high-ranking Chinese official.

“China’s Vice Premier Wang Qishan said that the current economic situation is extremely serious and is certain that a global recession triggered by the international crisis will last a long time,” wrote the Deutsche Bank analysts in a report to investors.

And the “hot money” (ie, speculator-driven) that had been keeping the AUD artificially strong … until late 2008 … and, until recent weeks … is not just fleeing Australia.

It’s fleeing China too.

From the Wall Street Journal:

Hot Money’s Hurried Exit From China

More signs of bearish sentiment on China, this time from cross border capital flows.

Data released Monday showed China’s banks were net sellers of foreign currency in October (in Chinese). That’s unusual because China’s trade surplus, combined with inflows of direct investment, mean the mainland’s banks are almost always net buyers of foreign currency.

Indeed, the numbers normally suggest that in addition to the trade surplus, banks are buying up speculative capital flowing into the economy. Tuesday’s numbers suggest that now speculative capital might be exiting China. That makes sense given diminished expectations of yuan appreciation, falling property prices and a deepening crisis in Europe pushing investors away from risky positions.

A comparison with past occasions when hot money has flowed out of China provides little reassurance. Netting out the trade surplus from banks’ FX purchases gives a rough approximation of the scale and direction of capital flows. The last time it turned negative was May 2010, when fears of a double dip downturn were on the rise. The time before: the eve of the financial crisis in August 2008.

Come on now Wayne.

Out with the MYEFO already.

Surely all this is nothing for the World’s Greatest Finance Minister to handle:

Australian Media 4 Months Late On China Bust Warning

26 Oct

Top feature story at The Australian today:

‘Hard landing’ coming in China, warns Nouriel Roubini

AUSTRALIA faces the threat of a “hard landing” in China within two years and the growing risk of being hit by a double-dip global recession sparked by the European debt crisis, one of the world’s leading economists said yesterday.

Nouriel Roubini, from New York University and widely known as “Dr Doom” for predicting the global financial crisis of 2008, told the opening day of the Commonwealth Heads of Government Meeting business forum in Perth that China’s economic growth model was unsustainable, and he predicted a sharp slowdown in 2013.

The downturn would have a “major effect” on Australia by driving down commodity prices and denting economic growth.

As reported on barnabyisright.com way back in June:

China’s Economy At Risk Of “Hard Landing”, 60% Chance of Banking Crisis By Mid-2013

Nouriel Roubini, one of the dozen or so economists who predicted the GFC, has just given an ominous warning for all those – like Wayne Swan, the Treasury department, former Treasury secretary (and now personal adviser to Gillard) Ken Henry, and the RBA – who are blindly banking on a never-ending China boom, with continuous record high terms-of-trade, to get us out of their $1.59 million per hour Interest-only debt hole.

The Australian mainstream media continues its fine record of keeping us ill- and under-informed.

World Bank: We’ve Entered “New And Dangerous Phase”

16 Aug

From the Australian:

The world has moved into a “new and more dangerous phase” of economic uncertainty because of the European sovereign debt crisis, according to World Bank president Robert Zoellick.

In an exclusive interview with The Weekend Australian, Mr Zoellick said the European economic problems were far more intractable and serious than the US economic problems.

Amazing, isn’t it.

The profound and mystical ability of the world’s elite bankers and economists to state the bleeding obvious.

After the fact.

When “Outspoken” Is A Perjorative For “Truth-Teller”

12 Aug

Outspoken former RBA board member Warwick McKibbon (emphasis added):

Ditch the delusion that stimulus saved us from GFC

The sell-off in global sharemarkets reflects the realisation that debt problems in advanced economies are serious, but it reflects more than this. For some time the fiscal fragility in the global economy has looked like a slow-motion train wreck

Australia is now likely to be hit with a second global shock. This is different from the GFC in a critical respect. It is a concern over excessive government debt so the response in Australia should not entail a new fiscal package …

Bad fiscal design always has an unexpected cost. Why is a flood tax being introduced just as the economy slows? The forecast that this would help dampen the boom is now likely to be wrong. There clearly should be an urgent review of the mismatch between spending commitments in the pipeline and highly uncertain revenue. This is essential to better understand future fiscal vulnerability.

