90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: NZ$ hits 3 year high after Interest.co.nz story on China fund buying; IMF warns may withhold Greek funds; Weak US spending sparks QE III calls

27th May 11, 9:01am by Bernard Hickey

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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 a three year high of 81.2 USc this morning.

This followed Gareth Vaughan's report at 12.31pm on our site yesterday that China's Sovereign Wealth Fund may have set aside NZ$6 billion to invest in New Zealand assets and bonds.

This is just below the 81.76 USc record high set on March 14, 2008.

Meanwhile, a report that China wanted to buy Portugese bonds and further diversify its holding away from US Treasuries briefly took some of the pressure off the euro.

But comments from the Luxembourg Prime Minister later overnight that the International Monetary Fund may withhold its next tranche of funding for Greece. See more here at Reuters on the IMF threat.

Elsewhere, the second estimate of US GDP in the first quarter showed annualised growth of 1.8%, which was unchanged from the first estimate.

However, this disappointed economists and markets who had expected an upwards revision to an annualised growth rate of 2.2%.

Also US consumer spending growth slowed in the first quarter in another sign of a weakening US economy. See more here at Bloomberg.

This sparked new calls for a third round of Quantitative Easing, which was also a factor weakening the US dollar. See more here from Brad Delong

(Updated with links to other sites)

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14 Comments

by Andrewj | 27th May 11, 9:17am 1306444648

Read it and weep. Its time we stopped borrowing and started repaying.

http://gregpytel.blogspot.com/2011/04/china-is-buying-up-world_07.html

China is getting this massive volume of the US debt papers. These papers on the markets are AAA-rated and markets have to consider them as good as cash in international transactions. Otherwise the US dollar would have collapsed. So the 2/3 of world reserves that are held in the US dollars. No country can afford this to happen as this would have been a financial Armageddon. So China is buying access to the world natural resources, funding development of key infrastructure in many countries, investing in companies paying for it all with the US debt papers. Effectively China is using its cheap labour force to get as much as possible US debt papers which it uses to "buy" the world.

However this way China makes the US a massive debtor to the entire world (wherever China invests). It is impossible to rollover debt to infinity. So at some point, difficult to tell when, the US debt spread all over the world will become too big to roll it over once more. (Technically the growth of the US debt from trade imbalance with China is a pyramid.) In the same way as liquidity crisis happened in 2008 making banks debtors to the taxpayers, the collapse of the US debt and dollar will make the US insolvent to the rest of the world. All the countries and companies that China effectively paid with the US debt whilst "buying" up the world). Also all business entities that sit on the US debt, a huge part of the financial system, will also end up with a mountain of worthless US papers. No one will be able to come to the US rescue. However China will be left "owning" the world.

by south paw | 27th May 11, 9:38am 1306445886

Why don't we default on the debt and devalue the NZ dollar massively?

That's what Iceland did and it's faring better than the PIGS painful lingering death, trapped in the Eurozone.

Apparently there isn't a single example in history of a country getting ahead by attempting to pay back it's unservicable debt, but plenty of examples of a country recovering after defaulting/restructuring debt.

by Gertraud T. | 27th May 11, 12:17pm 1306455464

Because it would need to be done very,very slowly (do we have the time?)

otherwise it happens like see link:

http://www.zerohedge.com/article/welcome-hyperinflation-hell-following-…

Link corrected.

by steven | 27th May 11, 12:04pm 1306454687

Well apart from the moral aspect.....Our Govn debt isnt un-servicable...also most of our total debt is private and personal debt...so a govn default wouldnt achieve much except leave us in deeper poo. ie if the Govn defaulted private debt which is quite cheaply got would either be unavailable or significantly more expensive for NZ companies, lots would go bust.

regards

by Christov | 27th May 11, 9:47am 1306446477

Who exactly is Greg Pytel....AndrewJ.....?aside from...

Greg Pytel

Occupation:Blogger

Interests:Economics, Gold, Interest Rates, Stocks

About Me:

Greg Pytel is a quantitative risk expert & international business development consultant. He has extensive international experience advising governments and companies within the area of hydrocarbons exploration and international telecommunication licensing. He started his career with Shell Exploration in 1990 and continued with Petroleum Geo-Services in Norway. From 2000 he has been involved with private consulting practice that also covered fraud risk assessment and investigations.

by andyh | 27th May 11, 10:13am 1306448023

I sense you are not really that interested who he is (but in case you are):

he is most well known for evidence he presented to the UK's House of Common's Treasury Committee investigating the GFC. The evidence became something of an overnight sensation in the UK and is summarised here:

http://www.parliament.the-stationery-office.co.uk/pa/cm200809/cmselect/…

Vince Cable MP, the current Business Secretary in the UK coalition government has referenced the piece extensively.

So I guess Pytel is not just another 'blogger'.......

by Christov | 27th May 11, 10:24am 1306448671

Thanks for the link... andyh....yes I'm always interested in the depth of the source....as I have found in the past on any number of occassions that regardless of the outward appearance of balanced reporting.....there is often a hidden barrow being wheeled......i.e. Gold.

Now if I were to be an avid follower of ..say Market Oracle....I'd be up to my ears in the stuff.

I do however appreciate your helping me along there, and will follow it up 4sure .

by Christov | 27th May 11, 10:31am 1306449075

Wow ...!..thanks again andyh...certainly worth the read.

by KW John | 27th May 11, 9:28am 1306445301

Council wants forests redefined

"Narrow streamside plantings typically don't match the Kyoto Protocol's requirement for a forest.

The council wants to be able to make an aggregate of the riparian strips and it would act as a regional carbon-credit broker, paying profits to landowners."

by Sepherial | 27th May 11, 10:43am 1306449801

Carbon Credits - something from nothing created from fresh air at Goldman Sacks et el and sold as a financial product in to world markets, but really its just another imaginary derivative...

Cue Bono?

by Andrewj | 27th May 11, 11:22am 1306452126

or just another pyramid scheme

by SimonP | 27th May 11, 11:30am 1306452634

Kyoto is an agreement between Governments and nothing to do with Goldman Sacks (sic). It is not imaginary, if NZ doesn't meet its target then it will have to pay. The NZ Govt has (rightly or wrongly) decided to devolve the forest carbon accounting rules down to individual land owners so if Taranaki farmers want carbon credits they have to create a Kyoto forest. All they have to do is make those shelterbelts a bit longer and wider :-)

by Sepherial | 27th May 11, 12:22pm 1306455765

What a joke yep pay who exactly? Its a con game like most of everything else!

Goldman Sacks JPMorgan et al are the American Government and vice versa!

Not just anyone can be president of the USA its a club...presidents are selected...

Or have you not been paying attention to the revolving door of of personalities that rotate round and round in unelected institutions?

Notice the gold boarder around what looks like a American Flag of Independence?

The lie is different at every level SimonP.

by neco | 27th May 11, 3:44pm 1306467851

This is just below the 81.76 USc record high set on March 14, 2008

Well that ain't a record any more, it just went to 81.96.