Author Archives: Stubborn Mule

Has the US consumer shaken off the financial crisis?

A few years into the global financial crisis, US unemployment remains high and the economy still appears fragile. Nevertheless, American consumers appear to be returning to their old ways. For years they were seen as the engine of global growth. Their consumption drove exports in countries around the world. However, in the aftermath of the financial crisis, the unemployment rate in the United States soared to double figures, the collapse of property prices around the country eroded the wealth of many Americans and banks reined in their lending, while many borrowers cut their spending to pay down their debts. This appeared to set the scene for a change in the long-standing tradition of US consumer-led economic growth.

However, the latest personal consumption expenditure figures released a few weeks ago by the Bureau of Economic Analysis show another month of consumption growth in February. This is the fifth month in a row of strong personal consumption in the United States. Seen over the broad sweep of the last 50 years, the global financial crisis starts to look like a mere blip in an inexorable climb in personal consumption. (Note: the chart below uses a logarithmic scale so that a straight line indicates a steady rate of growth).

US Personal Consumption Expenditure (1959-2010)

Focusing on the last five years reveals that, while consumption collapsed in mid-2008, by the end of that year consumption began to recover. A little shakily at first, consumers appear to have returned to the pattern seen before the crisis and by late 2009, total personal consumption had exceeded pre-crisis levels.

US Personal Consumption Expenditure (2005-2010)

Looking at year-on-year consumption growth gives further insight into the underlying pattern. Growth peaked in the late 1970s, followed by a slowly declining smoothed trend* to growth rates just above 5% per annum. While the growth in consumption over the 12 months to February 2010 has not quite returned to the 5% level, that period includes weaker figures from early 2009. Annualizing quarterly growth over recent months gives figures back around the 5% mark.

Year-on-year Growth of US Personal Consumption (1959-2010)

This may simply be a bounce back to earlier consumption levels and growth may now slow once more. But, economists, policy-makers and America’s trade partners will all be watching closely to see whether indeed the US consumer has shrugged off the financial crisis and is set to recover its place as the driver of the world economy. This scenario seems all the more likely if consumers forget the lessons offered by the crisis about the perils of excessive debt and once again turn to borrowing to finance consumption.

* For the technically-minded, the smoothing is performed with a LOWESS local regression. The code used to produce all of the charts is available on github.

Mule Stable update

Where is debt headed now?

48 Replies

There have been a lot of posts about debt on this blog and the chart comparing government and household debt, which appeared in two of those debt posts, has proved particularly popular in discussion forums focusing on Australian property prices. Since producing the chart, the Australian government stimulus spending has continued to work its way through the economy and has been pushing up the levels of government debt. While I would still argue, as I have done many times before, that we should not follow the likes of Barnaby Joyce in getting agitated about public debt, it does seem worth updating the chart to illustrate recent developments. The regions shaded red denote Labor party governments in power.

Australian Government and Household Debt (1976-2010)

As expected, government debt levels exhibit a marked up-swing (note that the government data includes Treasury projections to the end of the current financial year). What is striking, however, is that the levels of household debt have not yet fallen. While some of the weakness in the economies of countries like the US and the UK is attributed to consumers “deleveraging” (a fancy term for paying down debt rather than buying flat-screen televisions), Australian households are showing no signs yet of reducing their debt. And 90% of that debt is for housing.

While it may not be evident here, there is in fact a tight relationship between debt levels in different sectors of the economy. If I spend money then either I reduce my financial assets (drawing on my savings) or I increase my liabilities (borrow on my credit card or some other form of debt). Exactly the reverse is true of whomever I give my money to (let’s call them Joe for argument’s sake): Joe’s assets go up or his liabilities go down. Spending money is an example of a “zero sum game”. If I add the change to my net worth (assets minus liabilities) to the change of Joe’s net worth it adds to zero. My negative change offsets Joe’s positive change. Aggregating over the whole economy, the sum is still zero.

Now consider what happens if we divide the economy’s net financial worth into that of the government sector, the private sector and the foreign sector (which includes overseas governments). Any changes in net worth across all three have to add to zero. As a result, the change in the government position is the opposite of the change in the private sector and international positions combined. If the government debt is going up, debt must be going down somewhere else. Now we know the household sector is not reducing debt, but what if we look at the private sector overall, including businesses? A different picture emerges.

