Urgent message to the Australian government: The banks are curtailing their lending to struggling businesses because of the stimulus bill! Why? Because of the $42b of risk free commonwealth debt soon to come onto the market.
They are doing this because
1) The risk/return ratio on Australian government debt is far more attractive than what it is for commercial paper right now.
2) Purchasing a fixed A$ income stream now, by way of corporate bonds, would almost certainly make a loss when the Australian Dollar is expected to take a hit from massive discretionary spending on imported goods as a result of the $950 per household handout.
This is similar to the situation the US banks find themselves in. Obama's stimulus plan is considered a low dollar policy, making US corporate bonds less attractive now, compared to what they will be in the future. All the major banks are reducing credit lines to customers in response to this situation. Let's not follow their lead.
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