Economy gets big tick (TheAge)

[Rosy]

I'm the first to admit I don't understand economics. I've been criticised in the past for suggesting Australia is in good shape compared to the world economy. Plenty shoot our financial situation down in flames. Given the article below do people thing the Govt has done well to keep our rating so high, are they driving us to rack and ruin, or somewhere in between?

Economy gets big tick
January 17, 2013
Peter Martin

Months after Labor's mining tax, its carbon tax and its fourth successive budget deficit, Australia has been given the tick of approval by the world's biggest fund manager.

BlackRock is one of the world's most important buyers of government bonds, investing $US3.7 trillion worldwide. It says Australia's carbon tax and the mining tax have had at most a "marginal" impact on perceptions of the country's risk. More important has been the government's success in shrinking its budget deficit.

The fund manager's new sovereign risk update ranks Australian government bonds as the world's seventh least risky, up from 10th least risky three months ago.

No other nation has managed to jump three places in the latest survey. The finding is at odds with a claim made by federal Coalition Treasury spokesman Joe Hockey last August that Labor was "adversely impacting Australia's sovereign risk profile".

BlackRock's Australian head of fixed income, Steve Miller, said Australia's position was "exceedingly strong" and strengthening.

"The plain fact is, compared to the rest of the world, and this is what we are doing, Australia's public debt position is very, very strong.

Whether you are looking at budget balance or public debt to gross domestic product, whichever way we look at it, Australia comes out exceedingly strong."

The new BlackRock survey rates the governments of Norway, Singapore, Switzerland, Sweden, Finland, Canada, Australia, Taiwan, Germany and Chile as the 10 safest to lend to.

The United States is in the next 10 along with New Zealand and China, which have each moved up two places.

At the bottom, in positions 40 to 48 are Spain, Argentina, Ireland, Italy, Venezuela, Egypt, Portugal and Greece.

Japan and South Africa have each slid two places to 35 and 36.

Acting Treasurer Penny Wong welcomed the report as an "endorsement of Australia's strong public finances in the face of global headwinds".

A spokesman for Mr Hockey said the reality remained that business leaders had "expressed serious concern about the chopping and changing of government policy, the uncertainty of the taxation environment and the toxic relationship Canberra has with many members of the business community".

"Unquestionably, eight changes to the carbon tax, five versions of the mining tax, unexpected changes to business taxation, and the four largest deficits in Australia's history impacts on Australia's attractiveness as an investment destination," the spokesman said.

Speaking in reference to the interest rates Australia needs to pay to borrow money, Mr Miller said: "All other things being equal, this [the risk update] and the things that brought it about will put further downward pressure on bond yields." He said it would also make it easier for Australian state governments to borrow money.

The BlackRock calculation accords with those of the world's top three credit ratings agencies, which have given Australia their highest AAA rating. But it is a more recent calculation and the improvement reflects recent developments.

"The impact of the mining tax and the carbon tax would be marginal," Mr Miller said.

"We look at ability to pay and willingness to pay. Australia's budget position has improved. It has never defaulted. It has low debt by international standards."

Read more: http://www.theage.com.au/opinion/political-news/economy-gets-big-tick-20130116-2ctw9.html#ixzz2IBigQ9B4

 

[K3]

The way I look at it, from a 'don't know much' point-of-view, is that it could be better buuut, could be a heck of a lot worse too.

 

[tigersnake]

pfft. Lefty rag would say that

 

[MB78]

Depends what way you look at it. We are going very well compared to other countries. But tell the people that who have recently lost jobs with our unemployment numbers going up.

 

[TigerForce]

Depends what way you look at it. We are going very well compared to other countries. But tell the people that who have recently lost jobs with our unemployment numbers going up.

Don't forget the underemployment figures.

 

[Willo]

Governments just keep borrowing money without the means to pay it back. Artificially propping up the economy may be well and good, but someday, sometime, someone has to pay the piper.

 

[Rosy]

Governments just keep borrowing money without the means to pay it back. Artificially propping up the economy may be well and good, but someday, sometime, someone has to pay the piper.

Our good rating and this comment, "We look at ability to pay and willingness to pay. Australia's budget position has improved. It has never defaulted. It has low debt by international standards.", would indicate otherwise wouldn't they? Are you suggesting we have an open borrowing source willingly lending us increasing amounts of money with poor prospects of having it paid back?

 

[Tiger Rob]

Compared to other countries we may indeed be performing well. But, IMO, we've just come through the biggest mining boom in our history, have had record (or near record) unemployment and at the same time we've run up (and are continuing to run up) a giant government debt.

Seems to me we should have surpluses during the boom, not deficits.

