current account Archives - Page 2 of 2

October 3, 2012

Australia: RBA overview

A quick review of the RBA chart pack released today.

Household finances remain in a precarious position with debt at 150 percent of disposable income — three times the level of the early nineties.

Index

Housing credit growth slowed to around 5 percent, but will probably fall further by the end of the cycle — following personal credit into a contraction — in order to reduce the debt to disposable income. Declining growth rates leave a hole in aggregate demand but this is being offset by rising business credit.

Index

Bank capital ratios are improving but these are based on risk-weighted assets. As Deep T pointed out last year:

“……..the average minimum amount of Total Capital against total residential assets held by those [the 4 major] banks is less than 2%.”

They still have a long way to go to build sufficient reserves to withstand a collapse of the housing bubble, brought about by household deleveraging.

Index

Bank interest margins are being squeezed, making them reluctant to expand their balance sheets. Further decline in net interest margins could precipitate a credit contraction.

Index

Bulk commodity prices are falling but the full impact of the sharp drop in iron ore spot prices has not yet been felt on the current account and government tax revenues.

Index

The current account trade balance is improving but, as a net debtor, interest and dividends to offshore investors drag the country into deficit. As David Murray points out: the fact that Australia was unable to post a current account surplus throughout the mining boom indicates we are living beyond our means and will lead to burgeoning debt levels.

Index

Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.

September 18, 2012

Europe’s Balance of Payments account shows sizeable portfolio inflow

By Marc Chandler

Look at the turn around in the current account. In the 12-months through July, the euro area recorded a seasonally adjusted cumulative current account surplus of almost 63 bln euros, which is about 0.7% of the region’s GDP. The comparable figure in the 12-months through July 2011 was a deficit of a little more than 22 bln euros….

The weakness of the euro area economies has slowed imports and several countries, including some in the periphery, have seen a pick up in exports. Growth differentials probably is the more significant explanation, but we do recognize that from last November through July, the euro had declined about 10% on a trade-weighted basis……

While the current account is intuitively clear, the financial account is surprising. As the euro was falling in July to multi-year lows, talk circulated of capital flight. Yet, the financial account showed a net inflow of 18 bln euros of combined portfolio and direct investment.

via Europe’s Balance of Payments account shows sizeable portfolio inflow.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 17, 2011

Rob Parenteau: Blinded by Faith – Sinking the Eurozone « naked capitalism

Policy makers in the [euro-zone] core believe in the sustainability of export led growth strategies. Keynes warned about this in the last piece he published before his death. If the reserves earned by current account surplus nations like Germany, Austria, etc. are not reinvested in productive capital equipment and structures in the current account deficit nations, then the deficit nations will not be able to earn the income required to service their external debt in the future. They will default. Or, as economist Jan Kregel put it in very clear terms, if Germany wishes to run a sustained current account surplus with the periphery, Germany can chose to accept either liabilities issued by the periphery, or tradeable goods provided by the periphery, but they do not have the option of choosing neither.

It is not in the best interest of the creditor/current account surplus nations to continually accumulate liabilities issued by debtor/current account deficit nations if this simply leads to eventual default on those obligations, but the economists and policy makers in the eurozone are too myopic and too blinded by faith to see this. The European Investment Bank could be used to recycle current account surpluses into productive capital investment in the periphery in a sustainable fashion, but instead, policy makers remain wedded to the faith based economic belief that export led growth strategies are both sustainable and optimal.

via Rob Parenteau: Blinded by Faith – Sinking the Eurozone « naked capitalism.

September 5, 2011

Fighting Australia’s “hot money” problem – macrobusiness.com.au

Australia is a large net borrower from the rest of the world. A large deficit in a capital account along with a deficit in the balance of trade while the currency is rising are all strong evidence that Australia has a problem with currency speculation.

Currency speculation, sometimes called “hot money” , needs to be controlled because it can cause some serious imbalances in the local economy both on the way in, and on the way out. There are a number of well-known symptoms for hot money in-flows, these include:

• Asset bubbles

• Currency appreciation

• Inflation

via Fighting Australia’s “hot money” problem – macrobusiness.com.au.