90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: Bernanke says US recovery uneven, frustratingly slow, but no sign of QE III; NZ$ firm after RBA's dovish comments; CERA eyes tax breaks

8th Jun 11, 9:00am by Bernard Hickey

Bernanke says US recovery uneven and frustratingly slow, but no sign of QE III; NZ$ firm vs A$ after RBA's dovish comments; CERA eyes tax breaks

Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news from Australia that the Reserve Bank of Australia has left its Official Cash Rate on hold at 4.75% and indicated it may not increase it soon or fast because of a softer local and global economic outlook.

Markets now see Australian rates on hold until August, making the Australian dollar relatively less attractive than before the RBA's statement. See more here at The Australian.

The New Zealand dollar rose to 76.6 Australian cents and also rose over 82 US cents overnight.

This followed comments from a Chinese official warning against holding US Treasuries because of the danger the United States may continue to devalue its currency. See the comments here at Reuters.

Meanwhile, the Dow closed lower and fell in late trade after US Federal Reserve Chairman Ben Bernanke commented the US economy's recovery was uneven and frustratingly slow.

However, he made no comments about whether the Fed would introduce a third round of money printing or quantitative easing, spooking some in the stock market who had expected the Fed would support the market. See more here at Bloomberg.

Meanwhile, the BNZ confidence survey for June found a net 57% of respondents were optimistic about the economic outlook, up from a net 42% who were optimistic in May.

However, the results were mixed with export sectors much more confident than retailing. See the full survey results here.

Meanwhile the Canterbury Earthquake Recovery Authority is reported to be looking at tax breaks and low interest loans to boost business in the city, but Gerry Brownlee has said he isn't keen on the idea. See more here at Stuff.

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48 Comments

by Wolly | 8th Jun 11, 9:15am 1307481352

"No sign of QE3".....oh right so at the end of this month the bond buying private investors will flock back to the market for US govt bond shite and the Fed will no longer be mousing new money to distribute to the bond buying entities for them to use to buy the US govt crap...rubbish.

QE2 will carry on taking place dressed up as something else.

Let's ask the PIMCO boss....are you going to start buying US govt bonds?......laughter...all I hear is laughter.

by Matt S | 8th Jun 11, 9:43am 1307483023

Wolly, actually it is very interesting watching what Bill Gross (PIMCO) is doing here, and its well worth reading his June "Investment Outlook" where he talks about Carmen Reinhart's paper to the IMF.. this paper seems to be guiding Bill's thinking right now,.

Reinhart's IMF paper is a hot topic right now in global capital markets, and is about something called "Financial Repression" which is a technique governments can use to inflate away a large debt overhang by keeping interest rates artificially low over a period of time.. something that I believe our Govt is doing under the guise of "Macroprudential regulation" (what Reinhart refers to as the more politically correct terminology) ..

quote: "Carmen Reinhart and coauthors writing for the National Bureau of Economic Research have exposed this dilemma in more sophisticated prose. In her second research paper, entitled “The Return of Financial Repression,” she affirms PIMCO’s thesis of skunking, pocket-picking and frog cooking by describing a century-old policy maneuver used by governments facing a debt crisis. Rather than outright default, many countries attempt rather successfully to keep nominal interest rates lower than would otherwise prevail. Reinhart characterizes this as “financial repression” because over the long term it results in a transfer of wealth from savers to borrowers."

Also for readers, Jim Rickards gives a great audio commentary here about Financial Repression. Well worth a listen.

by Christov | 8th Jun 11, 9:54am 1307483693

Good post MattS......I buy into the theory as well.....For a long time believing myself the theft of a generations wealth was possible .....but exactly how would it be enacted on a "Global Basis".....from a unilateral vantage point

http://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdf also interesting reading.

by Matt S | 8th Jun 11, 12:05pm 1307491543

Cheers Christov.. another peice of the puzzle falls into place. I've been saying for a while that interest rates will stay low (relatively) for a very long time, and this seems to confirm that theory may be in play. What happens following the election will be confirmation or not.

Even though our debt is mostly private, its still a problem for our Govt and our banks and that is why I believe the choice will be made to ramp up inflation while keeping interest rates low.

