From the ABC:
Federal Treasurer Wayne Swan has conceded the Opposition is correct when it claims Labor is borrowing $100 million a day to pay back Government debt.
Of course, it takes only a few seconds to keep tabs on Labor’s borrowings.
Just visit the Australian Office of Financial Management (“AOFM”) website to see the current total borrowings – listed as $150.533 million presently.
Don’t forget to add to this total, the amount listed at each link under the “Recent Tender Results” title, on the right hand side of the page. These are the extra amounts borrowed last week, but not yet added to the total. So that’s another $1,800 million in the past week, giving us a grand total of $152.133 million borrowed up till last weekend.
Then, to see how much the Government plans to borrow in the next week, click on the “Forthcoming tenders” link, also on the right hand side of the AOFM home page. As you can see, on Thursday and Friday this week, the Labor Government will borrow a total of another $1,000 million.
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…
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.
From the UK’s Telegraph:
Earlier this week, the Bank of England Governor, Mervyn King, irked US authorities by pointing out that even the world’s economic superpower has a major fiscal problem –“even the United States, the world’s largest economy, has a very large fiscal deficit” were his words. They were rather vague, but by happy coincidence the International Monetary Fund has chosen to flesh out the issue today. Unfortunately this is a rather long post with a few chunky tables, but it is worth spending a bit of time with – the IMF analysis is fascinating.
Its cross-country Fiscal Monitor is not easy reading and is a VERY big pdf (17mb), so I’ve collected a few of the key points. The idea behind the document is to set out how much different countries around the world need to cut their deficits by in the next few years, and the bottom line is it’s going to be big and hard (ie 8.7pc of GDP in deficit cuts around the world, which works out at, gulp, about $4 trillion).
But the really interesting stuff is the detail, and what leaps out again and again is how much of a hill the US has to climb. Exhibit a is the fact that under the Obama administration’s current fiscal plans, the national debt in the US (on a gross basis) will climb to above 100pc of GDP by 2015 – a far steeper increase than almost any other country.
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Another issue is that, according to the IMF, the cost of extra healthcare and pensions will increase by a further 5.8pc over the next 20 years. This is the biggest increase of any other country in the G20 apart from Russia, and comes despite America having far more favourable demographics.
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But level of debt isn’t the only problem. Then there’s the fact that the US has a far shorter maturity of government debt than most other countries, meaning that even if it weren’t borrowing any extra cash it would have to issue a large chunk of new stuff each year as things are.
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What does this mean? Basically with a large financing need, you are particularly vulnerable if the market suddenly decides it doesn’t want your debt, since those extra interest rates they charge you mount much more quickly. Japan, by the way, is the one with a real problem on this front. It could hardly be any more vulnerable to a sudden drop in investor demand, and many over there fear that the moment domestic savers stop buying JGBs, the country is doomed to Greek-style collapse…
Read the entire article (including IMF charts) here.
From AAP (via The Australian):
Warnings that Europe faces its gravest challenge since World War II and that the “contagion” from troubled states such as Greece could quickly spread have heightened anxiety in global markets after a steep plunge on Friday reversed much of the week’s gains.
The optimism that followed last week’s E750 billion ($1.05 trillion) European bailout evaporated late on Friday, with markets across the continent plunging and Wall Street closing sharply lower.
The euro tripped to its lowest level against the US dollar in 18 months on Friday on fears of years of weak economic growth in the 16-nation European bloc. The euro is at a record low against the Australian dollar, buying just $1.3974, down from more than $2 early last year.
The euro was not helped by comments by US President Barack Obama’s top economic adviser Paul Volcker, who spoke on Friday of the potential “disintegration” of the 16 nations that share the euro currency. And Paris has had to deny reports that President Nicolas Sarkozy threatened to pull France out of the euro to force German Chancellor Angela Merkel to bail out Greece.
European Central Bank president Jean-Claude Trichet at the weekend called for more action by euro-zone governments to improve fiscal governance.
“We are now experiencing extreme tensions,” he said in an interview with Germany’s Der Spiegel magazine. “In the market, there is always a danger of contagion — like the contagion we saw among the private institutions in 2008.”
And from Business Spectator:
Yesterday, Angela Merkel, German chancellor, warned that the $1 trillion rescue package had only bought Europe time, and that further steps were needed to address the differences in competitiveness and budget deficits between the member countries.
In a speech to the annual German trade union conference, Merkel emphasised that speculation against the euro was only possible because of the huge differences in economic strength and the levels of debt between individual eurozone members.
Meanwhile, the head of the European Central Bank, Jean-Claude Trichet, emphasised that it was urgent that eurozone countries rectify their budget deficits.
In an interview with the German magazine, Der Spiegel, Trichet said that the world was now facing “the most difficult situation since the Second World War – perhaps even since the First World War. We have experienced – and are experiencing – truly dramatic times.”
He said that after the events of 2007-8, “private institutions and markets were about to collapse completely”. That triggered governments to step in with very bold and comprehensive financial support.
The problem was that markets were now questioning whether some governments could afford to repay their debts.
Click here for 9 simple charts that show why a collapse of the Eurozone is inevitable.
From the UK’s Globe and Mail:
The Swiss-based Bank of International Settlements (BIS), the oldest international financial institution in the world, has functioned as the central bank of central bankers for 80 years. In a working paper written by three senior staff economists (“The future of public debt: prospects and implications”), released in March, BIS warns that Greece isn’t the only Western economy with hazard lights flashing.
Indeed, it names 11 more: Austria, France, Germany, Ireland, Italy, Japan, the Netherlands, Portugal, Spain, Britain – and the United States. Without “drastic measures,” BIS says, all of these countries will hit a wall of debt.
When the senior economists at BIS warn 12 of the richest countries on Earth that they must take drastic action to reduce debt, you know that it’s time to check the air bags. The only thing you don’t know, that you need to know, is the precise time of the crash. The lesson is already obvious: Governments can’t drive recklessly, use only the accelerator for braking and not eventually crash.
By the end of 2011, the BIS economists calculate, U.S. government debt will have risen from 62 per cent of GDP in 2007, not quite three years ago, to 100 per cent. Britain’s debt will have risen from 47 per cent of GDP to 94 per cent. Italy’s debt will have risen from 112 per cent of GDP to 130 per cent. All together, the public debt of the 12 countries will have risen from 73 per cent of combined GDP to 105 per cent.
At this debt level, the risk of sovereign default rises rapidly. But the BIS analysis says this unprecedented debt level will itself increase “precipitously” in coming years. It will not, as each of these countries separately insists, fall.
For one thing, the BIS report says, countries that proclaim spending restraint generally do not actually do it. Normally, they hold the line – temporarily. Normally, they slow the rate of increase – temporarily. All pronouncements aside, the BIS report says, these 12 countries have made such grandiose spending commitments that they are predestined for higher debt. The U.S. debt-GDP ratio will hit 150 per cent in the next decade. Britain’s debt-GDP ratio will hit 200 per cent. Japan’s debt-GDP ratio will hit 300 per cent.
These increases in debt, the BIS report says, are untenable. The financial markets, of course, won’t permit them. The only mystery, the BIS report says, is exactly when the markets will intervene. History shows, the report says, that when the markets do rebel, they often do so instantaneously and decisively – often without much warning.
Barnaby Is Right 
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