We are often very critical of David Gruen here at Catallaxy, so I thought I’d link to a comment he made that I totally agree with.
Dr Gruen—What the net foreign debt and net foreign liabilities demonstrate is that for a very long time Australia has tapped foreign savings to boost our domestic investment. Australia as a country saves about the average of the OECD. We are not a low-saving country. We have higher savings than many of the countries that you mentioned, like the US and the UK. But we have an extremely high level of investment. That has been true for 25 years. Australia’s level of investment has exceeded our level of savings by about 4½ per cent of GDP since the mid-1980s and, as consequence of that, our stock of net foreign liabilities has been rising as a share GDP over that time.
This borrowing, which is almost completely done by the private sector, has enabled Australia to invest more than it would have otherwise been able to. Recently, a large part of that has been funding a big mining boom. To the extent that it is funding profitable investment, particularly in the traded sector, I think it is something that will expand Australia’s productive capacity over time and I do not think it is a worry. It certainly means that it is imperative for Australia to keep the confidence of international capital markets—that is absolutely true. And it is certainly the case that the global financial crisis was a stress test for the global financial system and it is also very clear that Australia retained the confidence of the global financial markets at a time when other countries were coming under severe strain. I think it is something that we need to keep our eye on, but I also think that it is to a considerable extent a sign of the rest of the world’s confidence in investing in Australia.
Barnaby Joyce’s next question is also exactly correct, but it’s not Gruen’s place to answer such questions and he side-stepped it.
Senator JOYCE—What I am saying is: shouldn’t the government now do the prudent thing and address some of those pressures by reducing the Australian government’s requirements on borrowing, otherwise we will have the government also putting further pressure on it?
Wayne Swan and Kevin Rudd should answer that question.
Update: Federal net debt and the underlying budget position.
What the net foreign debt and net foreign liabilities demonstrate is that for a very long time Australia has tapped foreign savings to boost our domestic investment. Australia as a country saves about the average of the OECD. We are not a low-saving country.
Sinclair, why is this necessarily correct though. Why is being in the average OECD group any sort of metier most of the world developed world has fallen over in what looks like secular decline?
JC
16 Feb 10 at 8:58 pm
This borrowing, which is almost completely done by the private sector, has enabled Australia to invest more than it would have otherwise been able to.
To a large extent private sector debt has a funny habit of becoming public sector debt in a crisis.
1. In a crisis markets don’t distinguish all that much as they reduce country/currency limits for good reason. Iceland proved that private debt in a crisis becomes national debt.
2. The bank guarantee more or less socialized Australian private debt thereby proving my point.
If he thinks the private debt situation is fine he should be able to explain exactly why they needed to guarantee the banks.
Recently, a large part of that has been funding a big mining boom. To the extent that it is funding profitable investment, particularly in the traded sector, I think it is something that will expand Australia’s productive capacity over time and I do not think it is a worry.
True, but China’s economic stability to make the marginal price can’t be relied on when their banking lending is increasing at the pace of 45%, which we saw in the first ½ of last year. It a hugely unstable situation to be in and certainly something the government should rely on to create even further recurring spending as they are doing.
It certainly means that it is imperative for Australia to keep the confidence of international capital markets—that is absolutely true.
And you do this by re-regulating the labor markets?
And it is certainly the case that the global financial crisis was a stress test for the global financial system and it is also very clear that Australia retained the confidence of the global financial markets at a time when other countries were coming under severe strain.
That’s clearly bullshit. Our stock market averages fell further than the US’s which was ground zero for the economic storm. Our currency fell 40% , as people were retreating. Our banking system had to be anchored to the sovereign rating as the banks were essentially caught short and would have nearly all gone bust if the government didn’t act. We had a major shadow bank fail- Babcock and Brown- with 50+ billion in liabilities. We were nowhere near holding the confidence of the global markets. We’re simply at the mercy of the world’s liquidity position and risk appetite propensity. When world liquidity is ample and the risk appetite jaws are open we do okay. When it’s not and they close we’re in the doghouse. Period.
I think it is something that we need to keep our eye on, but I also think that it is to a considerable extent a sign of the rest of the world’s confidence in investing in Australia.
See above. How much investment have we seen in other sectors other than the mining area? We should be more than a little concerned it’s so concentrated yet it doesn’t seem to be any concern. To top it off the rumors are that the government will raise the royalty tax on the advice from Ma and Ken Henry’s tax review, which will act similar fashion to an Argentinean export tax. So we’d be taxing out most efficient export sector that helps pay for out imports. Well-done guys. Another fine mess we’d get ourselves into.
JC
16 Feb 10 at 9:19 pm
JC – the argument always is that ‘Australia’ does’t save enough. Now if you don’t want to have a CA deficit we must either save more, or invest less, or do both. If minimising the CA deficit (getting it closer to zero) is the objective, then sure we should save more. But why do that? The economic objective should be to get as rich as possible not minimise some accounting identity. That means take all positive NPV projects. Even if it means borrowing. The point to remember is that the ability to borrow is a sign of strength. People wont lend if they think you can’t pay back. (That’s why the predatory lending argument so beloved by the left is a crock).
The demerits of a resource rent tax is a topic for another day. The idea that a resource rent exists to be taxed is simply ridiculous when we know that resources are sold in very competitive international commodity markets. Its really the land tax idea writ large.
Sinclair Davidson
16 Feb 10 at 10:07 pm
Those two sentences from Gruen mask a lot of variations over time and variations in different types of savings. For example, for the past decade or so by rich country standards Australia could be characterised as a low household savings / high government and corporate savings country. That washes otu to leave national savings around the average. It is better to compare Australian savings with the OECD average because investment (and savings) shares are usually (though not always) much higher in developing countries. Rapidly developing countries have lower capital stocks and a high marginal product of capital. Rapid capital accumulation requires high investment rates. While it is of course possible for much of that to be funded by borrowing in foreign capital markets (running large CADs), in practice national saving rates tend to be quite high too (in China’s case probably too high though).
JC, the importance of Gruen’s statement is that some countries ran large CADs not because their investment rates increased and it didn’t make sense to fund all of that greater investment out of domestic savings, but because their national savings rates decreased.
Sinclair, I still think you are excessively hung up on Australia’s public debt. While Australia’s public finances aren’t in as good shape as before the GFC, and one could argue whether the magnitude of the stimulus was appropriate (ex post it looks too large, ex-ante less so), the structural (as opposed to cyclical) deterioration in Australian public finances has been small relative to most industrial countries. While I tend to agree that the government’s timetable to return the budget to surplus is slower than it should be, given Australia’s relatively high fiscal credibility and favourable long run fiscal characteristics (population aging slower than in other countries, pension systems less generous with fewer gaps, better starting position, etc) Joyce’s scaremongering over public debt is over the top.
