Is Australia The Next Greece?

Submitted by Tyler Durden on 07/19/2015 21:45 -0400

Australian consumers are more worried about the medium term outlook than at the peak of the financial crisis, and rightfully so.

Source: @ANZ_WarrenHogan

As The Telegraph reports, by the end of the first quarter this year, Australia’s net foreign debt had climbed to a record $955bn, equal to an already unsustainable 60pc of gross domestic product, and is set to rise as RBA’s bet that depreciation in the value of the country’s currency would help to offset the decline in its overbearing mining industry hasn’t happened to the extent they would have wished.

 Furthermore, as UBS explains, China’s real GDP growth cycles have become an increasingly important driver of Australia’s nominal GDP growth this last decade. With iron ore and coal prices plumbing new record lows, a Chinese (real) economy firing on perhaps 1 cyclinder, and equity investors reeling from China’s collapse; perhaps the situation facing Australia is more like Greece than many want to admit, as Gina Rinehart, Australia’s richest woman and matriarch of Perth’s Hancock mining dynasty stunned her workers this week: accept a 10% pay cut or face redundancies.

The government in Canberra and the Reserve Bank of Australia, The Telegraph explains,  had bet that depreciation in the value of the country’s currency would help to offset the decline in its overbearing mining industry. However, that hasn’t happened to the extent they would have wished.

Last month Gina Rinehart, Australia’s richest woman and matriarch of Perth’s Hancock mining dynasty delivered an unwelcome shock to her workers in Western Australia:accept a possible 10pc pay cut or face the risk of future redundancies.

Ms Rinehart, whose family have accumulated vast wealth from iron ore mining, has seen her fortune dwindle since commodity prices began their inexorable slide last year. The Australian mining mogul has seen her estimated wealth collapse to around $11bn (£7bn) from a fortune that was thought to be worth around $30bn just three years ago.

 

This colossal collapse in wealth is symptomatic of the wider economic problem now facing Australia, which for years has been known as the lucky country due to its preponderance in natural resources such as iron ore, coal and gold. During the boom years of the so-called commodities “super cycle” when China couldn’t buy enough of everything that Australia dug out of the ground, the country’s economy resembled oil-rich Saudi Arabia.

However, a collapse in iron ore and coal prices coupled with the impact of large international mining companies slashing investment has exposed Australia’s true vulnerability. Just like Saudi Arabia, which is now burning its foreign reserves to compensate for falling oil prices, Australia faces a collapse in export revenue.

Recently revised figures for April show that the country’s trade deficit with the rest of the world ballooned to a record A$4.14bn (£2bn). That gap between the value of exports and imports is expected to increase as the value of Australia’s most important resources reaches new multi-year lows. Iron ore is now trading at around $50 per tonne, compared with a peak of around $180 per tonne achieved in 2011. Thermal coal has also suffered heavy losses, now trading at around $60 per tonne compared with around $150 per tonne four years ago.

For an economy which in 2012 depended on resources for 65pc of its total trade in goods and services these dramatic falls in prices are almost impossible to absorb without inflicting wider damage. The drop in foreign currency earnings has seen Australia forced to borrow more in order to maintain government spending.

The respected Australian economist Stephen Koukoulas recently wrote of the dangers that escalating levels of foreign debt could present for future generations. Could a prolonged period of depressed commodity prices even turn Australia into Asia’s version of Greece, with China being its banker of last resort instead of the European Union.

As UBS further explains, China’s real GDP growth cycles have become an increasingly important driver of Australia’s nominal GDP growth this last decade.

The property-driven slowdown in China’s GDP growth is continuing to having a disproportionately large negative impact on Australia’s economy. This is because China clearly remains Australia’s largest export destination, having peaked at a record high ~? share of total exports last year (equivalent to ~7% of GDP), but more recently retracing sharply to the current 28% share. This reflects the >20%y/y drop in Australia’s nominal exports to China in FY15 – which is on track to subtract ~1¼%pts y/y from nominal GDP.

In contrast, FY14 export values surged 26%y/y, adding 1¼%pts y/y to nominal GDP. Notably, this turnaround entirely reflects collapsing prices, which more than offset surging volumes. (Indeed, this overall fall in export values is despite a boom in Chinese tourism arrivals which are currently growing ~20%y/y.)

Weak Chinese demand remains a key downside risk for not only Australia’s economy but also the RBA & AUD outlook. The weakness in Chinese growth is having the most obvious negative impact on Australia because our basket of exports is (almost) uniquely concentrated in commodities (back down to ~? share), where China is generally the marginal price-setter. Indeed, after iron ore alone reached a 30% share of total Australian exports in 2013, the recent renewed collapse in iron ore prices saw its export share drop back closer to 20%. The price effect has been a key driver behind Australia’s terms of trade collapsing by ? since its peak in 2011.

This negative income shock is weighing heavily on Australia’s fiscal position, which has seen its deficit consistently worse than expected over that period; as well as leading to a ‘capex cliff’, which has seen the RBA cut rates and drag the AUD/USD down to a 6-year low. Indeed, an ABS survey of the outlook for mining investment in FY15/16 implies a ~37% collapse which could directly subtract a massive 2%pts y/y from nominal GDP. As such, weak Chinese demand remains a key downside risk for not only Australia’s economy but also the RBA & AUD outlook (with the latter still expected to depreciate further to 0.70USD ahead).

*  *  *

As The Telegraph concludes, rather ominously,

The problem is that Australia, after decades of effort to diversify, is looking ever more like a petrodollar economy of the Middle East, but without the vast horde of foreign currency reserves to fall back on when commodity prices fall.

