Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news that US President Barack Obama announced new plans overnight to cut the US budget deficit by US$4 trillion by 2022.
Obama had previously planned to cut it by US$1.1 trillion by 2020, but he faces stiff opposition in the Congress from Tea Party Republicans who want much deeper cuts and extensions of the Bush era tax cuts. See more here at BBC.
The US budget deficit is currently around US$1.5 trillion or 10.9% of GDP, causing some to forecast that America's debt track is unsustainable.
Obama has proposed ending the Bush era tax cuts and has also proposed a 'Debt fail-safe' where cuts kick in from 2014 if America's debt to GDP ratio hasn't stabilised. See more here at Bloomberg.
This matters for New Zealand because if Obama is able to convince bond investors that he is serious about cutting the deficit then he may succeed in keeping long term US Treasury yields low. Those US Treasury yields form the basis for interest rates globally.
Also, sharp cuts in US budget spending may slow down recovery in the US economy, the largest in the world. That could cascade on to slower growth globally and in China in particular. Chinese demand for soft and hard commodities is now crucial for Australia and New Zealand.
US Treasury yields fell somewhat after the announcement. See more here at Bloomberg.
Moody's said Obama's plan may mark a turning point. See more here at Bloomberg.
Meanwhile, TradeMe Property reported a drop in rental property demand nationally and a rise in rental property supply, except for in Auckland. See our earlier article here.
The New Zealand dollar firmed towards 79 USc overnight on renewed hope for global growth and commodity prices.
No chart with that title exists.
13 Comments
Sounds like what some of us have been saying for some time:
The 'biggest economy' (can you call it that with the debt added?) is in permanent trouble.
2020 ia Mad Max territory in energy-to-do-something terms - too late to be relevant.
Of course it'll "cascade onto slower growth globally" - I could have told you that would be the case about now, and I could have told you in 1975:
It is all a fools game really.
Something I have never heard disputed is that GDP=Energy, or growth = a growth in energy consumption.
So if peak oil is a reality then all the debt will likely never be paid back.
Sooner or later everyone will realise this and the only solution to contracting growth is to reduce spending.
If debt is to be repaid, the only way for this obtain a surplus is for spending to be cut below a contracting GDP.
Meanwhile The Fed continues exporting inflation to the rest of the world via QE, driving up stock markets and raw material prices and our local media spends the majority of the week reporting increases in milk and bread prices, lord forbid they dip their toe into trying to explain why!!!! Meanwhile this leaves joe average kiwi thinking the local farmers and bakers are ripping us off, not realising the deeper issues in the world and how our purchasing power is being debased by US greed.
All the while in the background the oil supply issues (yes PDK, I sit slightly on your side of the fence) continue to fester away quietly just waiting to destroy any resurgent global "growth". Still at least the European bond issue has gone quiet for a while, just keep the bailouts rolling boys and make hay while the sun shines.
I'm off to work.
FYI The BusinessNZ BNZ Performance of Manufacturing Index (PMI) for March shows the sector barely expanding at 50.1%, down a bit from 53.6 in January. 50% is the threshold for expansion or retraction.
More detail here.
Bank of New Zealand’s Senior Economist, Craig Ebert, said that the stalling in the March PMI, from its robust reading early this year, was understandable, as it is the first survey post February’s devastating
earthquake. Still, there remained enough positive aspects, including robust employment intentions, to suggest the manufacturing will continue to recover, overall, having rebounded well in Q4 of last year>
http://www.businessnz.org.nz/file/2070/PMI%20Main%20Release%20FINAL.pdf
And here's our interactive chart here
http://www.interest.co.nz/charts/confidence/pmi-index
cheers
"Foreign Affairs Minister Murray McCully said the money would go, through the International Federation Red Cross, to helping those affected by the fighting in the north African country." stuff
Ok but why ...when there are at least a dozen other conflict zones where people are in the same if not worse situation...why ?
and what's to stop the money ending up in gadafi's pocket?
Last of the cheap wine.....!
"IT’S bad news for wine connoisseurs and party time for cheapskates: new research has shown that £4-a-bottle plonk tastes just as good as the top vintages.
Confirming something many drinkers have long suspected, the study shows that quality is all in the mind."
http://www.heraldscotland.com/news/home-news/wine-test-proves-quality-is-all-in-the-mind-1.1096275#
"hic"
fx volumes in the NZ$ rose in March 2011 to their highest levels in two years
http://www.interest.co.nz/charts/exchange-rates/foreign-exchange-trading-volumes
with a big jump in fx swaps. Overall transaction volumes exceeded $10.3 billion per working day, or almost $280 billion for the month. In the past 12 months, trading volumes have exceeded $2.6 trillion.
Big numbers, eh.
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