90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: NZ$ hits 87.4 USc overnight as investors eye new 'safe havens' of NZ$, A$ and C$ in case America defaults and/or is downgraded

27th Jul 11, 8:29am by Bernard Hickey

Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news the New Zealand dollar surged again overnight to a fresh post-float high of 87.4 USc.

Investors are buying currencies not connected to either the Eurozone or the US dollar as nervousness grows about the scale of the US debt crisis.

Currencies such as the Australian dollar, which rose over US$1.09 and the Canadian dollar are popular, as is the Swiss Franc.

The US debt ceiling impasse appeared to deepen overnight with Democratic US President Barack Obama warning of a "deep economic crisis" if the ceiling is not lifted before August 2 and Republican leader John Boehner accusing the President of wanting a blank cheque. See more here at Reuters.

Meanwhile, markets are beginning to price in limited expectations that the August 2 deadline will be missed and that America might lose its AAA credit rating.

A majority of economists in a Reuters poll believed America would now be downgraded. See the Reuters report here.

Such a downgrade would increase US interest costs by US$100 billion and further slow already anemic growth in the world's largest economy.

The International Swaps and Derivatives Association warned that America would have three days to make up for any missed payments before it was declared in default. See more here at Reuters.

Bloomberg reported ISI saying there was now a 40% chance of the debt ceiling not being raised by August 2.

US stocks fell 0.4% and the gold price hit a fresh high.

See more on the gold price here at Bloomberg.

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15 Comments

by Kunst | 27th Jul 11, 9:04am 1311714261

As a green, anti capitalist, stupid lettuce - running a business for 40 years - I have this to say:

Looking into current developments on many fronts – the world will never recover again, simply because among the powerful in societies ethic and moral requirements and standards don’t prevail.

Well, greed and political corruption is obviously part of that:

http://blogs.forbes.com/robertlenzner/2011/07/25/the-400-richest-americans-pay-an-18-tax-rate/

by steven | 27th Jul 11, 9:13am 1311714818

Add in energy shortages for decade(s) and no it wont...

regards

by powerdownkiwi | 27th Jul 11, 9:19am 1311715186

It doesn't matter what colour you prefer your politics now, Kunst.

But you're right - it can't come back. Not in real terms. There will have to be some sort of debt-forgiveness:

http://www.theoildrum.com/node/4915

an excerpt: (it was written in '09)

"4. My forecast for 2009.

It looks to me as though that we are due for a debt unwind, and with it a rapid decline in the US standard of living. Exactly what form it will take, and what the timing will be (for example, sudden one month from now or sudden three years from now, or gradual over a longer period), isn't certain. I would expect that many (or most) other economies in the world will be dragged along in this debt unwind and will experience a decline in their standards of living."

She wrote that by looking at the energy inputs.......

by Neven911 | 27th Jul 11, 9:34am 1311716072

Guys

This is hilarious, after months ney years of listening to mindless economists parrot that the NZD fell as 'investors' fled to the security of the USD the tune has changed, yet the fundamentals have been obvious..to those untrained in economics.

My next epiphany will happen when Bernard et al realise that parroting "debt bad, saving good" is also inane, as debt is call on the future as saving is a put, hence one cannot exist without the other. Savings can only be afforded by those who are extracting excess from the current environment and debt is required by those that can't, but both require "growth" to be sustained. But somehow this gets skewed so that we demonise desire and canonise the equally destructive excess that allows 'saving'

It is interesting that the nations with high savings rates, Japan, Germany etc are now at as much risk as the feckless debtors, the lack of growth takes no prisoners.

Neven

by powerdownkiwi | 27th Jul 11, 9:47am 1311716845

Neven - yes. It's not that the NZ is high, this is just a relative speed of the parachutes' thing.

