EYE-BALL’s Guru on – The Wayne Swan 2013-14 Federal Budget – Special EYE-BALL Guru Report – The Economic Triggers Part 2.6 –
|Latest GURU Posts:
– 31st May – The Wayne Swan 2013-14 Federal Budget – A Special EYE-BALL Guru Report – The Economic Triggers Part 2.5 –
– 29th May – The Wayne Swan 2013-14 Federal Budget – A Special EYE-BALL Guru Report – The Economic Triggers Part 2.4 –
– 28th May – The Wayne Swan 2013-14 Federal Budget – A Special EYE-BALL Guru Report – The Economic Triggers Part 2.3 –
– 28th May – The Wayne Swan 2013-14 Federal Budget – A Special EYE-BALL Guru Report – The Economic Triggers Part 2.2 –
– 27th May – The Wayne Swan 2013-14 Federal Budget – A Special EYE-BALL Guru Report – The Economic Triggers Part 2.1 –
– 18th May – The Wayne Swan 2013-14 Federal Budget – A Special EYE-BALL Guru Report – Part 1 –
– 13th May – Wayne Swan’s “Treasury Mistakes” – The Evidence of Incompetence – a Ponzi expert in the making.
– 10th May – Wayne Swan’s “Treasury Mistakes” – A Follow-Up –
– 29th Apr – Wayne Swan’s “Treasury Mistakes” – Heads must roll – Swan and Bradbury must accept responsibility’ –
– 23rd Apr – Wayne Swan’s – “Investment pipeline” – disappearing before his eyes – where does he go for his next ‘bunny excuse’ –
– 21st Apr – Wayne Swan’s legitimacy – He Says … ‘high A$ causes $7.5b hole since Oct ’12’ – He’s a unique type of idiot –
– 14th Apr – The Debt Clock ticks … Tic Toc … – Gillard just spent another $3,000 – counting the real cost of this ALP Disaster –
– 5th Apr – Superannuation 2013-14 – the Government’s new Slush Fund – Proposed Changes show SWAN and SHORTEN’s stupidity –
– 3rd Apr – Government not happy about its tax collect – Claims Tax Minimisation deserves ‘Naming and Shaming’ –
To see more GURU posts: – click here …
– The Wayne Swan 2013-14 Federal Budget –
– A continuing Special EYE-BALL Guru Report –
– The Economic Triggers Part 2.6 –
| Author: EYE-BALL Guru | 19th June 2013 |
|Links to previous posts in this series about – “The Wayne Swan 2013-14 Federal Budget” – A continuing Special EYE-BALL Guru Report:
List of Chapters in this Post:
Economic Trigger – Debt to GDP Ratios:
The measure of any Nation’s prosperity can be read by their Debt to GDP ratios. The Australian ratio has been low by world standards for a long time.
Australia’s “AAA” credit rating remains at the highest level – and there is a question in that statement – as other Nations fall down the rankings because their DEBT/GDP ratios rise all a result of the GFC Central Bank printing of money, and Australia’s ranking position improves despite the increased indebtedness, Australia’s ranking and avoidance independence from similar weakness is only a matter of time.
We depend on exports, yet with the high cost to do business with Australia and largely because of our healthy economic position, it will be the same reasons why we trip and fall down the rankings. We have priced ourselves out of the market.
Can you imagine any time soon where Australians will willingly take pay cuts, public servants accepting less remunerations and more productivity, where Unions turn militant against forced layoff’s and wage cuts?
Look to the P.I.G.S. Nations to see what potentially lies ahead … avoiding this scenario will require some hard political decisions. Opposition Treasurer Joe Hockey gave an excellent picture in his Budget Reply address – linked here – as what may lie ahead.
The vision was tempered because to tell it like it is would quash public confidence already down 7% since the Budget speech last week.
The chart below gives reason for concerns about the Australian Debt/GDP growth. [Click to enlarge in a new window.]
It is easy to see the difference between ALP and Coalition economic policies. Since early 82 when Hawke assumed office – the next 30 years of Governance has seen 11 years of Conservatives, and the balance with Labor. The Chart above shows what happens under Labor Governments, and how Conservative Governments impose restraints to spending and budget deficits.
Under Treasurer Swan, he has managed to do in five years what 27 years of previous Governments never did. Swan presides over the highest Debt/GDP ratios Australia have had in a generation, or for as long as records have been kept to make these comparisons.
Wikipedia has this to say about Debt/GDP ratios – linked here.
