No Country for Old Bulls
Please check the link above to today's article from Alan Kohler at Business Spectator. The most interesting part of this article is actually, that with which the author disagrees, namely his quotes from Messrs. Newman and Sprott.
Maurice Newman, chairman of the Australian Broadcasting Corporation, and former chairman of the Australian Stock Exchange, is quoted as per follows:
“Between 1990 and 2007, we saw the biggest credit explosion and consumption binge in history. This liquidity created a deep fundamental disequilibrium between surplus and deficit countries. While financial markets have tried to redress this, they have been frustrated by well-meaning government intervention designed to soften the impact."
“In the US, the legacy of these policies is a mandated liability of $US111 trillion, which roughly equates to $US365,000 per man, woman and child, or $US1.3 million for a family of four. Only about 10 per cent of all these obligations have been fully funded. The rest are unfunded or underfunded commitments which will fall due over time. "
“In the meantime, the US government must borrow $US3.5 trillion over the next year which is equivalent to all the debt raised between 1789 and 1994. It will take 75 years of double digit growth to pay back."
“The 2009 budget deficit came in at a little over $US1.40 trillion or about 10.0 per cent of GDP and three times the shortfall of 2008. It is expected to reach US$1.5 trillion this year. The Obama administration’s own estimates project the ten year deficit to be $US9 trillion, recently revised up from $US7 trillion, so there is little improvement in prospect.”
These comments support what this blog has been asserting for some time. While the debt bubble has burst, the dollar bubble remains. As Mr. Newman most astutely implies these problems did not arise overnight but have been building as part of a medium term cycle over decades. Personally I was around the last 90's when I first perceived the early signs of bubbletopia.
The second quote is from a Mr. Eric Sprott, described as a Canadian fund manager and his comments on the U.S. deficit:
“…in order to satisfy US capital requirements, all existing investors would have had to increase their US bond purchases by 200 per cent in fiscal 2009. Foreigners, however, only increased their purchases by a mere 28 per cent from September 2008 to July 2009 – far short of what the US government required.“
"The US taxpayer can’t cover the difference either. According to recent estimates, tax revenue from all sources would have to increase by 61 per cent in order to balance the 2010 fiscal budget. Given that state government income tax revenues were down 27.5 per cent in the second quarter, the US government will be lucky just to maintain its current level of tax revenue, let alone increase it.”
“From 2004 to 2009, US unfunded obligations increased by an average of almost 50 per cent…while US government revenue increased by only 12 per cent. No company or government can increase its liabilities by more than four times the rate of its revenue and stay solvent for an extended period of time.”
Most interestingly Alan Kohler quotes these gentlemen, but disagrees with them. On the issues of timing I also see the possibility of a limited pick up in the Australian economy in the new year. However, no one can escape the short- to medium-term consequences of the American Insolvency.
It has been said before, but if there is a loss of faith in the US dollar the stampede to alternatives could trigger a number of changes in very rapid succession. These include rapid interest rate rise largely outside the control of central banks. Hopefully if we can continue our responsible monetary policy and continue to raise rates we could be well placed to again weather this global shockwave.
The reality is that there is no light at the end of this economic tunnel. The US' economic policies and concommitant spending are unsustainable. Currency collapse, economic depression and difficult longer term economic adjustments are inevitable now in the United States.
By the way if you are new to this blog I STRONGLY recommend you read the first post from August 10, 2004 where the Great Recession was described, predicted, and named well before the event.
Maurice Newman, chairman of the Australian Broadcasting Corporation, and former chairman of the Australian Stock Exchange, is quoted as per follows:
“Between 1990 and 2007, we saw the biggest credit explosion and consumption binge in history. This liquidity created a deep fundamental disequilibrium between surplus and deficit countries. While financial markets have tried to redress this, they have been frustrated by well-meaning government intervention designed to soften the impact."
“In the US, the legacy of these policies is a mandated liability of $US111 trillion, which roughly equates to $US365,000 per man, woman and child, or $US1.3 million for a family of four. Only about 10 per cent of all these obligations have been fully funded. The rest are unfunded or underfunded commitments which will fall due over time. "
“In the meantime, the US government must borrow $US3.5 trillion over the next year which is equivalent to all the debt raised between 1789 and 1994. It will take 75 years of double digit growth to pay back."
“The 2009 budget deficit came in at a little over $US1.40 trillion or about 10.0 per cent of GDP and three times the shortfall of 2008. It is expected to reach US$1.5 trillion this year. The Obama administration’s own estimates project the ten year deficit to be $US9 trillion, recently revised up from $US7 trillion, so there is little improvement in prospect.”
These comments support what this blog has been asserting for some time. While the debt bubble has burst, the dollar bubble remains. As Mr. Newman most astutely implies these problems did not arise overnight but have been building as part of a medium term cycle over decades. Personally I was around the last 90's when I first perceived the early signs of bubbletopia.
The second quote is from a Mr. Eric Sprott, described as a Canadian fund manager and his comments on the U.S. deficit:
“…in order to satisfy US capital requirements, all existing investors would have had to increase their US bond purchases by 200 per cent in fiscal 2009. Foreigners, however, only increased their purchases by a mere 28 per cent from September 2008 to July 2009 – far short of what the US government required.“
"The US taxpayer can’t cover the difference either. According to recent estimates, tax revenue from all sources would have to increase by 61 per cent in order to balance the 2010 fiscal budget. Given that state government income tax revenues were down 27.5 per cent in the second quarter, the US government will be lucky just to maintain its current level of tax revenue, let alone increase it.”
“From 2004 to 2009, US unfunded obligations increased by an average of almost 50 per cent…while US government revenue increased by only 12 per cent. No company or government can increase its liabilities by more than four times the rate of its revenue and stay solvent for an extended period of time.”
Most interestingly Alan Kohler quotes these gentlemen, but disagrees with them. On the issues of timing I also see the possibility of a limited pick up in the Australian economy in the new year. However, no one can escape the short- to medium-term consequences of the American Insolvency.
It has been said before, but if there is a loss of faith in the US dollar the stampede to alternatives could trigger a number of changes in very rapid succession. These include rapid interest rate rise largely outside the control of central banks. Hopefully if we can continue our responsible monetary policy and continue to raise rates we could be well placed to again weather this global shockwave.
The reality is that there is no light at the end of this economic tunnel. The US' economic policies and concommitant spending are unsustainable. Currency collapse, economic depression and difficult longer term economic adjustments are inevitable now in the United States.
By the way if you are new to this blog I STRONGLY recommend you read the first post from August 10, 2004 where the Great Recession was described, predicted, and named well before the event.
posted by Peter at 3:23 pm
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