Labor Outsider
16 Feb 10 at 10:11 pm
LO – they borrowed money for crap. That destroys value twice. First the crap they spent it on then the deadweight cost of future taxation to pay for it. By international standards our debt is low, but by Australian post 1970 standards it will rise pretty high. Joyce is maintaining a strong anti-public debt stance. I approve of this simply because a government that chooses to borrow should have to walk over coals to demonstrate the need. In the absence of a fiscal constitution that is the only thing that stands between us and the type of chronic deficits that the US has.
Sinclair Davidson
16 Feb 10 at 10:18 pm
Sorry that probably reads a bit harsher than I meant.
Sinclair Davidson
16 Feb 10 at 10:19 pm
Sinc:
I’m not advocating anything to change the mix of debt situation other than lowering taxes and making ourselves more competitive. We could generate higher levels of savings by simply lowering our confiscatory taxes. That would be the only thing I would would do in addition to taking a new look at monetary policy.
The one problem with external debt is that you are expecting or needing to entice outsiders to take foreign exchange risk which is more risk than insiders take and therefore requires a premium return. in a crisis they will yank their money and go home.
JC
16 Feb 10 at 10:22 pm
JC, there you go overboard again!
The fact that we have been able to continue to finance the CAD relatively cheaply suggests that Australia has continued to enjoy the confidence of capital markets.
While aspects of the re-regulation of the labour market aren’t ideal, Australia’s labour market remains much more flexible than in the distant past and much more flexible than most OECD countries. I haven’t seen any evidence that large amounts of foreign capital are likely to exit the country because of our labour laws.
All debt is not equal. When thinking about whether the accumulation of private sector debt was inappropriate you need to ask whether the investment in contributed to was worthwhile or not. Iceland is not Australia. The liabilities of its financial institutions were many multiples of GDP. The government simply couldn’t credibly stand behind them. Their fundind models were unsustainable as well.
Given your comments seem to be expressing concern about Australia’s accumulated CADs and the large NFL we have, and most of this is due to private sector activities, does this imply that you think that policymakers should have done something to offset these developments? Should the mining related investment boom have been financed more out of domestic savings? If so, how?
On the mining investment question, given there was a commodity boom doesn’t it make sense that that sector saw a redirection of capital in its direction? Investment responded to relative price signals. And btw, the RBA had a box some time back that shows that while investment in the mining sector was particularly strong, the rise in the investment share was not limited to that sector. The idea that it was all mininig is wrong.
Labor Outsider
16 Feb 10 at 10:23 pm
JC – why is forex risk a huge problem? So long as the correlation between the forex rate and the asset returns is reasonably low this becomes an additional source of diversification.
Australia has run a CA deficit for a long time, this is a sign of confidence. Sure our government shouldn’t do stupid stuff, but the competition for stupid public policy is pretty stiff. A federal resource rent tax is pretty dumb as is the labour laws (especially for high income earners like miners). My understanding of WorkChoices is that mining used the flexibility to improve wages and productivity while hospitality, for example, used it to lower wages.
Sinclair Davidson
16 Feb 10 at 10:30 pm
Joyce’s scaremongering over public debt is over the top.
Personally I’d take Joyce warning to heart than Tanner’s lying, Lo.
Tanner was recently quoted as saying our debt position is only $20 billion (which Sinc points to is quite high for recent Australian standards.
Secondly Tanner neglects to mention the fact that they drew down around $65 of the accumulated surplus the previous government left them with. He then has the nerve to say that under their economic management the country is in good shape which is obvious bullshit. If they didn’t have the cash to draw down left by Howard we’d be staring at a debt level of 85 billion by now.
Here’s a question for you LO.
If the previous government hadn’t left them with the accumulated surplus would you have advocated that we put ourselves in debt to the extent of $85 billion, which is the amount they’ve clocked up?
JC
16 Feb 10 at 10:31 pm
Sinc
Foreign exchange is another layer of risk an outsider has to be enticed into taking. It’s less than the risk an insider takes.
The currency moved 40% in two months in 08, so the risk is not always small when you add the fact that we were one of the worst performing markets.
I’m not suggesting they won’t take the risk, however it always comes in to consideration.
there are plenty of way to obtain diversification without currency risk.
JC
16 Feb 10 at 10:36 pm
JC – I understand that decisions makers have to worry about specifics. But a well diversified portfolio will always have foreign assets and forex risk in it and as long as rho < 1 the foreign asset is averaging return and reducing risk. In your line you're trying to time the forex risk. That is a very different game to somebody making a FDI forex decision. (at the same time it adds complications for people putting holes in the ground. Their revenues are in US$ and all their costs are in AU$ or, in my youth, ZAR).
Sinclair Davidson
16 Feb 10 at 10:41 pm
JC I think we might be in agreement about something at last. I am also not all that relaxed with the current account given much of it is the result of borrowing to fund a huge game of pass the parcel with the housing stock. The result being that household debt to income is 160% and in my opinion a bomb ready to go off if ever we have a sharp rise in unemployment.
I’m also sceptical about the sustainability of China’s growth profile given the reliance on massive fixed asset investment on the back of runaway loan growth.
sdfc
16 Feb 10 at 10:49 pm
JC, there you go overboard again!
That’s impossible when talking about lefties managing the economy. It’s scientifically impossible to go overboard.
The fact that we have been able to continue to finance the CAD relatively cheaply suggests that Australia has continued to enjoy the confidence of capital markets.
Cheaply, what’s cheaply, LO. Our long-term interest rates have consistently been at a margin higher than US treasuries and big economies even before the crisis. Under Keating’s term we were at times 1000 basis points over US rates. Cheaply you say. Are you barking mad or just a labor lightweight who thinks you can peddle crap like that? There has never been a time that I recall even in times of RBA tightening bias when our long rates have dipped below US rates. And they’re one of the worst offenders. Don’t give me this “cheaply” bullshit.
While aspects of the re-regulation of the labour market aren’t ideal, Australia’s labour market remains much more flexible than in the distant past and much more flexible than most OECD countries.
Please. The OECD is marred with the interventionist deadbeats in Europe. How about this then, lets have our markets as open as the US. Would you agree with that, LO? Don’t peddle shit that our markets are fine and dandy when they’ve introduced awards and all sorts of shit preventing firms from firing making it appear more like a marriage contract rather than a simple exchange of services. You can get away with that crap at LP but other sites aren’t like that.
I haven’t seen any evidence that large amounts of foreign capital are likely to exit the country because of our labour laws.
You don’t have to as the large amount of money is going into mining speculation. But since when has that metric been used to measure optimum in our labour market when domestic firms do the vast preponderance of hiring? Please.