 

[poppa x]

It's all a question of macro versus micro economics Rosy.
Macro (the big overall picture) is what the ratings agencies etc look at, and on the available evidence Australia is holding up pretty well.
But when you drill down into the Micro level (which the ratings agencies tend not to do) we find trouble in Paradise.
The mining sector is supporting almost the entire economy.
Other sectors such as manufacturing, tourism, construction and to a lesser extent services are doing it tough. Unfortunately, it's these sectors where the jobs are. The mining sector employs few people relative to its size.
The Micro picture shows many industries battling against cheap imports and individuals preferring to save than spend.
You may ask "what about our low 5% unemployment rate"? Well when the Government (both persusions) change the stats to show a person as being employed if they work one hour a week, then I'm entitled to ask what the true unemployment rate is.

2c.

 

[Rosy]

So why do they say the impact of mining and carbon taxes would be marginal?

 

[Baloo]

Governments just keep borrowing money without the means to pay it back. Artificially propping up the economy may be well and good, but someday, sometime, someone has to pay the piper.

Hyper inflation will solve the repayment problem.

 

[Willo]

Our good rating and this comment, "We look at ability to pay and willingness to pay. Australia's budget position has improved. It has never defaulted. It has low debt by international standards.", would indicate otherwise wouldn't they? Are you suggesting we have an open borrowing source willingly lending us increasing amounts of money with poor prospects of having it paid back?

While the "debt by international standards" remains low, banks/lenders will still lend. When a government defaults (as many have) the debt/credit rating will take a hit. The interest rate will rise on current debt and it's hell in a handbag fairly quickly.

Well here's a question for you Rosy
So who and how will we pay back the 100's of $billions the government has borrowed? Over $263 billion atm and counting.
The government has been in deficit every year and keeps borrowing more and more. (How big a chunk has been paid on the borrowing?)
They keep trying to bring in new taxes (ie Mining Tax) but still can't service the debt.
While it may paint a "rosy" (excuse the pun) that Australia is a good place to invest (unless you're a manufacturer) compared to the rest of the world, there's a bit more to it.
please note: this is not meant to be a biased political opinion and I don't want to politicise this thread, but the fact is, the burgeoning debt concerns me greatly. Someone or something will eventually have to pay, one way or another.

 

[Willo]

Hyper inflation will solve the repayment problem.

With wheelbarrows full of deutschmarks.

 

[Rosy]

Well here's a question for you Rosy
So who and how will we pay back the 100's of $billions the government has borrowed? Over $263 billion atm and counting.
The government has been in deficit every year and keeps borrowing more and more. (How big a chunk has been paid on the borrowing?)
They keep trying to bring in new taxes (ie Mining Tax) but still can't service the debt.
While it may paint a "rosy" (excuse the pun) that Australia is a good place to invest (unless you're a manufacturer) compared to the rest of the world, there's a bit more to it.
please note: this is not meant to be a biased political opinion and I don't want to politicise this thread, but the fact is, the burgeoning debt concerns me greatly. Someone or something will eventually have to pay, one way or another.

No point asking me. I've already admitted to my ignorance and lack of understanding..thus the reason I started this topic. Feel free to tell me the answer.

I was in hopes, futile as it may seem, that someone might be able to provide an informed opinion of the situation. I wouldn't have a clue if they can't service the debt as you claim. Some Govts might have the books looking better by selling off heaps of assets but whether we're better off or not I wouldn't have a clue.

To my way of thinking we're very fortunate in Australia. The Govt could save billions (guessing) by cutting welfare, healthcare, world aid, disaster assistance etc but would we really be better off?

 

[Willo]

No point asking me. I've already admitted to my ignorance and lack of understanding..thus the reason I started this topic. Feel free to tell me the answer.

I was in hopes, futile as it may seem, that someone might be able to provide an informed opinion of the situation. I wouldn't have a clue if they can't service the debt as you claim. Some Govts might have the books looking better by selling off heaps of assets but whether we're better off or not I wouldn't have a clue.

To my way of thinking we're very fortunate in Australia. The Govt could save billions (guessing) by cutting welfare, healthcare, world aid, disaster assistance etc but would we really be better off?

I was hoping you did have the answer.
Well it stands to reason if Government Debt is climbing and it has a deficit year after year, you don't need a degree in economics to work out they'll struggle to service the debt. Same basis as ordinary household finances really. If you keep borrowing more and more or whacking up more and more on a credit card and you have a limited income, something has to give.

I don't think anyones advocating cutting healthcare or disaster assistance at all, the government are already fiddling with welfare.

 

[KnightersRevenge]

Governments just keep borrowing money without the means to pay it back. Artificially propping up the economy may be well and good, but someday, sometime, someone has to pay the piper.

Like most I don't have the expertise to analyse these issues. And like most that doesn't seem to stop me. But pretty much it seems to me that no-one cares whether you can really repay these mostly theoretical sums. It is only when a catastrophic failure happens and markers get called in as happened to Greece. Greece's international partners have known for decades that their finances are a farce. In fact inter-governmental financial relationships seem to involve a huge conspiracy of naked emperors in a room with no mirrors.