Instead, Australians must borrow to maintain the standards of living that the country has become accustomed to, which even some Greeks will admit is unsustainable.

Bank of England Under Investigation

Martin Armstrong Warns “The Tide Is Turning Against The Banks”

Tyler Durden's picture

Submitted by Martin Armstrong via Armstrong Economics,

The tide is turning against the banks. We will see more and more corporations turn away from the banks as advisory entities. They just cannot be trusted when they are also the market-makers making commissions/spreads on the trading that are totally undisclosed. The day of the banks is coming to an end. It looks more like the next downturn will drive the spike right through their hearts. Just maybe, we may get back to the way its should be – relationship business, not transactional where they have the incentive to manipulate markets for the quick buck and front-run clients.

* * *

The biggest problem we have with central banks is that they are run by academics with ZERO real world experience. This applies not just at the Fed, but most central banks with the lone exception of Bank of China. The greatest danger this presents is that the money-center banks manipulate the central bankers during states of financial panic and they who are so frightened, they will do whatever the money-center banks tell them

In the USA, there is nobody who would investigate the dark corners of the Federal Reserve being manipulated by the NY bankers who walk on water without ice.

 Bank of England Under Investigation for being TOO Friendly with Banks

Bank of England

However, the system is more open in Britain where the bankers do not control the courts as they do in New York City.

Consequently, the Bank of England (BoE) is now being investigated by the Serious Fraud Office (SFO) for being “too” friendly with the money-center banks during the crisis of 2008.

Last year, the BoE was cleared of “improper conduct” in the currency market manipulation allegations of the money-center banks. Nevertheless, major corporations are starting to wise-up to TRANSACTIONAL banking. A light is starting to go on that by no means can you go to these clowns for corporate hedging and advice for they will ALWAYS rig the game to make as much profit on the trading scalping clients until they bleed.

So while in the USA the banks can still bribe Congress to repeal Dodd-Frank and open the gates to money falling once again from heaven, that is not the case OUTSIDE the USA. Even the movie the FORECASTER is being shown around the world except the USA because of the elite control of the bankers who tell the Fed what to do and when, the Justice Department, and New York Federal Judges protect them every chance they get. We haveNOBODY outside of their control to investigate anything.

Britain’s Serious Fraud Office’s investigators are now probing the central bank for possible fraud related to liquidity auctions between 2007 and 2008. During the financial crisis, the BoE invited banks to borrow money from the central bank, in exchange for collateral. This was conducted through a series of “liquidity auctions” where the funds were intended to prevent the banks collapsing. The banks always warn that there will be a complete collapse of the financial system unless their losses are covered.

The SFO is looking into the bankers’ “conduct” that was connected to these liquidity auctions. This is the criminal investigative agency that is conducting the probe of the BoE.Being investigated for “conduct” issues can be a very wide range from price fixing and handing the government the worse collateral possible (FRAUD) to the leaking of confidential information for personal gain.

Meet The Extreme Super Rich

Meet The Extreme Super Rich: A List Of The 80 People Who Own As Much As The World’s Poorest 3.6 Billion

Submitted by Tyler Durden on 01/28/2015

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Before I get into the meat of this post, I want to make it clear that the definition of oligarch, a term I use a lot, does not center solely around money.

Late last year, in the post Inside the Mind of an Oligarch – Sheldon Adelson Proclaims “I Don’t Like Journalism,” I attempted to frame the word oligarch as I use it. I wrote the following:

In a nutshell, while many oligarchs are extremely wealthy (or have access to extreme wealth), not all people with extreme wealth are oligarchs. The term oligarch is reserved for those with extreme wealth who also want to control the political process, policy levers and most other aspects of the lives of the citizenry in a top-down tyrannical and undemocratic manner.
They think they know best about pretty much everything, and believe unelected technocrats who share their worldview should be empowered so that they can unilaterally make all of society’s important decisions.
The unwashed masses (plebs) in their minds are unnecessary distractions who must to be told what to do. Useless eaters who need to be brainwashed into worshipping the oligarch mindset, or turned into apathetic automatons incapable or unwilling to engage in critical thought. Either outcome is equally acceptable and equally encouraged.

With that out of the way, Five-Thirty-Eight provided the following:

Eighty people hold the same amount of wealth as the world’s 3.6 billion poorest people, according to an analysis just released from Oxfam. The report from the global anti-poverty organization finds that since 2009, the wealth of those 80 richest has doubled in nominal terms — while the wealth of the poorest 50 percent of the world’s population has fallen.

There you have it. The reason the wealth of the richest has doubled since 2009, is because “it’s not a recession, it’s a robbery.” Central bank and government policy has done this, it is no accident.

For more evidence…

Four years earlier, 388 billionaires together held as much wealth as the poorest 50 percent of the world.

Thirty-five of the 80 richest people in the world are U.S. citizens, with combined wealth of $941 billion in 2014. Together in second place are Germany and Russia, with seven mega-rich individuals apiece. The entire list is dominated by one gender, though — 70 of the 80 richest people are men. And 68 of the people on the list are 50 or older.

Oxfam notes that global wealth inequality is increasing while the rich get richer. If trends continue, the organization projects that the richest 1 percent of people will have more wealth than the remaining 99 percent by 2016.

Now here’s the list:

I didn’t provide this list to say whether these people are good or bad. I provide it, because whenever 80 people own as much as the poorest 50% of the globe, we sure better know who they are. We should also be cognizant of the disproportionate influence any of them can have on public affairs should they want to.