Macro 101 – Credit effects

In my previous post I talked about the sectoral balance equation which is fundamental to understanding how an economy functions at a macro level.  The function is also useful to understand the likely high-level economic outcomes of  monetary and fiscal policy changes made by a government. If a government is running a surplus budget then they are taxing more

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This blogger has looked on in astonishment as the iron ore price has moonshot through a sequence of cup and handle formations to an all time high. There are a variety of reasons behind the rise, not the least being the blow-off in Chinese growth. However, a number of variables are now in play that


The trouble with being normal

There is the sound of distant murmuring as concerns rise in the media and amongst economists that inflation is on the rise, raising the prospect that the Reserve Bank will raise rates further. Australia, it seems, is different and that has consequences for investment. It already has comparatively high interest rates compared with most of the developed


Links January 28: The levy breaks

China land games. Market Watch Japan downgraded. Zero Hedge, The Source China will raise further. Bloomberg Now it’s uranium. Refomed Broker Caterpillar’s 2011 forecast. WSJ Food stockpiling. FT Levy politics. Peter Hartcher Interests slam levy. The Oz Two-speed pay. SMH Loving the China bubble. The Age Coal to rocket. The Oz


Macro 101 – Sectoral balance

I note today that the PM has announced the introduction of a flood levy, some policy changes and cuts of $2.8 billion dollars in government spending including a cut of the national rent assistance scheme. That last point is something I want to discuss in a future post because it will have some interesting effects on housing. All


Village gossip

The news that Village Roadshow is looking to sell its 52% stake in its radio investment Austereo has led to speculation amongst the chatterazzi that Village is looking to privatise. Maybe. Although if the chatterazzi are predicting it surely that is unlikely to be the real motive. More probable is that Village needs the cash.


Bank wedge

A couple of recent developments are worth assessing with regard to the outlook for banks and their ability to manage interest rate margins. Some weeks ago this blogger wrote in reference to the floods and the RBA: …  the world is quickly swinging from a GFC-deflation toward a recovery led by commodity price inflation … Australia’s


Link January 26: Rolling on

Spanish banks. Eurointellignce US refi kaboom. Calculated Risk Does Martin Wolf read MacroBusiness? Food rocks Egypt. FT India muscles up. FT Contagion running: Ireland, Portugal, Spain, Italy, Belgium, Greece More SHIBOR. Zero Hedge Will China save Europe? Bloomberg Pavlov’s bulls. Jeremy Grantham Dollar down on more Fed giveaways. Businessweek Coal back. SMH Adapt or die.


UK deleveraging: “standard of living to plunge at fastest rate since 1920s”

The Telegraph today published a disturbing article on the dire state of the UK economy: Households face the most dramatic squeeze in living standards since the 1920s, the Governor of the Bank of England warned, as he reacted to the shock disclosure that the economy was shrinking again. Families will see their disposable income eaten up as


Australia Day links

Double dip recession in UK. Telegraph SHIBOR spike. Zero Hedge, II EFSF roars into debt. Asymtotix, FT Contagion continues: Ireland, Belgium, Portugal, Greece, Spain, Italy India raging inflation. Economic Times Fake demand. Tim Duy Give them stimulus. Peter Martin CBA customer support smashed. SMH Australian inflation. Adam Carr Chinese coal market tension. The Economist Hess


Capitulation contagion

This morning I reported that after many attempts to keep a stiff upper lip ANZ finally capitulated on house prices for 2011.  This afternoon I note that the rest of the Australia seems to have joined in. House prices in Australia are expected to fall moderately over the next year, with the biggest declines to be



The chatterazzi are indulging in hand wringing over Woolworths’ first profit downgrade since the company re-listed 19 years ago. “Strange days indeed” says one broker. “Myriad factors” are “laying siege to the fortunes and future of our major retailers” says The Age. Have to keep a watchful eye on those “myriad factors” at all times


ANZ softens on house prices

In late July last year the ANZ bank released one of its reports on property investing called the Australian property outlook. Its summary for the Australian residential housing market was: With interest rates expected to rise, we expect house price growth will (temporarily) slow to low single digits in 2011. Nonetheless in the absence of


The levy is right

According to the SMH this morning: The Prime Minister, Julia Gillard, has all but confirmed that a one-off levy to help cover the cost of flood damage is on the cards but the bulk of funds will be raised by budget cuts. Speaking before the inaugural meeting yesterday with the 13-member taskforce of business and


Links January 25: Mixed messsages

Inflation is coming. Alphaville Not to the US. John Dizard, Tim Duy Flood inflation here. FT Quant churn. Zero Hedge Short bonds & stocks. Nic Lenoir China to slow. China Daily Greed siezes metals. Bloomberg Ore falls !?!?!?! Bloomberg Ore flood panic. John Garnaut Record ore inventory. Bloomberg Levy and cuts pay for floods. SMH New frugalism


China’s Demographic Time Bomb

The 21st century will be the century of old age, where declining birth rates meet longer life expectancies. Nowhere are these demographic shifts occurring as quickly as in China, which is facing demographic challenges that threaten to slow its long-term expansion. China’s demographic headwinds stem from its ‘one child policy’, which was brought into effect in 1979 and is