 

[Willo]

Like most I don't have the expertise to analyse these issues. And like most thatndoesnt seem to stop me. But pretty much it seems to me that no-one cares whether you can really repay these mostly theoretical sums. It is only when a catastrophic failure happens and markers get called in as happened to Greece. Greece's international partners have known for decades that their finances are a farce. In fact inter-governmental financial relationships seem to involve a huge conspiracy of naked emperors in a room with no mirrors.

I'm not sure what you mean by "mostly theoretical sums". Do you mean it's mostly theoretical borrowing? Or mostly theoretical debt?
Here's a not theoretical snapshot
As to the question I previously asked, who, when and how will it be paid, it seems most here (certainly not me) can't answer it. It seems the government probably hopes the tooth fairy may make an appearance. It doesn't seem to concern them too much either.

 

[Tiger Rob]

This government doesn't think we care about the debt and unfortunately all the luvvies in the media don't care either. The media has been truly awful. Yes compared to many other countries we are doing well. But we have gone from nearly zero debt to around $13,000 for every person in Australia in just 6 years. That doesn't sound too bad you say, well think about how much tax you pay yearly. Interest on the debt would be around $500 annually. What percentage of your tax is that? Now think about your extended family. I have two kids and two parents that don't work any more. Who's paying their share? When you start to think about that you realise how much of your hard earned is being wasted just paying interest on debt that didn't even exist 6 years ago. (yes I'm aware the govenrment has many other sources of income, but PAYG is a large proportion of the governments income)

What do we have to show for this debt? I wouldn't mind so much if we had major infrastructure to show for it, but IMO we do not have anything that we didn't have 6 years ago. I don't see better services or anything else that effects me. I'm not getting more for my tax dollars in any way. I tend to think about my tax paid as my investment in the government. I beleive my investment is being wasted.

And don't get me started on the NBN money that isn't even reported "on the books" as far as our beloved govenrment is concerned.

 

[Willo]

This government doesn't think we care about the debt and unfortunately all the luvvies in the media don't care either. The media has been truly awful. Yes compared to many other countries we are doing well. But we have gone from nearly zero debt to around $13,000 for every person in Australia in just 6 years. That doesn't sound too bad you say, well think about how much tax you pay yearly. Interest on the debt would be around $500 annually. What percentage of your tax is that? Now think about your extended family. I have two kids and two parents that don't work any more. Who's paying their share? When you start to think about that you realise how much of your hard earned is being wasted just paying interest on debt that didn't even exist 6 years ago. (yes I'm aware the govenrment has many other sources of income, but PAYG is a large proportion of the governments income)

What do we have to show for this debt? I wouldn't mind so much if we had major infrastructure to show for it, but IMO we do not have anything that we didn't have 6 years ago. I don't see better services or anything else that effects me. I'm not getting more for my tax dollars in any way. I tend to think about my tax paid as my investment in the government. I beleive my investment is being wasted.

And don't get me started on the NBN money that isn't even reported "on the books" as far as our beloved govenrment is concerned.

Yep, that's exactly it Rob. Unfortunately too many have their head in the sand. Their motto is just ignore it and it will just go away, like fairy dust. That, or they'll compare us to Greece or the rest of the PIGS.

$billions wasted and still going down the same path. Infrastructure= pink batts and school halls. Absolute farce.

 

[KnightersRevenge]

I'm not sure what you mean by "mostly theoretical sums". Do you mean it's mostly theoretical borrowing? Or mostly theoretical debt?
Here's a not theoretical snapshot
As to the question I previously asked, who, when and how will it be paid, it seems most here (certainly not me) can't answer it. It seems the government probably hopes the tooth fairy may make an appearance. It doesn't seem to concern them too much either.

I mean these are mostly debt swaps and the amounts change constantly due to ratings and inter-bank rates so no one really knows how much it is, and no actual money, cash as it were, actually changes hands. Debt just gets shopped around and the "money" moves seamlessly between balance sheets. In that way they are theoretical. Governments don't "really" work on the basis that they can "repay" these debts. They work on the principle that if their ratings are good i.e. AAA, then they never have to. It is smoke and mirrors. If they have good ratings they can "theoretically" borrow at low rates, so their debts look better. These things are relative so how other countries are faring matters.

Counrty	%GDP - A	Date	%GDP - B	Date
United Kingdom	86.5	2012	99.19	2011
Iceland	130.1	2011 est.	82.50	2011
Singapore	118.2	2012	100.79	2011
United States	73.0	2012	102.94	2011
Australia	30.3	2011	22.86	2011

Just important to look at the situation in a global sense, you can't look at our debt through a national prism. The table above is copied from Wiki which used IMF and CIA published data. The two columns are A is the CIA stat and B is the IMF stat. They are the level of public debt as a percentage of GDP as estimated by the two bodies mentioned.