All debt is not equal. When thinking about whether the accumulation of private sector debt was inappropriate you need to ask whether the investment in contributed to was worthwhile or not. Iceland is not Australia. The liabilities of its financial institutions were many multiples of GDP. The government simply couldn’t credibly stand behind them. Their fundind models were unsustainable as well.
You missed the point I was making, Lo. The point was that in a crisis private debt has a nasty ability to be socialized. Is that clear now?
Given your comments seem to be expressing concern about Australia’s accumulated CADs and the large NFL we have, and most of this is due to private sector activities, does this imply that you think that policymakers should have done something to offset these developments?
Yes, I would. I would advocate materially lower taxation levels to raise our national savings rate. Commensurate with that I would advocate deep cuts in spending.
Should the mining related investment boom have been financed more out of domestic savings? If so, how?
See above. It would also mean the proportion would fall if the amount of foreign investment was kept at the same absolute level.
On the mining investment question, given there was a commodity boom doesn’t it make sense that that sector saw a redirection of capital in its direction? Investment responded to relative price signals. And btw, the RBA had a box some time back that shows that while investment in the mining sector was particularly strong, the rise in the investment share was not limited to that sector. The idea that it was all mininig is wrong.
I don’t see why you would be making this point debatable. Do you see where I suggested otherwise or are you just playing your old tricks?
JC
16 Feb 10 at 10:56 pm
Yes SDFC, I think that level of debt is a real freaking concern.
I know we shouldn’t totally discount China, however we should simply never rely on them for recurring government spending which the states and these current clowns have done.
JC
16 Feb 10 at 11:01 pm
Here’s the other thing , If you’re running that sort of consumer debt don’t restrict the labor market thereby reducing aggregate (personal) incomes by potentially cutting off jobs supply.
It’s about the dumbest thing any government can do.
Joyce would understand that, by the way. However does Tanner, SwanDive? I wouldn’t even bother to count Rudd as I know the answer. He doesn’t.
JC
16 Feb 10 at 11:06 pm
“If the previous government hadn’t left them with the accumulated surplus would you have advocated that we put ourselves in debt to the extent of $85 billion, which is the amount they’ve clocked up?”
If public finances had been in worse shape I would have recommended much less discretionary stimulus and if they had been particularly bad, not stimulus at all.
Labor Outsider
16 Feb 10 at 11:20 pm
“You missed the point I was making, Lo. The point was that in a crisis private debt has a nasty ability to be socialized. Is that clear now?”
Some of the debt is socialised and some isn’t. It is excess leverage of financial institutions that you have to be most worried about during crises as governments often feel they have no choice but to stand behind them to prevent them from failing.
Are you suggesting that Australia’s financial institutions are holding a large amount of bad debts we don’t know about?
Labor Outsider
16 Feb 10 at 11:24 pm
“I would advocate materially lower taxation levels to raise our national savings rate. Commensurate with that I would advocate deep cuts in spending.”
So who is going to pay for all this clean energy and wonderful welfare?
rog
16 Feb 10 at 11:25 pm
The term, relatively cheaply doesn’t mean that we can borrow as cheaply as the US, Germany and Japan in foreign capital markets. It means that spreads that one would already expect given the size and liquidity of the market isn’t particularly high and markets didn’t penalised us much during the global crisis.
Lower taxation levels wouldn’t necessarily raise saving rates enough to reduce the CAD. What effect do you think lowering corporate income and capital taxes would have on investment rates for example? International econometric studies provide no evidence that lower taxation rates are correlated with lower CADs. You are simply being speculative.
On the labour market I was simply making the point that while ours is not perfectly flexible, it is one of the more flexible of the industrial countries and unlikely to be having much influence on foreign investment. Your original statement on re-regulating labour markets was about retaining the confidence of international capital markets if you recall.
Labor Outsider
16 Feb 10 at 11:37 pm
LO:
Let’s go back to the beginning as this seems a little hard for you to understand.
In the first comment mentioned that private debt has a nasty habit of being socialized in a crisis. We’ve seen evidence of that happening in Iceland where the government essentially closed down the market and changed the law. I mentioned how we essentially also socialized part of our debt in a way with the sovereign basically attaching a guarantee to our banking system. I mentioned this to sober people up about the fact that private foreign debt is not so private in a crisis as the chief economist suggests it is.
I also mentioned that large lenders and pensions funds around the world place country/currency limits not discriminating between private and public debt, as they know that in a crunch they will be shut out by politicians.
You’re now talking this discussion to the moronic point of saying:
Are you suggesting that Australia’s financial institutions are holding a large amount of bad debts we don’t know about?
Now this is clearly something I wouldn’t expect even from you.
JC
16 Feb 10 at 11:43 pm
Rog:
‘
go away as this thread is way above your abnormal narrow thinking processes. All you need to worry about is insulation.
JC
16 Feb 10 at 11:45 pm
“By international standards our debt is low, but by Australian post 1970 standards it will rise pretty high.”
Really?
From a recent treasury document:
“Australia’s projected net debt position, across all Government’s is estimated to be 1 per cent of GDP compared with 48 per cent of GDP for the OECD.”
Of course, Australia was in a net-asset position by the end of Howard’s term, but in 1992 net debt was just under 20% of GDP across all levels of government.
If you look at the time series Australia was in a net asset position at the beginning of the 1970s, with the situation deteriorating between 1975 and 1996, and then improving again afterwards. Note that net-debt is highly correlated with macroeconomic factors.
[I've added a picture in the update showing the federal net debt position. Data are from the budget papers. Sinc]
Labor Outsider
16 Feb 10 at 11:51 pm
“I also mentioned that large lenders and pensions funds around the world place country/currency limits not discriminating between private and public debt, as they know that in a crunch they will be shut out by politicians.”
So what are these joint limits that have been imposed on Australia? I just can’t see any evidence that they are binding. Sorry. The bad assets matter because surely an assessment of a country’s credit-worthiness should depend on the quality of the investment the debt has funded…
Labor Outsider
16 Feb 10 at 11:54 pm
The term, relatively cheaply doesn’t mean that we can borrow as cheaply as the US, Germany and Japan in foreign capital markets. It means that spreads that one would already expect given the size and liquidity of the market isn’t particularly high and markets didn’t penalised us much during the global crisis.
Are you trying to peddle this as some sort of response? There’s no reason why our rates should be higher than other countries growing at the same rate but they are. We actually achieved very closed to US long rates when were running surpluses under Howard. For the rest of the time even since the 80’s our spread has always been in he higher risk category primarily because of our current account deficit.
Size and liquidity of markets is a nonsense response. Do you think Switzerland was unable to borrow at a cheaper rate than we could? Luxembourg? We were penalized during the crisis. Our currency was on he verge of collapsing and our famous banking system was only able to get funding with a government guarantee. You can’t even define “cheap” other than putting it in some ill-defined category.
