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.
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.
UPDATE 2:
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.
You see my problem is this:
I’m dreaming away;
Wishing that heroes, they truly exist.
I cry watching the days.
Can’t you see I’m a fool
In so many ways?
But to lose all my senses…
That is just so typically me.
Baby, oh.
Hands up all those who think yesterday’s bloodbath in global sharemarkets should inspire us with confidence that all is well here in the land of Oz?
Let’s see now … that’ll be Wayne … and his friend Glenn … oh yes, and their new mate Martin … noone else?
Interesting, is it not, how all the same clowns persist in repeating their same tired old lines.
Overwhelming weight of evidence to the contrary be damned.
Here’s our Treasurer Wayne Swan as quoted by AAP (via the Australian):
The Australian share market slumped around 4 per cent this morning following a similar drop on Wall Street over rising fears of another economic downturn and worries Europe’s debt problems will widen.
“Australians should never forget that our economic credentials are among the strongest in the developed world,” the treasurer said.
But “a proven track record of dealing with global economic uncertainty”, and “a proven track record of dealing wisely with global economic uncertainty”, are two very different animals.
What is your track record, Wayne?
“The fact is the share market in Australia is not back to levels prior to the global financial crisis and now we’re being hit by another bout of uncertainty.”
Hold the phone!
I thought you’ve been tirelessly telling us just how well you brought Australia through the GFC? Now you’re telling us the share market “is not back to levels prior to the GFC”? And it’s getting its a*** kicked again?
But but but … you had me believing that you were our Saviour, Wayne!
Please… say it ‘aint so!?
I think I did it again. I made you believe
We’re more than just friends.
Oh, baby;
It might seem like a crush,
But it doesn’t mean
That I’m serious.
‘Cause to lose all my senses…
That is just so typically me.
Oh, baby; baby.
I’m devastated!
Oh Wayne, I feel so used!!
What … what was that you said again?
Mr Swan insists Australia is in the right part of the world at the right time, as the Asia-Pacific economy remained strong.
Really?
Funny. That’s not what the latest RBA Chart Pack graphs suggest.
Here’s China and India:
Looks to me like Chindia’s GDP growth has been on a downward slide since late 2009 / early 2010, Wayne. Ever since their GFC Mk1 “stimulus” money began to dry up. Seems they didn’t get any sustainable bang-for-their-stimulus-bucks either. Both of their economies are now running at lower rates of growth than 6 years ago Wayne … that’s 2005.
Oh look … here’s our second biggest trading partner, Japan:
Oops.
Looks like Japan’s GFC “stimulus” can-kicking exercise has stopped rolling up the road too, Wayne. They’re back to 2001-02 levels of growth.
And our GDP growth chart looks even worse:
Ummmm … Wayne, ol’ son.
That approximate trendline I’ve added to the RBA’s GDP growth chart for the land of Oz looks suspiciously like a long term downward trend to me. And looking pretty ugly at the pointy end.
What was it your mate Glenn was saying just yesterday, about his RBA’s forecast tea-leaf prognostication for GDP growth?
The Reserve Bank has slashed its growth forecasts for the Australian economy while predicting inflation would remain high for longer than expected.
The reduced forecasts are greater than economists had expected. It predicts this financial year growth will be 4 per cent down from 4. 5 per cent.
Ummmm.
Not bad. If your revised prognostication turns out to be right this time – questionable, since you only made the first one a couple of months ago – then you’ll only have screwed up your first guesstimate by a measly 38.5%.
By the way.
A little tip Glenn.
Your own Chart Pack says our GDP is already sitting well below 2%. About half that, actually.
Expecting a surging “recovery” out of the bluered yonder, are we?
Got any other sage comments?
In the statement, the RBA said economic growth would be lower because of a range of domestic and overseas factors.
“Growth over 2011 has been revised downwards due to a slower than expected recovery in coal production and to a lesser extent a downward revision to consumer spending as domestic and international concerns have weighed on sentiment,” the RBA said.
Ruh roh!