Also .. and this is just a theory, is that the RBNZ actually likes the high kiwi dollar because it is acting to restrict the growth of credit in our economy and so it doesn't have to act like it normally would by raising the OCR... if that makes sense?

by Christov | 8th Jun 11, 12:21pm 1307492461

I... can......see what you saying there MattS and would consider it worthy of inclusion as a potential component...I had thought the RBNZ's position was accidental...a by product if you like ...of being caught out of step between local and external forces....adopting the Mantra of the Doctor.."Wait and See...and wait some more"...reflecting a lack of any real "control".

Your thoughts if correct could turn that on it's head.....although I'm sure Bolly would be working to prescription rather than having an original thought (muchless policy) of his own.

Some more good links throughout the link...

by KW John | 8th Jun 11, 12:24pm 1307492651

Mr Hulme links this in on his omo.co.nz site. (I've linked this before... apologies in advance).

Nip to the end for the "key point".

by Christov | 8th Jun 11, 12:32pm 1307493140

ta KW.John...."an offer they ......can't ....refuse"........spoken in a whisper with a smile ...no doubt..

by Matt S | 8th Jun 11, 12:35pm 1307493314

Thanks for the link, I hadn't seen it before !! Very interesting ..

by Roelof | 8th Jun 11, 8:46pm 1307522766

Matt S....Agree with most of what u say .... except the bit about credit growth.

http://www.interest.co.nz/charts/credit/money-supply If u look at broad money..( M3)...it is now growing at about 6%.

I think they like the high dollar because: A/ there is nothing they can do about it ... B/ they believe raising interest rates would strengthen the dollar even more and... C/ A high dollar helps mitigate inflationary pressures.

The most important part of what u say.... I agree with completley... ie.. That they are not serious about fighting inflation.... I think they will be late and slow in coming to the party... in terms of responding to inflationary pressures.

cheers Roelof

by Kate | 8th Jun 11, 10:04am 1307484258

"More sophisticated prose" = otherwise known as skunking, pocket-picking and frog cooking.

Hard to know these days whether to laugh or cry!

I have to admit that as a peasant watching the oligarchy battle it out amongst themselves it is really fascinating. Never in the history of the world have so few stuffed it up for so many.

Rid yourselves of debt, comrades :-).

by steven | 8th Jun 11, 10:42am 1307486567

Yet of course in terms of private debt ppl have "exercised their right" to take on that debt....

I wonder should we class debt as like smoking? or eating every day at McDonald's? (just why its called "treat food" I find mind boggling its just bad sh*te)....

After the 1980s I think it become more and more difficult to increase taxation to meet costs and very hard not to reduce taxation in boom times, leaving an inadeqaute tax take in a recession. This was sold to us by the right wing as giving us "our money back".....and the left well, just spent it for "us".....two bad choices....(but at least with the latter you can cut back the excesses somewhat)....

I look forward to the day when we employ leaders who have morals and show willingness to do the right thing for NZ and not for a faction or a fad.......fat chance I suspect.

We get what we deserve....

regards

by Gummy Bear Hero | 8th Jun 11, 11:24am 1307489080

Au contraire mon cheri , Kate , in an age of skunking / picket-pocking / and froggy cooking ( shrieks from Miss Piggy , " Kermie ! " ) ....... one is well advised to load up on debt .

Inflation is a stealth tax , utilised unashamedly by governments to rob savers . ........ the flip side , is that it cheapens the debt of borrowers .......

....... and isn't that a truely splendid example of fiscal prudence & rectitude , that our finance ministers are teaching us ........... Bless 'em !

by Kate | 8th Jun 11, 11:34am 1307489646

Indeed, bless 'em! Point is tho' - neither are they part of the global oligarchy - and at this rate, they'll take us all down with 'em.

:-).

by Gummy Bear Hero | 8th Jun 11, 11:52am 1307490773

No ! .... Forget the conspiracy theories , the global oligarchic elites ....

... Finance ministers & central bankers share a genetic pattern which predisposes them to equal measures of chicanery and of incompetence ......

And of course they'll take us all down with them ! ..... Enjoy the ride .

by steven | 8th Jun 11, 12:12pm 1307491937

Totally agree, "occam's razor"

or, the simplest answer is usually the answer....

