Tag Archives: stimulus spending

Another Week, Another $1.8Bn In Debt

3 May

The Rudd borrowed-money spendathon continues.

Already $138.5bn in the hole, this week alone the Australian Office of Financial Management (AOFM) reports that another $1.8bn in Commonwealth securities and Treasury notes will be auctioned off, to raise money for yet more wasteful spending.

Meanwhile, the interest rates that the government must offer to pay to attract buyers for our sovereign bonds continues to steadily rise.

From The Australian:

The government is facing a battle to keep costs under its self-imposed 2 per cent growth cap, with blowouts in some programs and higher interest payments adding to the deficit.

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Bubble Proof: Chinese Maids Buying Houses

3 May

Unsure about the conflicting arguments in the ‘expert’ commentariat about whether China is in a massive real estate bubble?  Consider real-world anecdotes like those following, related by former Morgan Stanley chief economist and now independent Hong Kong-based economist Andy Xie, who has predicted that an overwhelming “get rich quick” mentality has doomed the Chinese economy.

From a must-read article in BusinessWeek:

“My maid just asked for leave,” a friend in Beijing told me recently. “She’s rushing home to buy property. I suggested she borrow 70 percent, so she could cap the loss.”

It wasn’t the first time I had heard such a story in China. Some friends in Shanghai have told me similar ones. It seems all the housemaids are rushing into the market at the same time.

There are benefits to housekeeping for fund managers. China’s housemaids may be Asia’s answer to the shoeshine boy whose stock tips prompted Joseph Kennedy to sell his shares before the Wall Street Crash of 1929.

Another friend recently vacationed in the southern island- resort city of Sanya in Hainan province and felt compelled to visit a development sales office. Everyone she knew had bought there already. It’s either buy or be unsocial.

“You should buy two,” the sharp sales girl suggested. “In three years, the price will have doubled. You could sell one and get one free.”

How could anyone resist an offer like that?

The evidence in official-corruption cases no longer involves cash stashed in refrigerators or starlet mistresses in Versace clothing. The evidence is now apartments. One mid-level official in Shanghai was caught with 24 of them.

China is in the throes of a vast property mania. First, let me make it perfectly clear that calling China’s real-estate market a “bubble” isn’t denying China’s development success. As optimism is an essential ingredient in a bubble, economic success is a necessary condition. Nor am I saying that prices will drop tomorrow. A bubble evolves and bursts in its own time.

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Roubini: Rising Sovereign Debt Leads to Defaults

30 Apr

Nouriel Roubini, one of just a dozen economists who publicly forecast the GFC, and who recently declared that ‘risky rich’ countries are in greatest danger of default, comments again on the rapidly spreading sovereign debt crisis (from Bloomberg):

Nouriel Roubini, the New York University professor who forecast the U.S. recession more than a year before it began, said sovereign debt from the U.S. to Japan and Greece will lead to higher inflation or government defaults.

“The bond vigilantes are walking out on Greece, Spain, Portugal, the U.K. and Iceland,” Roubini, 52, said yesterday during a panel discussion on financial markets at the Milken Institute Global Conference in Beverly Hills, California. “Unfortunately in the U.S., the bond-market vigilantes are not walking out.”

“The thing I worry about is the buildup of sovereign debt,” said Roubini, a former adviser to the U.S. Treasury and IMF consultant, who in August 2006 predicted a “painful” U.S. recession that came to fruition in December 2007. If the problem isn’t addressed, he said, nations will either fail to meet obligations or see faster inflation as officials “monetize” their debts, or print money to tackle the shortfalls.

Roubini, who teaches at NYU’s Stern School of Business, told attendees at the Beverly Hilton hotel that “Greece is just the tip of the iceberg, or the canary in the coal mine for a much broader range of fiscal problems.”

“Eventually, the fiscal problems of the U.S. will also come to the fore,” Roubini said during the panel discussion. “The risk of something serious happening in the U.S. in the next two or three years is going to be significant” because there’s “no willingness in Washington to do anything” unless forced by the bond markets.