The Greens want to shut down the coal industry. Preferably within 10 years, they say.
And you’re saying, Glenn, that the main reason why your original economic growth forecast has been revised within a couple of months by a whopping 38.5%, is due to a “slower than expected recovery in coal production”?!?
Anything else to add Glenn?
“The medium-term outlook continues to be characterised by the significant pipeline of resource sector investment with a number of large projects already underway and by strong growth in resource exports.”
You’re always banging on trying to make out that our “public debt” is “low” compared to basket case “developed” economies abroad.
You remember. Europe, the UK, the USA. Those “developed” economies. Hardly a big claim to fame to say our public debt is lower than these paragons of fiscal prudence (/sarc).
But what about our Net Foreign Liabilities, Wayne?
Ummmm.
Wayne.
Net Foreign Liabilities at nearly 60% of GDP?
I had a little look in the RBA’s data, Wayne. Takes about 20 seconds.
Our Net Foreign Liabilities of nearly 60% of GDP?
In real numbers (not this “% of GDP” nonsense) … that’s $780.57 Billion at March 2011 (RBA Statistics, H5.xls).
Oops!
Wayne … you’ve done it again.
You’ve confirmed your official title, and your legacy for the history books.
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?
The national debt in the US has been subject to the legal maximum and has topped the $14 trillion mark for the first time. As the debt ceiling has become a focal point of the debate of most financial experts, the Congressional leaders may try to raise the cap so as to avoid the US government to increase its defaults. The Treasury Department estimates that borrowing must be brought under control and the number of bank failures to repay debt that has been borrowed must also be taken care of.
The US Treasury Secretary Tim Geithner has already reported to the Congress that he will need to suspend all the investments in the federal retirement funds until the 2nd of August. If the debt ceiling is not raised by the stipulated time, the US may have to stop borrowing further money as this may alleviate the debt problems within the nation. Once the debt limit is increased, the funds will be made whole and the Federal retirees and the employees will remain unaffected by this decision.
The Treasury Secretary has urged Congress about raising the debt limit so that there is no ill impact on the markets. This will protect the full faith and the credit of the United States and help them avoid the catastrophic and financial consequences. Meanwhile, the Congress is not showing any signs of increasing the debt ceiling. There are many Republicans and some Democrats who believe that they will not take any step towards raising the debt ceiling unless Congress and the President Obama agree to significant spending cuts to curtail the growth of debt.
But Treasury Secretary Geithner feels that if the debt ceiling is not raised by August 2nd, the US government will fail to pay off its bills in full. This means that slashing off the spending limit will not be enough to get some positive results within the economy. The US Treasury has to make 80 million payments in a particular month and for this it has to borrow money ruthlessly. All this will come to a halt if the debt ceiling is not raised at the right time.
Whenever the debt limit is supposed to be raised, the lawmakers are forced to take stock of the country’s fiscal direction, which is a good thing. However, all the necessary steps must be taken in order to make sure that the US is not set to default on its loans.
Disclaimer: The views expressed in the above article are the author’s own. They should not be interpreted as reflecting any views held by Senator Barnaby Joyce, The Nationals, or by the barnabyisright.com blog author.
In my previous article I expressed the view that the RBA gold sales in 1997 were to extinguish a portion of the large amount of Australian government debt outstanding at the time of the Asian Financial Crisis.
The government was forced to extinguish debt rather than roll it over – (ie) issue new debt – or suffer significant devaluation of the Australian dollar, a ‘sovereign debt crisis’ if you will, as occurred in several nations to our north at the time.
Graph 1. shows how the central bank moves the interbank rate with the growth, or lack thereof, Broad Money, the broadest measure of financial system credit. A falling trend in Broad Money is generally equivalent to widening credit spreads, a falling (or flailing) stockmarket, higher government bond prices, bankruptcies…. in other words, a debt crisis or economic recession.
