Reserve Bank Governor reminds Australia that its economy is sound

Peter Martin quoting Governor Glenn Stevens on 8th June 2012:

"According to data published this week by the Australian Statistician, real GDP rose by over 4 per cent over the past year. This outcome includes the recovery from the effects of flooding a year ago, so the underlying pace of growth is probably not quite that fast, but it is quite respectable – something close to trend. Unemployment is about 5 per cent. Core inflation is a bit above 2 per cent. The financial system is sound. Our government is one among only a small number rated AAA, with manageable debt. We have received a truly enormous boost in national income courtesy of the high terms of trade. This, in turn, has engendered one of the biggest resource investment upswings in our history, which will see business capital spending rise by another 2 percentage points of GDP over 2012/13, to reach a 50-year high."

Of course that didn't stop a privileged blowin like South African-Israeli-Australian Ivan teh Grate from spouting this nonsense, from atop the dizzying peak of his 'on paper' fortune, to the Herald Sun on the very same day:

"IVAN Glasenberg, the nation's second wealthiest person, says Australia is a less attractive place to invest than the world's poorest country, the Congo.
Mr Glasenberg, pictured, the South-African-born head of commodities giant Glencore, said the carbon tax and mining resources rent tax had damaged Australia's reputation.
He told an industry dinner in London that mining companies were disadvantaged in Australia as they had less leverage.
"At least in the Congo they need you, they want you there, and if they start changing the rules you may not continue investing," said Mr Glasenberg, an Australian citizen whose wealth is estimated at more than $7 billion.
The war-torn Democratic Republic of Congo this year was named by The Richest magazine as the world's poorest nation."

Teh Kouk kicks out at Abbott's economic credentials and Pure Poison follows with a boot to the rear

Stephen Koukoulas of Market Economics had this response to the Australian Leader of the Opposition’s Budget Reply Speech on his blog on 10 May 2012:

ABBOTT: People who work hard and put money aside so they won’t be a burden on others should be encouraged, not hit with higher taxes.
FACT: The tax to GDP ratio of the first 5 Labor Budgets averaged 21.1%. The lowest ever tax to GDP recorded under the Howard government was 22.2% and the average was 23.4%. The last time a Coalition Government delivered a tax to GDP ratio below 21.1% was in 1979-80. Cannot see where the “hit with higher taxes” statement fits these facts in the current Budget context.

ABBOTT: And people earning $83,000 a year and families on $150,000 a year are not rich, especially if they’re paying mortgages in our big cities.
FACT: Average annual earnings are around $53,500 in NSW and $51,500 in Victoria. Maybe they are “not rich”, but someone on $83,000 is earning around 60% above the average wage whether they have a mortgage or not.

ABBOTT: Madam Deputy Speaker, from an economic perspective, the worst aspect of this year’s budget is that there is no plan for economic growth; nothing whatsoever to promote investment or employment.
FACT: After registering a 19^th straight year of economic growth in 2010-11, the Budget shows Australia growing at 3% in 2011-12, 3.25% in 2012-13 and 3% in 2013-14. Having risen a Chinese-type 18% in 2011-12, business investment is forecast to rise a further 12.5% in 2012-13. Employment is forecast to rise by 1.25% in 2012-13, which will see the creation of around 175,000 new jobs from now until June 2013.

Read the rest here.

The full transcript of Tony Abbott's budget reply (containing no specific economic/funding information concerning his own inchoate policies) can be found here.

Over at Pure Poison they are wondering when the press gallery is finally going to call Abbott out on the rubbish he's spouting:

Contrasting the GFC deficits with the pre-GFC boom as if there wasn’t a GFC – surely someone could ask Abbott if he even noticed the existence of a global financial crisis or if he’s a weirdo conspiracy theorist who thinks the rest of the world just made it up.

The “cuts to defence” line, which are mainly to do with delaying the disastrous Joint Strike Fighter that’s running late and is a step backward anyway. Could someone ask Abbott whether he’d insist on going ahead with it right now while other buyers are backing away?

The “we’ll find savings” line – could someone ask Abbott just why any Australians should believe that he’ll find $70 billion savings in a way that none of us will mind? And why he thinks we shouldn’t all be very worried that something we or a family member or friend rely on might not be one of the things he slashes in order to give “incentives” to big polluting companies?

How about his “trickle down” theory, where you don’t need any actual plan for growth other than slashing taxes for big business (except when Labor proposes them) and the super rich?

You could question his complaints about not enough money going into the NDIS and dental care given that the Liberals haven’t promised to put in any more either.

