This 3 October essay starts with a pollyanna view of the situation but ends with a warning that maybe all is not that well. It contrasts to Michael West's more realistic review in the SMH businessday of 7 October. West writes that 'Australians with a mortgage should check their mortgage documents for what is known as the 'general exit clause'. This basically states that at any time and without default or fault, the bank can ask for the mortgage to be paid out in full. In every mortgage or loan document there will be a clause requiring payment within 30/60 days. If the banks can't get their funding in global markets then the RBA will have to step in (as they have done already to prop up the system). How long can they keep this up given that we have another four years or more of [bank borrowed} mortgage money being called in as it falls due nd our currency being manipulated by major external interests?'

anzsa is right. People may remember what happened last year when RAMS, a second tier bank lender, suddenly found that overseas banks would not lend to it at any interest rate. We will know we are at the bottom of the pit when cba, anz, westpac and national australia experience the same difficulty. However, considering the strength of our banks, it is more likely that they will obtain finance, but at exorbitant interest rates, which they will have to pass on in full to borrowers, or face collapse.

The real problem here is that we are reaping the whirlwind of 35 years of deficit financing, when we have been living beyond our means. Now we will have to pay the piper.

How many people remember that in 1972 we had no foreign debt, and that in 1975 we all swooned when the Whitlam government wanted to borrow $2 billion from overseas?

Keynes said that we are only interested in the short term, because in the long term we are dead.

Napoleon said that when the house is on fire you don't worry about the stables.

Benjamin Franklin said that experience keeps a hard school, but that there are those that will learn in no other

Yes, for decades we have heard the neo-liberal nonsense, which essentially maintains that " public debt is bad, private debt is good",from now on Australians are going to realize how destructive our enormous foreign debt is and what an illusion the years of "growth" were.Of course the Rudd government will be blamed for the disaster.

So we all swooned when the Whitlam government wanted to borrow $2 billion from overseas, pierdsus? Well his departmental advisers certainly did. According to Gough Whitlam's own account :

“[T]he re-acquisition and proper development of Australia’s mineral heritage required more money than was available in terms of domestic budget constraints and more money than could possibly be available on the domestic capital market. Moreover and more immediately, the adequacy of Australia's response to the OPEC oil crisis depended on its capacity to develop alternative sources of energy using alternative sources of finance. For these reasons, [Minerals and Energy Minister] Connor was attracted ... to the prospect of borrowing ... Arab petro-dollars" (“The Whitlam Government”, 1985, p. 252).

In pursuance of this objective, Rex Connor sought to borrow $US4,000 million 'for temporary purposes.' The 'shopping list' of 'urgency energy items' on which he proposed to spend these funds, with an indicative order of costs for each item, is given in Whitlam's book.

As Australia's GDP at current prices is now about 17 times its level in 1974-75 when the Minister was chasing billions of petro-dollars, we can put the relative magnitude of the Minister's infrastructure proposals into perspective by a corresponding multiplication of the ‘indicative order of cost' numbers.

On this basis, it can be calculated that Connor's plan was to spend the 2008 equivalent of just over $20 billion on gas pipelines (Cooper Basin to Palm Valley, Palm Valley to Dampier, Dampier to Perth and a submarine pipeline from North Rankin to Dampier). In addition, he had in mind the 2008 equivalent of $12.75 billion on the Government's share of a 'petrol chemical plant' at Dampier, $3.8 billion on three uranium mining and milling plants, $2.6 billion on railway electrification, $3.4 billion on coal hydrogenation, $3.4 billion on upgrading coal exporting harbours and $3.4 billion on re-financing of field recovery in the Cooper Basin.

Mr Connor never offered any explanation of how petro-dollar balances would be transformed into real resources to support the domestic content of his 'urgency energy items’, and his colleagues apparently never asked

Plerdsus asks “How many people remember that in 1972 we had no foreign debt, and that in 1975 we all swooned when the Whitlam government wanted to borrow $2 billion from overseas?”

Sometimes there is swooning, sometimes not, over such matters. It varies according to how the media like to play things, rather than the substance of the issues.

The Whitlam government’s attempt was for $4 billion in one hit; and the purpose was in close parallel with what was being done in Queensland by that great socialist Joh Bjelke-Petersen.

Joh had the coal-transporting railways built for, and ownership retained by, Queensland. Whitlam Government’s stated intention was a gas-pipeline reticulation across Australia, ownership to be retained by the Commonwealth Government, funded from a $4 billion loan.

The Whitlam loan attempted to access the tsunami of petro-dollars which had just crashed over the economic scene. The broker for this attempt was Tirath Khemlani. A great fuss around both the loan and its broker erupted in the media, and was maintained in the headlines for months.

Just a few years down the track of Malcolm Fraser’s “sport regaining the front pages”, his Government successfully negotiated a $2 billion loan overseas. It was not for any great infrastructure-building purpose. Just a year, or maybe two, further on, a similar loan was successfully negotiated. All-up, they matched the size of the 1975 loan attempt.

Neither of these exercises rated more than a short paragraph or so of modest statement, within the bowels of the media.

Tirath Khemlani was portrayed in bold terms by the media as a “peanut-eating Arab” of strongly inferred doubtful integrity. The media, obviously disappointed, seemed unable to unearth any malfeasance on his part – neither then, nor later.

However, some years after those Fraser loans, their broker - of fine British stock and “the normal loan intermediary for the Australian Government” according to the media - saw the inside of a British jail for malfeasance. Not very newsworthy, it received a short paragraph . mid-newspaper.

Sometimes who initiates loans attains more importance than its purpose.

'Australian banks haven't bought armfuls of securities based on dodgy American mortgages, as did many of their European counterparts.'

Our banks have had responsible lending practises. The mortgages they present don't have the same conditions as the mortgages given away by Fannie Mae and Freddie Mac. (Which is the Queen Bee of the impending economic catastrophe.) Most don't have the same, 3 year for Sub-Prime and 5 year for Alt-A, low start interest repayments or postponement of principle repayments. Nor is the liablity limited just to the property.

My doubt is in regard to our banks foreign investments. I am sure I read somewhere this week the NAB had a liability of $100 Billion in these loans. Given our banks total overseas debt is net $0.6 Tillion. How much of our $1.06 Trillion gross debt (March Quarter) is offset by our Banks investments in now almost worthless US loans? How much is the total of their overseas investment in US Sub-prime and Alt-A loans and what proportion is it to their foreign borrowings?

For it is the extent of the Alt-A loans, Prime loans, not the Sub-prime, that have bought the economic disaster firstly to Lehmanm Brothers and then to the rest of the world.