Barnaby Joyce began trying to draw attention to the dangers of growing sovereign debt – warning of a coming day of reckoning in the USA and Europe and here in Australia – as far back as October 2009. As I have shown in countless posts on this blog, many leading economists, financiers, and informed commentators in other countries have been raising almost exactly the same concerns as Barnaby.

Few in Australia chose to listen.

Instead, Barnaby was ridiculed by the government and the media for every minor gaffe or slip of the tongue, his every statement misquoted or twisted out of context. With the ultimate result that he lost his position as opposition Finance spokesman thanks to the relentless attacks on his economic credibility. Despite his being better qualified to comment on finance than the entire Rudd Government economic team.

Only weeks later, those who do choose to look and listen can see ever more clearly… Barnaby Is Right.

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Cost of Living Pressures Increase

28 Apr

Media Release – Senator Barnaby Joyce, 28 April 2010:

Senator Barnaby Joyce noted today that the release of the latest consumer price index figures show that electricity prices have increased by 26%, in real terms, since the election of the Rudd Government. These results are partly due to their Minister for Infrastructure’s complete failure to build on the Howard Government’s legacy of successful National Competition Policy, as shown by reports in the Australian Financial Review today.

Senator Joyce said that “The Labor party are incapable of decisive outcomes because of their insatiable desire to put polls ahead of statesmanship. Even their own core issues, such as the ETS, are jettisoned as the need requires.

“This government has shown that they cannot deliver on bread and butter issues such as infrastructure. The implausible and pathetic episodes of spending on the home insulation program and the building the education revolution are part and parcel of Australia’s debt currently reaching almost $137 billion. But real investment to bring real outcomes in power, water, roads and rail has been left wanting.

“Minister Albanese’s claim yesterday that the infrastructure reform agenda was “as full as it ever was” simply reflects the Rudd Government’s inaction in this important area. The COAG Reform Council has reported that this government is failing to progress reform in 4 out of 8 competition areas, including energy and transport.”

Reports today in the Australian Financial Review today suggest the government is trying to reinvigorate National Competition Policy.

In response Senator Joyce commented, “What has taken them almost three years? This government has been busy announcing flashy projects and big spending but ignored the hard work necessary to get more out of our existing infrastructure stock. We have waited 12 months for the National Freight Strategy and where is the greater transparency and cost-benefit analysis that this government promised? Greater efficiency, not bigger spending, is what will help reduce electricity, gas and water prices.”

Electricity prices have increased 11 per cent a year on average, in real terms, since the election of the Rudd Government. In comparison, during the Howard Government, electricity prices increased by an average of 0.5 per cent year, in real terms.

More Information- Jenny Swan 0746 251500

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Barnaby Attacks Julia’s BER

12 Apr

Last night Senator Barnaby Joyce appeared on Channel 7’s Sunday Night program, and blasted the massive waste in Julia Gillard’s “Building The Education Revolution” program (click here for the shocking video) –

The Building Education Revolution (BER) has become the Blatant Enormous Rip-off. This is money borrowed from overseas and off other Australians that you, the taxpayer, are going to have to repay. You repay it by going to work and paying your taxes, which are then sent off to the people we owe the money to.

When the Government does not control costs on these projects you end up working a lot longer than you needed to, to pay the debt back.

It is well worth the question whether many of the BER projects stacked around school yards are needed at all.

Are they really going to make your kids better at mathematics or english? Are they going to help them learn a second language? Or are they, in many instances, just over priced trinkets?

The big black signs that are adorning the perimeters of these schools where these projects are, say that this is part of an “Economic Stimulus Package”.

Now I don’t know whether you are getting stimulated by it but you are certainly getting touched.

People have seen the Labor Government coming and they are taking them for all that they are worth.

A fool and his funds are soon parted friends. Every week our nation borrows a billion dollars extra. When you look at projects such as these, it becomes really frightening as to where the management of our nation is off to.

