Tag Archives: greek debt crisis

Swan: Not Drowning, Waving

19 Jun

No, no … everything’s fine!  Really it is!  Just peachy!!

From AAP via Yahoo!7 News:

Economy strong despite global woes: Swan

Treasurer Wayne Swan says Australia’s economic prospects remain strong despite uncertainty about the recovery in the global economy.

Mr Swan said proximity to Asia would continue to fuel the national economy.

“Australia remains well positioned to benefit from robust growth in our region,” Mr Swan said in a statement on Saturday.

“Strong demand for our commodities is underpinning an unprecedented pipeline of business investment, with ABARES estimating a pipeline of $430 billion in resources alone.”

Australia’s economic prospects “remain strong”, ‘eh?

We are “well-positioned to benefit from robust growth in our region”, ‘eh?

An “unprecedented pipeline of business investment”, ‘eh?

Macquarie Bank begs to differ.

As does Michael Byrne, head of Linfox Logistics.

As does Nouriel Roubini, the economist made famous for predicting the GFC.

And many more.

Ever reliable Wayne Swan. Nothing changes.

Same hot air, every time.

Just remember to bookmark this page.

For the day fast approaching, when Wayne’s waving turns to drowning.

China Lending Tumbles, Signals Slowing Economy

14 Jun

From Bloomberg:

China’s lending tumbled in May and money supply grew at the slowest pace since 2008, adding to signs that the world’s second-biggest economy is cooling.

“This provides another data point highlighting the growth risk,” said Tao Dong, a Hong Kong-based economist for Credit Suisse Group AG. “I think the economy is heading to a soft landing in the second half of 2011, but the risk of a hard landing seems to be on the rise,” Tao said, adding that small companies are short of credit.

A moderating expansion in the Chinese economy is adding to concerns that global growth is faltering.

How’s that promised single year of budget “surplus” in 2013 looking, Wayne?

McCrann: America Is Now Turning Darker, China Can Crash The Whole Economy

13 Jun

From the Daily Telegraph’s National Finance Writer, economist Terry McCrann:

The good news is that the Reserve Bank didn’t lift its official interest rate at its meeting on Tuesday and there’s now no prospect of a rise at its next meeting in July.

The bad news is that the RBA may – and I stress, may – have to turn to contemplating a rate CUT.

How’s that bad news? Just remember the circumstances when the RBA was last cutting – actually, slashing – rates in 2008. Your super was being shredded and we wondered whether we faced Great Depression Mark II.

How also does that square with my comments last week that Australia was in the middle of a boom? Albeit, a weird one, with many feeling it was more like a recession?

That’s the critical, connecting part. If we thought we were hostage to China for our future prosperity, we are now even more hostage to China to fend off chilling winds coming out of America and another potential meltdown.

We got a taste of that downside in the March quarter when the Queensland floods temporarily cut off coal exports and sent our economy diving at an annual rate of nearly 5 per cent. It is springing back now, right? Right?

Yes, of course. But what if it became a case of China not wanting to buy, rather than we not being able to ship the stuff out?

America is now turning darker. The visible evidence of that is Wall St. It has now fallen for six weeks in a row – something it didn’t do even through the global financial meltdown.

While, the overall fall isn’t anywhere near as big, the problem is that the US Government and the US Fed have fired off all their anti-recession ammunition.

Worse, all the problems caused by, or just revealed by, the GFC are still festering.

The US is running a budget deficit of close to $US1.5 trillion. That would be the equivalent of about $100 billion down here – and we think $50 billion is huge. They have a zero official rate, ours is 4.75 per cent. And the Fed has just finished printing $US600 billion of paper money.

The one thing all that seemed to achieve was to put the stock market up and now it’s going down. And all Fed head Ben Bernanke can say is that economic recovery has been “frustratingly slow”.

That brings us back to China and Martin Place in Sydney. That’s where the RBA resides and your home loan rates are set.

Right now the RBA believes the China boom is the biggest thing in our future. On that basis it believes it’s going to be fighting an inflation problem through 2012 as the money pours in and demand for skilled labour threatens a wages-price breakout.

On that basis it believes it will have to raise rates by at least 50-100 points over the next year and a half. Even if that’s brutal to large parts of the economy.

The initial key will be the June quarter inflation date at the end of July.

A bad number would see it raise at its August meeting.