Australian Government and Private Sector Debt (1976-2010)

Taken as a whole, over the 12 months to the end of 2009, private sector debt fell by about 2.5% of GDP. This was almost as much as government sector debt rose (about 3% of GDP). The difference can be explained both by the role of the foreign sector as well as slight differences in data collection methods across different sectors. Keep in mind that chart includes the government debt projections out to June 2010, while the private sector debt data only extends to the end of January 2010.

Since household debt has continued to increase, what this means is that Australian businesses have in fact been reducing debt significantly. The reduction in non-household private sector debt over 2009 was almost 7% of GDP. Businesses appear far more concerned about their debt levels than home-buyers do. It will be very interesting to see what happens once the first time home buyers scheme is fully unwound.

Data sources:

Government debt to 2008: A history of public debt in Australia
Government debt for 2009: Reserve Bank of Australia – Series E10
Government debt for 2010: Australian Treasury – Budget Estimate

Private sector debt: Reserve Bank of Australia – Series D2

Gross Domestic Product: Australian Bureau of Statistics – Series 5206.0

Symbol Soup – using tags in the Mule Stable

3 Replies

Since the launch of the Mule Stable discussion forum three weeks ago, the number of users has been growing steadily. Some are active contributors, while others prefer just to be observers. New discussion groups are appearing, including one focusing on books, and one associated with the new Sydney-based Digital Citizens initiative. One of the more active groups at the moment is the markets group, where people have been discussing the goings on in the financial markets. I am keen to see the Stable continue to grow, so do consider signing up yourself!

In the meantime, there have also been further developments at StatusNet, the company behind the open source software that powers the Stable. Earlier in the week, the public beta of their StatusNet hosting service was announced and shortly afterwards, StatusNet’s CEO, Evan Prodromou, was interviewed by OStatic to explain the thinking behind StatusNet and open microblogging in general. The whole interview is worth a read, but it is really summed up by this remark:

We think microblogging is too big for any one site or company.

Evan also talked about an exciting new development known as OStatus. This is an umbrella term for a suite of technologies which will help make the open microblogging vision a reality: separate communities like the Mule Stable, which can nevertheless communicate between one another. This is in contrast to Facebook or Twitter which operate as “walled gardens”. Google Buzz, WordPress, LiveJournal and Tumblr already implement OStatus to varying degrees and, of course, so does StatusNet and hence the Mule Stable.

But back to the Mule Stable. Following on from the introductory video about getting started on the Stable, here is another video which aims to make sense of the symbol soup of microblogs. If you have been put off by seeing pages full of @, # and !, this video should help make things a little clearer. It lasts around four minutes and this time, for the benefit of speed readers and the visually impaired, I have included a transcript as well. If the video below is a bit hard to see, here is a larger format version.

Demo Video Transcript

Welcome to another Mule Stable demo video, this time it’s all about tagging.

The first time you visit the Mule Stable it can look a bit like a symbol soup, full of # symbols, @ symbols and exclamation marks. But these symbols are in fact a short-hand that can turn posting simple text messages into something a lot more powerful.

In this demo, I’ll run through all the different types of tag symbols you can use on the Mule Stable.

Even though it’s not really a tag, I’ll start with the @ symbol. Sticking an @ in front of another user’s name is a way to direct your post to that user’s attention. As a shortcut, if I click on the “reply” button next to any post, it will automatically start my post with an @, like this…

Now if I go to my Home page and click on my “replies” tab I’ll see all the posts that anyone has sent to me, in my case anything with @mule in it.

The last thing to notice about the @ replies is that they turn the username into a link. Clicking on the link takes you to that user’s profile.

Now on to hashtags. You can highlight the topic of a post by using a hash symbol, for example #music. Just as with @ replies, doing this will automatically turn your tag into a link. Clicking on the link will show you any other posts which used the same tag. Hashtags are a handy way to group discussions on a particular theme.

To get a sense of the tags other people are using, you can click on the Public timeline and the select the “Recent tags” tab. The bigger the tag, the more often it has been used.

Up next are “bang tags”, which allow you to send your post to a particular group. You can see all the Mule Stable groups by clicking the “Groups” tab on the public timeline. Now if you put an exclamation mark in front of the group’s name, it will send a post to all of the members of that group. Like hashtags, bang tags automatically create links, only this time the link takes you to the relevant group.

There is one important difference between bang tags and hashtags to be aware of. Anyone can use a hashtag at any time, but bang tags only work if you have already joined the group. If you are not a member of the group and try to use a bang tag, you’ll just have an odd-looking word, with no link and no posting to the group.