Click to enlarge
As credit spreads widen the central bank lowers its ‘target’ rate in an attempt to bring rates down across the spectrum, from junk to ‘AA’ bank debt. Government debt of longer duration is moving along with the shorter term debt. I’m speculating here but the long term trend in the 10yr yield may be an arbitrage or ‘risk free’ profit for those borrowing short & lending long. In keeping short term rates low, central banks provide all the ‘liquidity’ the financial system requires and this ‘liquidity’ is used to ‘bid up’ longer term debt, thus long term yields are generally falling in tandem with short term yields. The ‘profit’ is the spread between short and long term yields.
Graph 2. is the monthly issuance of Treasury notes1 and bonds, to show the response of government to debt crises. If you read my previous article you know the end result of government responses and I am gobsmacked at the current level of debt outstanding, it’s not as if it is any more likely to be repaid than in 1997.
Click to enlarge
One thing to note is the 10yr yield around the time of the Asian Financial Crisis in 1997. There is nothing that would indicate problems in the government bond market, in fact just the opposite, the 10yr yield was more or less falling throughout that period.
I think that those looking for a rise in interest rates to signify the beginning of a crisis are looking in the wrong direction. The crisis is already here, has been for some time & is reflected in the price of the only extinguisher, thus arbiter, of all (including if not especially, government) debt……gold.
Note: 1. Data for Treasury note issuance is not available pre June 1989.
Disclaimer: The views expressed in the above article are the author’s own. They should not be interpreted as reflecting any views held by Senator Barnaby Joyce, The Nationals, or by the barnabyisright.com blog author.
Not wanting to recap the insult to intelligence that was the May Budget. But when one comes across a critique from Macquarie Economic Research that so comprehensively rips to shreds the Government’s all-important economic growth forecasts, one feels strangely compelled to share it.
You can read the entire paper here, but following are the choicest morsels (emphasis added):
Could Australia’s policymakers be too optimistic on our growth forecasts?
Upbeat growth forecasts from the Treasury and the Reserve Bank of Australia (RBA) are based on very optimistic forecasts for private sector business investment. But, if the RBA’s investment forecasts are too optimistic, not only will investment be weaker, but so too will consumption and housing, as weaker growth results in less income growth and declining confidence. This would not only mean that tighter policy was not required, but even that current policy settings could be too restrictive.
The RBA and Treasury forecasts for business investment over the next couple of years are truly extraordinary. Treasury expects non-residential construction to double by mid 2013, while the RBA forecasts are predicated on mining investment doing the same thing.
To put this in perspective, the expected lift in mining investment is equivalent to doubling new housing construction from 150,000 units per year, to 300,000 dwellings in the next two years. Another way to look at this is that the value of mining investment in the next two years is expected to be the same as all the mining investment that took place between 1989 and 2006.
Seven years worth of all-time record high mining investment … in just two years? Perhaps we should give them credit for positive thinking.
But is it realistic thinking?
In our opinion, achieving such stratospheric growth would be extremely difficult.
We’ll take that as a polite “No”.
For example, during the largest mining investment boom in Australia’s history, investment increased from about one per cent of GDP to three per cent of GDP. That is, it took five years for mining investment to increase by two percentage points of GDP. Now, the RBA and Treasury expect mining investment to rise by three percentage points of GDP over a couple of years.
By putting all their eggs in the mining investment basket, policymakers appear to have no Plan B for what will support the economy if investment disappoints. And this note provides three clear reasons why one should be cautious about counting those mining investment chickens before they are hatched.
Pretty much exactly what Senator Barnaby Joyce has been saying from Day 1.
That we can’t rely solely on selling “red and black rocks” at record-high prices forever; that we need to become “more self-reliant”; and that we need a “contingency plan” against economic dangers from abroad.
So Wayne, about that “forecast” for a single year of budget surplus in 2013?
~ crickets ~
You’ve had your lackeys in Treasury cobble together a budget chock full of utterly unrealistic growth assumptions, hoping to keep the media and the great unwashed masses docile and con-fident in your economic management, right?
And then, when you make a pigs breakfast of it again, you’ll just fake up the actual growth numbers down the track, right?