I dont for one instance think these guys are capable of organising themselves into a "global elite" not for one moment.....instead we have had generations of the ruling classes inbreeding stupidity.....throw in "jobs for the boys" for generations to give them something to do and you have the obvious outcome.....one huge b*lls up....

regards

by Roelof | 8th Jun 11, 11:45am 1307490349

Rid yourself of financial assets...also... comrade.... this is the rape and pillage of savers...

by steven | 8th Jun 11, 12:02pm 1307491324

Better yet instead of getting rid of, as a saver pray for deflation and a depression, then the tables turn....

regards

by Kate | 8th Jun 11, 1:59pm 1307498392

Have the best of both worlds - secure yourself a big fat overdraft facility against the value of the assets you have today, but don't play your borrowing hand until no one else has any cards left.

by Bernard Hickey | 8th Jun 11, 1:51pm 1307497906

Matt S

Absolutely right.

Financial repression crucial to the debate.

Here was my mention in May 16 Top 10

http://www.interest.co.nz/opinion/53462/tuesdays-top-10-nz-mint-why-global-financial-repression-will-destroy-john-keys-rosy-bu

cheers

Bernard

by Anarkist | 8th Jun 11, 3:19pm 1307503168

Bill Gross' complaints take irony and hypocracy to a high art. A good portion of the liabilities that governments in the developed world have assumed were due largely to the actions of people like himself who whose greed and stupidity almost brought down the world's financial and economic system.

I find it funny when he says this.

"Chart 1 shown below is graphic evidence of Reinhart’s financial repression over the past century, comparing two repressive periods (1945–1980 and 2008–2011) to a more normal interest rate environment without artificial government yield dampeners (1981–2007). Both periods of repression show bell-shaped curves shifted markedly to the left, with today’s current cycle offering 2½% less yield for the average G-7 nation than what bond investor frogs have gotten used to since 1981. Actually, in the U.S., May’s month-end estimate for real Treasury bill yields shown in Chart 1 would be 5% less than what Reinhart shows as the average compensation for the last 30 years! "

When in the 1980s, the Federal Reserve and central banks around the world engaged in a form of misconceived monetary policy that produced interest rates of up to 20% and took the world into deep recession, which they discreetly abandoned in the mid 1990s.

"Worse, given the Fed’s efforts to control money quantity rather than rates, the Fed funds rate bounced around on a daily basis such that businesses faced an impossible task of raising capital owing to uncertainty about the rate at which they could raise capital. As Charles Kadlec and Arthur Laffer wrote at the time, “the Fed’s action reduced the viability and attractiveness of the dollar,” and as a result its policies “increased the prospects of inflation” in spite of the fact that monetarist targets “resulted in a slower growth in the measured quantity of money.” What the economy needed according to Laffer and Kadlec were “policies that lead to an excess demand for dollars relative to their supply.http://www.realclearmarkets.com/articles/2008/02/the_paul_volcker_myth.html ”

If he was honest he'd acknowledge the degree to which the State is now the guarantor of the world's banking system. Perhaps you'd find a study by an economist from the Bank of International Settlements informative on the subject.

"The costs of this intervention are already being felt. As in the Middle Ages, perceived risks from lending to the state are larger than to some corporations. The price of default insurance is higher for some G7 governments than for McDonalds or the Campbell Soup Company. Yet there is one key difference between the situation today and that in the Middle Ages. Then, the biggest risk to the banks was from the sovereign. Today, perhaps the biggest risk to the sovereign comes from the banks. Causality has reversed.

State support is one side of the "social contract" between banks and the state.3 State regulation of banks is the other. Table 1 suggests that the terms of this social contract have

recently worsened. That should come as no surprise. At least over the past century, there is evidence of a ratchet in the scale and scope of state support of the banking system (Section 2). Whenever banking crises strike, the safety net has bulged. Like over-stretched elastic, it has remained distended." http://www.bis.org/review/r091111e.pdf

by Bernard Hickey | 8th Jun 11, 6:08pm 1307513333

Anarkist

A pleasure to read your comment and to click through on that BIS link.

cheers

Bernard

by Anarkist | 9th Jun 11, 9:57am 1307570269

Thanks Bernard, but I can't help being disillusioned by the futility of what I'm doing. If Raf, who worked with John Key in London and gets stonewalled by the Government when he tries to introduce fresh thinking, what chance does someone with a far more humble background like me have? I'm currently working on a proposal to introduce a mutual credit exchange in New Zealand similar in form to the WIR Bank in Switzerland which is patronised by something like 1 in 5 businesses there, particularly SMEs. Less need to have credit lines with banks in difficult times which they'd have to have pay back when conditions improve when they can create their own trade credit.

http://ftalphaville.ft.com/blog/2009/02/18/52550/the-wir-bank-model-or-back-to-barter/

At least such an enterprise doesn't require me to have the ear of the government. I am far outside of the good ole' boys network.

