No, it's actually the derivatives, monetarist morons!

More "solutions" based on a system that no longer functions and is disintegrating before our eyes - "yeah, let's pump more super into the bubble!" "You're making the wrong kind of hyperinflationary bail-out!" Or like corporatist spin doctor Krugman: "Make sure you include the clauses in the fine print: we want healthy returns for the publicly funded bail outs of toxic sludge!"

Like trying to fight a bushfire with a flamethrower. Neolib geniuses all.

Undoubtedly the article is all good erudite stuff, even though stating the obvious that “The next casualty might be - might have to be - our complacency about net foreign debt”.

A far bigger casualty has not got a mention: Missed is the giant one of debt to the environmental resources we have been plundering ever more savagely over the past two hundred years. All indicators point to call-in time for repayment or rescheduling. Yet we are hell-bent on increasing the total of whole-of-nation debtors at the rate of 1.7 per cent per annum.

At the same time there is no indication of genuine intention of having the rate of per-capita indebetedness minimized (If stabilized, without increase, is that recession?).

*Now converting investment into strong net export growth also requires higher saving which can be delivered with further increases in compulsory super.*

Increasing super only makes exporters even less competitive in the
global marketplace.

Our current account would be alot lower, if Australians saved more,
but they don't, for they are not silly. Their bank deposit will
be eaten up by inflation, which takes a good deal of the interest,
tax takes the rest and does not allow for inflation. So they might
as well spend it.

"But it’s the wrong debt."

Indeed. We have spent more than a decade borrowing heavily from abroad, most of which has been used to finance a real estate bubble, rather than investment in the tradable goods sector of the economy which actually has a capacity to service our ballooning foreign liabilities.

"Will it end in tears?"

Hopefully. Australia's needs a good shock to the system if it is to wean itself off its unhealthy addiction to foreign debt.

I should have been more specific. The derivatives bubble makes approximately 1-and-a-half QUADRILLION dollars - nearly all toxic, unpayable debt.

The actual Australian commitment to such filth is over 14 TRILLION of the same toxic funny money.

Sound like a systemic problem? Yep, a system that's been imploding since mid-2007.

Sound like corruption? Yeah, on a massive, global scale, and in an ideological sense too.

But won't the bail-outs/"stimulus packages" help? What, like yet another shot of crystal methamphetamine is meant to help "stimulate" a long-term ice addict whose entire vascular system has collapsed?

Dream on. The real challenge here is the deep corruption and cowardice which ensure leaders' persistent refusal to declare the sick system BANKRUPT. The usurers who've been benefiting from this ongoing debt binge are staring down one most likely outcome for themselves too: drowning in their own vomit.

That would not be so bad in itself, but the effects on the rest of humanity - who overwhelmingly work for their living - are dire, and will be worse still.

Er no, the system has not collapsed, but what I have been predicting
will happen, is now happening.

Note the Chinese and Japanese now moving in to buy our resources.

First a chunk of Rio, now Oz Minerals, some iron ore mines in the
West, the main Paperlinx pulp plant, the list grows daily and
will no doubt keep growing, for if one is cashed up like the
Chinese Development bank, now is a great time for Aussie bargains!

So all those of you who hate capitalism, hang in there, soon
you too might be thrilled to work for a Chinese boss!

Shudder and tremble - a Chinese boss! Ooooh! That is, as distinct from working for an oligarch boss based in City of London or the Caymans, for example. What a completely irrelevant point you make - unless we're concerned about some "racial" issue there, of course.

And Yabby, I didn't say exactly that the system has collapsed - I stated specifically that it's "disintegrating before our eyes". Maybe that's splitting hairs, but the signs were clearer still by last November when 60% of world shipping got stuck in ports because there were no acceptable letters of credit coming through.

And don't bore the readers by confusing productive, useful, and controlled "capitalism" (a la Social Democracy) with the grand ponzi schemes that Sir Greenspan and his mates have inflicted on us these past decades.

Yabby, you certainly aren't the first person to express concern about the very real prospect of a Chinese takeover of key Australian assets.

As one commentator recently noted:

"For years, Australia's political leaders have insisted that as the foreign debt was held by the private sector – involving contracts between consenting adults here and abroad – the size of it didn't matter. That theory appeared to die last week when Prime Minister Kevin Rudd guaranteed not only bank deposits but also the subsidiaries of all foreign banks in Australia. Both measures were necessary to stop any run on the banks and effectively to prevent a flight of capital.

Herein lies the emerging risk to Australia. The more the Beijing regime has invested in Australia at the moment of a major economic crisis, the greater the likelihood that China could literally buy out Australia using its massive savings pool, foreign reserves and sovereign wealth funds. It has the potential to bail out Australia's foreign debt, but the price could be China taking effective control of key national assets – minerals, energy and possibly banks and the retail sectors."

http://www.newsweekly.com.au/articles/2008oct25_n.html

I think we need a little updating here. The figure quoted of our foreign debt being $658 billion is a little misleading. We actually have a gross foreign debt of around $1050 billion, and gross foreign assets of around $400 billion, giving the net figure stated above. Unfortunately our foreign assets are usually very non-liquid, and a fire sale of them would likely only yield a small proportion of their book value in the current climate. On the other hand, our debt is mostly in the form of six month US dollar certificates of deposit issued by our major banks, with the rest bring similar securities issued by large companies, and these are constantly being rolled over. If the foreign lenders raise the interest rate at which they are prepared to lend, the banks will have no option but to pass the cost onto their customers, unless they wish to go bankrupt. It could end up with foreigners being not prepared to lend to us at any rate (this is what happened to RAMS, remember them?) and this would lead to sovereign default by the Commonwealth Government, which has guaranteed all bank borrowings. Unfortunately the Commonwealth Government has form, as it defaulted on its debt in 1932 in similar circumstances.