Back on the 14th of March last year (“Who Owns Our Debt?“), we discovered that “expert” SMH economic commentator Ross Gittins was wrong. He had claimed –
You thought the pollies had done little else but spar about deficits and debt? Sorry, different debt. They’ve been arguing about the public debt – the amount the federal government owes (mainly to Australians).
A search through the RBA’s Statistics tables easily proved Gittins wrong. We found that at September 2009, an estimated63.3% of public debt was held by non-residents of Australia.
On April 24th this year (“Who Owns 73% Of Our Debt?“), we checked again. At December 2010, 72.6% of public debt was estimated to be owed to non-residents of Australia.
The RBA’s data has been updated again. According to them, we owed an estimated73.13% of our $183.794 billion in public debt (at March 2011) to non-residents.
In yet another example of incompetent Labor government bungling (or is it?), the Act mentioned …
… contains no provisions to compel the provision of information to the AOFM by the beneficial owners of securities or by persons holding securities on their behalf. This has limited the information available to the AOFM to form an opinion on the beneficial ownership of the securities.
Still, they don’t mind having a guess (emphasis added):
The figures in the tables represent opinions formed by the AOFM based on limited information. The AOFM does not believe that they provide any indication of the likely distribution by country of the beneficial ownership of securities held by custodian and nominee companies, or are representative of the distribution of the beneficial ownership of the total securities on issue.
To ascertain the country of beneficial ownership of the securities covered by the legislation, the AOFM has reviewed where possible the ownership records of the registry or depository systems in which they are held. The AOFM has reviewed the name of the accounts which are registered as holding these securities and from this information and knowledge of the business identified sought to form opinions on the country of domicile of the beneficial owners. However this information is insufficient to ascertain beneficial ownership where securities are listed as held by custodians or nominees.
So, the Guarantee of State and Territory Borrowing Appropriation Act 2009, and the Public Register set up in accordance with it … is utterly useless.
But let us take a look at the Public Register’s most recently updated “information” anyway (click to enlarge):
Source: AOFM Public Register
Source: AOFM Public Register
As you can see, according to the AOFM’s “opinion”, 2.5% of our public debt is held “overseas not identified by country of beneficial ownership”.
And according to their “opinion”, a whopping 58.8 per cent of our public debt is held by “domestic custodian and nominee companies”.
In other words, by locally-registered ‘shelf’ companies with a PO Box address. Companies that exist in name only, and are officially owned by ‘nominees’ on behalf of unnamed, anonymous beneficiaries.
What a joke.
It’s official.
Labor has hocked our nation up to the eyeballs to … God only knows who.
Mind you, it is rather curious that the almighty RBA has somehow managed to “estimate” that 73% of our debt is held by “non-residents”.
How could they know that?
Especially when the AOFM’s official “opinion” (with a big disclaimer) is that they can only identify the country of beneficial ownership of just 38.7% of our debt.
I say that this Labor government, the AOFM, and especially the “independent” RBA, have an awful lot of explaining to do.
An ancient proverb says, “The borrower is the servant to the lender”.
I for one think that the citizens of Australia have the right to know exactly who our government is rendering us as servants to obey.
U.S. Republican Congressman Ron Paul, the Chairman of the House Financial Services Subcommittee on Domestic Monetary Policy, who is again running for President in 2012, confirms that the USA is already defaulting on its debts.
From Think Progress, 6 June 2011:
Paul, who is running for President, claimed we are already in default but that the government was mitigating the effects through inflation.
KEYES: Congressman, there’s been a lot of heated rhetoric about this upcoming debt ceiling fight. Do you think it’s really going to be that bad if a default were to happen come August 2nd?
Barnaby was ridiculed up hill and down dale in late 2009 / early 2010, for daring to forewarn of the risk that the USA “could” default on its debts. He even lost his job as Shadow Finance spokesman, thanks to the flack he received from smart-arse, all-knowing and all-wise “experts” on all sides.
Not one of whom had the simple commonsense to see and predict the onrushing GFC.