We have to acknowledge the polarized nature of our society, which ensures that our political and economic debate is trapped in marginal and even inconsequential issues like debt levels, the forex market, and interest rates whilst the fundamental questions aren't even being asked. Covering the work of Umair Haque who I've been aware of for some time is a good start though.

by Christov | 8th Jun 11, 12:41pm 1307493680

Nonetheless Wolly...I called as no QE3 at Junes end....so no out doors like...QE2 will carry on taking place dressed up as something else.

You can apply that to most anything...

The Question two months back was QE2 to end in June....will QE3 be implemented.

looks like the odds have swung my way a mite.

by Wolly | 8th Jun 11, 12:53pm 1307494406

Do try to see the forest Count...the blather about QE2 to be QE3 or not to be was a BS game in the world media and you fell in up to your neck...there is no end to QE2...there never was to be an end....other than an end to the public seeing the printing rort.

US govt debt issues are being bought by primary bond buyers funded by Bernanke and directed to buy at specified prices to keep the market rates near zero...it's the ZIRP !.....Bollard's version is the Nearly ZIRP.....!

by Christov | 8th Jun 11, 1:13pm 1307495596

Nice post Wolly but pretty much all just rhetoric...Not up to my neck in anything there me old Gypsy camper....just waiting to see what the ...facts ..support...the policy...the truth or not ...it's all you have to plan on/for...or you can spend all your time second guessing and be wrong at least half the time......

No Wolly ...I have to take the headline ...just like the markets will.....because my gold didn't make 5K an ounce like Mkt Oracle told me it would......

by Wolly | 8th Jun 11, 5:00pm 1307509247

Don't "take the headline" Count....it's a carefully orchestrated pack of lies. MO is just a platform on which many vent their spleen...it still demands a surgical analysis before the penny drops.

QE...printing...whatever it is called...it's theft pure and simple. A lesson not to stash cash.

Here in NZ we have our version of QE...it's called planned debasement of the currency...

Two things to count on:

The first is the debasement of the NZ currency...already down nearly 15% since the recession started...

The second is the manipulation of interest rates for political reasons but dressed up as financial control.

Both are a fact of life in NZ.

by Christov | 9th Jun 11, 8:53am 1307566408

Wolly there is not much in the above post I don't agree on and have been shouting it for as long as I can remember.....but I return to the original question.....and yes I am fully aware that it is just " the Headline"...symbolic rather than set in stone......but does telegraph..(as the Americans like to do) a too big to fail mindset.

There are numbers that wont add...there are squares that don't fit the round holes....and then there is the Human condition.....that is my area of interest.

I said to you a long time back ...The numbers will always be made to fit the agenda...not the other way round.........bloody Humans eh.

good luck as always Wolly....luv your work ..most of the time ( : > )

by Anarkist | 8th Jun 11, 2:47pm 1307501234

"Let's ask the PIMCO boss....are you going to start buying US govt bonds?......laughter...all I hear is laughter."

Its the U.S. government that'll have the last laugh when the Chinese economy implodes and Bill Gross will be running back to the U.S. Treasury bond market with his tail between his legs. He needs the U.S. Treasury more than they need him. The bond sales are set up so they can't fail. The US Congress issues money, they don't need to borrow money from the banks to fund their spending. They just use bonds to settle the balance as in the course of their customary accounting cycle. Settling it by bond sales in by virtue of mere convention. Nothing more.

by Wolly | 8th Jun 11, 3:06pm 1307502369

"The US Congress issues money, they don't need to borrow money from the banks to fund their spending."...wrong.....the Fed issues the money to the primary bond buyers who buy the govt IOU bonds....the US govt lost control over the nations money nearly one hundred years ago.