The last type of tag is a friend tag, and this one really starts looking messy! If you look at the people you subscribe to by clicking “Subscriptions” on your home page, you will see you can assign tags to other users as a way of grouping them into, say, friends, family and music buffs. Keep in mind that others will be able to see the tags you choose! Once you’ve tagged a few people you can send a message to all of them with a @ reply hashtag combo (@#). Again, this creates a link and will send the post into their “Replies” timeline.

So that’s it as far as tags are concerned….stay tuned for the next Mule Stable demo video!

Pyramid Perversion – More Junk Charts

24 Replies

Knowing the reaction it would elicit, an old friend of mine sent me a link to an article entitled “Shocking Graphic Reveals Why a Big Mac Costs Less Than a Salad”, which featured the chart pictured here. I did indeed find the graphic shocking, but not for the reason the headline writer intended. The graphic in question, taken from the Consumerist which in turn had taken it from Good Medicine*, shows a pair of charts comparing the levels of subsidies different food types receive in the US compared to recommended dietary intake of corresponding food groups. Needless to say, the foods receiving the largest subsidies are the ones that should be consumed in the smallest proportions and the conclusion: no wonder Americans are getting fatter.

The idea that the US government’s agricultural policies appear to be producing decidedly unhealthy outcomes is one I have been reading about in the fascinating book The Omnivore’s Dilemma: A Natural History of Four Meals (its tale of the sex-life of corn alone makes it worth the price) and so this was not what I found shocking about the graphic. What shocked me was the travesty of data visualization used in the graphic: pyramid charts.

It should not be surprising that charts like this are becoming increasingly common since so many charting tools try to lure you into using them. The screenshot below shows the options that the current version of Microsoft Excel offers under the heading “Column” charts. I would argue that everything below “2-D Column” should be banned from the arsenal of the thinking chart-user. These variants on three-dimensional graphics all represent the trap “chart junk”: fancy extra details that, at best, add nothing to the information being conveyed and, at worst, result in distortion. Cones and pyramids fall well into the distortion category.

No doubt echoes of the “food pyramid” trope made the choice of pyramids an irresistible temptation for the Consumerist. The problem is that the data is represented by the height of each segment of the pyramid, but we tend to perceive the apparent volume of each layer. As a result, the layers near the top appear much smaller that they should relative to the lower layers**. This serves to drastically exaggerate how little government funding in the US is directed to fruits, vegetables, nuts and legumes. Using a more prosaic bar chart instead shows that, while the funding of meat and dairy is certainly far greater, the ratios are not as extreme as the pyramid suggests.

The bar chart has the added advantage of making it easier to gauge the funding proportion for each category. Also, having each layer stacked one on top of another makes it harder to compare one figure with another. The bar chart eliminates the need for moving the shapes around in your mind in an attempt to make these comparisons. Note how close the funding levels are for grains compared to sugar, oil, starch and alcohol, while the pyramid chart makes the funding of grains look significantly higher.

The original graphic compensates by quoting each of the figures, but this defeats the purpose of using a chart. If your chart does not make the numbers evident, use a table instead! The extent of the distortion that the pyramids produce is even more apparent in the case of the recommended diet data. While the recommended intake of sugar, oil and salt is certainly low, on the bar chart this category is no longer vanishingly small.

Another visualisation alternative would be to use pie charts. While pie charts do have a bad reputation in statistical and scientific circles, and are often used and abused in many a business presentation, they allow more straightforward comparisons of the contributions categories make to the whole. In the pie chart it is much easier to see at a glance that vegetables and fruit should make up about a third of a regular diet, while protein combined with sugar, oil and salt should make up about a quarter. On the other hand, it is harder to use a pie chart to scan numerical values. For that purpose, the bar chart excels (no pun intended). So when choosing a chart to represent data, it is essential to first decide what aspect of the data you are aiming to highlight.

The pyramid charts were indeed intended to shock, but there was no need for the authors of the post to resort to misleading exaggeration. The figures should be allowed to speak for themselves. Even when using dispassionate bar charts, it remains clear that the US government is funneling a disproportionate amount of money into the types of food Americans are already over-consuming.

You might also be interested in these posts on charts.

* Thanks to Greg for the updated source.
** As a commenter on Lifehacker observed, this distortion would also occur in 2-D triangles, so it’s due to the shape rather than the 3-D nature of the charts. Having said that, the 3-D versions are far more common and indeed Excel only gives the 3-D options.

Who are the big carbon emitters?

