90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: NZ$ hits 77.4 USc after surprise RBA hike on eve of QE II; CBA sparks political storm

3rd Nov 10, 9:03am 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 hit 77.4 USc overnight, its highest level vs the US dollar since July 2008.

This followed a surprise increase in the Reserve Bank of Australia's (RBA) official cash rate late yesterday by 25 basis points to 4.75% as the Melbourne Cup was being run. The Australian dollar sprinted up to parity vs the US dollar briefly overnight.

In another surprising and controversial move, the Ralph Norris-led Commonwealth Bank of Australia (CBA) announced a 45 basis point increase in its floating mortgage rate, arguing it needed to increase the rate by more than the RBA move to compensate for higher funding costs.

The Sydney Morning Herald led its front page today with the headline 'The Bank that stopped the nation' and a story about how banks in Australia face regulation in the wake of such a move.

Australian Treasurer Wayne Swann described it as a 'cynical cash grab' by an 'arrogant' bank. The other big three banks in Australia have yet to follow CBA's move, suggesting they will hang it out to dry. Westpac made a similar move late last year and was heavily criticised.

Meanwhile global financial markets are on tenterhooks awaiting the US Federal Reserve's expected decision due at 7.15 am NZ time on Thursday to announce a second round of quantitative easing or money printing worth around US$500 billion.

It is seen as the first official shot in the Currency Wars that are forcing up currencies in emerging economies and developed economies seen closely connected to inflating commodity prices.

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17 Comments

by Kunst | 3rd Nov 10, 9:14am 1288728890

NZFight the “CurrencyWar” !

I know someone, who knows how to make a bomb.

by Vanderlei Luxemburgo | 3rd Nov 10, 9:43am 1288730586

hey BH

matt tiabbi, creator of the "vampire squid" metaphor for goldmansacks, is interviewed in theonion.com's AV club:

http://www.avclub.com/articles/matt-taibbi,47077/

i think you and him have the same view of obama:

" My impression of it is that they never believed they were really going to follow through on a lot of these promises. I think if it were just one or two campaign promises he didn’t follow through on, I might’ve given him more credit, but it just seems like every single one of them ended up falling by the wayside. And they didn’t fight particularly hard, either. The manner by which these promises disappeared, to me, was so disappointing. When I was writing that chapter, I was just particularly disappointed in the way it all unraveled. The whole business of giving up the right for the state to negotiate bulk prices for Medicare, the drug re-importation from Canada—they bargained that away in a meeting with PHRMA, in a backroom meeting with [pharmaceutical company lobbyist] Billy Tauzin, a guy they made a [negative] campaign ad about! That just told me a lot about what the administration was all about. "

by Bernard Hickey | 3rd Nov 10, 1:44pm 1288745074

Cheers. Great link Vanderlei

Bernard

by GG | 3rd Nov 10, 9:43am 1288730626

Really good article in the Australian Business Spectator today.

http://www.businessspectator.com.au/bs.nsf/Article/New-Zealand-John-Key-Phil-Goff-pd20101102-AST2X?OpenDocument&src=sph

Advise to NZ'ers, cash up now and move your assets to Australia

by andyh | 3rd Nov 10, 9:53am 1288731193

Actually I think its a really bad article written through the lense of someone fixated on the aberrant global economy of the late 1990's/early noughties.

Globalisation and free markets are in retreat - shame the author has not realised it.

Small, enclosed, self limited economies dependent on their own resources will be relative paradises compared to what is going to overtake the vast majority of other nations in the next 10 years.

by paulg | 3rd Nov 10, 11:35am 1288737300

Heres anothere one of his articles, written for a Yank audience.........

http://www.american.com/archive/2010/october/new-zealand-great-regression

.......In the meantime, New Zealand continues in its holding pattern—happily drifting toward genteel poverty and a lifestyle that the rest of the world envies—even if it only exists in tourist brochures.......

by Kate | 3rd Nov 10, 11:41am 1288737716

That article's hilarious. Take this line:

The real issue is that many New Zealanders have not seen the benefits – higher wages and more jobs – of 25 years of a relatively open economy. This is in part due to the previous Labour government (1999–2008) increasing spending by 50 per cent, raising taxes to fund it, and introducing a crushing burden of regulation.

Okay so that accounts for the last 9 years of the 25 years since the neoliberal reforms - why didn't we just prosper beyond (or even keep up with Australia) in the 16 years before that when the "prescription" was carried on by successive governments?

And on the increased spending by HC's Labour Government ... point is - as he points out earlier - NZs debt problem is not a sovereign one, but rather a private sector one.

And why is that? Well, when all the signficant infrastructure assets (telecoms, electricity, rail etc.) were transfered through sale to the private sector, the future requirement for capital/debt went to the private sector as well. Given the common practice of asset stripping (rich father, poor son), generous dividend payouts, deferred capital maintenance and, in some cases, re-sale to new owners - the decades of failure to properly fund/manage the infrastructure assets has caught up with the present day owners. Hence, the current debt situation is largely private, not government.

One interesting thing from the article - I hadn't seen anywhere else that the gap in average income between us and Aus is over $40,000. That equiates to an entire average wage here. So basically, a couple here both working on the average wage - if they move to average wage jobs in Au - it's like having a thrid average wage earner in the family.

And why is that? Because, unlike New Zealand, collective bargaining via unions was never dispensed with via the Australian Government in terms of labour law reform.

by steven | 3rd Nov 10, 12:25pm 1288740322

So in ten years Govn spending has increased by about 5% per year, and inflation was what over that period? ie what is the real increase...and when you look at say the drug bill for the health service, what % increase was that?