Flood moves to real estate

The real estate fallout from the Queensland floods has begun, and the re-pricing of flooded areas is underway. If you have $250,000 in cash you maybe able to get this little beauty , but given the pre-flood median in that area was $300,000 I am very doubtful it will sell for anything like that price, if it does at


Fitch’s Freudian slip

FitchRatings recently released its 2011 Australia outlook report on structured Finance.  The overall message from the report itself is not particularly interesting and has received little press. The  report rates RMBS as stable, ABS stable but with some weakness and CBMS Stable/Negative, and has some discussion of the Queensland flooding on the RMBS market. Flooding


Fostering failure

Australia’s corporate sector, having resoundingly failed the test of globalisation, is now unerringly positioning itself to become part of the global food chain. Many ASX listed companies are likely to be swallowed up by global players that possess the managerial skill so lacking in Australia’s cartels. Just imagine how much more they will be worth if they are


Fitch as a fiddle final

Bloomberg and AAP/Business Spectator both report breathlessly this morning that the big four banks have passed the Fitch stress test. The AAP/BS version is particularly flattering: Under a severe scenario, gross losses could total over $6 billion across all four banks, with net losses reaching 10 per cent of their combined operating profits, Fitch said in a


China’s blunder

The ongoing demise of the Bretton Woods II (BWII) currency system and its implications for the balance of world growth has been a recurrent theme for this blog. And if recent commentary around China is any guide, the breakdown is accelerating toward another critical moment. To recount, this blogger wrote last year: BWII is the


Links January 24: Demographia damnation

New Demogrpahia housing survey. PDF One poor harvest from chaos. Independent (h/t Naked Capitalism) US saving less. WSJ Irish government collapses. Irish Times Recalling January 2008. Doug Noland Scenarios for oil. FT Rent seekers council attacks. SMH Rent seeking retail prepares. The Age RBA to raise in March. David Uren Palladium joins supply shock. Mining Weekly


More on the death of the beer economy

As we mentioned back in early January: There is no sadder story for an Australian than the closing of a pub, but 300 at once should probably signify a national day of mourning. Yet as debt issuance contagion makes its way through the economy, the banks have no choice but to start picking off the


Detailed Report: The 2011 Demographia Housing Affordability Survey (By Leith van Onselen)

The 7th Annual Demographia International Housing Affordability Survey has just been released and, once again, it has delivered a stern condemnation of housing policy in Australia. This year, the Demographia survey has been expanded to 325 markets in seven countries: Australia, Canada, Hong Kong, Ireland, New Zealand, the United Kingdom, and the United States. The


More Flood Outcomes

Some more flood related news, after Goldman Sach’s and ANZ‘s $20 billion estimates and Julia’s A team. ABEAR has taken a punt at the export hit THE devastation from recent floods will cost the Australian agricultural sector $500-600 million, while coal exports will take a $2-2.5 billion hit in 2010-11, according to a new report.


Weekend reading: China’s banks

China’s problem. Paul KrugmanChina’s inflation dilemma. Charlie FellChina’s SHIBOR bounces big. Zero HedgeChina NPL’s. Michael Pettis30% chance of Chinese hard landing. Ambrose Evans-PritchardGreatest bear market rally in history. Calculated Risk The efficacy of capital controls. VOX(h/tNaked Capitalism)The future of Fannie & Freddie. NYTEurope’s secret fiscal integration. BloombergInflation nutters. Samuel BrittanThe love of LPTs. Ian VerrenderMelbourne’s


Guest post: Of China and guano

Following the La Niña-related floods in Queensland earlier this month food prices have spiked, adding to an already serious inflation crisis around the world and toppling the government of Tunisia. And while protesters in Tunis were hardly thinking of Queensland bananas or sugarcane as they mobbed the streets, the changing and dramatic climatic conditions that


Links January 21: Ratcheting up

China’s loan cap. Caixin (h/t Naked Capitalism)China’s illusory decoupling. Asia TimesChina overheating. FT, Michael SainsburyOre price drivers. FTChina can beat inflation. Gavyn DaviesOre price record. BloombergOre volume record. The OzIndian exports the key to rally. ReutersChinese sabre rattling. Washington TimesMore US homes. Calculated RiskFinancialisation of cows. GMMRamp mining tax to pay for flood recovery. Ian


Reader’s Question: Another visit to CentralBankopia

We received an e-mail from David this week. I really love your blog, and “get” nearly all the concepts on there now, but the one that I’ve never been able to grasp is your fiat currency “just print money” centralbankopia… You seem to be suggesting that the Federal Reserve should just “print money” as/when required,


The Days of Easy Credit are Numbered

Back in December, I wrote the following: In the early-1990s, non-bank lenders entered the Australian mortgage market and began raising funds via securitisation on wholesale debt markets. The rise of these non-bank lenders caused an intensification of competition amongst mortgage lenders. With no formal regulator and no rules outside of regular trade practices and corporations law, they