Australia ranked 12th of economies in growth of Nominal GDP from 1980-90. In the period 1990-2000 they ranked 16th, and in the period 2000-10 they ranked 10th – source linked here.
Australia’s debt levels are not critical when compared with many like type economies.
The debate about the failed Swan ‘surplus budgets’ and the escalation in our debt levels through record deficits, is a judgement call on whether this is the time – i.e. in the aftermath GFC – to grow Debt/GDP ratios as the rest of the world also increases its Debt/GDP levels.
For the Government to go on spending sprees that burn resources that may be needed to protect the economy when real hard times do visit our shores, the question becomes about the political agenda of those doing the spending, up against the real cost of protecting the economy.
The OECD record of Debt/GDP growth of the OECD membership gives clear illustration of the globes worsening financial position. This is illustrated in the OECD Member Debt/GDP Chart at right. This chart offers up nothing but bad news for the World economic outlook. [Click to enlarge in a new window.]
Since 2007 – the average growth in DEBT/GDP levels for OECD members has increased from 74% to 112%.
In coming months and years, the lenders of monies who have facilitated this growth in debt will be demanding higher interest rates as risk of default increases.
This average numbers applies to the OECD member group – Table of all OECD members and their Debt/GDP ratios provided below. [Click to enlarge in a new window.]
Russia is not a member of OECD – but the Debt/GDP numbers included in the Table to the right is sourced from the ‘Trading Economics’ database – linked here.
WIth Russian levels so low – the G8 average of 104% suggests that the other seven (7) Nations are in real trouble. This evidence proves what once was considered the world’s richest Nations are now fast approaching critical mass in economic terms. There is real change in economic power on the way.
Mr Swan’s continued claims that our numbers are good in comparison with other OECD members is a false truth – our DEBT/GDP growth rate since the GFC is the highest growth % of any of the OECD Nations – i.e. 13.8% in 2008 to 28.9% in 2013. That is a 109% increase in DEBT ratio – and only beaten by Ireland [157%], Spain [110%], and equalled by Slovenia [109%].
That puts Australia in some pretty ordinary company …
Mr Swan’s argument that the headline number of 29% is the envy of the rest of the world is true but has nothing to do with his economic management – John Howard can take credit for having such a low DEBT/GDP ration when the reins were handed over in 2007.
Mr Swan cannot crow about any of Australia’s economic prosperity – in fact he has done his best to kill all industry and commerce with his high A$ and high Interest Rate policy. He may claim that the RBA set both these policies – well he had better think about appointing RBA Board Members who are not friends of the ALP if they ever get the chance again.
Without China’s demand for our resources – no amount of spending by the Government would have saved the day.
On this Economic Trigger alone – Swan and his Treasury and RBA get a rating of ‘gross’ incompetence.
Defending the A$ rise after the sell off in early 2009 during the ‘resource trade’ exit would have given the Nation a 50% export revenue windfall for the next five years … that is worth A$trillions and whatever the RBA spend in defending the A$ would have be seen as chicken feed. This has been a complete misread of the economic fallout and demonstrates how ‘boofheads’ at the RBA and Treasury have no idea what they’re about in the new global marketplace.
Focused on Inflation containment in a market where every other Nation wants inflation gives insight to the RBA’s ancient thinking.
The ‘Australian Debt Clock’ has a history function for designing Charts – it is a great resource for image projection for the state of the Australian financial wellbeing.
Economic Trigger – Bond Yields and Official Cash Rates:
Then it comes to significant data – data that has an impact on real lives, cost of money – i.e. interest rates and currency hold sway over every other economic indicator.
Interest Rates are always an electoral banner line. It’s where voters feel the impact of botched or healthy economic policies.
The RBA are charged with monetary policy responsibility. This goes to CPI – i.e. Inflation targeting, and the only dark-age tool the RBA is prepared to use to manage the policy is Interest Rates.
Budget Result, 10yr CGS, CPI, Debt on Issue, Debt/GDP ratio, and CPI v 10yr CGS spread: – [click image to enlarge in a new window.]
The RBA are charged with monetary policy responsibility.
This goes to CPI – i.e. Inflation targeting, and the only dark-age tool the RBA is prepared to use to manage the policy is Interest Rates.
They don’t target currency – their biggest mistake, they only monitor all the other economic indicators as an adjunct to what they do with interest rates to punch holes in the economy if the pressures from the other indicators are of concern.
Even the Banks challenge the RBA’s authority when they don’t match and lag on rate reductions, yet apply rate increases in full and as soon as possible.