The delusion that what saved the Australian economy from the GFC was entirely fiscal policy needs to be jettisoned.

Outspoken chairman of the Future Fund – the government fund containing public servants’ super, that Barnaby has warned will be raided to pay down debt – says that the global sovereign debt crisis could take 20 years or more to “play out” (emphasis added):

The chairman of the $75 billion Future Fund has warned the debt crisis engulfing Europe and the United States could take at least 20 years to resolve, causing ongoing market volatility.

David Murray warned the post-global financial crisis environment would continue to be characterised by a series of market shocks, with investor uncertainty heightened by concerns over the ability of political systems to contain any emerging meltdown.

And he sounded the alarm on the level of government and private sector debt in Australia, saying they both needed to be reduced, given the capacity of Australia to be caught up in a new global financial rout.

“The global financial crisis was caused by excessive debt which had built up in the world at both the government level and in the private sector in developed countries,” Mr Murray told ABC radio.

“The sorting out of that problem is something that could take up to 20 years. As that post crisis environment unfolds we will see continuing events such as we’ve seen in the past couple of weeks.”

“Outspoken” is another of those words wielded as a weapon.

In modern, politically-correct Unspeak, it is the latest putdown label for “truth-teller”.

When someone speaks the truth, contrary to the “mainstream wisdom” – especially someone like Warwick McKibbin or David Murray holding a public position, who cannot be “politely” attacked more viciously – then they/their viewpoint is labelled as “outspoken”.

The unspoken implication of labelling someone as outspoken … is that we should not speak out.

That we should all be good, silent, obedient slaves.

Barnaby: “Waiting For Swan Dude To Mutter The Word ‘Surplus'”

11 Aug

Senator Joyce writes for the Canberra Times (emphasis added):

Debt is now a long-term problem

In the mall outside the City Hall gathered the Socialist Action Alliance; speeches, placards, all fairly predictable, about 80 of them.

The zealot loud hailer core were looking a little tired, and a bit passe, but the students were revelling in experimenting with another illicit substance, communism.

Across from them was the Ban the Burka group. There were fewer of them, all in blue, special King Gee Ban the Burka shirts with a motif on them that looked like they wished to ban Pac Man.

Then there was just a cacophony of noise which, from where I was standing, while waiting for my wife and daughter to return from a shop, sounded something along the lines of “Bigot stoning Moslem ban”. The amalgam of the two mantras had led to a perfectly reasonable request.

Into the midst of this came another undergraduate dressed all in black with a cape and a black-winged motorbike helmet. “Bat Thief” was emblazoned across his chest.

He cut quite a dashing figure. Beside him stood plain clothes Boy Wonder with a placard on a stick offering “free hugs”. They were obviously a duo – it was outside City Hall after all.

Bat Thief stood beside me, observed the scene and muttered “racism”.

Which group he was referring to and exactly what he was going to do next shall remain a mystery.

Anyway it appeared to be either too much or too inconsequential for Bat Thief.

He and his coterie of skateboard super heroes exited behind the Ban Pac Man crowd.

The constabulary was also there and had managed to apprehend three felons; the charge, riding a push bike in the mall, mitigated by their combined ages being less than that of the youngest protester.

This was the day that Standard & Poor’s downgraded the US Government. The mall appeared oblivious to the fact that the world had changed. A fire that was lit by debt and had never gone out had come raging back over the horizon and could financially take all before it.

Australia has been distracted from the main issue. I have more faith in Bat Thief and the Free Hugs boy wonder than I do in Wayne and Julia to get us through this one.

If you put your face too close to the painting you can’t see the picture, and to see this picture you have to go back to 2008.

I remember reading some very prescient articles that formulated my belief that debt had gone from a transient problem to a long-term structural problem.

William White, from the Bank of International Settlements, started to raise serious concerns about interbank liquidity. Dr Paul Woolley and Eric Janszen argued that people had been borrowing money to gamble on derivatives. A very dangerous thing.

I remember when studying for my CPA, it was one of the first lessons taught, learning that Toyota once decided they could make more money trading options than selling cars and almost went broke. Unfortunately we had whole nations trying to do it.

It always amazed me that if a humble accountant from St George was reading this then why wasn’t the Treasurer? At the time he seemed too busy fighting a war on inflation, in an attempt to embarrass the previous government, rather than tackle the problems facing the world.

