Another day, another straw, another broken back. Yesterday’s attack on Standard and Poors by former assistant governor at the RBA Stephen Grenville has led me to wonder just how deep are the problems at the central bank. To recap he argued:
Just in case you’re getting lulled into complacency, S&P concludes with some warnings and a line-in-the-sand threat:
We could lower the ratings if external imbalances were to grow significantly more than we currently expect, either because the terms of trade deteriorates quickly and markedly, or the banking sector’s cost of external funding increases sharply. Such an external shock could lead to a protracted deterioration in the fiscal balance and the public debt burden. It could also lead us to reassess Australia’s contingent fiscal risks from its financial sector. We could also lower the ratings if significantly weaker than expected budget performance leads to net general government debt rising above 30% of GDP.