The fascinating question is whether it all implodes before our election (and drops Nact) or whether inertia takes it past (which drops Nact right in it).

by Carpetbagger | 27th Jul 11, 9:56am 1311717402

They will get dropped right into a mess that to some degree is their own making:

http://www.stuff.co.nz/national/politics/polls/5344291/National-Party-c…

Why don't they just go in for the kill and give us more tax cuts?

by Plan B | 27th Jul 11, 5:46pm 1311745592

Just a thought on debt. One reason that it is more of problem is that the two sides of the ledger do not really balance. The banks lend outfar more than they take in, they create debt so if you borrow 100 they may only have a deposit of 10, the difference is money that they created whem you borrowed it. That is what the great deleveraging is all about. So if you do not keep on paying off the interest on the 100 - does the money- the added 90 really exist? It only exists if they can make you pay somehow or get soomeone else to pay (taxpayers) This massive increase in debt might be the thing that has driven up asset prices and devalued our dollars- at the same time.

by HarryM | 27th Jul 11, 10:52am 1311720728

Hold all bets..... the siren has sounded!!

Anyone and everyone seems to be taking potshots at what is going to happen to the world economy over the next few months/years. It makes for very interesting reading and makes planning for the future a bit of a gamble.

My advice, be happy with what you have, look after your money and look after your body!!

Time to dip the hydrmoter into my brew to see where we are at, this cold weather is good for my Pilsners!!

by Neven911 | 27th Jul 11, 2:22pm 1311733336

Harry

Bear in mind that 'money' is debt and therefore must be kept afloat by growth, hence the pessure on gold as people start to panic

by Rudderless | 27th Jul 11, 3:43pm 1311738181

I have worked since 1959 and have been self employed since 1974. My parents survived two world wars and a great depression. World War 2 was won purely on industrial output. A war of amazing industrial attrition.

In 1946 the Allied factories switched from war machinery to domestic machinery. In order to sell vast quantities of consumer goods, the factory owners allowed the creation of the vast middle class market that we all remember. The fifties and sixties saw manufacturing and marketing boom.

Starting in the seventies middle class wage growth slowed and this was masked by the creation of the financial services industries. The traditional gruff bank manager who always said "no" was replaced by a friendly guy who always said "yes". Debt started to become normal. Credit and charge cards were invented. Yeah!!!

Initially this loan money had little adverse effect - because that shiny new Holden Kingswood was assembled in Petone - with NZ battery - NZ muffler - NZ carpets - NZ tyres - NZ radiator and NZ seat belts. I could add to this list for hours. That proud new Kingswood owner provided solid employment to so many other middle class New Zealanders.

Show me where the borrowed money that funds the new 2011 Audi goes now>>>>>>>>>>>>>

I am currently retiring after 36 years of manufacturing domination in a niche market. But I am not finished with working 50 hour weeks. I am joining Powered Down Kiwi working on alternate energy ideas. I already have my home 80% solar. The next project is to make the solar system just a back-up. With some forgotten ideas, modern materials and some Kiwi #8 wire mentality - IT WILL HAPPEN.

Somewhere in the middle years in the tale above, about 1968, Muldoon ran completely out of funds. The 'guvmint' was TOTALLY broke.

Muldoon's announcement went something like this, "Just this once - we will call in the self employed tax 12 months in advance. We will call this Provisional Tax". Thus ended the ability of any New Zealand small company to self-fund its future growth from retained earnings. From that time forward small business was either in debt to their bank or to IRD.

Bernard - take note.

Globally the middle class are vanishing at an astonishing rate. We are no longer needed by those who control the global money supply. We are stuffed.

But my Kingswood will still run 50% on rainwater.

by Vanderlei Luxemburgo | 27th Jul 11, 4:09pm 1311739786

Great post rudders

by Plan B | 27th Jul 11, 5:49pm 1311745786

Great post, liked the provisional tax story

by Andrewj | 27th Jul 11, 4:01pm 1311739289

Whats wrong with America?

http://market-ticker.org/akcs-www?post=190758

by Wolly | 27th Jul 11, 4:49pm 1311742148

Who wants a number one haircut?

"Sean Egan, the most credible credit analyst in the country(uk), estimated this week that the eventual haircuts on the Greek debt will be 90%."

http://www.marketoracle.co.uk/Article29456.html

by Wolly | 27th Jul 11, 4:56pm 1311742614

Labour deputy leader Annette King has dismissed polls showing her party's flagging popularity, saying ''bugger the polls.'' stuff.co

Harrrrrrrrrhahahaha...it's only what you all deserve Annette...should have said "sorry we buggered the economy"...instead of "give a chance to slap another tax on you"....off you go!