8 Replies

Earlier this week, @pureandapplied brought to my attention the emissions data that has been published by the Department of Climate Change in Australia. Their report comprises data for the 2008-09 reporting year provided to the Greenhouse and Energy Data Officer by corporations whose greenhouse gas emissions exceeded 125 kilotonnes*. A few corporations are missing from the list for a number of reasons, including failure to provide their data in time for the report’s publication (a sorry excuse indeed). Nevertheless, the data makes for some interesting reading. As @pureandapplied remarked, for example, Qantas was responsible for more emissions than Shell: those air points are producing a lot of CO2-equivalent emissions!

The data is reported in two categories, “Scope 1” and “Scope 2” emissions. The definitions of the two scopes are as follows:

Scope 1 emissions are the release of greenhouse gases into the atmosphere because of activities at a facility that is controlled by the corporation. An example of this would be gases emitted by burning coal to generate electricity at an electricity production facility (i.e. a power station).

Scope 2 emissions in relation to a facility, are the release of greenhouse gases emitted at a second facility because of the electricity, heating, cooling or steam that is consumed at the facility. An example of this would be greenhouse gases emitted to generate electricity, which is then transmitted to a car factory and used there to power the car factory’s lighting. The greenhouse gas emissions are part of the factory’s scope 2 emissions. It is important to recognise that scope 2 emissions from one facility are part of the scope 1 emissions from another facility.

The report is very careful to note that these two scopes should be used warily. In fact, it warns that the two figures “should not be used individually, or added together” to estimate liabilities under any emissions abatement scheme. That is a red rag to a Mule, so I will indeed look at them individually and added together. The chart below shows the top 25 emitters in the Scope 1 category.

Top 25 Scope 1 Emitters

It should come as no surprise that the big Scope 1 emitters are primarily power generators, although there are a number of mining companies in there, along with Qantas thanks to its burning of jet fuel. Scope 2 tells a somewhat different story.

Top 25 Scope 2 Emitters

Here “poles and wires” make an appearance: Transgrid and the like, move energy from place to place that has been generated elsewhere. So, the Scope 1 emissions are counted by the generator, but the tranmission company wears the Scope 2 emissions. Woolworths manages an impressive fifth place, perhaps thanks to the lights in all of their supermarkets? Wesfarmers, the owners of the Coles supermarket chain, rank higher still.

Finally, here are the top 25 emitters by the combined total of Scope 1 and Scope 2 emissions. Not surprisingly, the generators dominate once more.

Top 25 Scope 1+2 Emitters

Also included in the data is the total amount of energy consumed by each corporation. It is in these numbers that I stumbled upon something of a puzzle. Envestra produced a reasonably sizeable 627,161 tonnes of Scope 2 CO2-equivalent, but had one of the lowest levels of total energy consumption at only 193 GJ. What have they been up to? Guesses are welcome!

* Also included are those corporations holding a reporting transfer certificate.

Mule Stable demo video

5 Replies

Last weekend, the Mule Stable* was launched as a forum for discussions that may tie in to topics here on the Stubborn Mule, and then again may not. A number of discussion groups have already been set up there, including groups on modern monetary theory (aka chartalism), economics, and politics.

For anyone already familiar with the twitter social network, finding your way around the Stable will be breeze. But for those less familiar with the conventions, here is an introductory video showing you how to get started on the Stable. Keep an eye out for more videos explaining more advance tips and tricks you can use at the Stable, and don’t forget to sign up and join in!

If you are finding this video a bit too small, there is a larger screen version.

* Thanks again to the StatusNet developers responsible for the software that powers the Stable.

Junk Charts #3 – US Business Lending

10 Replies

Today’s “Chart of the Day” from Business Insider’s Clusterstock blog presents an alarming picture of the US economy viewed through the prism of bank business lending. The chart, which I have reproduced below, shows a precipitous collapse in lending*, described in dramatic language as “falling like a knife”. There is no doubt that the US economy remains in very poor health, but should we be getting as excited as Clusterstock?

Annual Change in US Commercial and Industrial Loans

Closer examination of the chart reveals that it is in fact quite misleading.

For a start, it makes the very common mistake of plotting a long series of data without adjusting for the fact that over time the value of the dollar has declined through inflation and the US economy has grown. As a result, more recent movements in the data take on an exaggerated scale.

Also, the chart shows annual changes without providing any sense of the base level of lending. Not only that, while attention is drawn to the US $300 billion annual decline in lending, the increase of close to US $300 billion just over a year earlier is ignored, when in fact the two largely offset one another. Certainly lending has declined, but rather than taking us into historically unprecedented territory, as the Clusterstock chart suggests, it actually means loan volumes are back to where they were in late 2007.