It will watch events out of the US – and Europe and Japan – very closely. If the US turned seriously dark, if Greece imploded, all rate bets would be off.

It will also be watching China very closely. The US can send our market down as it did in 2008.

China can do it to the whole economy.

We’re toast.

Terry McCrann is right to point to the USA … as Barnaby did nearly 18 months ago … and voice concern that an implosion in America may well mean that China stops buying raw materials from us.

But I fear Mr McCrann is missing the wider dangers in focussing on the USA. Because China may well fold up like a playing card pyramid, all on its own. Without any “help” from America at all.

As we saw yesterday, Nouriel Roubini, the economist who gained the most fame for having predicted the GFC – predictions that RBA Governor Glenn Stevens claims not to have known anything about – has now sounded the alarm bell on China.  On the weekend he predicted a “hard landing” for the Chinese economy in 2013, just two years away. For reasons unrelated to America’s woes.

Moreover, we have our own internal risks to consider.

One could almost be forgiven for thinking that Mr McCrann’s fellow Finance Writer for the same paper, Nick Gardner, has been reading barnabyisright.com, in light of the following article published right above Mr McCrann’s column in The Sunday Telegraph yesterday (sorry, no link):

A bubble market

According to new data from RP-Data Rismark, the housing analysts, property prices have been declining in “real” terms since 2004 – in other words, they have been failing to keep up with inflation.

In terms of capital growth, you’d have been better off stashing your money in the bank than buying a home.

As The Sunday Telegraph reported last February, a quarter of people who bought and sold their properties within the past five years lost money.

The average shortfall was $54,000, but in some areas the losses reached almost $300,000, according to Residex, another property analyst.

Such statistics stand in sharp contrast to the broader public view that house prices have been consistently shooting up, and reveal signs of market weakness that, if continued, could undermine the entire economy.

Although experts are split about the outlook for property, it is clear the Reserve Bank needs to tread carefully.

… it is a delicate balancing act; a hike too far could cause the housing market to crash as it has in the USA and UK.

Shane Oliver, chief economist at AMP Capital, says the housing market is Australia’s “Achilles heel”.

“House prices here are overvalued by about 30 per cent, and it would not take too much to tip them over the edge.” Oliver says.

Overseas, many big institutional investors such as pension funds and hedge funds – which our banks rely on to borrow money which they lend out on mortgages – share Oliver’s concerns.

That’s one reason why the Big Four were downgraded by credit-ratings agency Moody’s from AA1 to AA2 last month.

Trevor Greetham, asset allocation director at Fidelity International in the UK, which has $3.4 Trillion under management, said: “If the global economy recovers strongly, that could push interest rates up a lot. That’s a real risk for Australia, because house prices are becoming an issue.”

The London-based Russell Investments fixed-income portfolio manager Gerard Fitzpatrick said he was more cautious about lending to Australian banks, citing the recent catastrophe in Ireland, where the house-price bubble effectively broke the banking system.

“I’m not saying Australia is the same as Ireland but there are definitely similarities.”

With such powerful voices becoming so worried, a credit crunch in which mortgages are rationed and buyers must put down much bigger deposits remains a possibility. The consequences could be disastrous.

That’s exactly what this blog has been arguing.

Basically, we’re screwed no matter what happens.

“Good” news or “bad” news, is all bad news for us.

If the global economy recovers, then we’re screwed because rising interest rates will crash the housing market (if it hasn’t already), and wipe out our banks. Meaning, the government will come after our super to prop them up.

If the global economy stalls, then we’re screwed because China will suffer the “chilling winds coming out of America”, and crash our economy. Meaning, the government will come after our super to prop up the economy through more ‘stimulus’.

Both sides of politics know they will do that. Both sides of politics are already implementing policies for it.

Barnaby has often warned that we cannot rely on a never-ending China boom to pay down Labor’s never-ending debt. Former Treasury secretary Ken Henry pompously disagreed. Labor and the mainstream media all climbed aboard the “Barnaby is wrong” train.  And Barnaby lost his job as Shadow Finance spokesman

Once again … as always … Time tells.

Barnaby warned of a bigger GFC almost 18 months ago. He said that Australia needed to stop borrowing and wasting billions, and make a “contingency plan” against the very real risk of more trouble hitting our shores from abroad.

Barnaby was 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…

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.

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…

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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