Now, the problem then was debt and the problem now is debt.

Southern Europe doesn’t want to pay their taxes but they want the social protections of a benevolent government. The problem for the Germans is that they are sick of bailing them out. They may no longer have a choice because the problem is becoming too big for anyone.

America’s debt is at a level that is beyond the human mind to actually fathom; it has become a form of mathematical metaphysics worthy of Donne or Dryden.

Here in Australia we are led by an apparently fiscally conservative government that has increased public debt by 150 per cent since 2007.

Only those other noted fiscal conservative governments in Iceland and Ireland have grown their debt at a faster rate.

Our Treasurer’s promise to deliver a surplus is as much of a show as Bat Thief’s cape and skateboard trick. I am waiting for Swan dude to mutter the word “surplus” and then disappear down the street with the Labor party on their skateboards.

Barnaby: To Those Who Called Me Fool, Who’s Laughing Now?

8 Aug

Senator Joyce writes for the Australian.

Listen up this time!! –

The joy of vindication on the prospect of a US government default is bittersweet; I was right, Wayne was wrong. To those sucked in by the Treasurer, placing wishful romantic theory above clinical reality, then saying “you wouldn’t cut it with the Bloomsbury group if you talk like that at our soiree”, I suggest this, get real.

Do not confuse tackling a problem with delaying when it comes to debt. If while out on the tiles on a Friday night you discover a septic gash on your leg, and in response down another five jagermeisters, pain gone, problem gone, keep dancing, that is delay. Going to hospital to avoid amputation is dealing with the problem.

Tim Flannery said that the impact of climate change policies won’t be felt for at least a thousand years. The impact of a catastrophic default this time was avoided by a mere 10 hours. When prioritising threats I know which one I would be concentrating on.

Swan has given 25 speeches this year and mentioned climate change 24 times. Debt has only been mentioned 16 times, and eight of these in one speech made last month. A year and a half ago I implored the government to prepare contingency plans for the threat of a US default stating the prospect was “distant but real” but if it eventuated the fallout would be a financial Armageddon making the GFC look like a mere preamble. US President Barack Obama also used the term Armageddon in the past month, so if I’m mad, so is he.

When asked on ABC radio whether the government had prepared for a potential US default, our Treasurer could point to no specific actions taken. But we do have parts of Treasury modelling climate change. The Treasurer believes I have been captured by “Tea Partiers”. Disagree with him on climate change you’re a denier, disagree with him on economics you’re a Tea Partier.

Ken Rogoff, obviously another of Swan’s Tea Partiers, but also moonlighting as a professor of economics at Harvard University, has been warning about these problems since we were first introduced to the term sub-prime. The Global Financial Crisis involved ordinary people and silly governments taking on too much debt. There was nothing unique about it, the same process has been repeated over and over again with tulips, railroad stocks, Florida real estate, dot-com investments and our modern example, collateralised debt obligations.

A couple of years ago Rogoff wrote a book titled This Time Is Different, showing actually it’s almost always the same. Public debt crises are more common than economists tend to acknowledge and financial crises in particular place extreme stress on government finances.

Rogoff wrote a paper a couple of months ago titled A Decade of Debt in which he measured the increase in public debt in different countries since 2007, when we voted in these current economic luminaries. No surprises, Iceland and Ireland, are one and two but Swan got the bronze, Australia is third, with a 150 per cent increase in our public debt since 2007. As I previously said we can’t keep going on like this, but we are. We have just extended our debt ceiling to $250 billion.

In 2008, before the GFC’s nadir, Ireland’s net public debt was 12.5 per cent of GDP according to the OECD. The Treasurer boasts that our net public debt is low compared with others. The parliamentary library estimated last year our net public debt will be 12.3 per cent of GDP in 2012-13, the same year Swan predicts surplus.

In the political sphere the person who drives via the rear vision mirror, with a wonderful recitation about everywhere you have been and why, but not a clue where you are going, is dangerous. When, with a coterie of bureaucrats, they cannot keep the car on the black stuff but seem to be targeting the trees, you are in for the economic ride of your life.

