It seems we have had our very own bank woes.
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NAB Execs Admit Bank Was In Trouble

by Kris Sayce on 17 December 2010

If you haven’t found the time to read the transcripts from the Senate economics select committee I suggest you find the time.

Simply because comments from two National Australia Bank [ASX: NAB] executives confirm – that’s right, confirm – everything we’ve written about NAB’s secret bailouts in 2008 and 2009.

You can download the transcript by clicking here.

We told you the banks need the loans because they faced a massive liquidity and solvency problem.

Our critics said we were talking rubbish. That we had finally lost our marbles.

They tried to say NAB was just being cheeky. That is was snaffling Federal Reserve loans on the cheap. They said NAB did what any back should do, take the opportunity to borrow low and lend high.

We countered the argument by explaining how bank borrowing works. How banks have to roll over debt on a regular basis. If there’s a problem with rolling the debt over, then, well, it can leave a bank in the lurch.

We showed you how NAB and Westpac [ASX: WBC] had stood hunched shoulder to hunched shoulder with other troubled banks. Banks such as Royal Bank of Scotland, LloydsTSB, Citibank and ABN Amro.

Believe me, the admission I’ll show you in a moment is dynamite. It’s an admission straight from the horses’ mouths. That the Australian banking system was in dire trouble in late 2008.

Yet where is the Australian mainstream press on this story?

Good question. Nowhere. The mainstream press conspired with the banks and regulators to sweep the secret loans scandal under the carpet. And now they’ve done the same with the Senate committee statements.

To be honest, the incompetence of the mainstream press doesn’t surprise us. We’d waited a couple of days for the transcripts to be posted to the Hansard website (Hansard is the official record of parliamentary debate).

Until then, like you, we had to rely on what the mainstream press had reported. And what did they focus on? Of course, they focused on the easy stuff… banks’ interest margins, bank fees, executive pay levels… the sort of stuff that’s easy for the journalism cadets to get their teeth into.

I mean, the bombshell I’ll reveal to you today isn’t the sort of thing the seasoned finance hack would touch with a bargepole. Why? Because the seasoned finance hack doesn’t want to ruin his chances of an invite to the next banking dinner party.

Or the chance to interview a top banking executive. That’s more important to them than uncovering a story that proves the fragility of the banking system.

Although to be fair, even if they did want to report on it, chances are their editor would exercise a veto and cut out all the juicy stuff.

So, when we read the transcript, guess the first thing your editor did. Go on, guess.

What’s that, you can’t? Think harder. Think how annoying we can be… that’s right, we fired off another email to our pals at the ASX. I won’t reprint it here, instead I’ll expand on what I wrote to them.

Remember some of the previous banter we had with the ASX folks. They told us the ASX didn’t have the power to request information from a company. Not unless there was an unexplained price movement.

We told them their version of ASX Rule 3.1 was wrong. The ASX did have the power to request additional information from the banks. Not only did they have the power, but that they should do so immediately.

Funnily enough, two weeks since the US Federal Reserve released the extraordinary details of NAB and Westpac’s secret loans and the ASX is still sitting on it.

The ASX continues to conspire with NAB and Westpac to keep the market uninformed about secret loans that prevented two of Australia’s banks from going bust. I don’t know about you but I’d think that was something the ASX would want an explanation on.

Yes, I’ve been criticised for my comments on the seriousness of these loans. I’ve been told on more than four occasions (five I think… maybe six) that Australia’s banks were nowhere near going bust.

Well, it turns out your editor was right. But don’t just take my word for it. In a moment I’ll show you what two top execs at NAB – one of them the top dog – told the Senate committee about the financial condition of the banks in 2008 and 2009.

But first, Money Morning reader Paul sent us this timely reminder of the spin put out by the banking industries puppet mouthpiece, the Australian Bankers’ Association (ABA) in October 2008:

“The Australian Bankers’ Association (ABA) is concerned that recent announcements by the Federal Government to guarantee deposits and wholesale funding are being characterised as the Australian banks having been ‘bailed out’.

“This is false

“No bank deposits have been at risk. Bank deposits are safe – with or without the government’s guarantee.

“Australian banks and the regulatory framework have been successful. Unlike in the UK, Europe and the USA, no taxpayer’s money has been allocated to support an Australian bank. Australian banks are very strongly capitalised and continue to hold assets that are of good credit quality.”

It’s interesting the ABA would say that, because one year prior to that statement Westpac had grovelled to the US Federal Reserve for USD$1 billion. And one month later NAB would need to raise billions of dollars on the Australian Securities Exchange.

cont...................

That Australia was fine. Our banks were simply being good doctors by helping out others.