by Christov | 8th Jun 11, 3:15pm 1307502928

Technically Wolly...but that was not the thrust of Anarchists point and you know it....

http://home.hiwaay.net/~becraft/FRS-myth.htm

http://dmc.members.sonic.net/sentinel/naij2.html

link 2 details your point...but there are current bills before congress to address this .

by Anarkist | 8th Jun 11, 3:56pm 1307505366

hey Christov,

Yeh, I know all about the moves by the monetary reformers. I worked for Raf who often posts here and have read widely on the matter, but I think that most of them betray their age and fail to keep abreast of the changes in the nature of the world's monetary system since the 1970s. Their calls for Congress to take back the sovereignty to issue national currency are largely redundant. Congress already has that power and the only barriers to in taking advantage of it are psychological and political. See above

and

"The Primary Dealers are required to make a market in government bonds. If they wanted, they could hedge their exposure to government bonds, but part of the deal in becoming a primary dealer is helping the government sell their bonds so demand is never really an issue. The U.S. government can never run out of the currency which it alone has a monopoly supply of. That is as silly as assuming that an alchemist will somehow run out of gold. "

http://pragcap.com/n-y-fed-explains-government-spends-issues-bonds

There are several ways of trying to achieve this but many OECD countries appoint a group of highly qualified financial firms to play a role as specialist intermediaries in the government securities markets between the authorities on the one hand and the market on the other... In return for a set of obligations, such as making continuous bid and offer prices in marketable government securities or submitting reasonable bids in the auctions, these firms receive a set of privileges in the market.In return for a set of obligations, such as making continuous bid and offer prices in marketable government securities or submitting reasonable bids in the auctions, these firms receive a set of privileges in the market. ...

http://www.bankofengland.co.uk/education/ccbs/handbooks/pdf/ccbshb06.pdf

by Christov | 8th Jun 11, 4:28pm 1307507326

Thanks for the update on the subject Anarkist...good links ta.

by Anarkist | 8th Jun 11, 3:32pm 1307503925

Actually Wolly, no I'm not.

“But here is the essential fact I want to emphasize and have you think about today: The Fed could not monetize the debt if the debt were not being created by Congress in the first place….The Fed does not create government debt; Congress does.”

Richard Fisher of the Dallas Fed

http://pragcap.com/pomo-flip-matter

by Wolly | 8th Jun 11, 3:46pm 1307504786

Actually you were wrong...Yes the govt debts are created by stupid and poor govt as is the case there and here...but the Fed has control over the currency...not the politicians...and it is the Fed that determines what tune will play.

Stop confusing govt debt with the Fed. The Fed is not a govt entity. It is a private institution of banking swine.

by Anarkist | 8th Jun 11, 4:00pm 1307505605

"Actually you were wrong...Yes the govt debts are created by stupid and poor govt as is the case there and here...but the Fed has control over the currency...not the politicians...and it is the Fed that determines what tune will play." So you buy into the myth that the Fed is independant? Technically yes, but functionally? lol. As believable as Allan Bollard being independant of our own government.

by Wolly | 8th Jun 11, 4:38pm 1307507899

You didn't use the term "independent" did you...you came out with a bald statement that the US govt printed the money...that was wrong.

Is the Fed independent?....of course they are not. They need the pollies to provide the laws that allow them to harvest the percentages and hand out the bloated bonuses and backhanders and fund the political parties. The whole system is a stinking corruption..always has been...always will be.

by Anarkist | 8th Jun 11, 5:07pm 1307509630

Wolly

But they do. Thats what the statement I linked to essentially says. All else is smoke and mirrors. As for the rest of what you say, I can only agree, but thats the nature of human economic relations. The Soviet Union was conceivably even more corrupt.

by David George | 8th Jun 11, 10:46am 1307486762

The current low interest rate regime/ money printing creates a huge problem for the pension funds, Pimco etc. While it is an attempt to give the heavily indebted households and governments some time it will ultimately take a huge toll on the value of all financial assets and impoverish our young middle class.

The way I see it; the Baby Boomers are looking to retire on the strength of their assets (as well as real estate and equities) which,'cause of our debt based money system, are essentially a claim against the future surpluses of the next generations and productive industry. That claim is now so large, thanks to debt money expanding for four decades at twice the rate of growth in the economy, that it cannot be met. What can't be paid, won't be paid - so either the BB's retire in poverty or the productive are forced into debt and tax slavery.