Raised taxes? not that I am aware of?....crushing burden of regulation, from what I can see NZ has far less than OZ and is classed as one of the easiest places in the OECD to do business...

in short yet another crappy politisied article....

and yes I agree NZ's problem and indeed most of the "developed" world's problem is private debt, which the neo-con economists all thought was not an issue, it was only Govn debt that was bad......so it was totally ignored...oops....

Wages, sure an OZ pay packet is higher, but so is the cost of living, so it is the Net difference that should be looked at...ie third wage but a third mouth as well.

regards

by Kunst | 3rd Nov 10, 12:28pm 1288740493

Talking about NZeconomic performance and productivity – this morning I’m reading – young NZpeople on a one year surfing trip – wow !

by Boatman | 3rd Nov 10, 11:11am 1288735872

The Chinese don't want the Fed to embark on QE2 for three reasons

See the China Daily News for their 'official' views , which dont outline the truth

The 3 real reasons are :

1) The devaluation effect of QE2 means that commodities ( all priced in US$ ) go up in US$ prices , and China is 100% dependent on these commodities as inputs for their factories . It is equal to imported inflation for them

2) Their party will end . They have this RORT whereby they take all US $ earned away from Chinese manufacturers and give them Yuan . This neutralizes the US$ in China , its simply not available domestically and thereby keeps US manufactured goods and services out of China . China is actually in a trade war with the US conducted using guerilla tactics . The Yuan is a highly controlled and managed currency

3) The Chinese use their US$40 billion an month trade surplus income from the RORT to invest in US Stocks , Bonds and Treasury Bills . The yield is almost zero , it will fall further and QE 2 will cause capital losses as the US$ weakens. The Chinese are highly critical of the QE2 , but they are not blameless

The US will never acknowledge this mess openly either , they are simply retaliating, and doing so to protect their own interests , as we in NZ should be doing .

by andyh | 3rd Nov 10, 11:25am 1288736705

Point 1 is certainly spot on - the yanks are exporting inflation as part of their central policy. After all their debts can never get paid back as things stand - their only hope (as they see it) is to start an inflationary bonfire on which they can throw their paper.

by Wolly | 3rd Nov 10, 11:29am 1288736963

I thought they had 800 billion reasons!

by stp | 3rd Nov 10, 12:02pm 1288738965

Probably more important would be this section (from Taibbi interview):

That short-term thinking, what’s so amazing about it is how widespread it is. It requires everybody to have that same mindset, not just these guys who work at AIG, for instance, who bet half a trillion dollars on mortgages knowing it’s eventually going to blow up their company. But they’ll get a huge bonus this year. It’s not just guys like that, it’s these politicians who work in the city of Chicago who know they’re doing a terrible deal, who know they’re going to lose their city billions of dollars in the end, but it’s going to get them through this year in the budget. It’s expedient for 10 minutes. After that, it’s someone else’s problem.

One of the reasons this stuff didn’t happen before, I think, is that there was just a little bit more, I don’t know, patriotism, or decency, or whatever. I’m sure the opportunities to do this kind of stuff were there, but people just didn’t do them before. That change is pretty chilling.

That seems to be a problem with all of us.....

by Wolly | 3rd Nov 10, 12:27pm 1288740467

"Congratulations...you have won a prize in Las vagas...now just press 9 and I will arrange to send you your prize"........

This scam has been going on for week now to the knowledge of Telecom...how many elderly people have made the mistake of pressing 9...automatic transfer of phone charge from overseas at premium rates....? What effort has Telecom made to inform their users of this danger...what warnings have there been in the news.?

by Haggis Hague | 3rd Nov 10, 12:34pm 1288740893

RE Obama and the rhetoric/action gap.

1/ He's begun (see Daly interview). Why do Kiwis always try to prove something will work before they take the first step?

2/ The guys that got us into this crap hate him (a recommendation in itself).

3/ Philosophical shifts take far longer to eventuate than legislation but when they do, they happen extremely quickly. Anyone from 1983 recognise NZ after 1984?

4/ Obama's clever enough to recognise he's not going to reap the benefits, just as MLK did.

5/ The Chinese know they've got plenty of time to reposition because American's have lost the ability to suffer for the good of coming generations and the Chinese are past masters at it.

by Gummy Bear Hero | 3rd Nov 10, 12:44pm 1288741488

Wayne Swan , what a clown ! Wanna punish the CBA 'cos they put up their rates by 45 points , 20 points above the RBA hike . Well d'oh , Wayne ! Meebee they really did need to , because of the increasing cost of borrowing from off-shore .

And if you're right , and the CBA if profiteering , then the competitors will steal market share from them .

What is it with Labour politicians who have to jump into the market , and feck things up for everyone .............. Ay Michael .... Cullen yer mad hoo'a , that's right ain't it !

by Wolly | 4th Nov 10, 6:58am 1288807081

"US Secretary of State Hillary Clinton has arrived in Wellington.

Her blue and white Boeing 757 landed at Wellington's military terminal at 6.08am, to be greeted by a cluster of government and embassy officials.

The welcome party also included Wellington mayor Celia Wade-Brown, who arrived at the terminal at 4.55am on her bicycle." stuff.co

Haaaaaaaaaaaaaaahahahah give that mayor a bunch of flowers somebody...bloody beauty.