He’s making the RBA and the banks out to be the Dr. John Forrest and Matron Grace Scott of the banking world. In reality they’re no more than the Dennis Jamieson and Ada Simmons of banking.

But considering the magnitude of the admission, how did the good Senators’ respond?

Following Mr. Clyne’s reply, Senator Hurley continued:

“All right. Let us talk about the most recent rate rise above the RBA cash rate.”

What?! Handed on a plate an admission that Australia’s banks were in dire trouble in 2008 and 2009, and the hapless Senator blabs on about the latest interest rate decision.

That’s another reason we didn’t take up the offer to put questions to government ministers. If members of the Senate economics can’t recognise a bombshell when they see one, there’s not much point in us wasting our time giving them more ammo… they’d probably only blow themselves up with it anyway!

But all this aside, two weeks after the secret loans were revealed, Australia’s regulators refuse to inform investors of the banks’ deception.

As far as the RBA, APRA and ASX are concerned it’s a non-issue. We can only draw the conclusion they don’t want to ask NAB or Westpac any questions. That’s because they know the answers will be embarrassing.

Not only that but they’re clearly embarrassed at having talked up the stability of the Australian banking system while behind closed doors the banks were secretly receiving multi-billion dollar bailouts.

Based on everything we’ve read so far, it’s clear that Australia’s banks were much closer to going bust than even we thought. And that if it wasn’t for secret loans from the RBA and the US Federal Reserve the Australian banking system would have collapsed.

We’ve got a lot more digging to do on this issue. It wouldn’t surprise us if the Aussie banks had further secrets they’d prefer locked away in the closet.

http://www.moneymorning.com.au/20101217/nab-execs-admit-bank-was-in-trouble.html#more-4418

World Military Spending

Global military expenditure stands at over $1.5 trillion in annual expenditure at current prices for 2009, and has been rising in recent years.



Summarizing some key details from chapter 5 of the Stockholm International Peace Research Institute (SIPRI)’s 2010 Year Book on Armaments, Disarmament and International Security for 2008:

•World military expenditure in 2009 is estimated to have reached $1.531 trillion in current dollars;
•This represents a 6 per cent increase in real terms since 2008 and a 49 per cent increase since 2000;
•This corresponds to 2.7 per cent of world gross domestic product (GDP), or approximately $225 for each person in the world;
•The USA with its massive spending budget, is the principal determinant of the current world trend, and its military expenditure now accounts for just under half of the world total, at 46.5% of the world total;

SIPRI has commented in the past on the increasing concentration of military expenditure, i.e. that a small number of countries spend the largest sums. This trend carries on into 2009 spending. For example,

•The 15 countries with the highest spending account for over 82% of the total;
•The USA is responsible for 46.5 per cent of the world total, distantly followed by the China (6.6% of world share), France (4.2%), UK (3.8%), and Russia (3.5%):





Furthermore, “national defense” category of federal spending is typically just over half of the United States discretionary budget (the money the President/Administration and Congress have direct control over, and must decide and act to spend each year. This is different to mandatory spending, the money that is spent in compliance with existing laws, such as social security benefits, medicare, paying the interest on the national debt and so on).

Link -
http://www.globalissues.org/article/75/world-military-spending
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Just in case anyone is under the illusion that the US military is not a formidable force!

That said, the US military expenditure will need to be addressed, as part of the restructure of US Deificits & Debt!

http://www.dollars.com/images/charts/AUD_USD_10year.png

http://www.dollars.com/images/charts/AUD_EUR_10year.png

http://www.dollars.com/images/charts/AUD_GBP_10year.png

http://www.dollars.com/images/charts/AUD_CNY_10year.png

Source -
http://www.dollars.com

It seems apparent that the current GFC has spawned a paradigm change in the OZ$ exchange rates against the major Global currencies!

As of right now, the OZ$ is $1.013 against the US$.
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Not sure what's happpening, the images don't seem to want to say put?

If you are interested, try to copy & paste.

Prices to spike as Queensland coalmines inundated

FLOODS ravaging Queensland are expected to drive global coking coal prices more than 20 per cent higher for the second quarter.
This, as mines and associated rail and port infrastructure are brought to a standstill amid record rainfalls.

The state produces more than half of global seaborne coking coal, which is used in steel-making and ranks as the second-largest export for Australia.

As major port hubs and rail lines are shut down, leading commodities forecasters are predicting a sharp jump in second-quarter contract prices.

"Given the already tight met coal market, reference prices are set to rise further in the near term and maintain elevated levels through early 2011," Macquarie's London-based commodities team led by Jim Lennon told clients.

"There is strong potential for spot price rises for premium hard coking coal towards $US300 a tonne FOB Australia from $US246/t currently, while it seems inevitable that the next quarterly contract will rise from the $US225/t FOB Australia level in the coming quarter."

