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Foreign reserves in freefall as private bank safety valve gets jammed

Retired bank executive and bank analyst, Robert Townsend writes:

Today's Reserve Bank statistics contain grim news. Since May 2007, Australia's Official Reserve Assets have fallen 64% - down from $84bn to $30bn in December. They now cover a mere eight months of our chronic current account deficit, writes Robert Townsend.

Today's Reserve Bank statistics contain grim news. Since May 2007, Australia's Official Reserve Assets have fallen 64% - down from $84bn to $30bn in December. They now cover a mere eight months of our chronic current account deficit.

On the five occasions since 1984 that Australia's reserves have fallen to this coverage level, private banks filled the funding gap by overseas borrowing. However, this safety valve is now more difficult to tap. By January 2007 Australian private banks had borrowed $342bn abroad to fund their domestic operations, providing an all time high of 22% of their domestic funding needs. Little new overseas borrowing was undertaken during 2007 and by November, reflecting the turmoil in overseas markets, overseas funding provided only 18% of their total domestic needs.

In overseas credit markets, banks no longer trust each other. All are caught in a liquidity vice and are cutting interbank lines. Credit spreads have widened and rising currency volatility has increased the cost of hedging overseas sourced funds. With Australian banks unwilling or perhaps even unable to increase their overseas borrowings, there are few other mechanisms to balance the current account deficit, presently running at about $50 bn annually.

Selling assets to foreign investors has become subdued by falling base metal prices, rising interest rates, falling asset prices, and turbulence in foreign debt markets. Today's figures show the Reserve Bank can no longer run down Official Reserve Assets. Clearly the Federal Government must now take strong spending and taxation measures to rein in excess domestic demand.

For the first time in 35 years, the Government might also be forced to provide the necessary stopgap funding. While it does not need to raise debt to support its own spending, the Federal Government might need to borrow abroad simply to fund excess domestic private spending.

Indirectly, via the Reserve Bank, it will be funding the domestic banks. What quid pro quo might Treasurer Swan demand from them, and how would he explain such borrowing to a sceptical public conditioned to the Costello/Howard mantra that any Government borrowing for any purpose is suspect ?

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19th January 2008

G'day Stan,
According to records (to May 2007) the O/seas banks have "given" "us" around *1/4 of a Trillion of their $debt instruments (*250Billion).

Don't be misled though, the o/seas banks aren't handing our banks cash that they then issue as loans out into the market place, what actually is happening is that the oseas banks are "buying" our CDO's, but in order to maintain the deceit to the stupid thick dumb sheeples, the transactions are presented as "loans".

Its sorta the same as the bullshit stories that the worlds "central banks" are injecting liquidity into the system by making loans to "struggling" financial institutions...they're not doing anything of the sort, what they (the worlds "central banks") are doing is entering into "repo's"(repurchase agreements), which is where the worlds "central banks" buy up the junk bonds, commercial paper and other toilet paper from the "struggling" financial institutions, but with an agreement that those same "struggling" financial institutions will buy them back on/at a set time, say 6 months or 9 months in the future. Of course, in their own legend minds they consider that all this is just too complicated for the dumb stupid dosed up on fluoride sheeples to understand so you wont see the truth written up in the newspapers or otherwise splashed on the other forms of media.

I shall remind you, that in order to get a swindle past the swindled, one of the prime tricks employed by the swindler is to wrap it up in "sophistication" and complication in order to deceive ........ starting to notice something of a pattern emerge here are we?????

As to the 4% [fractional banking] or 1.5%, or any other percentage, ...... kiss any notion of "reserves" goodbye. THEY HAVE NO (OR NEGLIGIBLE) (what you call or regard) "RESERVES"!!

Employing the information they publish (1.7Trillion CREDIT issued against a capital adequacy ratio of approx 7% of 169.7billion (current deposits) and you end up with a whole .7%!!! That's right, less than 3/4 of a percent......... really, really, healthy aint it?!!!! NOT!!!!

Of course when you understand the witches brew of formulae that they employ to arrive at their "capital adequacy" figure, you would observe and be of the knowledge the whole farce is nothing but a great stinking steaming turd!!

With regard to "private banks"........ As far as I know, ALL banks that operate in Oz ARE PRIVATE BANKS. I am not aware of any public banks operating in Oz at this time. Of course, if any one has evidence to the contrary I'll gladly stand corrected.(there is a claim that the RBA is a public bank but a closer scrutiny seems to upset/sink that claim)

Soldier on Mon Ami.

Regards
Col

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----- Original Message -----
From: Stan van de Wiel
To: 'Col'
Sent: Thursday, January 17, 2008 4:05 PM
Subject: Foreign reserves in freefall as private bank safety valve gets jammed

Hi Col, does this mean that the 4% [fractional banking] represents $30B that is approx 1.5% now. Why won’t the overseas banks give us their “funny money”

Do you know when they refer to private banks whether they mean other than the “big 4 pillars of society”?

Stan
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Business

21. Foreign reserves in freefall as private bank safety valve gets jammed

Retired bank executive and bank analyst, Robert Townsend writes:

Today's Reserve Bank statistics contain grim news. Since May 2007, Australia's Official Reserve Assets have fallen 64% - down from $84bn to $30bn in December. They now cover a mere eight months of our chronic current account deficit.

On the five occasions since 1984 that Australia's reserves have fallen to this coverage level, private banks filled the funding gap by overseas borrowing. However, this safety valve is now more difficult to tap. By January 2007 Australian private banks had borrowed $342bn abroad to fund their domestic operations, providing an all time high of 22% of their domestic funding needs. Little new overseas borrowing was undertaken during 2007 and by November, reflecting the turmoil in overseas markets, overseas funding provided only 18% of their total domestic needs.

In overseas credit markets, banks no longer trust each other. All are caught in a liquidity vice and are cutting interbank lines. Credit spreads have widened and rising currency volatility has increased the cost of hedging overseas sourced funds. With Australian banks unwilling or perhaps even unable to increase their overseas borrowings, there are few other mechanisms to balance the current account deficit, presently running at about $50 bn annually.

Selling assets to foreign investors has become subdued by falling base metal prices, rising interest rates, falling asset prices, and turbulence in foreign debt markets. Today's figures show the Reserve Bank can no longer run down Official Reserve Assets. Clearly the Federal Government must now take strong spending and taxation measures to rein in excess domestic demand.

For the first time in 35 years, the Government might also be forced to provide the necessary stopgap funding. While it does not need to raise debt to support its own spending, the Federal Government might need to borrow abroad simply to fund excess domestic private spending.

Indirectly, via the Reserve Bank, it will be funding the domestic banks. What quid pro quo might Treasurer Swan demand from them, and how would he explain such borrowing to a sceptical public conditioned to the Costello/Howard mantra that any Government borrowing for any purpose is suspect ?

Link to this article: http://www.crikey.com.au/Business/20080117-Australian-foreign-reserves-i...