While travelling around the countryside and in the cities, I am shocked at how easily we have been ripped off. It appears that no one in the Government wants to ask the hard question as to whether we are getting value for money and because others know the Government are not asking the questions, the bills for these buildings go unchallenged.

Like quarter of a million dollar shade cloths over playgrounds and millions of dollars in demountables.

Local builders are asking why they did not get a better go at the major contracts, rather than having to build them second hand, as subcontractors.

P&C’s are asking why the Government did not listen to them when they said they would prefer some other form of expenditure rather than a hall. Many are saying we just didn’t need it at all and we are really worried of the debt we are getting because of this.

On a positive note, it is good to see that Australians do care about the waste of money. Australians truly understand that there is something wrong with the mindless throwing of money to the wind for the shrewd and the cunning to take advantage of. This is what happens when you do not properly control costs.

How on earth is this waste helping any body?

How will you feel about it when you are sitting back late at night stacking shelves or driving cabs or stacking bricks in real buildings for real people or shearing sheep or driving earthmoving equipment, to pay off this complete waste of money where even in the waste you have been ripped off.

Barnaby is right.

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Yields On Aussie Bonds Rising

8 Apr

And so it begins.

Have we just heard the ‘canary in the coalmine’ of government debt pause its happy singing?  When the government finds it has to start offering higher yields in order to sell its longer-dated sovereign bonds, you know that the market is beginning to smell inflation… and/or, losing faith in the government’s ability to pay up on maturity.

From The Australian:

The federal government drew solid demand today for an auction of new July 2022 bonds, its longest nominal debt on issue, but had to pay an attractive premium to sell the bonds.

In the latest extension of its yield curve, the Australian Office of Financial Management sold $1.0 billion of 5.75 per cent July 2022 bonds with a weighted average yield of 5.9642 per cent.

“The Commonwealth had to pay up to get good demand,” Westpac strategist Damien McColough said, noting good interest from buyers on yields closer to the 6.0 per cent level.

Over the past two months, the yield on the more common 10-year Australian Government bonds has risen from 5.48% to 5.85%.

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China Crisis ‘A Lot Worse Than People Expect’

6 Apr

Robert J. Brenner, economic historian and professor of history at the University of California, offers a grim forecast of the future for China in a series titled, “Overproduction Not Financial Collapse Is The Heart Of The Crisis: The US, East Asia, and the World”:

I think the Chinese crisis is going to be a lot worse than people expect, and this is for two main reasons. The first is that the American crisis, and the global crisis more generally, is much more serious than people expected, and in the last analysis, the fate of the Chinese economy is inextricably dependent on the fate of the U.S. economy, the global economy. This is not only because China has depended to such a great extent on exports to the U.S. market. It is also because most of the rest of the world is also so dependent on the U.S., and that especially includes Europe. If I’m not mistaken, Europe recently became China’s biggest export market. But, as the crisis originating in the U.S. brings down Europe, Europe’s market for Chinese goods will also contract. So the situation for China is much worse than what people expected, because the economic crisis is much worse than people expected. Secondly, in people’s enthusiasm for what has been China’s truly spectacular economic growth, they have ignored the role of bubbles in driving the Chinese economy. China has grown, basically by way of exports and, particularly, a growing trade surplus with the U.S. Because of this surplus, the Chinese government has had to take political steps to keep the Chinese currency down and Chinese manufacturing competitive.

Specifically, it has bought up U.S. dollar-denominated assets on a titanic scale by printing titanic amounts of the renminbi, the Chinese currency. But the result has been to inject huge amounts of money into the Chinese economy, making for ever easier credit over a long period. On the one hand, enterprises and local governments have used this easy credit to finance massive investment. But this has made for ever greater overcapacity. On the other hand, they have used the easy credit to buy land, houses, shares, and other sorts of financial assets. But this has made for massive asset price bubbles, which have played a part, as in the U.S., in allowing for more borrowing and spending. As the Chinese bubbles bust, the depth of the overcapacity will be made clear. As the Chinese bubbles bust, you will also have, as across much of the rest of the world, a huge hit to consumer demand and disruptive financial crisis So, the bottom line is that the Chinese crisis is very serious, and could make the global crisis much more severe.