How about asking him to reconcile his demand for “growth” with his previous fixation on interest rates being low? Is that suddenly not important now that interest rates are lower under Labor than they ever were under the Coalition?

Tweets of the Week

After the 2012-13 Commonwealth Budget was handed down………….

Tim Dick ‏@dick_tim

Only budget comment heard at Campbelltown today: They're bribing me, and I like it.

Courteney Hocking‏ @courteneyh

for tony abbott, numbers are like women: he doesn't get them & he can't help coming across as pig ignorant whenever the subject comes up.

blacksheep‏ @lissjeanrosa

Pyne shorter "I trust no one and nothing and especially dirty low income families" #auspol @SwannyDPM @BreakfastNews

Commonwealth Budget Papers 2012-13

Over at www.budget.gov.au the 2012-13 federal budget papers are available for those interested in delving deeper than tomorrow's tabloid newspaper headlines.

• Budget Speech
• Budget at a Glance
• Budget Overview
• Budget Paper No.1  Strategy and Outlook
• Budget Paper No.2  Budget Measures
• Budget Paper No.3  Australia's Federal Relations
• Budget Paper No.4  Agency Resources
• Appropriation Bills

• Mid-Year Economic and Fiscal Outlook
• Final Budget Outcome

• Portfolio Budget Statements
• Portfolio Additional Estimates Statements
• Portfolio Supplementary Additional Estimates Statements

• Ministerial Statements

Past Budgets

A look back at the lack of Coalition economic theory expertise - as Australia waits for the 2012-13 federal budget to be revealed

Hours out from the 2012-13 federal budget, a look back at 2011....

Gross debt - gross ignorance on Saturday, 12 November 2011:  

Admittedly, the notion of gross and net government debt is a little complex, but when someone speaks authoritatively about gross debt in particular, one would hope they understood the intricacies of the concepts involved and how the government debt market works before they opened their mouth. It is embarrassing and disturbing, therefore, to hear the Shadow Finance Minister Andrew Robb, join with the Leader of the Opposition in the Senate, Barnaby Joyce and Leader of the Opposition, Tony Abbott deliver sensational criticisms about the rise in gross debt in Australia.

The views of the Liberal and National Party leaders - the alternative government in other words - highlight a gross misunderstanding of markets, economics and conceptualising what is big and small.

Read the rest here.

Are some of us complaining a little too loudly these days?

Australian household income is outpacing the cost of living over the longer term, with disposable incomes increasing 20% over the last 27 years, according to the latest AMP.NATSEM Income and Wealth Report.

Couples with children have seen their income grow by 37%, single parent incomes have grown 34% and working families 22%. The smallest increase was rental households who experienced only 11% growth. On average, households are $224 per week better off than in 1984.

The highest income households are spending around 30% on basic necessities and 45% on discretionary items, while the lowest income households devote 30% to discretionary items.

Overall households are spending a greater proportion of income on services such as private schooling, restaurant meals, childcare and tertiary education.

May 2012 full report here.

Abbott & Co.'s sovereign risk claims don't stand up to scrutiny

“Since 1999, the Behre Dolbear Group Inc. has compiled annual political risk assessments of the key

players in the global mining industry.”

In 2010 the Gillard Government announced it was introducing a national price on carbon, the 18 clean energy bills were passed by federal parliament in 2011. The start date for the provisions of most of this new legislation is mid-2012.

This is Australia’s global mining industry risk assessment ranking as one of the international Behre Dolbear Group’s “key players”:

2010 ranked at 61

2011 ranked at 57

2012 ranked at 57

Err, Tones, Uncle Joe, Poodle – what happened to the “sovereign risk” for mining companies you were all shouting about?

Australia’s risk level has gone down and not up since the PM announced the “toxic tax” you’ve been wailing about.

The Abbott-Hockey Economic Theory of Small Government

With so many conflicting explanations of how a Tony Abbott-led federal government (with Joe Hockey as Treasurer) would manage Australia's economy, I went in search of the theoretical basis of various Coalition claims about small government, lower taxes, budget costings and wandering surpluses.

This is where I think it all starts for these maestros of mathematics.................

(a + b) (a - b) = a² - b²  + 1

Graphic from io9.com

What Tony Abbott promises if you make him Prime Minister of Australia

Leader of the Opposition Tony Abbott spoke at the National Press Club on 31 January 2012 and imparted his vision for Australia should the Coalition win the 2013 federal election.