Lower taxation levels wouldn’t necessarily raise saving rates enough to reduce the CAD. What effect do you think lowering corporate income and capital taxes would have on investment rates for example?
Pretty large.
International econometric studies provide no evidence that lower taxation rates are correlated with lower CADs. You are simply being speculative.
Really? So if we cut our taxation level and also made serious cuts to our spending, you’re suggesting it would all go in consumer spending and not some saving? I reckon it would and I reckon your models are bullshit. Ask your model what would happen if we raised taxation and spending. What would happen to our savings rate then?
On the labour market I was simply making the point that while ours is not perfectly flexible, it is one of the more flexible of the industrial countries and unlikely to be having much influence on foreign investment.
It makes a ton of difference to foreign investment. How many firms have set up here over the past 3 years other than mining? How much has import displacement has occurred in areas other than mining? Our other sectors look comparatively ill.
Your original statement on re-regulating labour markets was about retaining the confidence of international capital markets if you recall.
Yes and I still maintain that. Frankly this isn’t really a place to set up shop unless you have to. I also wouldn’t be too optimistic about the mining sector if I were you as there seems to be some disquiet in the big mining houses about adding to their suit of projects at the margin, as some are starting to see their previous advantages disappear when the add the cost of the threatened ETS, potentially higher royalties and a regulated labour market. That’s the fucking trouble with you labour people. You don’t think there is such a thing as an outside competitive world out there and costs don’t exist. That’s why,
for the most part, though not all, every thing a labor government ends up touching always turns to shit.
JC
17 Feb 10 at 12:05 am
So what are these joint limits that have been imposed on Australia? I just can’t see any evidence that they are binding.
There are no joint limits, doofus. For instance every large international bank has country limits they set in accordance to the risk the board is prepared to take in a foreign country.
Let me ask you, as a labor guy would you impose a limit on the risk you’d take in China if you ran a large bank or would you tip all your deposits in there?
JC
17 Feb 10 at 12:08 am
“Are you trying to peddle this as some sort of response? There’s no reason why our rates should be higher than other countries growing at the same rate but they are. We actually achieved very closed to US long rates when were running surpluses under Howard.”
You are off your rocker here. The short-term increase in spreads was driven by the fact that the US has engaged in quantitative easing while policy has remained much tighter in Australia. Long term rates are in part the expectation of future short-rates. Australia’s economy has outperformed, settings have been tighter and that has been priced into long rates! Luxembourg and Switzerland are terrible comparisons. The latter runs enormous current account surpluses and has a unique place in international capital markets.
JC, I know the econometric literature in the area of taxation and CADs. Your argument is bullshit because the effect on the CAD is indeterminate. You cannot know in advance the relative impact on savings and investment. Don’t try and pretend otherwise.
When you find some empirical evidence linking Australia’s changes to labour market regulation to FDI decisions, let me know. Otherwise, again, you are just pissing in the wind.
Of course unit labour costs matter for competiveness. But wage growth has actually been quite constrained in Australia compared to previous commodity booms and again there is little evidence that Labor’s laws have had a large impact on the trajectory of wages thus far. Again you are over-egging things.
As for the argument that everything Labor touches turns to shit. Well, the best government of the past 100 years was a Labor government – that of Hawke-Keating. The breadth and significance of the reforms undertaken by that government put the Coalition’s record from 1996 to 2007 to shame. Australia’s productivity performance nose-dived during the 2000s. Why might that have been?
Finally, you claimed that Australia was somehow in danger of being locked out of international capital markets because of investor limits on their exposure to Australia. I’d like to see evidence of what those limits are and whether we at all close to reaching them.
You are an evidence free zone!
Labor Outsider
17 Feb 10 at 1:09 am
You are off your rocker here. The short-term increase in spreads was driven by the fact that the US has engaged in quantitative easing while policy has remained much tighter in Australia.
Jeesz Louise you make it harder than normal. I’m not talking about what rates have been doing in the past couple of years. I’ve been talking about what long rates have been doing for the past 30 years. As I said, I can’t recall one instance when our rates have been below US benchmark.
My comments were countering your frankly stupid comment about how cheap it is for us to borrow overseas when the reverse has been true. We’ve never been at a discount in long-term -rates compared to the big players and as I said it’s not because the US has been a paragon of monetary virtue over this long period of time. At one stage under Keating, we were paying 1,000 basis over the US benchmark in swap rates..
Long term rates are in part the expectation of future short-rates. Australia’s economy has outperformed, settings have been tighter and that has been priced into long rates! Luxembourg and Switzerland are terrible comparisons. The latter runs enormous current account surpluses and has a unique place in international capital markets.
Dude, the only reason I mentioned those two countries was in response to your stupid comment about small countries and liquidity being an issue that precludes us from borrowing at “cheaper” rates. It was obvious horse hit.
This is what you said right:
It means that spreads that one would already expect given the size and liquidity of the market isn’t particularly high and markets didn’t penalised us much during the global crisis.
That’s crap. You really have a problem defining what you mean by cheap. I have already shown you why our long rates have not been cheap.
JC, I know the econometric literature in the area of taxation and CADs. Your argument is bullshit because the effect on the CAD is indeterminate. You cannot know in advance the relative impact on savings and investment. Don’t try and pretend otherwise.
Oh really. So the effect of taxation and spending which is in effect funnelling more money in consumption would have no bearing in the level of aggregate savings if there were a change? You’re really trying to peddle that crap suggesting models support it? You’re models are wrong as we’ve seen with other models particularly those modelling sub-prime paper.
When you find some empirical evidence linking Australia’s changes to labour market regulation to FDI decisions, let me know. Otherwise, again, you are just pissing in the wind.
Why are you continuing to peddle the same silly argument when I have told you that the material effect on our economy from labour market strangulation wouldn’t impact much on FDI? I have nicely explained to you the vast effects would be felt in our internal market, as that side would employ 90% of our workers.
Of course unit labour costs matter for competiveness. But wage growth has actually been quite constrained in Australia compared to previous commodity booms and again there is little evidence that Labor’s laws have had a large impact on the trajectory of wages thus far. Again you are over-egging things.
So if there’s very little effect why did labor run a campaign against them and changed the laws as soon as they could. For so little effect? Was it mostly for show then? Lol. So out the door goes marginal productivity theory. Lol.
As for the argument that everything Labor touches turns to shit. Well, the best government of the past 100 years was a Labor government – that of Hawke-Keating.
I was careful in not saying every government, LO. Outside of them the rest are frankly quite horrible.
The breadth and significance of the reforms undertaken by that government put the Coalition’s record from 1996 to 2007 to shame. Australia’s productivity performance nose-dived during the 2000s. Why might that have been?
