Tag Archives: treasury notes

Guest Post – Our Government Debt Crisis Is Already Here

21 Jun

Submitted by reader JMD.
A follow up to “Why The RBA Sold Our Gold

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.

How Much More Debt Next Week, Wayne?

4 Jun

$2.5 Billion.

Great, isn’t it.

Over the past 6 weeks since I began tracking the AOFM’s government debt auctions, Wayne’s pack of lunatics have borrowed no less than $2 Billion, and as much as $2.75 Billion.

Every single week.

And we can see here, that ever since JuLIAR Gillard knifed KRudd, she has been on a borrow-and-spendathon that puts even the jet-setting Mr Stimulus to shame.

The following chart shows only the value of Treasury Notes auctioned by Labor. These are “short term” debt “instruments”, that typically must be repaid within 30-90 days.  They are supposed to be issued only when necessary to “smooth” cashflow requirements of the government.

Most of the government’s primary funding comes, instead, from the auction of Treasury Bonds, which are longer term debt “instruments”, that must be repaid over durations of anything up to 20+ years.

We take particular interest in the blowout in borrowing using Treasury Notes, because it indicates a government that has completely lost the plot.  An utterly incompetent government, that has no idea what it is doing.  Has no planning.  Cannot even manage to balance the weekly cashflow needs of government.  And so is constantly going back to the international debt markets, to borrow $2+ billion per week on the “short term” national credit card (click to enlarge):

Source: Australian Office of Financial Management (AOFM) - to end April 2011

Note carefully that this chart only goes up to end of April this year. During May, the government borrowed another $5.8 Billion using Treasury Notes. To picture this – since I’m too lazy to update the chart right now – just imagine another blue line on the end of that chart, one that is double the height of the tallest blue line.

So far in June – a mere 3 days in – they have already borrowed another $500 million using T-Notes.

And next Thursday 9th June, they will borrow another $1 Billion using T-Notes.

The Real Reason Why Gillard’s A Spinster

1 May

Why is Julia Gillard really an unmarried, childless, career politician spinster?

The answer may surprise you.

Take a look at the following chart, showing Commonwealth Treasury Note auctions from March 2009 through this past Friday (click to enlarge):

Source: Australian Office of Financial Management (AOFM)

Since Ms Gillard took over the nation’s top job, the size of weekly Treasury Note auctions has jumped dramatically.  Under Gillard, the government has auctioned $46.7 billion worth of Treasury Notes in just 10 months.  By contrast, the Fairy Ruddfather sprinkled $50.2 billion in the preceding 15 months, before Gillard banished him to the spare bedroom:

Now, it’s important to understand the special significance of Treasury Notes.  According to the Australian Office of Financial Management (AOFM):

Treasury Notes are short-term debt securities used primarily to meet within-year funding flows. Issuance decisions are made weekly and depend on the Government’s projected daily cash position for the weeks ahead.

Then there’s this:

Treasury Notes are not expected to make a major contribution to overall funding for the 2010-11 financial year as a whole.

Right. With 2 months to go, she’s already auctioned $11.1 billion (31.5%) more in Treasury Notes than the Fairy Ruddfather did in the previous financial year.

Conclusion?

Clearly, a Gillard-led government is incapable of managing the weekly cashflow.  The kitchen’s closed, the children are running amok, the House is a shambles, and the budget is out of control, ever since she took over the purse-strings.

Which explains once and for all, why she’s an unmarried, childless, career politician spinster.

..

.

P.S.  I thought it apropos to reveal Gillard’s big secret today.  A day so very close to Julia’s heart.  International Worker’s Day.  Labour Day.  Otherwise known as May Day.

That’s also why I’ve changed this blog’s theme colour for today – in honour of the occasion.  Though I’ll admit it was rather difficult to decide whether it was more apropos to go red or …

“Socialist governments traditionally do make a financial mess. They always run out of other people’s money.”

– Margaret Thatcher, 1976

Tanner $6B Out on Debt

25 Feb

Media Release – Senator Barnaby Joyce, 25 Feb 2010

Finance Minister Lindsay Tanner today on Fairfax Media, shows yet again he is a person who doesn’t “dot the i’s and cross the t’s”.

Asked what Australia‘s government gross debt was, he said and I quote, “The most recent actual number is about $120 billion, that’s the gross, I don’t check day on day, week on week”.

Australia‘s gross debt is actually $126.083 billion. It cracked $120 billion back before the 28thJanuary. So is the best we can hope for month on month? But don’t worry, Mr Tanner, it’s only somebody else’s money and I suppose somebody else has to repay it.

Mr Tanner you should be checking day on day, week on week. You should be dotting the” i’s and crossing the t’s”. You should be doing everything in your power to stop the trajectory that this debt is on.

When you are out by $6 billion and you are the Finance Minister, you do not leave a sense of confidence that you are managing the problem.  It appears you are not even closely watching the problem. Mr Tanner you would have got closer to the number if instead of waving my media releases around in the chamber, you actually read them.

So Mr Tanner, if you are not watching our debt, who in the government is?

For more information –
Jenny Swan
Office of Senator Barnaby Joyce,
Leader of the Nationals in the Senate
02 6277 3697
0438 578 402
jenny.swan@aph.gov.au

Note: Unlike Lindsay Tanner –  the responsible Finance minister – Barnaby Joyce is right up-to-the-minute with his knowledge of the debt numbers. Even the Australian Office of Financial Management (AOFM) has not yet updated their home page to reflect the additional $600 million in Commonwealth Treasury Notes that were auctioned off today.

Finance Minister Lindsay Tanner today on Fairfax Media, shows yet again he is a person who doesn’t “dot the i’s and cross the t’s”.

Asked what Australia‘s government gross debt was, he said and I quote, “The most recent actual number is about $120 billion, that’s the gross, I don’t check day on day, week on week”.

Australia‘s gross debt is actually $126.083 billion. It cracked $120 billion back before the 28th January. So is the best we can hope for month on month? But don’t worry, Mr Tanner, it’s only somebody else’s money and I suppose somebody else has to repay it.

Mr Tanner you should be checking day on day, week on week. You should be dotting the” i’s and crossing the t’s”. You should be doing everything in your power to stop the trajectory that this debt is on.

When you are out by $6 billion and you are the Finance Minister, you do not leave a sense of confidence that you are managing the problem.  It appears you are not even closely watching the problem. Mr Tanner you would have got closer to the number if instead of waving my media releases around in the chamber, you actually read them.

So Mr Tanner, if you are not watching our debt, who in the government is?

For more information, Jenny Swan

Office of Senator Barnaby Joyce,

Leader of the Nationals in the Senate

02 6277 3697

0438 578 402

jenny.swan@aph.gov.au

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