After a predictable attack on the Gillard Government (which according to him has completely failed to appreciate the iron law of economics that no country has ever taxed its way to prosperity) he swung into a pitch redolent with the perfume of American Tea Party politics in that television viewers were treated to the prospect of smaller government, lower taxes and greater freedom and, of course, stopping the boats.

A golden future was apparently only as far away as a light at the end of the tunnel, because in the Coalition we're patriots.

Decoding this patriotic light was rather revealing.

To get to this future Abbott was promising not to promise Medicare-funded universal dental care or a national disability insurance.

He also assured voters that any tax cuts pledge made today was at least four years down the road before it came into effect. Around 2017 if these cuts happened at all – because implementation apparently requires the projected 2012-13 budget deficit to all but disappear and, the precise timing and the precise quantum is something that we will announce in good time.

He told his audience that he would also impose an est. $2.7 billion per annum new tax on the business sector in order to change the paid parental leave scheme legislated by Federal Labor.**

Abbott revealed  that under any government led by him there would be cuts to unspecified federal services, programs and funding, as well as increased privatisation of service delivery. Apparently he intends to cut somewhere in the vicinity of $12 billion a year off the budget bottom line this way, while at the same time committing to new spending around $10 billion each financial year.**

This new $10 billion supplied by taxpayers is going towards Abbott’s emissions reduction fund - which will be paid to business for what they are already doing without any additional government subsidy.

He made it clear that as prime minister he would support persons and families having aspiration (especially those privately educating their children), at the same time make life difficult for those with mental illness or physical incapacity if they happen to be parked on the disability pension.Tough love for the young who take the dole is also favoured.

Abbott ended this strange but predictable ramble with: People should be in public life for the right reasons. Mine are to serve our country, to stand up for the things I believe in, to do the right thing by my fellow Australians as best I can, to build a nation that will inspire us more and to lead a government that will disappoint us less.

His own speech and, the question and answer period which followed, indicates that he is already failing these lofty personal aims.

** Tony Abbott did not dispute these figures offered to him in the question and answer period.

Photograph from The Sydney Morning Herald.

Overall Australians are going into the 2011 festive season still confident that the economy and home finances are faring well

From the last Essential Report for 2011:

Click on graphs to enlarge

Overall, respondents were optimistic that 2012 would be a good year for themselves overall (52%) and their workplace (45%). They tended to be less optimistic about their financial situation (33% good/27% bad) and somewhat pessimistic about the Australian economy (29%/35%).
Compared to expectations 12 months ago, respondents were much less optimistic about the Australian economy (48% good last year compared to 29% good this year) and also rather less optimistic about their own financial situation (39%/20% last year compared to 33%/27% this year).
When compared with last week’s questions on perceptions of 2011, these figures suggest that respondents expect 2012 to be better than 2011 for themselves and their family (net +36% for next year compared to net +24% for this year), a little better for their workplace (+25% next year, +20% last year) and their own financial situation (+6% next year, -2% this year). The Australian economy is expected to be a little worse in 2012 (-6% next year compared to +2% last year).

UPDATE:

Moody’s Investor Service Global Credit Research - 21 Dec 2011

New York, December 21, 2011 -- Moody's maintains the following ratings on Australia, Government of:

Long Term Issuer (domestic and foreign currency) ratings of Aaa

Senior Unsecured (domestic and foreign currency) ratings of Aaa

Senior Unsecured Shelf (foreign currency) rating of (P)Aaa

RATINGS RATIONALE

Australia's Aaa ratings are based on the country's very high economic resiliency, very high government financial strength, and very low susceptibility to event risk. Economic resiliency is demonstrated by the country's very high per capita income, large size, and economic diversity. As one of the world's most advanced economies, the country has not only a significant natural resource sector--including minerals,hydrocarbons, and agriculture--but also well developed manufacturing and service sectors. It also demonstrates strong governance indicators. In particular, the framework for fiscal policy is transparent and has, until now, consistently kept government debt at low levels.

The government's debt rating of Aaa takes into account the aim of maintaining a balanced budget, on average, over the business cycle. It is supported by the very low level of public debt and the country's strong financial system. In comparison to most other Aaa-rated countries, Australia's government financial strength is very high, with very low gross debt that is easily affordable and provides a high degree of fiscal flexibility...... [my bolding]

Hatip to Latika Bourke for tweeting this information.

Opposition Shadow Treasurer Joe Hockey exposed

Peter Martin on 1 December 2011:

The two Perth accountants who costed the Coalition’s 2010 election policies breached professional standards and will be fined, a disciplinary tribunal has ruled.

