Back up the truck
The big scary news of the week is Australia's foreign debt bubble that will lead to...the end of life as we know it.
Or something like that.
It's certainly been an interesting couple of years, with the terms of trade holding up far better than almost anyone could've expected.
In SDR terms the Reserve Bank's index of commodity prices has stormed from a reading of 69 in early 2016 all the way up to 118 (in Aussie dollar terms the index has increased even more sharply).
This trend has been helped along by Brazil's iron ore challenges, and also strength in the gold price.
With labour force participation now at the highest level on record Australia is in the fairly remarkable situation of being on the brink of a twin surplus: both on the current account and for the Federal Budget.
Who'd have thought that just a few years ago?
Big scary numbers
Naturally, Australia's foreign liabilities have increased over time.
How else, after all, is a capital importing country supposed to grow?
Looked at as a share of nominal GDP, however, there hasn't been much change in net foreign liabilities over the past couple of decades, even if there has been a shift in the composition.
There's more long term debt these days, with interest rates having fallen much lower.
Of course banks manage their liabilities and risk through hedge accounting, using swaps, and other hedging facilities to minimise their exposure.
Also noteworthy: in a few years Australia's gross foreign assets may well outstrip liabilities (not to mention on the income side), so there's more than one side of the ledger to be considered.
Truckload of BS
There's nothing new about scaremongering on foreign debt, of course.
It's dead easy to do because you can always throw around big scary numbers.
John Howard literally clambered on board with the idea back in the mid-1990s, on a foreign debt truck with lots of digits on the side.
And more or less ever since the idea of driving around placards emblazoned with big scary numbers has been considered effective campaigning.
Thing is, the campaign trail scaremongering was just as much hyperbole then as it was now.
Now, it is true that Australia has taken on some government debt in recent years, with a surge in bond issuance since the financial crisis.
But overall gross debt isn't especially high in international terms, while the latest Budget forecast projects net debt drifting back towards zero over the next decade.
Moreover, Australia's 10 year bond yield is now about 1.3 per cent, while even the 15-year bond yield is only at 1½ per cent.
In fact, now it occurs to me: this is the best thing about debates surrounding foreign debt.
You don't need to rely on half-baked opinions or blogspot posts: just take a look at the collective wisdom of financial markets and that'll tell you everything you need to know about the shifting views on risk.
