Trade deficit and Foreign Debt - 3

Another month and another bunch of cherry picking economic reporting and analysis from the leading newspapers.

The ABS report releases a couple of different numbers; The trend estimate, seasonally adjusted and original. Most commentators seem to cherry pick the numbers to build a case for their report.

I will continue to use the original numbers where available rather than averages (Trend) of estimates, modified using a price deflator (Seasonally adjusted).

The Balance on the Current Account improved 19%! improving $3.215 Billion!
The Balance on Capital and Financial Account naturally improved as well by the same amount.

My bet is an adjustment to the figures will be required in the next couple of months.

I am still amazed at the amount of print and air time the woes of the rural sector have in comparison to their actual proportion of Australia's overseas trade.
Rural Goods exports = $6.390 Billion
Non-rural Goods exports = $22.636 Billion, almost 4 times as big or 80% of the total Goods exported. I looked up some sample reports that the ABS has and COAL is Australia's main export.
There are some nice historical spreadsheets on the Reserve Banks website. Basically the rural portion of Australian exports has been decreasing since the 1950s.
Even Treasurer Peter Costello got in on the act, saying the rural downturn was dragging on the national accounts. Big woop!
If we diverted some of the fresh monsoon rain which flows straight back out to sea towards inland Queensland, providing extra moisture, we could be the world's steak sandwich, or Teraraki Beef with rice, depending on which country the food is going to.

Unfortunately the fallacy of comparing foreign debt to income (GDP) continues. Even the ABS gets in on the game. Australia's net liability position is now 66% of GDP. It was 52.7% a decade ago.
Lending criteria is based on existing assets and incoming producing capacity.
In December 1994, the GDP stood at $139.530 Billion, in December 2004 it stood at $200.287 Billion. That is a 43.5% growth in GDP over ten years.
In December 1994, total foreign debt stood at $244.492 Billion, December 2004 it stood at $548.464 Billion. That was a 124% increase in ten years. Hence the increase as a percentage of GDP.
Before we throw the towel in, and start yelling "Banana Republic", we need to see how much the asset base grew. That is a task for stats from the ATO (a future post). We already know that the tax figures at saving we have an asset base around $4000 Billion or $4 Trillion. And that was just for reasonable sized businesses.

Clearly not all that extra debt when into investing in business. If you live in Sydney, Melbourne or Brisbane you already know the probable answer, Property. Sure enough, the RBA has a nice spreadsheet showing credit growth.
Property credit has rocketed, taking on the old exponential trajectory. Interesting enough it has never been below 10% year over year since 1982. It peaked at 20% twice in the last 5 years.

The other interesting tidbit is the increasing portion of the property credit which is securitised. Securitisation is the buzz financial tool in the US. Basically you, the lender bundle up a group of loans, low risk with a sprinkling of higher risk loans and offload/sell those loans as an asset! Hence the use of Mortgage Backed Assets (MBS) jargon in the US. This offloading clears the decks and allows you, the lender to turn about and lend again! A more detailed explanation can be found at the Prudent Bear. Doug Noland really nails this practice.

Business credit growth recovered rapidly from the nadir of the 1990-1992 recession "we had to have" but peaked in 1996. However recently it has started to pick again. My guess is commodity prices have allowed companies to start thinking about borrowing to explore, build and invest in new mine equipment. The longer the China build,US spend boom continues the more likely the trade deficit will go closer to zero, as increasing volume of commodities from Australia fuel the chinese manufacturers appetites.

I would love to show the graph of credit growth, however blogger doesn't allow inline images, they must come from somewhere else. I will sort out that somewhere else in time.

Have Fun.

Update:

The ABS released April trade figures. The increased price of goods and services kicked in, as volumes remained stable or declined slightly. More info to digest. The figures for May should be interesting, more so if the volumes pick up.

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Trade Deficit and Foreign Debt -1
Trade Deficit and Foreign Debt -2
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Trade Deficit and Foreign Debt -4
Trade Deficit and Foreign Debt -5
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