The ruling is an embarrassment to the Coalition which claimed during the campaign the costing was “as good as you could get anywhere in the country, including in Treasury." In recent months it has threatened to use private accountants once again.

Geoffrey Phillip Kid and Cyrus Patell, both of the Perth office of WHK Horwath produced a one-page report for the Coalition two days before the election which Shadow Treasurer Joe Hockey tendered as an audit, saying the pair had certified “in law that our numbers are accurate".

“If the fifth-biggest accounting firm in Australia signs off on our numbers it is a brave person to start saying there are accounting tricks,” he told ABC radio. “I tell you it is audited. This is an audited statement.’’

In fact the document was the result of a carefully-worded agreement between the accountants and the Coalition to produce work primarily "not of an audit nature".

An audit would examine the assumptions used by the Coalition and whether they were reasonable.

Kidd and Patell’s unpublished agreement with the Coalition explicity required them to make no inquires about “the reasonableness of otherwise of the assumptions used"...

A professional conduct tribunal established by the Institute of Chartered Accountants ruled in July that Kidd and Patel were liable to face disciplinary action because their one-page report failed to contain “a statement that the procedures performed do not constitute either an audit or a review” and so failed to properly describe the limited nature of the agreed upon procedures…

Read the rest here.

Now this is something you won't hear Tony Abbott be man enough to admit

http://youtu.be/dme0nyz0OgU

In 21st Century Australia the rich get richer and the poor lag behind

Richest households 15% richer

The wealthiest 20% of households have increased their average net worth 15% since 2005-06 (CPI adjusted), while the poorest 20% of households saw only a 4% rise, according to the Australian Bureau of Statistics (ABS).

These wealthy households had an average net worth of $2.2 million per household, and accounted for around two-thirds of total household wealth. The poorest 20% of households had an average net worth of $32,000 per household, which accounted for 1% of total household wealth.

The average wealth of an Australian household in 2009-10 was $720,000, up 14% (CPI adjusted) since 2005-06.

There were differences in the average levels of wealth between the states and territories. Average net worth in Queensland, South Australia and Tasmania were below the national average.

Household wealth was more concentrated in metropolitan areas. The average net worth of households located in capital cities was $772,000 as compared with $629,000 in areas outside of capital cities.

Owner-occupied homes were the main asset held by Australians. Mortgages on them were the main liability, with over two-thirds of Australian households owning their own home either outright or with a mortgage.

For households who owned their home outright (2.7 million households), the average value of the home was $541,000. For those households with a mortgage on their home (3 million households), the average value of the home was $521,000, and the average mortgage outstanding was $188,000, giving a net home equity of $333,000.

One in five households owned property other than their own home, including holiday homes and rental properties.

Superannuation was the main financial asset held by households, with three-quarters of all households having some superannuation assets.

For households with superannuation, the average value of their superannuation was $154,000, but for half of these, the value was less than $60,000.

More information can be found in Household Wealth and Wealth Distribution, Australia, 2005-06 (cat. no. 6554.0).

Media notes:
· When reporting ABS data you must attribute the Australian Bureau of Statistics (or the ABS) as the source.

Who is Henry Ergas and why did he hop aboard Teh Rabbit's Fright Bus?

Prompted by a tongue-in-cheek Jeremy Sear tweet asking the questions “Where the hell is Henry Ergas pulling this "$1 trillion" figure for the carbon price from? And who is Henry Ergas anyway?” I went looking for answers.

This is Henry:

Pic from The Australian

This is what what Wollongong University has to say about Henry:

Professor Ergas is a well-known regulatory economist who held a range of leading positions at the OECD before returning to Australia in the mid-1990s. He chaired the Australian Intellectual Property and Competition Review Committee for the Australian Government in 1999-2000 and was a member of the Prime Minister’s Export Infrastructure Task Force in 2005 and the Defence Industry Policy Review in 2006. He has published extensively on infrastructure regulation and cost-benefit analysis."

This is what Liberal Party hacks have been saying about Henry:

“evidence before the inquiry by Professor Henry Ergas, the carbon tax will cost the Australian economy more than $1 trillion between now and 2050.”

This is what The Prof tells the Murdoch meeja:

“the carbon tax will cost a year's national income: that is, $1 trillion.”

