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Australia could go bankrupt

Posted by Adrian on March 25, 2009

Further to my post Australia’s economic situation. The AAA rating has been stripped from local governments as the Federal government guaranteed banks deposits and their debt. This in turn has made it hard for Australian States to raise capital from their own debt (bonds). Now the Federal government will now guarantee State government debt.

This will put massive pressure on the Government balance sheet and it will need extra funds, hence the Reserve Bank of Australia will begin to print money. Either this or they start to raise interest rates to push the Australia dollar up to try and raise capital via the mining industry. Of course the problem is the world is gripped in a deflationary and currency downturn. But being a commodity producing country a higher AUD could become an investor haven. Unfortunately the US has sparked a money printing bonazza and currency meltdown (globally), as all currencies are trying to debase at the same time; more so commodity producing countries and their currencies as they compete with deflation on commodity prices. As China is shopping around.

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