By example – in the last two years of official cash rate reductions this practice of delaying passing on rate reductions has been a media story.
Banks are openly defying the RBA – it is almost as if the Banks are a protected species – and the RBA too scared to play the heavy hand.
In the early stages of the GFC the Government gave the Banks ‘protected status’ and this gave the larger Banks a competitive edge over all the smaller players. In the aftermath of the 1987 crash Banks were also given special conditions in dealing with their eroding capital base and the continued writedowns they were carrying.
If a Government was looking for a sure means to raise revenues – why would they try to tax the miners when the Banks make mega profits in all types of markets.
A ‘Profits’ based Tax comment:
Given the maniacal focus the Government has on ‘profit-based’ taxes – all aimed at the resources sector i.e. petroleum and mining – one ponders why the Banks are not also targeted.
With collective annual profits from the NAB, ANZ, WBC and CBA over the last 3-4 years averaging $20-$25 billion per year – you would think that that would qualify them for a ‘super-profits’ tax.
The Banks are profitable in any market, more so when economic times are buoyant. Since the GFC and after the Commonwealth gave then preferred Banker status with guarantees, Australian Banks continue to rank among the most profitable in the world.
Targeting the high-risk mining sector is a lottery exercise for budget estimates on tax collected as the last year has proven.
With the capacity to write down mining leases, infrastructure, and bring forward expenses into current years through tax minimisation schemes, the mining industry are not a sure bet profits based tax system. The Banks are.
The four Banks mentioned are Australian owned, Australian based, surely a super tax on Bank profits is a more apt tax grab then targeting the resource sector.
One has to think what the likes of Twiggy Forrest, Gina Rinehart, Clive Palmer, and other mining magnates did to draw the attention of the ALP with the super-based tax.
The miners pay ‘royalties’ to the States and the ‘super-profits’ tax competes with State revenues and the royalties charges. It’s a direct conflict and the law courts should uphold the legitimacy of the MRRT –
10yr CGS v CPI v Debt/GDP ratio: – [click image to enlarge in a new window.]
This is a great chart to show the GFC impact on Australia’s Debt/GDP ratio, relative to historical trends with CPI and the 10 year Commonwealth Bond yields.
Mr Swan’s comments about our core Debt/GDP levels being the envy of the World have face value. But to say further, if Mr Swan thinks he can brag about that being his or this ALP Government’s responsibility he lies and takes credit where credit is not due.
Our own GFC crisis still awaits us – in recent times the FORD plant closures, the petroleum refinery closures, the HOLDEN troubles, the mining boom ending, te tourism industry in tatters, the manufacturing and retail industries – all are showing signs of fatigue with a labour force cost pushing jobs off-shore.
The fall in the A$ since the budget will help, but it’ll take 18 months or so for it to impact on the economy if continues to head lower.
10yr and 2yr CGS v RBA Cash Rate: – [click image to enlarge in a new window.]
The focus of the above Chart confirms the Interest rate targeting by the RBA has taken volatility out of the risk equation.
This has been great for off-shore investors who see stability, and more importantly – still a 2-3% interest rate gap over interest rates in their own Nations.
Since the GFC they have parked their funds here for safe haven and Treasurer Swan opens the doors and lets them pillage from Australian home owners still paying far too much in mortgage rates.
This is illustrated further in the ‘Cash Rates’ of other Central Banks below:
Global Central Bank Cash Rates: – [click image to enlarge in a new window.]
Again, this Chart does an excellent job of proving evidence in how the RBA has screwed all Australians – they would never look at it that way – but that is the reality as offshore investors take advantage of the interest rate gap that feeds to the high A$ – that also feeds to our ‘most expensive Nation to trade with status’ …
Why is the differential there in the first place … in response the RBA will argue it is the premium that has always been there … but the chart reveals the gap during the lead up to the GFC in 2007 was a premium of 1%, during tha GFC crisis that gap blew out to 7% in 2008, and in more recent times has narrowed to a 2.5% gap.
During the worst of the GFC – the Government spend like jack rabbits and the RBA boosted interest rates, before allowing them to fall in a gradual fashion – always keeping a 3% and more margin between the US and Australia’s official cash rates.
Does the RBA think it better at economic management then the rest of the other G20 Finance Ministers …
Perhaps the RBA can claim some fame for keeping inflation in check – but who cares in a market where the risk is more about deflation … talk about incompetence and focus on the wrong game …
Australian Mortgage holders are still to this day paying 2-3% above those rates of our major Trading partners.