This is what the Liberal Party’s best mate told the Senate Carbon Tax Inquiry on 10^th August 2011:

“Yes. What is available that Treasury have indeed released, and I congratulate them on doing so, is a spreadsheet that is similar to a spreadsheet that they had released for the CPRS model and that spreadsheet allows you to look at the change in the value of GDP under the base case, as it were, and with the so-called core policy, which is the primary abatement scenario that they model, and also under the so-called high-price scenario, which is where you go for more ambitious abatement. So what you can do, Senator, is you can use that spreadsheet—and you do need to make a number of assumptions—to calculate the value today of the change in GDP under those alternative carbon tax scenarios. To put it in perhaps simplistic terms—but this may help explain what is going on—say that in 2020 GDP would otherwise have been $2 trillion and instead, under the modelling of the core policy, it is $1.8 trillion, and in 2030 it would have been $3 trillion and instead is $2.6 trillion, you can take that difference and express it as if it were a value today. You can bring it back to the present. To do that you have to find some way of adding up amounts at different points in time. You have to take some account of the time value of money. In the calculation that I set out, I used a discount rate—that is, the assumed time value of money, as it were, that is used in the Garnaut report. When you do that, you get a GDP loss that is in the order of somewhere between $890 billion and $1.345 trillion for the core policy scenario. I rounded it to about $1 trillion.”

This is the conclusion he drew for the Business Council of Australia:

The Gillard government's emissions trading scheme poses a $9 billion risk to the already stretched federal budget in its first five years if carbon price estimates prove optimistic

And this is how good an economist ol’ Henry is:

Extracted from ASIC's database at AEST 20:14:00 on 15/10/2011

 

Name	NETWORK ECONOMICS CONSULTING GROUP PTY LTD
ACN	006 819 969
ABN	72 006 819 969
Type	Australian Proprietary Company, Limited By Shares
Registration Date	27/07/1987
Next Review Date	27/07/2010
Status	Deregistered Date Deregistered 21/10/2009
Locality of Registered Office	not available
Jurisdiction	Australian Securities & Investments Commission
Former Name(s)	ERGAS & ASSOCIATES PTY. LTD.
	WATRON PTY. LTD.
Extracted from ASIC's database at AEST 20:41:54 on 15/10/2011

 

Name	CONCEPT ECONOMICS PTY LTD
ACN	129 990 530
Type	Australian Proprietary Company, Limited By Shares
Registration Date	03/03/2008
Next Review Date	03/03/2012
Status	Deregistered Date Deregistered 08/05/2011
Locality of Registered Office	not available
Jurisdiction	Australian Securities & Investments Commission

From Bloomberg Business Week:

Network Economics Consulting Group Pty. Ltd. provides economic and strategic advisory services.

Mr. Henry Ergas Managing Director  

From Manta:

Concept Economics Pty Ltd

Henry Issac Simon Ergas Director

Inevitable conclusion – why on earth would I trust the carbon tax sums done by a Menzies House amigo who apparently couldn’t balance the books of two businesses?

What is a whale worth to Australian coastal communities?

Humpback Whale off Sydney, Australia, in 2011

from The Sydney Morning Herald

Government of Japan subsidised whale hunting in the Antarctic runs at a loss and has done so for years. Even after meat collected on this allegedly scientific hunt is sold on to Japanese retailers for an estimated 6 billion yen ($64.5 million) a year, according to the Asahi Shimbun newspaper on January 23 2010 .

Australian coastal communities have been watching the annual whale migration since people first began to collect on the shoreline. Over the last twenty years this whale migration has begun to play a significant part in many local economies.

As the 2011 IFAW Valuing wales for International Whale Day: Final Report  points out:

What’s a whale worth to Hervey Bay?

Data collected by O'Connor et al (2009) valued direct ticket revenues from whale watching in Hervey Bay at $5.9 million in 20081.

Indirect expenditure associated with whale watching was estimated at $7.0 million, giving a total of $12.9 million.

From these figures and the above population estimates, we calculated present value per whale of AUD $97,000.

What’s a whale worth to Warrnambool?

Data collected by O'Connor et al (2009) found that total expenditure by whale watching tourists was $2.6 million in 20082.

From this total revenue figure and the local population we estimated the following on average present value per whale of AUD $1,259,000.

This value is significantly larger than the values in Hervey Bay and Broome because revenue from whale watching in Warrnambool is high and the population is very small by comparison to the other two regions.

What’s a whale worth to Broome?

O'Connor et al (2009) found direct ticket revenues from whale watching around Broome were $169,000 in 2008.

Indirect expenditure associated with whale watching was estimated at $244,000 giving a total of $413,0003.

From these figures and the above population estimates, we estimated average present value per whale at AUD $32,000.

