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Posts on this website are general "tips" and nothing more than that and should never be used to make an investment or trading decision. All information should be carefully cross-checked against official sources for accuracy. Sparty's posts nearly always relate to companies that he either holds, has held or intends to hold.

Main ForumNo Surplus Anytime Soon

  • Wayne Swan may be committed to a budget surplus, but he should keep softening his rhetoric since the weekly Government Debt report shows the annual deficit being maintained at about $47 Billion for the past 3 months. The short term trend in debt issuance is similarly grim. Over the past 3 weeks of September $7.7 Billion of gross debt was issued. In August about $9 Billion of gross debt issued.

    Once the Government sets its budget course in May it holds the fiscal course in the hope the forecasts made in May hold true. The budget of course predicted a beginning to a return to surplus. The reflection of this is simply the amount of outstanding Government gross debt published each week. And that growth in annual debt is simply not being reduced and if anything may be growing. The rhetoric of the RBA is the same as 2008 as interest rates were held at high levels: weak international data but inflation expectations due to our commodity boom and great terms of trade. The RBA will hold the steady interest rate line until things really fall over the cliff - just like 2008, when it dramatically dropped interest rates in a catch up.

    The world is in austerity mode, the IMF has lowered world growth forecasts, consumer confidence is hitting lows and the RBA insists that the world's best economic performer has to have the highest interest rates among the developed countries. Australia has a cash rate of 4.75% against US's rate of zero and Great Britain's rate of .50%. The Australian consumer is doing the only logical thing - the people are saving and reducing spending. And in the paradox of thrift, what is sensible for the individual is terrible for the country. The mirror of private savings of financial assets is the growth in Government debt,increasing unemployment, with the automatically stabilizers increasing social security payments.

    Wayne Swan may be the world's greatest treasurer, but the captain has the ship on auto pilot in a fog of rhetoric.

    Michael Cornips

    view graphs at: http://www.traderscircle.com.au/free/email/PCAS_Articles20110927.html

  • Hi All, The Private Client comment above is from an article written by Michael Cornips. He did not, to my knowledge, post this discussion. But I’d like to reply.

    I agree with much of what Michael has written. A government without concern for being re-elected should not try to hold to a promise of returning the budget to surplus, a promise made when they thought times would get better, if significant changes have happened during the time in office. As I understand it the Australian Federal debt is around 14% of GDP. This is tiny on the world stage. Thanks to many previous “administralions” Australia’s federal government has next to no debt. I think the Labour government should be taking on more debt to improve infrastructure to be ready for when times actually do improve (the Buffet concept). But if they do so they will be crushed in the next election. It is a sad commentary on our political system.

    On to the RBA’s policies: I do not agree that the RBA has erred. In my opinion the actions of the RBA have been significant in getting Australians to start saving money instead of living on debt. Private debt levels in Australia are at the top range of those in the world making private debt this country’s Achille’s heel. If housing prices fall then our country will fall in a heap. I think that Australian’s must reduce their personal debt and anything that encourages us to do so is a good thing. Yes, retailers will be hurt in the short term by Australian’s saving but when times improve those retailers will reap the benefit of a stronger Australian customer. Further, retailers that are currently importing goods (most) have the huge advantage of a high Australian Dollar. The big losers are the Australian manufactures. These companies should be supported. I think the best way to do that is to reduce the company tax rate and the way to fund such a reduction is with increased taxes on “super profits”, be they from the mining industry, banking industry or from lemon stands. A further idea is to have the carbon tax subsidise reduced company tax. Buy doing all of this, Australian manufacturers MAY survive. Note: The subsidizing companies would also benefit from the reduced company tax rate and so they should not bleet.

    Wayne Swann has not earned is new title… it must be shared with Paul Keeting, Peter Costello, Twiggy Forest, and many other Australian mining start up companies. BHP and RIO get a “brickbat” as obstructionist.

    In marco terms we should not rile against a downturn. It is normal in all systems that downturn happen. We should instead embrace the certainty of the downturn and work within it to come out stronger.

    Europe is riling against Greece’s debt default and it will only put Greece into more debt. The market believes (with a bond rate at 114%) cutting costs (austerity) will not save Greece from a default. It is better that they default and get it over and done with.

    Retails will survive as Australians will continue to need new cloths. Australian Manufacturers represent the sector most at risk. Private Client did not mention them which makes his comments less than good.

    Alite

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