By Houses and Holes on November 22, 2012
London-based Kyran Curry, the long-time primary credit analyst for Australia at S&P, is back and the news is getting worse. From the AFR:
“The banks are highly indebted, they’re highly leveraged, they are the main vehicle Australia uses to fund its current account deficit…Australia has, as we see it, got some credit metrics that are right off the scale when it comes to assessing Australia’s external position….It’s got high levels of liabilities, it’s got very weak external liquidity and that basically means the banks are highly indebted compared to their peers….They’re benefiting from a safe haven at the moment – nonetheless investor sentiment can turn very quickly…We just worry that at some point, the people who are funding the Australian banks may decide that enough is enough and may begin to lose confidence in the bank’s ability to roll over their debt….That would come through a weakening in Australia’s major trading partners flowing through to a dramatic weakening in Australia’s fiscal position.”
Curry said this could be a two or three year scenario. But he added:
“Anything that weighs on the ability of Australia to bring forward new energy projects and that weighs on its export growth potential, that’s something that would put pressure on the rating. Australia is looking increasingly like a one-trick pony.”
Regular readers will note that S&P has pretty much captured my entire ‘peak Australia’ thesis. It is simultaneously ripping aside the veil of invisopower that regulators have dispersed around the banks and seeing for it is the singularly backward macroeconomic strategy of embracing Dutch disease. My two great fears.
The last line is the worst. I am of the view that LNG will rationalise – the current set of projects that is – not the fictitious pipeline. That means there is a risk that this is not a two or three scenario at all. Which does offer an answer to the question: why is S&P ramping its warnings now?
Canberra must immediately dispatch to Beijing a high level delegation to demand further stimulus. Perhaps a high-speed rail link from Beijing to the Bush Capital? That way, when they’re ready, the Chinese can relax in comfort on the way down to buy our banks.
Reproduced with thanks to Houses and Holes at Macrobusiness.com.au
These are the same pundits that predicted the GFC before it happened? thought not,
remember this …”if the economic forecasters and the weather forecasters swapped jobs, no one would notice…” they’re all mouth when they are pushing their agenda and then crawl away when reality hits, never to say a word! when was the last time you can recall one of these ‘experts’ admitting they got it wrong!!
Cheers, RoyBoy
How dare those arrogant pricks presume to tell any country how to run its economy , after the absolute mess the US is in.
The US has a totally out of control domestic budget—-probably gone too fat to pull back.
Really its just like an incoherant drunk chastizing a person who has had a fine glass of wine with dinner
You would just laugh at them–certainly not debate the drunk
Twiggies—you can’t post this crap as some sort of truth just becaise it comes from an organization that used to have a reputation
Rather like refusing to accept advice to give up smoking from someone who has suffered lung cancer. Failure to carefully consider criticism when it is given is also a sign of arrogance. We have to ensure that we don’t follow the same path.
Forecasts aside, it would be foolish to disregard the vulnerabilities of Australia’s unique banking sector…
what banks don’t have high levels of debt ? that’s what they do isn’t it … borrow money from depositors (at a price – interest) and then lend it to borrowers at a higher price (interest) … what a pointless statement about high levels of debt …
You may have missed the discussion on bank capital ratios. Borrowing from depositors should be backed by healthy levels of tangible equity (share capital and reserves after deducting intangibles, such as goodwill, and deferred tax).
I cannot believe the comments written here that fail to provide a single rebuttal of what Colin Twiggs has written. Instead putting forward an argument or proposition that counters the forecast, we see personal attacks, poor language and a failure to address the issues. What makes the commentators here think that they have written anything intelligent? Far from it and it so typical of arrogant Australians who think their country is in good shape because housing is so unaffordable. Ignorance abounds in truck loads.
Maybe they will change their minds when every position of importance in government, business and education is filled by a Mandarin speaking member of the Communist party.
The number of persons and organisations proferring information based on opinion far exceeds those who profer information based on fact. Unfortunately, the gap is widening thanks to self-opinionated shock jocks and much of the media. Based on results, S&P’s massively erroneous evaluation of the causes of the GFC greatly magnified it’s effect. It’s pessimistic evaluation of Australia’s current position may be correct but it is just as likely to be incorrect.
It’s evaluation/opinion should be weighed up against the factual information from the Treasury and the Reserve Bank.
Wow! another diatribe telling the Australians that they can’t work anything out for themselves and everybody else know more than them. Yelling from the edge of the Fiscal Cliff over which the US knows we will all get dragged if/when? the event happens is sooo comforting as we are all treated for what passes as political responsibility over there, not that we are enamoured with our lot. Thanks guys. I believe that we in Australia are working our little butts off to avoid said scenarios.
WOW! Seems to me like no-one likes to hear of anothers opinion. At least Colin is offering his and trying to show his readers an alternative opinion.
I truly believe that my Crystal Ball (CB) is clearer than anybody elses so you should all LISTEN TO ME!
As if I, iknowitall are going to tell you the truth and what is going to happen. Do you really think the Government will tell you the real the truth, the whole truth and nothing but the truth regarding the economy and where it is heading?
Did you hear Penny Wong on ABC last night? When asked directly serveral times as to how they are going to pay for the Disabilty package, Gonsky, Integrate and house all the Boat refugees etc all she came up with was that hard decisions have yet to be made. They have been in power for 4+ years and still dont know where the money is coming from or what to do next. (Look out you people with money in a Superfund). In the meantime, debt is racking up big time – see the national debt clock.
HANG ON A MINUTE – the Crystal Ball is starting to clear. Oh bugger – they just switched off the analogue TV signal . Now where do I get the Government hand out for a free set top box?
It is no genius to predict that a boom will be followed by a bust. A true genius should also be able to time those cycles accurately. But then if they are such geniuses why publish the secrets and have someone else profit from it.
True geniuses — e.g. Nobel prize winners — don’t seem to be able to time market cycles accurately. Anyone who can get it right two out of three times is doing well.