All Posts Tagged With: "credit"

So far, the Great Correction has followed the usual script. Bond yields have fallen. Price inflation has generally come down. But demand for credit — as evidenced by $10 trillion government financing costs — is running hot. This is no typical downturn. And it wouldn’t be too surprising if all this demand for credit pushed up bond yields.

Another day, another elegantly crafted article assuring you that the central planners have it all under control. This time it’s Ian Verrender at Business Day explaining how central banks can now save our economy from another 2008 style crash. (The one they caused.) He concludes it won’t work…

A crucial time is approaching for the global economy and stock markets. The policy induced ‘recovery’ from the credit crisis is now petering out. While this inevitability was hardly consensus opinion months ago, most market participants are now coming around to the viewpoint that the developed world faces a low growth future.

To be sure, to be sure, you get the feeling S&P could be saying that about a lot of governments in the next few years. Financial sectors in the Western world are still burdened with high levels of debts backed by commercial and residential real estate. To prevent those firms from failing, governments have assumed or backed their debts. But that transfers the ultimate liability for failed private sector investment to the public sector.

And so begins yet another day where we have no idea what the world will bring us. But let’s have a crack anyway. At the top of the list of today’s thoughts is whether a contraction in global credit means there will be fewer good investment opportunities. Without an ocean of credit to float on, good businesses will have to sink or swim on their own merits. But first, here is something that looks like it might be good news for the trader types.

If the public sector tries to correct its debt at the same time it puts even more pressure on households and companies. Their income goes down (less government spending). And their taxes go up. So they cut back. Jobs are lost. So tax revenues fall. So the government’s deficit increases and it must cut even more.

Let’s talk about power today. Where does it come from? From the barrel of a gun? From a lump of coal? From the sun? …..More on power and energy tomorrow. Australia doesn’t have the same public debt problems as other countries. But it depends on those countries for access to capital. That’s a weakness. But its massive energy abundance is strength and a real boon to investors.

The plunder begins on Sunday when the Rudd government finally unveils the Henry Review of Taxation, which, by all accounts, is likely to include a new federal resource “rent” tax to go alongside the royalties miners must already pay the States. The government could not have chosen a more apt word than rent. The government is the ultimate rent seeker.