The current can kicking we are seeing just confirms to me that the PTB have no solution - the Greek debt is a good example - can't service your debt - have some more. We're trying to live in never never land.

BTW, thanks to AndrewJ for the link to the Michael Hudson article. Absolutely spot on and a must read IMHO

http://www.nakedcapitalism.com/2011/06/michael-hudson-will-greece-let-eu-central-bankers-destroy-democracy.html

by steven | 8th Jun 11, 10:52am 1307487131

As one of the hedge fund managers said, the Fed's actions in effect force funds and investors out into the markets to get a return. No matter what the risks if you get inadequate returns the savers pull the plug on you and go elsewhere....and as he said you may get 2 years at this stupidity....but probably less....The sensible anwser is not to play but sit and wait, but the greedies want profits now....crash and burn then.

regards

by We Are Stuffed | 8th Jun 11, 12:51pm 1307494288

But sit where?

All of the chairs have legs missing and the one with the crack might grab my dangly bits.

by Wolly | 8th Jun 11, 1:07pm 1307495233

Sit where the dangly bits can only get caught in a cool breeze WAS....the orchestrated collapse..which English Treasury et al expect and explain their boosted borrowing....will destroy where destruction of imagined value is most profitable for those causing the collapse....which explains why Moodys said commodities could fall 75%...

The cool breezes are to be seen beyond the event...what will retain value in the new world order...people have to eat...they demand medical care and drugs...they want shelter and warmth and power...they need clean water....then count on gambling, booze drugs and sex...

Invest in sex, drugs and utilities.

by Bernard Hickey | 8th Jun 11, 1:58pm 1307498293

Yep. A cracking Hudson piece.

"Europe’s payments-surplus nations are waging financial war against the deficit countries. Without a common union based on mutual support within a mixed economy – one capable of checking financial aggression – the European Central Bank replaced the military high command. Its bold gamble is whether the Greeks will be as stupid as the Irish, not as smart as the Icelanders."

It will be a question many will ask in years to come.

Should we default?

cheers

Bernard

by Christov | 8th Jun 11, 2:41pm 1307500870

No I think Bernard the question will be ..if or when we default what will the penalty both short and long term be....?

http://www.nyu.edu/econ/user/galed/fewpapers/FEW%20S11/Guembel-Sussman.pdf

or...http://www.nber.org/papers/w9285.pdf

or...https://netfiles.uiuc.edu/popov2/www/papers/Defaults.pdf

I know I might just be thinking sod it................all bets are off...but in our case the Aussies might foreclose..via other avenues.

by Christov | 8th Jun 11, 2:42pm 1307500959

I do hope you run an eye over these papers Bernard....very informative indeed.

by Bernard Hickey | 8th Jun 11, 6:19pm 1307513968

Great links. Thanks for that.

Fascinating reads.

Ones to store away for future rainy days to read again....

cheers

Bernard

by Christov | 9th Jun 11, 8:33am 1307565235

Keeping in mind life often immitates art....when scenarios can become prescriptions.

Cheers

by Andrewj | 8th Jun 11, 12:30pm 1307493000

I dont know if its working. In the UK house prices are back futher

The average price of a home in Britain has dropped almost £7,000 during the past year amid the economic uncertainty.

http://www.telegraph.co.uk/finance/personalfinance/8561460/House-prices…

then there's inflation

Millions of households were warned last night that they face “unacceptable” rises in their energy bills after one of the biggest power firms announced average increases of nearly £200 a year.
http://www.telegraph.co.uk/finance/personalfinance/8562207/Millions-of-…

and in the States it's the same

Ben Bernanke, the chairman of the Federal Reserve, said that the recovery in the US economy remains “uneven” and that growth has been slower than expected.

http://www.telegraph.co.uk/finance/economics/8562684/Federal-Reserve-ch…

The governments may be taking care of government debt but at what cost to the domestic economy?

by steven | 8th Jun 11, 12:34pm 1307493259

"at what cost to the domestic economy" Same applies to the private debt, and its several times bigger and I assume at a higher interest rate....so whats that doing to businesses?

regards