Who knows and who cares? Labor demand was growing and with the gradual relaxation of labor laws though that period marginal workers were being hired. That’s a good thing. The participation rate increased which is good thing too. I’m none too fussed about counting productivity. Incomes and the participation rate rose during Howard’s period and our competitive industries did well as profits roseyoo My guess is that productivity is badly counted in Australia, as the indirect data doesn’t support the slow growth the stats show.
Finally, you claimed that Australia was somehow in danger of being locked out of international capital markets because of investor limits on their exposure to Australia. I’d like to see evidence of what those limits are and whether we at all close to reaching them.
You are an evidence free zone!
How can I give you evidence of JP Morgan’s country limit on Australia? Should I email Jamie Dimon and ask me to furnish his internal records? Two i-banks I worked for had limits for Australia and for a good period of time we were unable to take Australian bank names in trading because our settlement risk would take the bank above the present gross threshold. Our bond traders were also unable to buy Australian corporate or sovereign risk unless they were passing them through to a third party.
Why on earth do you keep returning to question this, Labor boy? Don’t you think banks have sovereign risk limits imposed by boards? Are you freaking nuts? Of course they do.
JC
17 Feb 10 at 1:44 am
“My comments were countering your frankly stupid comment about how cheap it is for us to borrow overseas when the reverse has been true.”
You would not expect Australia to trade at a discount to the large players so it is an inappropriate benchmark. Read the literature.
And it is good that you note that spreads have come down a long way over the past two decades. Funnily enough, at the very same time as NFL as a share of GDP have been rising…
The reason why long rates were so high in the mid 1980s is again that short term rates were very high and expected to remain so given Australia’s much higher relative inflation rate.
“Yes and I still maintain that. Frankly this isn’t really a place to set up shop unless you have to.”
Why can’t you maintain a consistent line from post to post. So, labour market regulation is affecting portfolio investment or the willingness to hold our debt then?
Labour market regulations matter. But the magnitude of the roll-back has been relatively small and unlikely to have an impact on the scale you have implied, either on domestic or foreign investment.
Nice ex-post rationalisation of Australia’s poor productivity performance. Doesn’t matter. What rot!
My point on sovereign risk is that there is no evidence Australia is or has approached any implied collective limit in global institutions’ exposure. Just because individual banks might have exposure limits isn’t particularly relevent if, when you add up limits across all possible providers of funds, the the aggregate far exceeds Australia’s current funding needs. Shit, NZ, with a much smaller revenue base and less favourable economic outlook have been running much larger CADs and have a much larger NFL/GDP.
Labor Outsider
17 Feb 10 at 4:04 am
I’ll reply to this nonsense you posted later today as it deserves to be carved.
JC
17 Feb 10 at 4:13 am
If you cant answer a simple question JC what hope have you on complex issues?
rog
17 Feb 10 at 8:13 am
I’ve added a picture on the federal net debt position. As can be seen it is projected to be high by post 1970 standards.
Sinclair Davidson
17 Feb 10 at 8:15 am
but not by standards of 1996 when we had the third lowest public debt in the OECD.
It is amusing to hear debt fears from Sinkers and Forrest when they supported policies that would have had a higher public debt figure and still growing.
There is no evidence that public borrowing is having any effect in private borrowing at all.
A pity Sinkers can’t even understand graphs he prints
Butterfield, Bloomfield & Bishop
17 Feb 10 at 9:43 am
You would not expect Australia to trade at a discount to the large players so it is an inappropriate benchmark. Read the literature.
Bullshit. You’ve already been told that Australia could trade at a discount. There’s no reason it couldn’t. However that really isn’t the point, is it? You said that Australia is able to finance and has been financing “cheaply”. That’s not true and you’re obfuscation is now becoming pathetic.
And it is good that you note that spreads have come down a long way over the past two decades.
Well actually over the past decade actually. The world’s greatest treasurer had us at 1000 points over US.
Funnily enough, at the very same time as NFL as a share of GDP have been rising…
So what?
The reason why long rates were so high in the mid 1980s is again that short term rates were very high and expected to remain so given Australia’s much higher relative inflation rate.
And it’s ability to finance out deficit, which as I said was at times 1000 basis points over the US benchmark.
Why can’t you maintain a consistent line from post to post. So, labour market regulation is affecting portfolio investment or the willingness to hold our debt then?
I’ve already explained to you that labour regulation effects mostly the internal market foe the most part and has a smaller and indirect effect on overseas investment. The reason being that the internal is so comparably large. Some things never seem to get though, do they?
Labour market regulations matter. But the magnitude of the roll-back has been relatively small and unlikely to have an impact on the scale you have implied, either on domestic or foreign investment.
You think?
MINERS have savaged Kevin Rudd’s new workplace relations laws, arguing that increased militancy from some unions seeking to expand their coverage and unrealistic pay claims by maritime unions are vindicating their concerns about right of entry and “good faith” bargaining provisions.
In a pre-budget submission, the Minerals Council of Australia has called for more consultation on tax reform and expressed concern about suggestions the Henry tax review might opt for a resource rent tax to replace state royalty regimes.
It argues that poorly designed reforms could undermine international competitiveness, increase sovereign risk and jeopardise investment and business growth.
http://www.theaustralian.com.au/news/nation/miners-savage-ir-laws/story-e6frg6nf-1225831116374
Nice ex-post rationalisation of Australia’s poor productivity performance. Doesn’t matter. What rot!
I never said it doesn’t matter. I said I believe there are other factors that are important too and I also believe that productivity is not counted well, which has been suggested several times and markers are implying this to be the case.
Question : How exactly does labour regulation help productivity, Labor boy?
My point on sovereign risk is that there is no evidence Australia is or has approached any implied collective limit in global institutions’ exposure. Just because individual banks might have exposure limits isn’t particularly relevent if, when you add up limits across all possible providers of funds, the the aggregate far exceeds Australia’s current funding needs.
The point I made is not what you’re replying to. Nice strawman.
Shit, NZ, with a much smaller revenue base and less favourable economic outlook have been running much larger CADs and have a much larger NFL/GDP.
New Zealand is fucked. It has no future on its own.
JC
17 Feb 10 at 12:01 pm
There is no evidence that public borrowing is having any effect in private borrowing at all.
The stipidest economist in the world would never make that assertion, Debbie. Congratulations.
There’s an old poker saying. When you don’t know who is the patsy at the table, you’re the patsy. That’s you debbie.
JC
17 Feb 10 at 12:03 pm
Sinclair
Apologies if this question has already been answered – the thread is a bit long, and I’ve just noticed it – but is there is breakdown of non-government overseas debt between corporate borrowing and consumer debt?