Even I – a humble small businessman, and lowly blogger – was able to see that coming easily. Backed my intuition and commonsense, and put all my super into cash in May 2007, in defiance of “expert” financial advice. And completely avoided any losses in the global sharemarket crash:
If even I could see that coming, then why – after millions of Aussies lost billions in the GFC – why do we continue to bend our knees and doff our caps to the very same so-called “experts” in the Treasury department, the Reserve Bank, and the financial media, who all completely and utterly failed us? And, massively overpay them for crappy / wrong / non-existent “advice”?
Barnaby foresaw the risk of a coming US debt default back in late 2009, and had the courage to warn that Australia should have a “contingency plan”.
Now, a highly respected longstanding US congressman and 2012 Presidential candidate has outright conceded the truth … that Barnaby was right.
From the Liberal Party’s website, Latest News, 3 June 2011:
The Coalition will relieve the red tape burden from Australia’s small businesses by giving them the option to remit the compulsory superannuation payments made on behalf of workers, directly to the ATO.
Small business will be given the option to remit superannuation payments to the ATO at the same time as they remit their PAYG payments.
Senator Barnaby Joyce writing for The Punch, 13 May 2011:
On Tuesday night’s budget, Labor sneaked in an Amendment of the Commonwealth Inscribed Stock Act 1911. Here is the most telling statement for where our nation is going under this Green-Labor-Independent Alliance. Under Part 5 Section 18 subsection 1 “omitting ‘$75’ and substituting ‘250’ ”.
Now that is in billions ladies and gentlemen and it is real money that really has to be paid back. If we have all this money stashed away under the lower net debt figure that is always quoted by Labor, then why not use some of this mystery money to pay off what we owe to the Chinese and others who we are hocked up to the eyeballs to.
The reason why we can’t is at least $70 billion that makes up ‘net’ debt is tied up in the Future Fund and student loans.
Labor has already introduced legislation in the 2011-12 Budget that aims to grab your super too.
In fact, Labor’s Minister for Financial Services and Superannuation, Bill Shorten, published an op-ed a month ago stating that he views your super as “our sovereign wealth fund”.
There is a wave of government confiscations of private retirement savings rolling around the Western world right now. The first ripples have quietly rolled onto our shores already.
Treasury Secretary Timothy F. Geithner has warned for months that the government would soon hit the $14.3 trillion debt ceiling — a legal limit on how much it can borrow. With that limit reached Monday, Geithner is undertaking special measures in an effort to postpone the day when he will no longer have enough funds to pay all of the government’s bills.
Geithner, who has already suspended a program that helps state and local government manage their finances, will begin to borrow from retirement funds for federal workers.
The USA is taking public servants’ pension funds, to pay government bills.
Note that well.
Because just over 3 weeks ago – and 4 days before that Washington Post story hit the wires – our own Senator Barnaby Joyce made a very disturbing revelation (below).
Economy Minister Gyorgy Matolcsy announced the policy yesterday, escalating a government drive to bring 3 trillion forint ($14.6 billion) of privately managed pension assets under state control to reduce the budget deficit and public debt. Workers who opt against returning to the state system stand to lose 70 percent of their pension claim.
“This is effectively a nationalization of private pension funds,” David Nemeth, an economist at ING Groep NV in Budapest, said in a phone interview. “It’s the nightmare scenario.”
But Argentina and Hungary are not like us, right? That couldn’t ever happen in a Western economy like ours, could it?
Oh, but that’s France. They’ve got hangover problems from the Global Financial Crisis, right? That couldn’t happen in a really strong economy like ours, one that sailed through the GFC without even having a recession … right?
… another recent reversal we’ve seen has come from Latin America. In the 1990s, Bolivia’s decision to move its pension assets from the state to private managers placed it among the most advanced pension systems in the region. However, the current government has decided to nationalise the assets once more claiming it is creating a pension system that is equal for all.
Oh yes, but Poland is really just a Central European economy, not long removed from communism. Something like that couldn’t ever happen in a mid-level, “advanced Western economy” like ours … right?
