Friday, August 01, 2008

Will Australia Cop A Worse Hammering In The 'Economic Tsunami' Than The US?

Capitalism and the free market are great and wonderful things....until it all goes very, very wrong. And who pays for the 'mistakes' of the world's central bankers and the fetid greed of speculators?

Well, not the bank directors and CEOs. They get bonuses....well, they got their bonuses before it all went tits up, didn't they? They always do. The working poor will pay instead, as they always do. And the central bankers will all look you right in the eye and swear they didn't see any of this coming :

The world's financial storm has swept through Australia and New Zealand this week amid mounting signs of contagion across the Pacific region.

Gabriel Stein, from Lombard Street Research, said Australia could prove vulnerable once the global commodity cycle turns down. It has racked up a current account deficit of 6.2pc of GDP despite enjoying a coal, wheat, and metals boom, effectively spending its resources bonanza in advance. Household debt has reached 177pc of GDP, almost a world record.

"It is amazing that in the midst of the biggest commodity boom ever seen they have still been unable to get a current account surplus. They have been living beyond their means for 10 years. What worries me is that productivity growth has been very low: they have coasting after their reforms in the 1990s," he said.

What happened to us all being Relaxed & Comfortable? How could Peter Costello, 'Australia's Greatest Living Treasurer', not have prepared and insulated the nation from this chaos and misery? And how will the Rudd government stop the destruction spreading further?

Australia's Reserve Bank has had to grapple with vast inflows of Asian capital, especially Japanese money fleeing near zero rates at home. Short of imposing currency controls, it would have been almost impossible to stop the inflows.

"The easy money went straight into real estate," said Hans Redeker, currency chief at BNP Paribas.

"Australia will now have to generate 4pc of GDP to meet payments to foreign holders of its assets," he said. This is twice as high as the burden faced by the US.

Both the Australian and New Zealand dollars have fallen hard in recent days and now appear to be breaking down through key technical support against major currencies, including the US dollar. "The Aussie (dollar) is going down, big time," said Mr Redeker.

UPDATE : Writer Mike Whitney - who managed to predict the economic apocalypse now destroying American families and sending double-shift working men and women to the food banks, all back when the Wall Street Journal was still trumpeting 'We're All Rich! Say Yes To Everything! Max Out Another Credit Card!' - explains why the National Australia Bank's massive billion-plus write-downs this week are set to cause further panic on Wall Street :
We are now way beyond sub-prime. NAB says that it is suffering a 55 per cent loss on American housing loans – an event that has never happened in the history of a developed country in recent memory. This is an unprecedented event and means that the cost of bailing out the US financial system is now far beyond the highest estimates. A US recession is now locked in, but more alarmingly, 55 per cent loan losses point to the possibility of a depression.

It means the cost of bailing out housing exposures to the two mortgage insurers will be so great that it will leave no room to bail out anything else and there are several US banks that are now in big trouble. NAB says that the dislocation in the residential market is separate from the corporate market, but the flow on is inevitable." (The Business Spectator,"NAB will shock Wall Street")

The conduits are off-balance sheets operations run by the banks which contain hundreds of billions of dollars of bonds which are now essentially worthless.

So far, many of the banks have not accurately reported the losses from these operations hoping that the housing market will stabilize and the value of the bonds will rebound.

The action taken by the National Australia Bank is a "game-changer"; it's like the Grim Reaper swooping down on Wall Street and lopping-off the top of every big investment bank in downtown Manhattan.

Bizarrely, if the Great Central Bankers Swindle continues, and interest rates do not begin to fall soon, those without mortgage and credit card debt will be regarded as wealthy in comparison to millions of fucked over debt slaves, who really believed the lie that always seems to work at least once in every generation : You Can Have It All, And You Can Have It All Now.

In the words of Johnny Rotten : "Do You Ever Get The Feeling You've Been Cheated?"

It's never too soon to start growing some of your own food, in whatever space you have available. You know, just in case.