Peter Patton
17 Feb 10 at 12:14 pm
Forrest for a person who thought that all the debt was generated by the Stimulus, who thought the government had NO financial assets kindly show what present evidence that public borrowing is affecting private borrowing.
No-one has shown it at all most of you.
oh by the way there is a reason between the spread on bond yields being large in the 1990 and much lower in 1983.
have a guess!
Butterfield, Bloomfield & Bishop
17 Feb 10 at 12:37 pm
have a guess!
Ummm you were having midday tristes with the RBA governor at the time? What Debbie? Hit me with it.
JC
17 Feb 10 at 12:42 pm
go and ask someone who actually works in the bond market.
By the way the market got it wrong both times!!!
Butterfield, Bloomfield & Bishop
17 Feb 10 at 12:46 pm
Forrest for a person who thought that all the debt was generated by the Stimulus,
You mean like all the government borrowing that goes to finance the stimulus? You dope.
who thought the government had NO financial assets kindly show
Debbie, you really are a dissembling dishonest douche.
JC
17 Feb 10 at 12:47 pm
I don’t know. A quick search at the ABS gives me this. To the extent that most consumer credit would be with domestic financial institutions and those institutions borrow in international markets it would wash through at some level.
Sinclair Davidson
17 Feb 10 at 12:48 pm
go and ask someone who actually works in the bond market.
You’re two steps away from being committed aren’t you?
>By the way the market got it wrong both times!!!
Market are never wrong, dopey.
JC
17 Feb 10 at 12:49 pm
consumers do not borrow from O/S they borrow from banks who borrow from Overseas.
Forrest another idiotic statement upon many.
A spread of over 1000 points means a dramatic inflation differential except it narrowed it didn’t widen.
Once an idiot always an idiot
Butterfield, Bloomfield & Bishop
17 Feb 10 at 12:52 pm
Compare these two statements
and
Sinclair Davidson
17 Feb 10 at 12:55 pm
Sinclair
The reason I ask is that while private corporate o/s borrowing might not matter, as it is for ‘investment’, the same might not be the case for consumer debt.
Or is that wrong, in that it is the domestic banks who are actually borrowing o/s – to lend to local consumers (presumably for consumption rather than investment, though of course some would be for investment; investment properties, small business, etc.), and given the business of retail banks is the lending of money to consumers, small business, such o/s borrowings are of the same ‘investment’ type as a mining company or any other corporate borrowing o/s. If that makes sense!
Peter Patton
17 Feb 10 at 1:04 pm
i>consumers do not borrow from O/S they borrow from banks who borrow from Overseas.
Gee thanks for the heads up, Debbie.
A spread of over 1000 points means a dramatic inflation differential except it narrowed it didn’t widen.
It means a lot of things, dopey. It means the market has little faith in the Government and central bank to curb inflation and an out of control deficit. The market at the time had a real reason to be concerned with the macro settings, as the world’s greatest treasurer basically ran an inflationist policy in the form of the fascistic Accord
JC
17 Feb 10 at 1:10 pm
The banks borrow OS not the consumers. So there is a veil of incorporation between the two. Arbitraging between the two markets (and the risks and preferences in those markets) is how the banks make their money.
Sinclair Davidson
17 Feb 10 at 1:11 pm
Sinc:
Just to get things straight
I don’t disagree with the comments you made earlier where you cogently explained the mechanics of the external accounts and what would need to be done if you took a sledgehammer to one side.
That’s always been clear to me.
However I also think there are serious concerns about venturing overseas for a large proportion of the savings pool. I also fully understand the effects of a capital-intensive industry such as mining needed lots of capital in hurry and the displacements effects that has.
My concerns would be alleviated by raising the savings rate in Australia as a result of lowering our heavy tax burden as well as lowering government spending (thereby lifting the domestic savings pool and reducing the proportion required from overseas).
I think it matters where the capital comes from and one example of that is the fact that I think Japan, the biggest deadbeat Keynesian experiment of them all, with a debt to GDP ratio of 230% would have Buckley’s chance of funding their deficit from overseas sources. I don’t think they would get funding at 4% yet domestic sources found the deficit at .5% or thereabouts.
Greece also presents itself as a good example of what I’m talking about in that the real problem for them is the large portion of funding that comes across the border.
I think it really does matter where the funding comes from, as offshore money is always the most timid.
That’s really my point. You raise the savings rate by removing the barriers that prevent domestic capital formation and to be honest we’re at the bottom end on that score and likely to get worse with Henry suggesting an form of an Argentinean style export tax on our most efficient industries by raising the royalty tax.
I don’t think these guys are kidding.
http://www.theaustralian.com.au/news/nation/miners-savage-ir-laws/story-e6frg6nf-1225831116374
JC
17 Feb 10 at 1:33 pm
JC – there are always good arguments for lowering the tax burden. But people would not necessarily save more or invest the tax savings in Australia. They would do what they liked with the money – quite rightly too.
Sinclair Davidson
17 Feb 10 at 1:36 pm
Sure they would, however the likelihood of a rising savings pool is increased when those burdens are lifted and most certainly not when they are increased combined with a hard headed monetary policy.
JC
17 Feb 10 at 1:41 pm
Sinc/JC
Hold on, I’m still not getting it. My post acknowledged that it is the retail banks who borrow o/s to lend to domestic consumers.
What I am asking is” Is that o/s bank borrowing – to lend to domestic consumers – of the same calibre of o/s borrowings by corporates – such as resources companies – for ‘investment’ purposes?
That is: Is retail banks o/s borrowings that is intended for domestic consumers really borrowing for ‘investment’ and therefore doesn’t matter OR does the extent to which ‘it matters’ depend on what the ultimate users – consumers – spend their borrowings on? Again, if that makes sense.
Peter Patton
17 Feb 10 at 1:47 pm
Peter – as long as domestic banks are making good lending decisions we shouldn’t care how they finance themselves. Not all debt is for investment purposes. For example, my credit card debt is all about my consumption, but that is intertemporal smoothing on my part not investment.
Sinclair Davidson
17 Feb 10 at 1:56 pm
Right, OK. So my point is how of much that total o/s borrowing – by corporates for investment plus retail banks to lend to consumers – is ultimately lent to consumers (credit card purchases, personal loans, small business, etc)? If it is a large % of the total, then is it still appropriate to say “private debt doesn’t matter?”
Peter Patton
17 Feb 10 at 2:10 pm
Forrest right again.
Inflation dramatically falls in the early 90s which is why the inflation differential narrowed dramatically.
The fears about inflation and the macro-economy were wrong then.very badly wrong as history shows.
sinkers wrong point about public debt being higher now since 1970 is meaningless.
We had NEGATIVE growth in world trade and economic growth.
We were heading for public debt anyway because of that.
The Stimulus made it SMALLER!