What a difference having a genuine national fiscal policy makes

The Economist’s Global Public Debt Clock 2011
Click on image to enlarge

Now before we all give into any international media-inspired hysteria and cry the sky is falling, here is Australia’s sovereign credit rating according to Standard and Poor’s (S&P) as of 5 August 2011:

Commonwealth of Australia

Sovereign local currency ratings (LT/Outlook/ST)  
AAA/Stable/A-1+

Sovereign foreign currency ratings (LT/Outlook/ST)
AAA/Stable/A-1+

Transfer and convertibility assessment  
AAA

The Commonwealth of Australia has retained an excellent Triple A credit rating from Standard and Poor's (as well as from Moody’s and Fitch) for the last eight years - for which successive federal governments of different political persuasions can take credit.

In 2011 its public debt as a percentage of its Gross Domestic Product (GDP) is running in the vicinity of 23 per cent, the current account deficit is around 2.5 per cent of GDP and total combined public, corporate and private individual foreign debt only resulted in a 3.9 per cent net income deficit as a percentage of GDP in the March 2011 Quarter - according to the figures I can find.


Just as importantly, one of the nation's major Asian trading partners China continues to see Australia as "stable" and gives a domestic currency credit rating of AAA and a foreign currency credit rating of AA+ at a time when Dangong Global Credit Rating has downgraded 
America's rating to "negative" and the official Xinhua news agency is stating; China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets.

Now compare that brief fiscal thumbnail with the recent credit rating history for the USA, courtesy of a Democrat Government incapable of dominating the Congress and a Republican Party which has lost its way.

Standard and Poor’s release on 18 April 2011:

We have affirmed our 'AAA/A-1+' sovereign credit ratings on the United States of America.

The economy of the U.S. is flexible and highly diversified, the country's effective monetary policies have supported output growth while containing inflationary pressures, and a consistent global preference for the U.S. dollar over all other currencies gives the country unique external liquidity.

Because the U.S. has, relative to its 'AAA' peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable.

We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns.

Standard and Poor’s release on 5 August 2011:

We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.

We have also removed both the short- and long-term ratings from CreditWatch negative.

The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.

More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policy making and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.

The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case….

We have taken the ratings off CreditWatch because the Aug. 2 passage of the Budget Control Act Amendment of 2011 has removed any perceived immediate threat of payment default posed by delays to raising the government's debt ceiling. In addition, we believe that the act provides sufficient clarity to allow us to evaluate the likely course of U.S. fiscal policy for the next few years.....

United States of America

Sovereign local currency ratings (LT/Outlook/ST)  
AA+/Negative/A-1+

Sovereign foreign currency ratings (LT/Outlook/ST)
AA+/Negative/A-1+

Transfer and convertibility assessment  

AAA


According to The Australian on 5 August 2011; Australian 3-year government bond prices posted their biggest one-day rise since 1991 as investors rushed en masse to the safety of risk-free assets.

In addition, The graph below shows historical exchange rates between the Australian Dollar (AUD) and the US Dollar (USD) between 7/7/2011 and 8/5/2011 as the international financial markets began to panic:

At 12pm (AEST) 6 August 2011 the Australian dollar was trading at 104.91 US cents....down from $US1.0665 late yesterday and off a 30-year high of $US1.1080 last week.  By 8 August the dollar was at 1.0343 US. 

On 5 August 2011 NASDAQ placed this recently high currency rate into perspective with this statement; the latest ascent comes about three months after the Australian dollar last hit a 30-year high. The initial push higher that started in June of 2010 came as a continuing mining boom and a series of interest rate hikes from Australia's central bank that began in October 2009 lifted the currency more than 30% against the U.S. dollar in a year.

According to the Herald-Sun the Australian stock market fell by 4 per cent on 5 August and at close of business yesterday the ASX All Ords and S&P/ASX200 graphs were not catastophic:

Placing that fall within an historical context is this ASX All Ordinaries (XAO) Index chart 1988 - 2011 graph:

Even the International Monetary Fund doesn't consider the Australian economy an overtly risky proposition. So the next time either the Opposition Shadow Treasurer Joe Hockey, unidentified Liberal/National sources or elements in the Murdoch press  attempt to slyly suggest that Australia's economy is inevitably on the way to the poor house without drastic regime change - yawn loudly and turn aside.

The only thing Australia has to fear at this point in time is the contagion of fear itself and perhaps being overly irritated by the silly political point scoring of conservative politicians and big business lobbyists alike.