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Treasuries Sell-Off Raises US Debt Fears

31 Mar

From the UK’s Telegraph:

Investors are braced for a further sell-off in US Treasuries after dramatic moves last week raised fears that the surfeit of US government debt is starting to saturate bond markets.

The yield on 10-year Treasuries – the benchmark price of global capital – surged 30 basis points in just two days last week to over 3.9pc, the highest level since the Lehman crisis. Alan Greenspan, ex-head of the US Federal Reserve, said the abrupt move may be “the canary in the coal mine”, a warning to Washington that it can no longer borrow with impunity. He said there is a “huge overhang of federal debt, which we have never seen before”.

David Rosenberg at Gluskin Sheff said Treasury yields have ratcheted up 90 basis points since December in a “destabilising fashion”…

Mr Rosenberg said the yield spike recalls the move in the spring of 2007 just as the credit system started to unravel.

Looming over everything is the worry that markets will not be able to absorb the glut of US debt as the Fed winds down its policy of bond purchases, starting with an exit from mortgage-backed securities. It currently holds a quarter of the $5 trillion of the MBS market.

The rise in US bond yields has set off mayhem in the 10-year US swaps markets. Spreads turned negative last week, touching the lowest level in 20 years.

Barnaby Joyce has been warning of the dangers of sovereign debt levels – and in particular the massive US debts – since October 2009. He has been ceaselessly ridiculed by the Labor government, and the mainstream media, for daring to say so.

Please take the time to browse the dozens of articles on this blog, from all around the world, citing leading economists, financiers, traders, and commentators – some of whom predicted the first round of the GFC. Not one of our economic “authorities” did.

Barnaby Joyce is far from the only one who is questioning our economic future, due to massive (and rising) sovereign debt levels, especially in the USA, UK, and Europe.

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Australia’s ‘Goldilocks’ Economy

31 Mar

From The Intelligent Investor:

Australia is the western world’s ‘Goldilocks economy’. My own particular concern is that the market now assumes this status to be a permanent state of affairs. Most domestic commentators, alive to the opportunities that stem from our increasing reliance on China, are asleep to the potential risks.

The consequences of a significant Chinese downturn will be enormous for us; the Goldilocks economy may start to look like other western nations; indebted, economically promiscuous and unable to spend less than we earn. The resources, banking and property sectors look particularly exposed.

While not all of our analysts are as concerned as I am about the potential dangers of a Chinese downturn, we all agree it’s important for Australian investors to consider the possibility that the Chinese miracle may sour for at least a few years.

A few questions should be asked of your portfolio and financial circumstances; Does your brand of diversification mean that the 15 stocks in your portfolio are all in the mining business? Do you own some genuinely defensive investments? Do you have some spare cash reserves or term deposits? Have you paid down your margin loan? Now’s the time to consider these questions.

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How Long Has The Lucky Country Got?

31 Mar

Edward Chancellor is the author of the classic text on financial manias, Devil Take the Hindmost. In 2005 he wrote Crunch time for credit: An enquiry into the state of the credit system in the United States and Great Britain, in which he correctly predicted the GFC. His recent report for Boston-based GMO outlined ten signs of a mania in progress, and showed that the Chinese economy meets all ten of those signs. He has also written recently about the Australian housing mania.

From the Financial Times:

Between 1996 and 2006, US home prices rose by nearly 90 per cent in real terms. Australian home prices rose by roughly the same amount.

Over this period, the US private sector increased its indebtedness by two-thirds of GDP. Australian private debt increased by a similar magnitude. Over the past three years, US home prices have fallen by 30 per cent, according to the S&P/Case-Shiller Composite Index. American households have started to deleverage. By contrast, Australian home prices have climbed 30 per cent since 2006 and households continue to pile on debt.