Butterfield, Bloomfield & Bishop
17 Feb 10 at 2:15 pm
Peter – you’re trying to make an argument for a size effect. But it is the ability to repay debt that is important not the size or amount. To give a different analogy, you can drown in the bath tub or in the ocean – the amount of water is very different but the outcome is the same. Capital is fungible and as long as Australian banks and corporates borrow and lend in an integrated global market private debt doesn’t matter.
Sinclair Davidson
17 Feb 10 at 2:22 pm
Debbie:
You spend most the time here raising irrelevant points that have nothing to do with the discussion.
Labor Boy says Australia has always been able to raise “cheap” money.
When shown this is hogwash and unadulterated swill he then goes and argues that we pay a premium over the big players because we’re small and illiquid. When shown that this is a dog turd of an argument he then spins off into never-land gibbering more incoherent swill.
Thanks to you Debbie, you now want to turn the discussion into the history of the bond market between 1988 to 1993 or some such. Frankly I’m not interested you boring, dullard. Have that debate with yourself.
JC
17 Feb 10 at 2:31 pm
you are the idiot that brought it up without knowing why it happened and why the bond market got it so wrong.
typical though
you haven’t shown anything about paying a large premium at all. The Government certainly doesn’t.
perhaps you think they may default
Butterfield, Bloomfield & Bishop
17 Feb 10 at 2:40 pm
Debbie:
Settle down and don’t get your panties in a twist.
Read what I said to Labor boy’s assertion about borrowing being “cheap”. I correctly pointed out that there has never been a time when our long term rates were below any of the big guys including the US, which hasn’t been exactly virtuous over a period of 30 years. There hasn’t been a time I can recall.
I never really made much reference to the reason why other than to suggest that borrowing hasn’t been “cheap”. Neither of us had a desire to turn this into a history of the bond market during these times.
It seems that you want to and as I said earlier I’m not interested in playing this boring game with you.
I have shown proof we pay a premium by the simple fact that our long term swap rates have never been below.
Now please go away and see if you can get home after a walk… you blockhead.
JC
17 Feb 10 at 2:50 pm
Forrest you are lying again.
LO said relatively cheaply and he was right. you went on a wild goose chase and still do not know why spreads went as large as they did.
by Gingo we have higher yields than Japan, the US , Germany and the UK.
We should be highly thankful for that
Butterfield, Bloomfield & Bishop
17 Feb 10 at 2:59 pm
Moderator:
If you persist in having Debbie post here, you should do the right thing and have a translator around at all times who understands Eastwoodlish and is able to tell us what he’s trying to convey.
Please.
JC
17 Feb 10 at 3:01 pm
Forrest always needs a translator when economics is talked about
Butterfield, Bloomfield & Bishop
17 Feb 10 at 3:02 pm
No Debbie. I need a translator to decipher your gibberish incoherent swill.
JC
17 Feb 10 at 3:04 pm
as I said you always need a translator when economics is talked about
Butterfield, Bloomfield & Bishop
17 Feb 10 at 3:12 pm
JC if you look at the spread between cash rate expectations here and in the US and compare it with the spread between the 10-year bond rates you’ll find CGS yields are low in comparison to Treasury note yields. In other words LO is correct.
sdfc
17 Feb 10 at 7:22 pm
SDFC:
We have never had a time when our 10 year swap have been below rates of any major anchor country for 30 years. There was a time we got close and that was in the later years of the Howard government when the world really began to think we were in virtuous circle as economic management was seen to be a thing of beauty.
The 10-year rate is the most important one as that is where the central banks have least effect and the market is able to price in expectations and views.
Australia has always been considered a high-risk play, which is why the currency has also been known as a “high yielder”. I presume, being in the debt market, you would have heard that term, right?
The reason it has been known as a “high yielder” is because the country is expected to offer a high yield due to it’s relative risk profile compared to other places. Does the “Pacific Peso” ring a bell too?
Labor Insider is not right. We have been ever considered “cheap”, as we have never been able to offer “cheap” rates or rather obtain money at a discount since the float.
One other thing….. The currency only does well when world liquidity is ample and the risk appetite jaws as are open. The moment either of those things reverse the currency heads for the crapper and our asset markets look suspect. These days there’s almost a 1:1 correlation
You can trade the currency solely on risk appetite models the large I-banks publish for their customers. Anecdotally the one I miss the most was Lehman’s old risk appetite model. It was a magnificent piece of art that really helped me make money.
Labor insider is not right. He’s dead wrong to say we get our money cheaply. We could of course if we lowered the government’s intervention in areas that affects our ability to generate capital formation.
JC
17 Feb 10 at 7:49 pm
The Aussie is a high yielder because of the short rate JC, that’s where the carry is being played. Expectations mean that this translates through the whole yield curve. That is why the spread between the 10-year rates suggests that our long bond rates are not high in risk terms.
Our currency heads for the “crapper” because carry traders hate uncertainty. That is the reason for the high correlation with the S&P500.
You are trying to compare rates in the low growth US with those in the higher growth Aussie economy, it’s an apples and oranges comparison.
sdfc
17 Feb 10 at 9:43 pm
The Aussie is a high yielder because of the short rate JC, that’s where the carry is being played.
That’s interesting.
1. Short yields never have any effect on long rates? I suppose the curve has always been inverted for the past 30 years
2. Foreigners don’t buy our long-term bonds (both corp and govies) and have never invested here through long-dated swaps.
Our currency heads for the “crapper” because carry traders hate uncertainty. That is the reason for the high correlation with the S&P500.
I don’t agree with the narrow picture you place on who invests here. Carry trades aren’t as big as you think they are any more. The correlation isn’t just the currency and the s&p at 1;1. The entire asset structure is.
You are trying to compare rates in the low growth US with those in the higher growth Aussie economy, it’s an apples and oranges comparison.
Dude, are you kidding? The US has not been a low growth country over the past 30 years. In fact without looking I would bet their growth rate has been higher than ours over that period and we only picked up in the last 6 odd years when we lucked out with China.
You two guys got stop stepping on rakes trying to defend this “cheap” business. You’re wrong as we’ve never been at a discount below global benchmarks for the past 30 years.
Remember this SDFC. In climate science, climate is taken as 30 years while weather is very short time frames. That comes expressly from James Hansen and Gavin Schmdt. A 30-year observation in the global market is like going back and accurately tracking temperature to the medieval warm period.
In other words Australians have never been able to borrow “cheaply” at any end of the yield curve over this time frame.
This is a scientific fact that you would find even at realclimate.org. Those guys often talk about the Australian yield curve.
JC
17 Feb 10 at 10:11 pm
Your first point is just restating what I said originally. A comment you disagreed with.