As far as I can gather, the heat is currently on Ireland and eastern europe, and NZ and Australia are next in line.

When the guarantee of bank loans is taken into account, the current Commonwealth debt is around $1300 billion.

No-one should be surprised after 60 years of taxing savers to death, and doing everything possible to sucker mugs into borrowing more than they can afford. Of course, it is always the fault of the lender.

I am always surprised why borrowers complain. After all, as Calvin Coolidge said: "They hired the money, didn't they?"

Should be an interesting year

P.S. 1: If Rudd presides over an Australian Sovereign Default, the Labor Party will be out of power for a generation, as in the 1930's.

P.S. 2: The secret of life is consuming without spending.

P.S. 3: Buy Gold.

*What a completely irrelevant point you make - unless we're concerned about some "racial" issue there, of course.*

Mil Observer, you are of course free to kid yourself that who owns
Australia's mining crown jewels, has nothing to do with our current
account deficit. If that is your opinion, so be it, but perhaps
one day, reality will hit you with a thud.

More economically literate people then yourself, like Rio shareholders,
can generally see the danger and are not too happy
right now. All these miners have of course filled Canberra's coffers
with taxes and royalties, when the gravy trains stops or comes
to a crawl, people like you will be out of pocket, even if you
are not aware of it.

Most of these miners are in fact owned by super funds and theirs
will be the loss. So if your bit of paper arrives, telling you
about your lower then expected retirement funds, just think of
me lol, for I told you so.

They would be jumping for joy in Beijing, for China needs cheaper
resources and volumes of them, no wonder that the Chinese Reserve
bank is opening its purse strings.

For when it comes to agreeing on a price for iron ore, there will
be Chinese directors on the Rio board, there will be no secret strategies
or mindgames, Beijing will have won. Australian taxpayers will
be the losers, but why should you care?

Yab, your post makes some big, patronizing assumptions about my take on the mega-crash. But one part looked encouraging when it almost seemed you advocated nationalization of the Oz mining sector! Of course, I'm sure you want no such thing; what would the neighbors think - especially those with such other foreign connections as the Caymans, Belize, City of London, even the Crown?

And why on earth would I think of you when I get the next statement-of-the-absurd from my super fund scammers? I knew when Keating spruiked it that the compulsory superannuation-casino system's loot was always up for grabs. Ditto for the entire mad globalization cult: why would anyone half aware of the neolib regime's game expect or assume genuine national protection for the mining sector also? Next you'd be clamoring for national sovereignty (gasp) and tariffs. Who knows where it would end? You could call for an actual education system and health care in place of the payola rackets that we workers have come to loathe or ignore since the '80s. Or a truly NATIONAL BANK?

So no, I always regarded superannuation statements as annoying fairy-tale, monetarist fictions within a grand, global fraud. I briefed my family by the late '90s on how such funny money would fast vaporize, and how it was designed to benefit only fund managers, speculator-investors, and the gutless neolib flunkies throughout the state apparatus (until they all have to vomit up their derivatives-debt feasts that is).

Now Yab, being (implicitly) more "economically literate", I expect you can correct my other points about the derivatives canyons underneath all this excitement on the bourse that's preoccupied yourself and Rio investors, for example. Let me guess: you mean to inform us that derivatives aren't so bad after all; they can even taste OK with generous dollops of chilli sauce?

Maybe just quit the impressive-sounding "economically literate" airs and try some simple numeracy instead: a quick ratio of derivatives exposure to GNP for starters.

Of course, if Swan and minders do block the Chinese from Rio, it'll be another confirmation of the imperialist hypocrisy in "Globalization".

Ok Mil Observer, now we know what you think. You hate the system,
you don't give a stuff about your super, you don't give a stuff
as to who owns Australian mines etc.

Under our liberal democracy you have the luxury of believing
whatever you want, work as little as you please and society
will still feed and clothe you for the rest of your life.

Fair enough, if you hate the system then so be it. That is your
problem, not my problem.

Nope - I hate the parasites and traitors who wrecked my country and stole my kids' future (whatever spin you put on it).

And don't try implying that I have "luxury" or "work...little". From your condescending tone it seems clear that I work harder and more than you've ever done or been able.

There is a real problem with Cinese buying into Australian industry
on the scale that is possible.

When a foreign government owns such a large proportion of the
resources of a country they in fact own the country.
Just watch what is happening in Africa.
Look at China's buying up of oil fields world wide.
If they got control of our gas fields, where do you think the gas
would go in a time of shortage ?
Remember the Golden Rule ?
He who has the gold makes the rules !