Both shortcomings are addressed in the chart below, which shows the history of loan volumes themselves rather than annual changes and overlays a series scaled by the gross domestic product (GDP) of the US to represent lending in “2010 equivalent” dollars.

US Commercial and Industrial Loans

Changes in lending do provide a useful reading of an economy’s health. But, it is important to be careful when using annual changes to read its current state. The change from January 2009 to January 2010 is affected just as much by what happened a year ago as by what happened last month. Since monthly data is available, we can in fact look at changes over a shorter period. The charts below show monthly changes, which are probably a little too volatile, and quarterly changes which are probably the best compromise. Since these charts extend only over a five year period, it is not as important to adjust for changes in the value of the dollar and the size of the economy.

Monthly Changes in US Commercial and Industrial Loans

Quarterly Changes in US Commercial and Industrial Loans

Both of these charts reveal an economy that certainly remains unhealthy and lending volumes are still declining. However, the declines of the last couple of years evidently reflect an unwinding of the enormous increases of a few years earlier. So rather than fretting that lending is “falling like a knife”, we can take some comfort from the fact that the rate of decline is diminishing from the worst point of the third quarter of 2009. The moral of the story is that charts can mislead as easily as words and should always be treated with caution.

* The data is sourced from the St Louis Fed “FRED” economic database.

The stable door is open

11 Replies

There have been a lot good discussions arising in the comments section of posts here on the Stubborn Mule. But in many ways, the “blog post and comments” format is a rather constraining framework for discussions. If someone has a thought that is only tangentially related to a post, they may be reluctant to add it as a comment. Likewise, a comment on an existing post does not always seem the best place to suggest ideas for future blog posts or just to suggest interesting links to other blogs or articles. I do publish my contact details, but when someone emails me directly, no-one else can see what they have to say unless I end up writing on the topic.

So, for some time now I have been thinking about setting up some kind of discussion forum to complement the Mule. Now, finally, I have done something about it can and hereby announce the launch of the Mule Stable.

The Stable is a place to share links, ideas, suggestions and anything else that interests you. Anyone who uses twitter will see a very familiar format: you can post brief notices (currently limited to 140 characters, but I plan to increase that in the future), follow what other users are saying and engage in conversation. In fact, if you have ever seen identi.ca, it will look even more familiar, which is because the Mule Stable is built on the same platform. More than a year ago I wrote about the future of microblogging. The idea of open microblogging pioneered by indent.ca was a key inspiration for that post and I have been toying with the idea of trying out their software ever since.

But am I re-inventing the wheel? After all, I already use twitter and there is plenty of discussion going on there. But, twitter is enormous and growing. This is its strength, but also its weakness: there is just too much going on to tie it back to one particular area of discussion. The idea of the Mule Stable is to create a smaller, more focused forum for discussion. Of course, I will continue to use twitter, but hope to get a lot out of the Mule Stable too.

So, please consider registering as a user at the Mule Stable and and listening in on the discussions. Better still, put your two-cents worth in too. The stable door is open, but the Mule won’t be bolting.

Blame Greece’s Debt Crisis on the Euro

11 Replies

The shadow finance minister, Barnaby Joyce, has been waxing hysterical of late about Australia’s “unsustainable” public debt. This is not a new line to take in Australian politics. Last year when the then leader of the opposition, Malcolm Turnbull, began attacking the government’s stimulus package, I argued in “Park the Debt Truck” that there was very little reason to be worried about Australia’s public debt.

This phobia of government debt is not unique to Australia. In the US, national debt is one of the primary bug-bears of the “Tea Party movement” that emerged in 2009. Widespread concern about government borrowing is helped along by the sort of simplistic fear-mongering evident in the so-called “debt clock” (and yes, I am aggrieved to say, there is an Australian version of the debt clock).

The catalyst for the current focus on sovereign debt is the crisis faced by Greece. Stimulus spending to combat the economic fall-out of the global financial crisis has led to significant growth in government debt around the world, prompting fears that Spain, Portugal, Ireland or even the United Kingdom or the United States will be the “next Greece”. This week, Business Insider published what it dubbed “the real list of countries on the verge of sovereign default”. Sourcing its information from a Credit Suisse paper via the FT Alphaville blog, they rank United States government debt as riskier than Estonian debt. That alone should raise eyebrows and suggests that Credit Suisse needs to join Barnaby Joyce in some remedial lessons in economics.