From Business Insider, 10 May 2011:
Irish Bombshell: Government Raids PRIVATE Pensions To Pay For Spending
Capital city dwelling values fell by a seasonally adjusted 2.1 per cent in the first quarter of the year, according to the latest RP Data-Rismark Home Value Index.
The quarterly change was the steepest since the index series began in June 1999, RP Data research director Tim Lawless said.
And from the Sydney Morning Herald, 17 May 2011:
Real estate slump will leave banks in pain too
Australian real estate, long the subject of global concern, bears all the symptoms of a market that simply has run out of puff.
About that $20 billion in RMBS that Wayne Swan purchased. With borrowed money. Just how safe is that $20 billion “investment” looking?
From the Sydney Morning Herald, 26 May 2011:
Arrears on mortgage repayments spiked to a record high in the first three months of 2011, as more Australians struggle with rising costs, Fitch ratings agency says.
Arrears on prime residential mortgage-backed securities (RMBS) of 30 days or more hit a record high of 1.79 per cent in the first quarter, from 1.37 in the final quarter of 2010, the group said, as Christmas spending and the Queensland floods forced more Australians to struggle in repaying their mortgages.
The increase in arrears for the most fragile band of mortgage borrowers, low-doc loans, with payment delays of 30 days or more hit 6.74 per cent in the first quarter, up from 5.7 per cent in the final quarter of 2010, a higher level than December 2008 quarter, when the financial crisis hit and the Reserve Bank began rapidly lowering rates.
Low-doc mortgages are written for riskier borrowers than prime mortgages, which are written for customers who have a reasonably safe ability to borrow.
Delinquencies of three months or more on conforming low-doc mortgages, which are used by people who are self-employed for example, soared past 5 per cent in the March quarter, from about 3 per cent the December 2010 quarter.
Would our Wayne have “invested” any of that borrowed $20 billion in low-doc RMBS? Or, did he stick with prime RMBS?
From the Australian Office Of Financial Management website:
$20 billion worth of RMBS. With low-doc loans included. A brilliant government “investment” in keeping our property bubble inflated. And now that investment too, is failing, with record-high arrears on the mortgages backing those “securities”.
But there’s nothing really to worry about, because we’ve got the “strongest banking system in the world”, right? Even if the property bubble does pop, our government would never need to go looking for even more money, to bail out our banks … right?
Moody’s Investors Service has downgraded the long-term debt ratings of Australia’s big four banks to Aa2 from Aa1, citing their relatively high reliance on overseas funds rather than local deposits.
Moody’s explanatory paper effectively stated that our banks are Too Big Too Fail. That the Big Four’s liabilities must continue to be supported by the Australian Government Guarantee For Large Deposits And Wholesale Funding that Labor “decisively” introduced (like Ireland) in response to the GFC. And if the guarantee is removed, Moody’s indicated that the Big Four’s long-term debt ratings will be downgraded by at least two further ‘notches’.
Meaning?
Moody’s has just placed our government on notice. Australian taxpayers are now effectively on the hook – permanently – to bail out our banks when our housing bubble bursts.
Exactly the same thing that happened in the USA, UK, Ireland, Spain et al.
Don’t believe that we have a housing bubble? Think the nightmare housing-driven bank collapse scenario that is throttling the rest of the Western world won’t ever happen here?
Fine.
If the housing-collapse trigger event is not enough to bother you, then take a moment to think about derivatives.
Those “exotic” financial instruments that were at the heart of the Global Financial Crisis. The ones that famously prudent investor Warren Buffet referred to as “a mega-catastrophic risk”, “financial weapons of mass destruction”, and a “time bomb”, way back in 2003.
The same kind of exotic instruments that lauded economist Saul Eslake also referred to just a few days ago, in an argument with me on my blog over my criticism of his public lobbying for a carbon dioxide “pricing” scheme (emphasis added):
And exactly what kind of “business” makes up 92.3% of that “Off-Balance Sheet” $15 Trillion – more than 10 times our nation’s annual GDP?
You guessed it. Derivatives. Those “financial weapons of mass destruction” which so nearly blew up the whole world in 2008-09.
