Introducing the Australian Ponzi Index

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A little relief today in funding costs for Australian banks with markets oddly deciding that the day the global commodity bear market rally went belly up was the right one to ease up on CBA CDS as it fell seven points to 114bps. Conversely, our peers in Europe and the US saw risk pricing rise a little:

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I have distilled the spread between the CBA, Wells Fargo and Credit Agricole into an exciting new chart titled the Australian Ponzi Index:

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The Australian Ponzi Index measures the extent to which Australian bank funding costs are being extended versus comparable too-big-to-fail banks in the US and Europe by charting the CDS spread between CBA and the average CDS price of Wells Fargo and Credit Agricole. As you can see, the GFC really did herald the end of the great Australian moderation!

As well, seeing the index at GFC threat levels at this juncture, given highly priced markets and a still docile global economy, tells you something very important about Australia’s relative risk position as end-of-cycle developments become more clear.

Perhaps more disturbing still, check out that rock solid, rocket like, trend since the end of the mining boom in late 2011. We might call that the Glenn Stevens ramp as he deliberately blew an enormous new leg in the housing bubble to offset his grotesque misjudgment of the durability of the mining boom funded entirely by ponzi (offshore) debt:

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Just as well he’s jumping off it in September. It’ll all be someone else’s fault.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.