FOB stands for free on board and is the price buyers pay for coal when they also carry the cost of shipping and further transport to market destinations such as Japan, Korea, China and Europe.

If second-quarter contract prices for hard coking coal were set at $US300 a tonne, it would represent a one-third price appreciation.

Goldman Sachs commodities analyst Paul Gray said he expected the tightness in hard coking coal to spill over into semi-soft and PCI coal categories.

According to industry specialists McCloskey Coal, PCI producers are now seeking $US180 a tonne FOB for delivery in the first quarter, a rise of more than 20 per cent, and the major semi-soft suppliers are seeking $US170 a tonne FOB (more than 19 per cent).

BHP Billiton, Wesfarmers and Anglo American joined other producers yesterday in declaring force majeure on their Queensland coalmines.

Anglo American said its Callide, Dawson, Foxleigh, German Creek and Moranbah North operations had been hit by rains in the Bowen Basin that the weather bureau estimates are three to five times above seasonal averages.

Force majeure is a legal term relating to the inability to deliver on a contract due to causes that are outside the control of the parties, such as natural disasters.

Japanese buyers are set to be hurt most, with ships capable of taking 2.5 million tonnes sitting off Hay Point and Dalrymple Bay waiting to load, followed by India and South Korea. Macquarie noted that there were no China-destined ships off any of the major ports.

The production disruption is also likely to hit the earnings of Queensland coal producers to varying extents.

CLSA analyst Hayden Bairstow noted that Macarthur Coal had downgraded earnings in December and said he "believes a further downgrade is now possible".

However, the profit hit for BHP and Rio Tinto was unlikely to be significant given their scale and diversified operations.

North American coking coal producers would probably snare the tonnages that would otherwise have been shipped from the lower-cost Queensland ports, despite the higher freight costs.

Macquarie's Mr Lennon also noted that the floods may have ramifications for international price-setting mechanisms.

"It raises the spectre of an interesting sub-plot, in that steel-makers would likely be more amenable to monthly pricing for coking coal (as proposed by BHP Billiton) in a price spike environment rather than, say, locking in $US300/t for a whole quarter," Macquarie told clients.

"We think a shift to monthly pricing would be difficult in the coming months -- even more so when considering that disruptions are going to leave very little spot material available from which to base an index."

Link -
http://www.theaustralian.com.au/business/mining-energy/prices-to-spike-as-queens...
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Arising from the Queensland Floods -
1) Higher Coal & related Prices, including Power & Steel costs, within Australia & overseas.

2) Higher Agricultural Prices including wheat, barley, canola, raw cotton, sugar, beef and veal, lamb, wool and dairy products. Wheat Pricing will be hit hard, as the Queensland floods compound other Global problems, including the Russian summer heatwave & the WA "Drought".

3) Lower Australian GDP & Exports, resulting from lower exports of Coal & Wheat, in particular.  

Australia floods force more evacuations, hit coal exports

Jan 4 (Reuters) - Australia's biggest floods in decades forced more people in rural and mining areas to evacuate on Tuesday, with waters yet to peak in one of the worst affected towns, as the country's commodity-export boom took a hit from coal mine closures.

Floods have submerged or disrupted life across an area the size of France and Germany combined, according to the premier of Queensland state, bringing the nation's biggest coal region to a virtual standstill and pushing world coal prices higher

Coal mines with an annual capacity of more than 90 million tonnes are under force majeure, which releases companies from contractual obligations, pushing up long-term pricing for coking and thermal coal. [ID:nSGE6B10DZ]

The capacity affected equals 35 percent of Australia's estimated 259 million tonnes of coal exports in 2009.

Australia accounts for more than half of global coking coal exports

, which are vital to steelmakers, especially in Asian countries such as booming China.

IMPACT ON ECONOMY
The disaster, and its impact on coal and farm exports, is likely to provide more headwinds for the Australian economy, with economists expecting the floodwaters to put a temporary brake on booming commodities exports.

"It's very hard to be precise on this, but as a rough estimate the flood impact on production and demand could shave around 0.4 percentage points off GDP," said Helen Kevans, an economist at JPMorgan.

That equates to just over A$5 billion of Australia's annual output of A$1.3 trillion, with the impact likely to be spread over the last quarter of 2010 and the first quarter of 2011.

Widespread damage to crops in Queensland is also likely to push up fruit, vegetable and dairy prices, perhaps adding around 0.3 percentage points to inflation this quarter, Kevans added.

Shares in insurers sank on Tuesday, led by Queensland-based Suncorp , on concerns about mounting flood claims. Suncorp has lost about 3 percent in morning trade. Many flood victims will be unable to claim as they live in flood prone areas where residents are unable to get cover.