The basis of Credit Suisse’s sovereign risk ranking is mysterious. It supposedly takes into account, amongst other things, the market pricing of credit default swaps (CDS). However, they are clearly not listening too closely to the market, otherwise Argentina would be at the top of their list and the United States at the bottom (the chart below shows the actual Credit Suisse ranking). Of course, the market is not always right: just look at the tech bubble or the US housing bubble. Indeed, I know of one person working in the markets who refers to sovereign credit default swaps as a device for “taking money from stupid people and giving it to smart people”, so perhaps Credit Suisse are right not to put too much weight on these prices.

Credit Suisse Sovereign Risk Ranking*

It would appear that Credit Suisse is primarily concerned about the amount of public debt each country has (although if this was the sole criterion, Italy would rank above Greece).

Many who fret about the risk of government debt appeal to an analogy with a household budget. Just as you and I should not live beyond our means and put more on the credit card than we can afford to repay, so the government should not spend more than it earns in the form of tax. This analogy is simple and compelling. However, just as H. L. Mencken once wrote, “For every problem, there is one solution which is simple, neat and wrong,” this analogy is simple neat and wrong. The circumstances of the government are fundamentally different from yours or mine.

In “How Money Works” I explained the difference between money which derives its value from being convertible to something else, such as gold or US dollars, and “fiat money” for which there is no convertibility commitment. As I wrote in that post,

However, in a country with fiat money, the central bank makes no convertibility commitments…It has monopoly power in the creation of currency. So, the government simply cannot run out of money.

The United States, United Kingdom and Australia are all examples of countries with fiat money with floating exchange rates. None of these countries can ever be forced into default. Contrary to the alarmists, none of these countries are reliant on China (or anywhere else) for their money. Here is a simple thought experiment: when China “lends” the US government money by buying Treasury bonds, where does that money come from to buy the bonds? From US dollar mines by the Yangtzee river? No. All of the money comes from China taking US dollars as payment for their exports. So China is “lending” the US government money that was all created in the United States in the first place. While any of these countries could decide for political reasons not to repay their debt, that is extremely unlikely in current circumstances. So the United States, United Kingdom and Australia and indeed many other countries with fiat money and free-floating exchange rates should all be considered to pose an extremely remote risk of sovereign default.

But what about Greece? Unfortunately for the Greek government, ever since they joined the European monetary union and adopted the euro as their currency, they lost the power to create their own money. While the US government cannot run out of dollars, the Greek government certainly can run out of euros. To make matters worse, they are subject to the tight controls of the Growth and Stability Pact as part of the Maastricht Treaty which severely restricts their ability to use the sorts of stimulus measures Australia, the United States and others have turned to in the face of economic downturn. In fact, their national debt levels are already well over the Pact maximum of 60% of their gross domestic product.

Like the other members of the monetary union, Greece is effectively operating on a gold standard only substituting euros for gold. In A Tract on Monetary Reform, John Maynard Keynes referred to the gold standard as a “barbarous relic” and the European Union is now learning how right he was. They adopted a common currency with an eye on the benefits of streamlining commerce between member countries, but without understanding the implications for times of economic crisis. The Union is now in a bind: do they allow Greece to fail, only to see Portugal, Spain and others tumble in its wake? Or do they ignore the rules of the Pact and bail Greece out, a course of action which would doubtless leave Ireland feeling that their fiscal austerity measures were an unnecessary hardship? In all likelihood, they will find a way to dress up a rescue package with all sorts of tough language and pretend that the union is as strong as ever. The fact remains, that the euro is the real reason Greece finds itself facing a debt crisis.

But what of Estonia being less risky than the United States? The Estonian kroon is pegged to the euro, so despite not yet being part of the European currency union, Estonia has chosen to give up sovereign control of its currency. As long it goes down this path, Estonian government debt has to be considered a far riskier proposition than US government debt. Clearly Credit Suisse’s sovereign risk analyst does not understand this. Little wonder it is lost on Barnaby Joyce.

* India, which ranks between Egypt and Italy, is not shown in the chart because no CDS data is provided. The “CDS spread” represents the annual cost of buying protection against an event of default. This cost is measured in basis points (1 basis point = 1/100th of a percentage point). For example, in the chart above, the CDS Spread for Australia is reported as 50 basis points (i.e. 0.5%). This means that to buy protection against default on $100 million of Australian government bonds would cost $500,000 each year. A typical credit default swap runs for five years.