PM Key "very worried" about US economy in face of possible third round of US money printing; Will get gauge on next moves for fixing US economy

Prime Minister John Key says he is very worried about the United States’ economic situation, and will use a visit there this week to determine where the US is heading in terms of its economic policy as markets wait for a possible third round of money printing from the US Federal Reserve.

That money printing has had the effect of devaluing the US dollar, meaning the New Zealand dollar last week rose to a fresh post-float high of 85 US cents on the back of better than expected NZ growth figures for the March quarter.

This morning, Key noted US Federal Reserve Chairman Ben Bernanke had not ruled out a third round of quantitative easing – or money printing – which had put a lot of pressure on New Zealand’s exchange rate. He would not comment on whether the New Zealand dollar could reach parity against its US counterpart.

“But I am very worried by what you see in the United States at the moment. They’ve got essentially [a] zero [official] interest rate, so in terms of monetary policy, no room to move,” Key said on TVNZ’s Breakfast programme.

“In terms of fiscal policy - how much money you can spend - they’re borrowing US$4.6 billion a day. Their [annual] deficit’s NZ$1.4 trillion,” he said.

Asked whether he would express concerns when meeting with US policy makers such as Bernanke, Key replied:

“It’s not for us to tell the Americans how to run their economy. Really we’ll go there and get a sense of what they think happens next. But they owe - they’re debt ceiling’s US$14.3 trillion - so a trillion is a thousand billion, just to give you a sense of how much money that is.

Here is the transcript of Breakfast presenter Corin Dann talking to Key about his US trip:

Corin:  Okay the US trip, is this a good time to be going, I mean in the middle of a debt crisis, do you expect to get the time you need with those people?

John:  Yeah I spose bluntly, we don’t get a lot of choice.  The President doesn’t give you lots of options, he gave us one day, and that particular day is Friday the 22nd, so that’s when we'll be there.  Look it's a great opportunity, we don’t get a lot of face time really.  When we go to things like APEC East Asian Summit these days we get to see the President, and that’s great but there's a great symbolism in the meeting in the White House, and there's a lot to discuss ….

Corin:  Is trade the top on the agenda? 

John:  Yeah, trade is…

Corin:  So where are we at in the time line of getting this free trade deal with those other countries.

John:  Yes, there's eight countries in the Trans Pacific Partnership, New Zealand and the United States are two important ones.  We want to see the deal completed.  I think by the time we get to Hawaii for APEC at the end of the year, I don’t think a deal will be signed, but I wouldn’t be surprised to see a sort of heads of agreement or a letter of momentum or support or whatever being signed.  So we are making moves.

Corin:  And the Pharmac issue – where are we at with what we're gonna give up on Pharmac?

John:  Yes we're going through all of those discussions.  I wouldn’t anticipate we'll be at that level with the President.  I mean they’ll be at kind of generally a higher level and its overall support for free trade only, we'll get down to the absolute details.  But I think it's important to understand the point that both myself an Tim Groser, our Trade Minister, have made on a number of occasions, and that is look, we're not gonna sign a deal that’s not in New Zealand's best interests, Pharmac works very well for New Zealand.  I think their bigger issue actually is around intellectual property, that’s really where their concerns are.

Corin:  Okay, you're meeting the Federal Reserve Chairman.  You might have a word to him about why he's pushing his dollar down and pushing ours up to 85 cents?

John:  Well you saw it last week where he originally came out and said he wouldn’t rule out a third round of quantitative easing, which is where the United States have been buying their bonds, and that you know puts a lot of pressure on our exchange rate.

Corin:  Do you see it getting to parity one day the New Zealand dollar?

John:  I don’t want to speculate, cos a lot of people would be very concerned by that, but I am very worried about what you see in the United States at the moment.  They’ve got you know essentially zero interest rates in terms of monetary policy, no room to move.  In terms of fiscal policy how much money you can spend.  They're borrowing 4.6 billion a day.  So their deficit's 1.4 trillion.

Corin:  So you'll express those concerns obviously?

John:  Yeah I mean it's not for us to tell the Americans how to run their economy, I mean really we'll go there and get a sense of what they think happens next but they owe – their debt ceiling's 14.3 trillion.  So a trillion is a thousand billion, just to give you a sense of how much money that is, and I think it shows why New Zealand's doing the right thing actually getting its debt under control and why our zero budget was right.  We can't afford to be that exposed.  But certainly it's putting a lot of pressure on our exchange rate.

(Updates with transcript).