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90 seconds at 9 am: UK downgraded; Italians voting - deadlock predicted; US manufacturing expands; Australia won't intervene on currency; floods costly; NZ$1 = US$0.837, TWI = 76.5
Here's my summary of the key news overnight in 90 seconds at 9 am, including news that Moody's stripped the United Kingdom of its triple-A credit rating, and predicting economic weakness will weigh on its public finances for years to come. The pound fell to 55.2p to the NZ$1. S&P is likely to follow Moody's. The action is widely believed to stiffen the UK's resolve of the benefits of austerity, although it will reignite the debate there.
Italians are voting in one of the most closely watched elections in years, amid disquiet over a discredited elite adding to concern it may not produce a government strong enough to lead Italy out of an economic slump. Berlusconi may well re-emerge, as could a the obscenity shouting comedian Beppe Grillo who is widely expected to get a huge protest vote, one that may throw the result into confusion.
The media is picking the candidate of the left, Pier Luigi Bersani to emerge as the winner, but Mario Monti is in the race too, as is a gay trade unionist from the South, both of whom are expected to poll well in their consistencies, making a clear result very unlikely.
Italy could be in a mess, but it has been here before. The most prosperous times for Italy have been when there has been a dysfunctional government in Rome; the north especially prospered in the past in these circumstances. Whatever happens, Italy will be a problem for the EU and the euro.
In the US, observers are expecting more data showing manufacturing expanded in February. But there is no progress in the March 1 deadline for a budget compromise, which could unstitch the US economy.
In Australia, RBA governor Stevens has taken a line out of the Wheeler playbook by placing the bar high in currency intervention. He said he’d need to be confident the currency is 'seriously overvalued' before considering intervention to weaken it, and he isn't about to do that now.
The latest Queensland and NSW floods may add more than $1 billion to insurers claim costs.
The kiwi dollar starts the week a bit higher at 83.7 USc, 81.2 AUc, and the TWI is at 76.5 mainly because of the falling British pound.
13 Comments
"The action is widely
"The action is widely believed to stiffen the UK's resolve of the benefits of austerity,"
There is no austerity by the Bristish Gov't, it'a myth perpetuated by the Gov't and the MSM. The UK PBSR, Public Sector Borrowing Requirement, has been larger under the current Conservative Gov't than it was under the previous Labour Gov't. How is austerity possible when the Gov't is spending more. It really is becomimg an Orwellian world.
Indeed it is. They won't know
Indeed it is. They won't know what has hit them once they really are forced to make proper cuts to spending - as they inevitably will have to as the vice tightens.
On an unrelated note - good to see Rabo offering 4.25% on their Premium Saver account (shame its limited to $100k). BNZ and ASB have been cutting their equivelent offerings (now both down to 4%) - hopefully loss of custom to Rabo on this deal makes them squeal a little and rethink. I will start the ball rolling.....
austerity in a zero bound
austerity in a zero bound trap == self fullfilling collapse/depression.
regards
austerity where some hidden
austerity where some hidden players are leaking the margin out the bottom of the barrel == only chance to turn things around.
And the pain WILL keep going until they wake up and realise they _can't_ leak out profits that aren't there. TANSSTAAFL (There ain't no such things as a free lunch).
When the system was growing they could skim away a few points worth and no-one realised the consequences, it was just the cost of doing business. But as it was a high-energy/resource-rich/easy-profit/no-account-of-cost then it tends to grow until it hits it's limit, as the population grew then the drain grows faster.
Image a public swimming pool - it doesn't have to provide it's own revenue, because ratespayers cover the costs. Initially it might be a glorified swimming hole, a concrete shell, a fence, cleaning and chlorination. It doesn't cause a big drain because it's small potatoes, and it probably only gets used by a small portion of the population but it's entry cost is low because it's subsidised.
It's identitfied as a community asset by the council, and as rates increase they decide to make it bigger and/or better used. This requires more income, which doesn't come from the assets value to its consumers, it comes from the ratepayers, so the extra marketing, personal, and services don't have to be related to it's increase in value to those consumers. As it becomes more popular, the council have invested more into it, but it's still a drain on rates revenue, which is money out of other parts of the local economy.
The council then get caught on the value of the asset - it costs them and the community to provide VS they've already invested in the asset which has net book value < 0 (ie no outside service agency would buy it because it has negative revenues!)