There are a number of explanations for this divergence…

While other governments expended their resources on shoring up busted banks, the Australian stimulus went straight to consumers. Fiscal transfers increased personal disposable incomes by 4 per cent, according to Professor Steve Keen of the University of Western Sydney. Canberra also bolstered the housing market, raising the subsidy for first-time home buyers to a maximum of A$21,000 (£12,200, €14,000, $18,600). Rising home prices arrested incipient deleveraging by Australian households. Outstanding mortgage debt has actually grown by 6 per cent of GDP since February 2009.

Australia may have been fortunate. But it is not out of the woods. For a start, the real estate market remains in bubble territory. Australian home prices are currently some 70 per cent above their long-term trend level. A recent survey by Demographia International finds that all of Australia’s major housing markets were valued at more than five times average incomes, and defines them as “severely unaffordable.” Initial mortgage payments for a home in Sydney or Melbourne are likely to exceed half of your disposable income, claims Demographia. The Australian housing market looks vulnerable to further rate rises.

Then there are the waning effects of the government’s stimulus to consider. The extra subsidy for first-time home buyers ended last year. The removal of this grant could have a similar effect on Australian real estate as the UK government’s reduction in mortgage interest relief in 1988, which killed off the frenzied Lawson housing boom. Prof Keen claims the first-homeowner’s grant has sucked people into the housing market who would not otherwise have bought. One report suggests many recent first-time buyers in Australia are already struggling to meet payments. This is eerily reminiscent of early stage delinquencies on subprime loans in the US back in late 2005. Australia is also exposed to the removal of China’s stimulus measures. China’s actions boosted commodity prices and improved Australia’s terms of trade. Now, Beijing appears more concerned about inflation and potential bad loans from uneconomic investments.

Aussie house prices have not fallen since the early 1950s. A certain complacency is therefore understandable. Yet not long ago many Americans also believed that domestic home prices could never fall. So far Australia has avoided its day of reckoning. But how long will the lucky country’s luck last?

Not long at all.

A recent survey of 26,000 mortgage borrowers showed that:

Almost half of first-home buyers lured into the market by the Rudd Government’s $14,000 grant are struggling to meet their mortgage repayments and many are already in arrears on their loans.

Thousands of young home buyers are using credit cards or other loans to meet obligations, while those in “severe stress” are missing payments.

Just weeks after the grant was withdrawn, a survey of more than 26,000 borrowers conducted by Fujitsu Consulting has found 45 per cent of first-home owners who entered the market during the past 18 months are experiencing “mortgage stress” or “severe mortgage stress”.

On Monday, RBA Governor Glenn Stevens appeared on commercial TV – an unprecedented act by an RBA official – to warn the public about the dangers of the property market.

On the same day, I came across the following comment by a reader of The Australian newspaper:

Waiting for the “correction” Posted at 1:22 PM Today

Now here’s something interesting. My “relationship manager” at Westpac says the housing market is heading for a “significant correction” because the major banks are about to insist on much higher deposits because of their alarm at the amount of questionable loans on their books. This guys says the word is that the Commonwealth will soon insist on a 30 per cent deposit for new purchases and then only to existing customers. “When that kind of thing happens, the heat will immediately go out of the market so stay out of it till the dust settles”. This bloke says Westpac is especially worried about the impact of the first home buyers grant and they’re already seeing significant loan defaults as interest rates rise. “These people took their $14-thousand, then got Mum and Dad to throw them the rest of their deposit because they were led to believe they’d miss the boat. Kevin Rudd has used taxpayer funds to entice a whole lot of young people into buying places they couldn’t afford and going bankrupt as interest rates rise”. That’s a direct quote from a guy at Westpac who used to be in the business of throwing money at you. God’s honour. Maybe the South Seas bubble IS about to pop?

To learn more about the dangers of debt, and how it has fueled the Australian housing bubble, visit the website and blog of Professor Steve Keen.

Special Note:

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 (and debt) mania that has been driven directly by 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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