Finding it a bit difficult to get your head around these huge numbers? Pictures often help.
Take a look at this simple chart comparing our “safe as houses” banks’ On-Balance Sheet “Assets” (blue line) – which are 66% loans – versus their Off-Balance Sheet “Business”, 92.3% of which is derivatives (click to enlarge):
$2.66 Trillion in "Assets" versus $15 Trillion in Off-Balance Sheet "Business"
Still feeling confident about our banking system?
There’s more.
Australia’s banking system only just dodged a bullet in 2008-09, thanks almost entirely to the government (taxpayer) guarantee which is still in place today.
“Almost” entirely thanks to the government guarantee, you say?
That’s right. Something else helped save our banking system too.
The Australian public remains blissfully unaware that during the GFC, two of our Big Four banks, and our very own central bank, the RBA, all obtained secret emergency loans from the US Federal Reserve – which is simply printing new money, Zimbabwe-style.
Data released by the Fed shows the RBA borrowed $US53 billion in 10 separate transactions during the financial crisis… according to a report in The Australian Financial Review.
NAB borrowed $US4.5 billion, and a New York-based entity owned by Westpac borrowed $US1 billion, according to The Age.
If you think “it could never happen here”, if you think that our government would never take away your super to pay for its massively wasteful spending, its crappy “investments”, or to bail out our Too Big Too Fail, very recently downgraded, multi-Trillion derivatives-laden banking system, then it’s time for you to think again.
Were you one of the many who ridiculed Barnaby Joyce’s warnings in late 2009, about the possibility of a US debt default (“Barnaby Warns Of Bigger GFC“)?
That’s coming to pass right now. Trying desperately to avoid a default is the reason why the US Treasury has now resorted to stealing federal workers’ retirement savings, to pay government bills.
On Tuesday night’s budget, Labor sneaked in an Amendment of the Commonwealth Inscribed Stock Act 1911. Here is the most telling statement for where our nation is going under this Green-Labor-Independent Alliance. Under Part 5 Section 18 subsection 1 “omitting ‘$75’ and substituting ‘250’ ”.
Now that is in billions ladies and gentlemen and it is real money that really has to be paid back. If we have all this money stashed away under the lower net debt figure that is always quoted by Labor, then why not use some of this mystery money to pay off what we owe to the Chinese and others who we are hocked up to the eyeballs to.
The reason why we can’t is at least $70 billion that makes up ‘net’ debt is tied up in the Future Fund and student loans.
That is exactly what is happening in America. Right now.
And Barnaby is warning that it could happen here too.
The first steps in that direction have already begun.
From Global Custodian (Australia edition), 11 May 2011:
The Gillard government’s 2011-12 budget has proposed a raft of initiatives aimed at encouraging superannuation fund and private investment in infrastructure projects.
In light of the botched “school halls” program, and the stalled white elephant NBN – which so far has only achieved a 12% takeup rate, versus their predicted 58% – would you really trust this government to wisely and prudently invest your super in Government infrastructure projects?
Others have their doubts.
From The Australian, 12 May 2011:
The government’s plan to use tax incentives to encourage superannuation funds to invest in new infrastructure could be thwarted by inadequate returns on projects and a reluctance by the states to take on project risk, experts say.
First, a little “encouragement” for super funds to invest in government spending programs.
Then, when the costs blow out, or when the government debt becomes unmanageable … or when the banks need bailing?
And, he is the only politician in Australia with the honesty, decency, and courage, to (once again) try to forewarn the public about the risks of debt, and where this debt train is taking us.
Still not convinced there’s anything to worry about?
Then consider the words of Labor’s PM-in-waiting, the Minister for Financial Services and Superannuation, Bill Shorten. He already thinks of your super as a “significant national asset” … a kind of “sovereign wealth fund”.
From Shorten’s op-ed published in The Australian, 4 May 2011:
This week marks 12 months exactly since the government announced plans to take compulsory superannuation from 9 per cent to 12 per cent.
