Debt junkies

An excellent analysis by Leith van Onselen on the reported comments by NAB head Cameron Clyne as to the need for more debt.  While it is true Australia's public debt markets are small (and this is a product of the history of Australian government funding), it is spot on of Leith to point out the hypocrisy of a state guaranteed bank sitting on a private debt book which Moody's and other rating agencies have expressed concern to shout for more.  As Leith notes private debt in countries like US and UK can be a big risk:

That said, there remains a vulnerability that virtually nobody on either side of politics, the mainstream media, or the mainstream economics profession will acknowledge – one that is far more pervasive than concerns about public debt: Australia’s heavy private debt load. As shown by the below chart from McKinsey Global, while Australia’s public debt levels are low, our household debt is amongst the highest in the developed world, with most of that invested in pre-existing housing (here)

If Australian banks are anything like their international peers then they gorge on cheap government funding and speculate while holding out little to their depositors (and to become less when they price in the cost of the levy).  But still they ask for more...

More ratings woe

China's State Grid Corporation's purchase of Singapore Power’s SP AusNet and a majority stake of its unlisted assets for more than $5 billion has moved ratings agencies to downgrade the Australian provider's credit rating, according to The Financial Review.
The newspaper reported that Standard & Poor’s and Moody’s Investor Services questioned whether the State-owned corporation could offer the same level of support if the assets were in distress. (here)

RBA speaks Chinese, happy outlook

Before you worry that RBA bank governor has availed himself of Mandarin or Cantonese, fear not as this post relates to RBA policies and announcements.  This blog has been advocating for a while that, possibly owing to great trade flows, the RBA has chosen to throw its lot very much in with its biggest trade partner and not join the currency war (or even talk about the currency war).  The RBA is in denial, about the need for radical banking regulatory overhaul, the need to recognise the high AUD is hollowing out the economy and the failure to recognise the rapid end of the mining boom.

Recent announcements on this point that banking reform had gone too far (or would shortly go too far) were made this week by APRA and the RBA- ironically as Australia is one of the first to abandon interest rate quotes for fixings in favour of actual trades following the LIBOR scandal.

So perhaps even more ironically to discover today that this argument is doing the rounds in respect of China's weaker banks.  The Chinese banking sector is a constant battleground between entrenched state owned enterprise interests and reformers:

...The China Banking Regulatory Commission’s decision Wednesday to tighten rules covering increasingly popular wealth-management products ....Although bank stocks were getting slammed on Thursday – with small- and medium-sized lenders hit much harder than the Big Four ...Analysts at Barclays said the larger lenders could be less impacted by the CBRC regulations, given that their exposure to wealth-management products is lower as a percentage of total assets... (here).

Will Australia want to be joined up with Chinese financial policy for much longer?

More evidence of bank gouging...

...The country's big four lenders now generate about 88 basis points of net profit on each new mortgage they sell--the highest rate since UBS began keeping records in 2004, analyst Jonathan Mott said Monday. As recently as a year ago, the nation's lenders were losing money on new mortgages....

...."Writing a new wholesale funded home loan has never been more profitable," he said in a note to clients. "If the conditions in debt and deposit markets continue to improve the banks will be in a position to pass through out-of-cycle rate cuts. If the banks do not follow suit, then the risk of 'political interference' in the sector is large."... (here)

Profitable certainly, but not without risks.  If Britain's banking sector's recent history is anything to go buy, gouging and profiteering will not protect from the coming downturn...

Australia avoids the currency war at its peril

Terry McCrann has put it best in a refreshing piece in the Sun-Herald:

....AUSTRALIA is caught smack in the middle of a real live shooting war. Even if it's not bullets and bombs that are being fired.The overwhelming majority of Australians don't know it's going on. And if they did, they'd probably think it was good news for them....And up to a point, they'd be right. Trouble is, "that point" was reached some time last year. Until then, we were beneficiaries. Now we're at risk of becoming - serious - collateral damage....It's the global currency war. Everybody has been trying to weaken their currency to boost their own economy. In echoes of the trade wars of the 1930s - stuff everybody else...

...So how it plays out from here, is critical to everything that impacts on your financial and economic wellbeing. Property prices. Interest rates. Inflation. The stock market. Superannuation. Whether you have a job. Which businesses thrive, which ones shrivel....In recent weeks, the Aussie dollar has drifted in something of a backwater around $US1.03....  The RBA might not seem too fussed. But it is very, very fussed. (here).

Alan Kohler had a good piece looking at the role of Japan and the inability of the Australian government to do anything meaningful.  Are you paying attention Wayne?

...In this context, the Labor Government's "industry and innovation" plan this week is a drop in the ocean, not that anyone expects a big dollop of deficit spending to support manufacturing, or expects the Reserve Bank of Australia to join the currency wars and target higher inflation....

The RBA and the ALP have done what they can. The cash rate is now as low as it's been for 40 years and despite some problems with unionised construction, wage costs overall are not really a problem.....But despite record low interest rates, monetary conditions for Australian businesses are at a record high.....That's because the transmission mechanism between interest rates and the exchange rate has broken down, in turn because of three waves of quantitative easing by first the US, then Europe and now Japan....Japan, straw, camel's back (here).