Foreigners buying long-term bonds isn’t a currency play, not if you know what you are doing. Though the relative price of the Aussie to expectations will influence your investment decision. This however has little to do with the relative Commonwealth borrowing cost. A case in point was the lowest CGS yields in 50 years in late 2008 coincided with the Aussie losing around 40% of its value. Why? Rate expectations.
The carry trade is still a major mover of the $A, its how you profit from rate differentials.
30-years? Get with the here and now, you’re jumping around all over the place. The relative cash rates should give you a clue over the expected growth outlook for Oz v the US. Today’s rates have nothing to do with what the outlook was 30 years ago.
Your comparison of long-term rates in low cash rate US and high cash rate Australia is a fundamental error that any second year finance student could set you straight on.
Global warming v capital markets? I wasn’t aware that comparative growth rates had an inmpact on global warming. Your struggling aren’t you.
sdfc
17 Feb 10 at 10:51 pm
Your first point is just restating what I said originally. A comment you disagreed with.
It’s not my fault that I keep repeating it. It’s your fault that you seem unable to get a grip and keep restating the same fundamental error.
Foreigners buying long-term bonds isn’t a currency play, not if you know what you are doing.
I never said it was a currency play, however no portfolio manager worth his salt would buy any foreign asset without looking at the currency long or short term. Would you?
Though the relative price of the Aussie to expectations will influence your investment decision. This however has little to do with the relative Commonwealth borrowing cost. A case in point was the lowest CGS yields in 50 years in late 2008 coincided with the Aussie losing around 40% of its value. Why? Rate expectations.
Nonsense. No one’s primary concern in 2008 was rate expectations. The major concern was liquidity, reducing risk and going to cash. Rate expectations were possibly a late night discussion with traders over drinks. The primary macro concern for Australia by foreigners was what was going to happen to the country if commodity prices collapsed.
The carry trade is still a major mover of the $A, its how you profit from rate differentials.
The carry trade is over blown horseshit that everyone thinks exists but doesn’t. There’s no carry trade in the world to speak of at the moment. If there is people playing the short term carry trade they require medical assistance from a psyche ward.
Dude, the aussie has moved from 93 cents down to 85.75 cents and back to 90.30 as we speak in the past month. There’s no carry trade bro. That’s a combined move of 13 % off 93 cents. How can anyone run a carry trade in this environment and keep their jobs or their capital intact.
Get with the here and now, you’re jumping around all over the place.
I’m not jumping around at all it’s quite the reverse. You and Labor Insider are. I have continually pointed out to you and labor Insider that Aussie offshore borrowing has not been ‘cheap”, whereas it’s you that brings up nonsense that our rates have been higher than US rates over the past 30 years because the US economy is slow growth economy when in fact the reverse has been true.
The relative cash rates should give you a clue over the expected growth outlook for Oz v the US.
For the present, but so what? What does that have to do with the assertion we have been borrowing “cheaply”? We haven’t since the float.
Today’s rates have nothing to do with what the outlook was 30 years ago.
Thanks for that, but why bring that up when we’re talking about the relative “cheapness” of offshore borrowing?
Your comparison of long-term rates in low cash rate US and high cash rate Australia is a fundamental error that any second year finance student could set you straight on.
Oh please, enough of the strawman as this is getting truly ridiculous. You were the one who raised short-term rates. I didn’t other than to ask if you thought we had run an inverted curve over the past their 30 years.
Global warming v capital markets? I wasn’t aware that comparative growth rates had an inmpact on global warming. Your struggling aren’t you.
That was just kidding around. I won’t try next time.
JC
17 Feb 10 at 11:47 pm
Your first comment makes no sense. All you are doing is agreeing with my original point. That is that short rate expectations affect the entire yield curve. If you don’t disagree with me why are you arguing?
Really JC? The carry trade came back with a vengeance in the second half of 2009, but obviously you know better. The currency swings you referred to is exactly why traders hate uncertainty which is why the trade as come off in early 2010. If the market settles we’ll see players jumping back in. If you’re buying a deposit the short term is all you need to worry about.
You brought up what happened 30 years ago, not me. You’re in such a spin you’re losing track of your arguments. You obviously need some help so I’ll give you a clue. What happened to the Aussie yield curve in the 1990′s after the RBA started inflation targeting? Be careful though its exactly what Keynes said would happen with credible monetary policy and we all know what high esteem you hold him in.
What strawman, the whole point is relative rate expectations and why a comparing US 10-year rates and Aussie 10-year rates is pointless when trying to judge Aussie borrowing costs.
Sorry if I didn’t get your joke regarding global warming but you maek so many bizarre and contradictory arguments its difficult to tell when you are being serious and when you are not.
sdfc
18 Feb 10 at 12:34 am
Okay I get it, now it’s all obfuscation pretending those bumps on your forehead aren’t a result of standing on rakes.
Let’s cut to the chase.
Labor Insider says Australian borrowing from offshore is and has been cheap. I respond to that obscene assertion by nicely explaining it isn’t true and hasn’t been so for 30 years since the float.
In support of my assertion I gently mention the fact that our rates , that is long term rates (and short-term incidentally for the most part), have been at a premium to anchor rates around the world. Both you guys seems to have a problem with this and now homerize the conversation.
I honestly don’t know what more I can say to help you sdfc. I don’t what I can say to placate you homer like stubbornness that now borders on silliness.
——–
As for the carry trade… no, it hasn’t come back with a vengeance and hasn’t been around since the crisis began. The spread is far too narrow and potential volatility was far too high for it to be fashionable.
You have a bunch of guys like me and others trying to guess where fx rates are going and piling in if things look okay on the liquidity front and the opposite if it doesn’t
If they do pile in, you end up buying Aussie / US, Aussie Euro, Aussie Yen, Euro Yen (the big one) and sell US against Euro. It’s not a carry trade. It’s a play on liquidity type trade.
If there is a carry trade at all and there possibly is of some significant it’s going long Brazil where rates are pretty high. But that isn’t in huge volume though.
JC
18 Feb 10 at 12:53 am
You’re funny, I don’t know why you feel the need to comment on areas where you obviously have no idea what you are talking about. Stick to dabbling in equities, rates and currencies are obviously a bit too complicated for you.
By the way regarding the carry trade the ramp up in trades was obvious to everyone in the market except you it seems. Bernanke was asked about it at his appearance before the Senate Banking Committee late last year.
http://www.businessinsider.com/bernanke-the-dollar-carry-trade-bubble-is-only-a-problem-if-the-economy-gets-weak-again-2009-12
sdfc
18 Feb 10 at 3:59 pm
“Stick to dabbling in equities, rates and currencies are obviously a bit too complicated for you.”
I wouldn’t be so sanguine Mr “Crowding out doesn’t exist because the capital market is large”.
Semi Regular Libertarian
19 Feb 10 at 8:56 am