… our superannuation savings place Australia fourth in the world. Its $1.3 trillion in funds under management through superannuation significantly boosts national savings and provides greater retirement security for millions of Australians. Superannuation is also a significant national asset because it strengthens our financial sector.
Superannuation “strengthens our financial sector”? Can you see where this is going?
Shorten and his cohorts already have their eyes on our $1.3 Trillion in super savings. In Labor’s view, your retirement savings are “our sovereign wealth fund”.
When our Too Big Too Fail, derivative-laden banks inevitably run into trouble again – as indeed they are right now with a falling housing market – you should have no doubt that our government will follow the lead of the USA, France, Ireland, Poland, and all the rest, and simply take your super to prop up our “financial sector”.
After all, they have “guaranteed” our banks. Your future taxes … and if necessary, your super … are the collateral for those guarantees.
But if the Coalition wins government everything will be fine, right? They’re far better economic managers, right? We can all trust the Liberal Party not to put their hands on our super, to pay down Labor-incurred debts … right?
Wrong.
Just this past Friday 3 June 2011, the Liberal Party announced a new policy that they will take to the next election. Loaded with weasel words, it is yet another harbinger of the super theft to come, sneakily disguised as a helpful “reform”.
From the Liberal Party website:
Further relief for small business
The Coalition will relieve the red tape burden from Australia’s small businesses by giving them the option to remit the compulsory superannuation payments made on behalf of workers, directly to the ATO.
Small business will be given the option to remit superannuation payments to the ATO at the same time as they remit their PAYG payments.
Billions and billions of dollars in compulsory superannuation payments, going directly from our employers’ bank accounts to the government’s tax department , every 3 months. And we have to simply trust the government of the day, that every cent of it will immediately be passed on to our private super funds. Not siphoned off into special “investments”, or government accounts. Or simply “sat on” for a month or so, in order to prop up the government’s weekly cashflow needs.
Oh, but not to worry … it will just be an “option” for “small” businesses to do this, of course.
Right. If you believe that, then I’ve got an air-backed derivative called a “carbon permit” to sell you. Ever heard the old saying, “It’s the thin end of the wedge”?
A final thought.
Our government is presently considering the Garnaut proposal for introduction of a carbon dioxide “pricing mechanism”. A key part of this proposal that has (surprise surprise) drawn strong public support from economists employed by the banking sector, is the suggestion that the billions of dollars raised should be administered by an “independent” Carbon Bank. One that …
In other words, a Carbon Bank run by unelected, unaccountable parasites – chosen from the banking sector, no doubt – with the government … meaning taxpayers … acting as the final guarantor for any losses made on their “green” “investments”.
Does that prospect concern you?
Can you see where this is all heading?
We have a government that has already racked up nearly $200 billion in gross debt.
Is running a “forecast” $50 billion annual budget deficit.
And – like an America’s “Mini-me” – has now moved to raise our debt ceiling by another $50 billion (ie, a 25% increase), to a new record quarter of a Trillion dollars.
This is the same government of completely unqualified economic incompetents behind a string of costly disasters – killer ceiling insulation, overpriced school halls, “green scheme” rorts, subsidised Toyota hybrids (that noone except government is buying), the problem-plagued Nation Bankrupting Network … and their latest rort-ridden debacle, “free” set-top boxes.
Do you honestly believe that this government would not end up burying taxpayers with even bigger losses from their carbon dioxide “air tax” scheme too?
Do you honestly believe that this government would never follow the lead of Argentina, Hungary, Bolivia, France, Poland, Ireland, and now the superpower USA … and steal your super to pay for massive debts that they have racked up?
These are just some of the many sound reasons why Senator Joyce has persistently tried to raise public awareness of the real and grave peril of ever-increasing government debt and deficit, in a (supposedly) post-GFC world.
Your retirement savings depend upon your taking notice of his warnings.
Barnaby is right.
If like me you are under 50 years old – indeed, if you are under 60 years old – then I’m willing to bet you all of my super that you will never see all of yours.
And unlike our bank(st)ers and government … I never bet.
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Barnaby Is Right 
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