In the period since the 2013-14 budget speech the A$ v US$ has shown weakness, the Treasury head has come out and forecast that their modeling was all wrong on so many levels. Even said that the new budget was already under pressure because some forecast resource prices have already come under pressure.
Today we had Holden issue a statement that its workers would have to take pay cuts or lose their jobs. How do you think the Unions will respond to that. Tis is the dam wall crumbling and all under Swan’s ‘Jobs and Growth’ mantra … the idiocy of his failed understanding in how a high A$ combined with real high Interest rate policy settings have destroyed Australian industry will be revealed in coming years.
The RBA won’t think like that because they are no longer Bankers – they are bureaucrats with one eye on their pensions and careers. The RBA’s charter and mandate needs an overhaul like many other choked Government Departments – i.e. Justice Department to name one.
Economic Trigger – Currency Value:
There are many prongs to how ‘currency value’ impacts on every aspect of the economic cycle and triggers. It is the most important of all ‘triggers’.
A$ v US$ since Float with Averages – [click image to enlarge in a new window]
The Chart above plots the Trade Weighted Index TWI, against the A$vUS$ since the 1983 float of the A$. There is a lot of detail and further explanations are offered below:
These numbers portray economic times and how the World has perceived the Aussie Battler and how our resources have impacted on our trade and current account numbers and all offset by the higher A$ value.
To explain further:
Resource contracts with our export Nations are domiciled in US$’s. So in raw terms a 100 million tonnes of ore exports in SU$ terms would return Australian exporters an A$ value dependent on the exchange rate, and the price of the ore.
With the A$ at the long-term average of A$0.7557, that would equate to A$ receipts of 133.2 million.
The same trade with the A$ at its post GFC average of $1.0182 returns the exported A$98.2 million. That is a 26% reduced revenue if the Iron Ore price in US$ terms stayed constant. But we know that is does not – see link here for 5yr monthly price of Iron Ore in SU$’s.
From this example one can see that as ore, coal, agriculture and the many more commodities prices fluctuate, the revenue to Australian produces gyrates on two fronts – currency value and commodity value.
Commodity prices are set by supply and demand and since the GFC, China holds pride of place – all roads lead to China as a trading partner – struggling economies want China’s business. That gives China a wedge and advantage on so many levels.
It is not hard to imagine what China can do with this position – it is not beyond the imagination to think that China could pull orders for Iron Ore [i.e. stop buying] around contract renewals to allow the price to fall and have miners scramble to renew contracts against the new miners wanting to climb the ladder for Chinese business.
This is the new ‘WAR’ – it’s a global war on trade and the human factor is ‘labour costs’. So as Australia with a fixed wage system and Unions to get involved when seen to be needed, current wage costs in Australia will see this Nation’s competitiveness erode as other Nations usurp our export markets with cheaper goods.
This should be the only thing the RBA should be focused with – and if they don’t see it as important, then the Treasurer and the Government who set policy should have had this matter on their radar for many years and have implemented measures to weaken the A$ … obviously it has not happened – and why is that?
Only one answer – our Leaders do not understand finance, nor what it is they do not understand about how markets work.
Under Gillard the A$ v US$ has maintained its lofty levels without any language since 2008 until a few months ago about how the A$ is not the reason for revenue write-downs.
See Chart below to see the A$ performance during Rudd and Swan’s, and Gillard’s and Swan’s tenures …
A$ v S$ during GFC period and to current: [click image to enlarge in a new window.]
The dump in late 2008 and recovery from early 2009 proves that the decision makers had no idea what was afoot at the time. Currency Management has never been a priority of this Government or the RBA. This is absolute ‘hillbilly’ economic management.
In the toxic investment environment prevailing world-wide during and immediately after the GFC – off-shore investors had to find a safe haven for their funds. Their criteria needed stability of scales, leadership, relatively stable economy, a economic status that was tapped into the world economy, and most importantly, an opportunity to secure a return on that investment via interest rates, and/or a currency that would not in all likelihood depreciate or erode capital.
There was only one option – Australia. As China’s demand for resources were not affected by the GFC – the selloff in the A$ in and during the GFC worst days gave a million reasons to reverse that sell order – the currency was now below $0.50c, half its value a few months earlier. To add to the gravy ride, the RBA mover interest rates up against what every other Nation was doing.
