Debt

It's as though we're living in a dream world at the moment where debt can be wished away by continuous growth and where virtuous circles can't turn into vicious ones. How high can foreign debt go before it sparks a reassessment by international financial markets.

Australians are right to feel lucky, we are very lucky but that doesn't mean we're not vulnerable.

There’s no doubt that talking about economic vulnerabilities at the moment appears akin to turning on the lights and turning off the music just when the party is starting to rock, but a little less hubris might actually help to avoid some later calamities.

Ironic as it might seem given the major banks’ role in the debt binge, the NAB warns of potential vulnerabilities for corporate debt rollover.
See the story by Sarah McDonald on Bloomberg http://www.bloomberg.com/apps/news?pid=20601081&sid=a1NeEFavHCjc

“The thing that scares me about what’s coming up are the twin towers of debt, 2010 and 2011,” James Waddell, National Australia Bank’s director of capital markets origination, said at a conference in Sydney today. “That really seems to me to be people positioning themselves poorly.”

Australian companies will need to repay or refinance $223 billion of debt by 2012, including loans owed by Qantas Airways Ltd. and $2 billion of bonds sold by Westfield Group, Fitch Ratings said in a report published today. “At face value, the refinancing task faced by corporates appears onerous in the context of the current state of the market,” the risk assessment company said.

Companies will need to consider selling bonds in Europe and the U.S. as well as Australia to extend the maturity of their debt beyond relatively short-dated bank loans, Waddell said.

It's possible that this debt will be comfortably rolled over through international bond markets, but the real question is whether the productivity of investment will allow debt to be rolled over through profit and not just more debt; debt that will still need to be serviced and, of course, eventaully paid back.