Things changed for Ireland after it guaranteed the debt of its banks during the GFC. We have done that, too. Three years ago the Treasurer introduced the financial claims scheme which guarantees $730 billion in deposits. It’s up for review in October but there is barely a discussion about how we might mitigate the risks of such taxpayer exposure. We are too busy trying to cool the planet from a room in Canberra.

Barnaby is right.

Take very careful note of that last paragraph.

Moody’s ratings agency has already warned our government – when it downgraded the credit rating of all our banks in May – that the government’s guarantee was worth two ratings notches.

In other words, without the government guarantee – the our-future-earnings guarantee – our banks’ credit rating would be slashed even further.

Meaning higher interest rates for you.

The long overdue collapse of our housing bubble.

The collapse of our banks.

The bailout of our banks.

And Australia looking exactly like the rest of the Western world.

Oh yes …

And your super stolen by our government – both “sides” – to bail out the banks, and/or finance the floundering government.

Don’t believe me?


Piss off then.


Read. And learn.

Start here –

Stealing Our Super – I DARE You To Ignore This Now

I Told You So

6 Aug

From Reuters:

The United States lost its top-notch AAA credit rating from Standard & Poor’s on Friday in an unprecedented reversal of fortune for the world’s largest economy.

Five days ago, prior to the US raising their debt ceiling, I wrote this:

Why The US Is Doomed, And The Debt Ceiling “Crisis” Is Irrelevant

If you missed it, click on the link above to see the chart from the New York Times which explains why – whether it be now, or later – the US economy is doomed.


Dow Jones Newswires comments:

Standard & Poor’s has taken the unprecedented step of downgrading the US government’s “AAA” sovereign credit rating, in a move that could send shock waves through global financial markets and potentially undermine world economic growth.

In a press release, S&P, today cut its top-notch long-term credit rating for the US Treasury’s debt to AA plus with a negative outlook. It is the first time in modern history one of the three main ratings firms has stripped the US of its coveted AAA rating.

S&P warned last month if the US government didn’t approve a credible medium-term plan to shrink its fiscal shortfall, it would downgrade the rating even if Congress approved a debt deal that raised the Treasury’s borrowing limit.


The Wall Street Journal:

A cornerstone of the global financial system was shaken today when officials at ratings firm Standard & Poor’s said US Treasury debt no longer deserved to be considered among the safest investments in the world.

S&P removed for the first time the triple-A rating the US has held for 70 years, saying the budget deal recently brokered in Washington didn’t do enough to address the gloomy long-term picture for America’s finances.

It downgraded US debt to AA+, a score that ranks below Liechtenstein and more than a dozen other countries, and on par with Belgium and New Zealand.

What did then Opposition Finance spokesman Barnaby Joyce say, back in February 2010?

“If you do not manage debt, debt manages you”.

Barnaby is right.

Barnaby: Good On You Wayne, You Are A Genius

5 Aug

Media Release – Senator Barnaby Joyce, 5 August 2011:

Mr Swan is a precise reflection on the Labor Party’s total and utter financial incompetence. Mr Swan has carriage over, and a fascination for, a Climate Change modelling section in Treasury. The reality of course is that it has not a prayer of affecting the climate, but until the wave hit he denied the bleeding obvious about Catastrophic Debt Change.

But the Treasurer has done nothing to prepare Australia for the financial fallout on global sovereign debt, which some of us have been screaming about now for years. Yes, I was talking about this even before my brief tenure in Shadow Finance.

Instead, Swan and Labor have overseen the third largest proportional increase in public sector debt in the world. Ken Rogoff from Harvard will confirm this.[1]  Iceland, Ireland then us; good on you Wayne you are a genius.

Iron ore, coal and wheat saved us from the first GFC not $900 cheques, ceiling insulation and school halls. Heavy floods in Queensland also brought a severe decline in GDP for Australia recently just to remind us of what happens when coal can not get to port.

We have not heard boo on how this nation invests in where we make our money. It was pathetic that even as recent as yesterday they were talking about borrowing another $100 billion to build a not as fast as a plane passenger train.

Now Wayne what will that help us export to pay for your debt?

[1] Reinhart, C. and Rogoff, K. 2011, ‘A Decade of Debt’, Centre for Economic Policy Research Discussion Paper, p. 12, http://www.voxeu.org/sites/default/files/file/DP8310.pdf

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