Austerity means that they pay the pain, and such services must be removed despite the popularity with the public. Or the users must find a way to fund the asset, one which they're used to enjoying for much cheaper. Attempting to pass the cost on "under the table" will simply destroy libraries, parks, roads, water, sewerage, businesses instead, as they face exactly the same choices.
And until that austerity issue is resolved, the pain and the resource shortage will just grow. That is why third world style economies never grow (successful resources are bled dry to provide support for idealistic goals) - (in a first world style economy, the bled dry process collapses the private operator before they can do much damage. It's also how you take down a big company... remember the Apple Lisa, Sinclairs Electric Car)
Or you are simply
Or you are simply deluded,
"Countries that imposed the strongest austerity measures also experienced the strongest declines in their GDP. This result is in line with the IMF’s recent analysis (IMF 2012)."
http://www.voxeu.org/article/panic-driven-austerity-eurozone-and-its-imp...
"It seems safe to say that what we have here is a case in which rival theories made different predictions, the predictions of one theory proved completely wrong while those of the other were totally vindicated — but in which adherents of the failed theory, for political and ideological reasons, refuse to accept the facts."
http://krugman.blogs.nytimes.com/2013/02/23/austerity-europe-2/
Steven - perhaps before you
Steven - perhaps before you indulge yourself in another rant about austerity you might want to actually read what AR and I actually wrote. Neither of us actually passed an opinion on whether the UK's austerity policy is a good or a bad thing so your infantile comment about delusion is irrelevent - we merely opined that a) it is not really austerity as there are no real cuts to spending and b) given that when real cuts are eventually forced upon them when money printing runs its eventual course and fails then the public really will go bonkers.
As far as I am concerned the UK can try any damn policy they like - austerity, more QE, Krugmanesque helicopter drops of cash, whatever - none of it is going to work in the long run.
So please spare yourself (and us) this reflex you seem to have to comment when you are clearly unable to decipher what people are actually talking about.
Ban him for perpetual
Ban him for perpetual rudeness - it's tiring and adds little to our enlightenment.
Moving to a more serious topic, do you know why trusts are banned from Rabodirect's latest on call depo offer?
No I do not - typically they
No I do not - typically they prevent businesses from using such accounts but this is I think the first time I have seen Trusts specifically excluded? Anyone else know?
Hmmm - I wonder if the
Hmmm - I wonder if the "sticky deposits" portion of the RBNZ's core funding ratio (CFR) excludes non-individual money - certainly calls into question the fungibility of money - a bit Orwellian when some money is more money than other money.
Of course GDP goes down.
Of course GDP goes down. Duh!!
Gross Domestic Profit is a measure of total internal spending. To spend you need money which either exists from being paid, or it is borrowed as interest bearing credit.
They already did too much of the latter, for they didn't have enough of the former.
Thus they must reduce the borrowing quickly, because they're already going down because of the interest cost of choosing to borrow when their profits didn't support the extra spending.
That is also why GDP is no measure of a Nations Wealth - unless you think how much you can spend in a year if you try hard is "Wealth".
In fact if they were claiming austerity, and GDP didn't go down, I'd be battening the hatches!
The question is that once they bring their spending down and into line with their incomes (like Germany had to as to pay war reparations), will their spending being to investments (ie things that return more than they cost), or into white elephants. (If they want social luxuries, then the net-profit dividends (REAL dividends, not rape the company Solid Energy dividends) must be likewise invested for real dividends, and only that 2nd or 3rd generation dividend can be used for luxuries, and only to the limit that such income will support the habit)
Has being downgraded by S&P (
Has being downgraded by S&P ( and later by Moodys ) affected the USA in the slightest ?
...... I don't envisage the UK will be anymore impacted by this downgrade than America has been .....
In Australia, RBA governor
In Australia, RBA governor Stevens has taken a line out of the Wheeler playbook by placing the bar high in currency intervention. He said he’d need to be confident the currency is 'seriously overvalued' before considering intervention to weaken it, and he isn't about to do that now.
Hardly a winning strategy from a historical perspective - my view is they dare not move until authority is given by the US Treasury''s ESF.
If the NZD gains parity with
If the NZD gains parity with the yen then I'll seriously consider moving all my money to Japan and investing there. These kind of opportunities don't come along so often.