WHEAT FARMERS ESCAPE WORST

Australia's wheat industry has been mostly spared by the Queensland floods, with that state accounting for less than 5 percent of national exports.

But wet weather has still been a blight on the grain harvest further south, in New South Wales state, where many crops have been degraded to feed status because of water damage.

Grain handler GrainCorp said harvest operations were returning to normal in other states as fields dried out.

Link -
http://www.reuters.com/article/idUSL3E7C316W20110104?pageNumber=2
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The costs of increased Power & Agricultural products, will be felt far & wide.

Meanwhile, on the other side of Australia, the West Australian Wheat production is suffering, due to DROUGHT!

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Some good points, well made!

What came (be-came Bankrupt) first ?

The Chicken (The US Federal Government)

The Egg (The FED)

And the answer is, Neither, because they both guarantee each other?

At least, that is A theory!

A theory that says, there are no consequences, for printing as much money as you want or taking on as much Debt as you want, so long as you are the main game in town.

I do not suscribe, to that point of view!

The Darkening Days

Socionomics is predicated on the idea that social mood is the primary driver of economic growth and contraction. This is broadly consistent with Keynesian macroeconomic theory, which relies upon "animal spirits," or in modern Neo-Keynesian parlance, "consumer confidence" as the primary engine of employment and the economy. However, unlike Keynesianism, it is based on historical analysis and observation rather than mystical Freudian logic, and it offers a predictive model that can be tested.

According to the theory, economic growth is accompanied and driven by a positive social mood. Conversely, economic contraction is accompanied by a negative social mood. This explains why economic recessions and depressions so often take place during periods of war, famine, disease and social unrest.

The ominous thing is that just as the economic crisis of 2008 led socionomists such as Robert Prechter and others to predict that the negative social mood of the sort we are now seeing was developing, the extent to which the mood remains negative and even worsens tends to indicate that the slim rays of hope offered by the improving macroeconomic statistics are a mirage. The shooting of the Arizona congresswoman and others is tragic, to be sure, but it is also a warning of more such madness that is likely to come on a global scale.

Few Americans realize that the European Union is already on the verge of breaking down as Portugal and possibly Italy look to be going the way of Iceland, Ireland and Greece. Once their governments are forced to accept bailouts and austerity measures at the behest of the European Central Bank and the International Monetary Fund – and Italy's will almost surely collapse in the grand Italian tradition that has seen some 59 governments in the post-war period – Spain is likely to follow. And Spain is too big to bail out. This will likely bring about the beginning of the end of the Euro, and after that, the European Union.

China, too, is fast approaching a state of turmoil as its gargantuan real-estate bubble is showing signs of instability. The same is true of Australia while Japan enters its third lost decade. To expect that vast changes in four large markets that represent America's most important trading partners will not have a significant effect, most likely for the worse, is irrational.

Link -
http://www.silverbearcafe.com/private/01.11/darken.html
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This one is particularly for you, FD, but not exclusively!

Of course, this theory begs the age old question of what came first, the chicken or the egg?

Some would say, what is cause & what is effect?

The theory may postulate that the social mood was optimistic from the 1950's to the end of the century and that's why Economic Growth took place.

But what were the reason/s for that optimism?

In My Opinion, there were a few major factors -
1) Global Population Growth (post WW2)
It seemed to provide limitless Growth, which fed Demand for everything, for all sorts of Goods & Services.

2) Cheap & Abundant Energy (primarily Oil)
That also seemed limitless, where a single barrel of Oil could provide massive productivity gains, replacing many of us mere mortals (humans).

3) Innovation/Technolgy Advances
This had started sometime prior, but WW2 and what followed saw quantum leaps in what we did, how we did & what we used to do it with, which are unequalled in human history.

So, did the mood change first or did these factors change the mood, which was the chicken & which was the egg?

If these factors did change the mood, which IMO they did, then we must ask what will happen now, as at least two of those three factors are set to go into reverse.

The Population Growth, via the Baby Boomer generation and a long term reduction (since 1965) in fertility rates, is now about to dramatically slow the total Global Population, before sending it into decline for the rest of this century.

The Energy supply, via the Peaking of Oil Production, has been on a plateau since 2005 and as the Price lurchs significantly, we are now likely to see a cycle of the Economy trying to recover, before being dashed again, as prices rise.

Innovation/Technolgy Advances, is now the sole hold out and on this rides the fate of the social mood and indeed the fate of humanity.

In HOPIUM we live, that the greatest of human attributes (our capacity to think), will overcome our sloth and our other faults, such as wrath, greed, pride, lust, envy, and gluttony.