Stupid right … but invite these investors we did and they came in with their $100’s billions and the RBA gave them assurances talking up the interest rates saying that they had to keep them high for fear of inflation pressures. What a cock-suck …
Blind dumb idiots in a panic did exactly what the carpet baggers of the world wanted. And here we are now … raped and sucked dry with a siphon hose stuck right up our arse allowing the wealth to be sucked out of Australia without any ‘risk’ premium involved.
Currency value is the be all and end all in the new global trade wars … high currency means expensive labour costs from an off-shore perspective. It is an instant kill shot to industry and the growth in export markets. It encourages imports which in turn leads to job losses and internal economic slow down.
The opposite to all things Swan is so proud to advocate. His ‘jobs and growth’ speeches are famous for the hollowness sound they echo.
Added to Swans stupidity is that of the RBA’s inflation targeting policy, and the Treasury modelling he uses to frame his budgets, all still focused on things that mattered 20 years ago – this Administration’s economic management makes George Bush look pretty good.
Swan will realise in his golden years what it is that he did for Australia – one wonders will that make him humble …
In the next Chapter the ‘Terms of Trade’ and ‘Current Account’ Economic Triggers are examined.
|Please – if you found this story to your liking and would like to promote it to your social media contacts – i.e. Twitter, Facebook, or other icon linked account below – please click your favoured Icon(s) to promote the story. Thank you
Have your say where it counts: – contact your Local Federal Representative via the links below and let them know how you feel about this, or any other topic that you feel strongly about – or you can just post a comment below and let off some steam.
The EYE-BALL Guru …
|The views and opinions contained within this web-site are private and made with the intention of creating free debate among anyone who reads or wishes to make comment. All non-spam generated comments will be posted. Comments and opinions are expressed and made without personal PREJUDICE or MALICE. They are not meant to offend but to purely enlighten readers of an opinion that might not be considered MAINSTREAM. Please enjoy the site and feedback is very welcome.|
EYE-BALL Site Tag Search:
EYE-BALL Categories Search
Search Posts Monthly:
EYE-BALL’s Posts Archive …
Most Recent Posts:
- EYE-BALL’s new Blogsite … August 14, 2013
- EYE-BALL Opinion – Goodbye and Farewell … for now – August 11, 2013
- EYE-BALL’s – “On the Hustings” – The Campaign Trail – Day 4 August 8, 2013
- EYE-BALL’s – “On the Hustings” – The Campaign Trail – Day 3 August 7, 2013
- EYE-BALL’s – “On the Hustings” – The Campaign Trail – Day 2 August 6, 2013
- EYE-BALL’s – “On the Hustings” Day 1 – The Campaign Begins – August 5, 2013
- EYE-BALL Opinion’s “None of the Above” campaign – We don’t trust our Leaders – August 5, 2013
- EYE-BALL’s Snoop-Poop – Ricky Stuart – NRL Supercoach!!! Poor, Poor, Parramatta – August 4, 2013
- EYE-BALL’s Herman on – Federal Economic Update – A conjuror’s spin – August 2, 2013
- EYE-BALL Opinion – EYE-BALL’s MediaZone Growl No: 4 – Australia’s Media Horde July 30, 2013
- EYE-BALL Guru
- EYE-BALL’s Guru on – The Wayne Swan 2013-14 Federal Budget – Special EYE-BALL Guru Report – The Economic Triggers Part 2.6 –
- EYE-BALL’s Guru on – The Wayne Swan 2013-14 Federal Budget – Special EYE-BALL Guru Report – The Economic Triggers Part 2.5 –
- EYE-BALL’s Guru on – The Wayne Swan 2013-14 Federal Budget – Special EYE-BALL Guru Report – The Economic Triggers Part 2.4 –
- EYE-BALL’s Guru on – The Wayne Swan 2013-14 Federal Budget – Special EYE-BALL Guru Report – The Economic Triggers Part 2.3 –
- EYE-BALL JokeZone
- EYE-BALL MovieZone
- F.C.A.T.A. Web Master
- TE-BO Harry's Growl
- EYE-BALL’s Harry’s Growl on – Election 2013 – Growl No: 51 – The US Back Gillard – Poor Call or Poor Form –
- EYE-BALL’s Harry’s Growl on – Election 2013 – Growl No: 50 – Rudd’s House of Pain, He must learn that ‘less is more’ –
- EYE-BALL’s Harry’s Growl on – Election 2013 – Growl No: 49 – Shorten has to be made accountable –
- EYE-BALL’s Harry’s Growl on – Election 2013 – Growl No: 48 – Gillard’s “Mrs Doubtfire” moment –
- TE-BO - [The EYE-BALL Opinion]