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Debt Growth Is Stagnant - The pre-requisite of a growing economy is debt growth. As influential economist, Paul Krugman points out, the UK's strategy of an austerity program to create an expansionary economy has failed. David Cameron, the UK's Prime Minister, said that if the market saw that the UK was reducing their indebtedness, then the private sector would respond positively. Krugman points out that the post GFC recovery for the UK and Italy is worse than that of the Great Depression. Fortunately, the US did not follow the same austerity measures, maintaining Government spending, and thereby avoiding another economic contraction. Encouraging the maintenance of Government spending is labelled as a Keynesian response that is often derided. But Government spending is somebody else's income, and as the UK has witnessed, reducing Government spending has added to the contractionary forces in their economy.
Questions on Bank Funding - I have received some questions on bank funding costs: WBC on Tuesday priced a new 3.1 billion Australian dollar (US$3.26 billion) five-year covered bond. The deal, which priced at 165 basis points over swap, comes in slightly below a recent offering from Commonwealth Bank of Australia, which priced an A$3.5 billion deal at 175 basis points over swap.
Australian Jobs Are Screwed - More and more often everyday conversations move onto how cheap it is to buy online. The internet revolution has brought to the average person a means and an ability to realise that purchasing goods from overseas is simply a click and a shipping agent away from consumer bliss. But, as usual, what is good for the individual is not good for the economy. Businesses have been abandoning local supply chains in favour of low cost countries for decades. But as businesses have trained the consumer to buy overseas products, the internet has reduced the barriers for the individual to circumvent local businesses. The trend is accelerating. Initially, local jobs that make the products were lost and, just as importantly, the myriad of supply chain logistics and complimentary businesses were lost. Now the businesses that do the importing are being threatened as the consumer goes direct.
Economics of India - I am just back from nearly 4 weeks of travelling India with my family and some friends. We covered quite a bit of the country, travelling as far north as Kashmir, at the base of the Himalayan mountain range, and down through to Delhi, Agra (home of the Taj Mahal), Udaipur, Mumbai and the beach resort town of Goa. Of course it was really a business trip, so I took particular interest from an economic perspective of one of the most populated countries in the World (about 1.2 Billion people).
Taxation Receipts Points To A Glass Half-full - Federal Government taxation were released for figures up to 31st October 2011. The annualized budget deficit is about $41 billion, and heading down. Interestingly taxation receipts in the major categories of Individual tax, company tax and superannuation paints a more positive picture than what is otherwise a more sombre market. You might not think that higher taxes are a positive, but if individual taxes are on the rise it is not because an increase in the tax rate but that more wages are being paid that attract higher taxes.
Questions on Bank Funding - Here is a question from a reader: Why is the RBA rate is "so important" when the banks keep claiming that the majority of their funding is from overseas?
Rolling over Index MINIs -
The Shadow Banking System - The collapse of MF global has highlighted the world of shadow banking with articles being written by Reuters, Zerohedge and Business Insider.
The Government Is Applying Brakes On Economy Already Slowing Down - The Federal and State Governments have increased their debt issues by $73.5 Billion over the last year. (source: RBA). This is a $263 Billion increase since July 2007 for an outstanding total of $394 Billion. Federal debt being issued has slowed down, but not fast enough to return to zero by 2012/13. Hence the mid year budget that intends to ensure there is a surplus by spending cuts and savings of $5B. Add the States in though, the debt increase is currently on an uptrend. Modern Governments are paranoid about increasing debt, so as the Federal Government is overtly removing income from the private sector, rest assured the State Government will start cutting their budgets as well. Decreasing stamp duty from real estate transactions is also adding to revenue concerns of state governments. So with $73.5 Billion current Government spending providing income to the non-government sector each year, this income must be removed as Government budgets contract. Governments are very sensitive to rating agencies, so will add to the urgency.
Rates Are The Lowest For A Long Long Time - The 10 year bond rates this morning broke through the low set in January 2009, touching 3.91%. Predicting the upcoming inflationary surge due to global money printing has been a consistent widow marker for traders these past few years. And the best have been caught out betting against falling rates, including PIMCO, the $1 trillion dollar fund manager. Read here.

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