90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: NZ$ hits new record high on woeful US jobs data; Chinese inflation higher than forecast; Aussie wages tax free til A$19,400/yr

11th Jul 11, 9:04am by Bernard Hickey

NZ$ hits new record high on woeful US jobs data; Chinese inflation higher than forecast; Aussie wages tax free til A$19,400/yr

Bernard Hickey details the key news over the weekend in 90 seconds at 9 am in association with Bank of New Zealand, including news that US jobs growth of 18,000 in June was much, much worse than economists expected.

Unemployment also rose in another sign that the world's largest economy is struggling to get going again. Corporate profits and cash piles are strong, but any extra jobs growth is going in offshore markets and the profit share of national income is growing. See more here at WSJ.

This weak jobs growth extended expectations that 'exceptionally low US interest rates (nearly 0%) would remain for an extended period' that could last well into 2012'.

This makes the US dollar relatively less attractive than the New Zealand dollar, where our Official Cash Rate is 2.5% and expected to rise towards 5% by early 2012.

The New Zealand dollar rose to a record high of 83.8 USc on Friday night and the currency rose on a Trade Weighted Index (TWI) to 72.3, its highest point since March 2008. It has now risen 14% since March.

Meanwhile, Chinese inflation surged to 6.4%/year in June, higher than the 6.2% median forecast for economists. Food prices rose 14% and the price of pork was up 57% from a year ago.

This shows China has a real battle on its hands to slow its economy down and may have to take even tougher action. A sharp slowdown in the Chinese economy would hit New Zealand hard because our economy is now closely linked directly and through Australia. See more here at Bloomberg.

Meanwhile, US politicians are still in dispute on raising the US debt ceiling. It must be raised by August 2 or America will default on its government debt, which would unleash financial market chaos. See more here at NYTimes.

Across the Tasman, the Labour-Green government has announced a carbon tax plan that includes tax breaks for many low to middle income earners, including a lift in the tax free threshold to A$19,400 NZ$25,000) by 2015 from A$600/year now.

See more here at SMH.com.

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5 Comments

by Andrewj | 11th Jul 11, 10:46am 1310337965

Italy and Spain must pray for a miracle http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/86289… Once again Europe's debt crisis has metastasized, and once again the financial authorities face systemic contagion unless they take immediate and dramatic action.

by Kate | 11th Jul 11, 11:16am 1310339775

And here's the cruncher;

Germany must now be willing either to buy or guarantee Spanish and Italian debt, and in doing so to cross the Rubicon to fiscal and political union, or accept that EMU must break up with calamitous consequences for German foreign policy. Large matters, beyond the intellectual vision of Germany's current leaders.

by Billy | 11th Jul 11, 11:48am 1310341739

Aussie wages tax free til A$19,400/yr

That's something we should follow in New Zealand. That's going to put more money into lower income folks. More money to either spend or save.

by paulg | 11th Jul 11, 12:50pm 1310345421

Please see these links for clarification of tax changes as opposed to Gillard headline spin......

See http://johnhumphreys.com.au/2011/07/10/a-closer-look-at-the-income-tax-changes/

and http://blog.libertarian.org.au/2011/07/10/carbon-tax-compensation/

by Andrewj | 11th Jul 11, 12:22pm 1310343742

Some of the comments on the AEP article

jonlivesey -"Please read below reply to hospitaller." I have, and I think there is an important point you are missing. The UK and US carried out QE by buying Bank securities and in some case Banks which at the time had no real market price. Mortgage-backed securities, for example, were changing hands at a couple of dimes on the Dollar. But today, the assets the UK and US bought have regained a good deal of value. In the UK, at least, there is active discussion about how to use the recovered assets. The LibDems want to distribute Government owned shares in Banks to the taxpayers, while personally I would use the money to cancel out the 20% of GDP in new debt that was taken on during the crisis. So there is a crucial difference here. The UK and US bought debt assets that represented investments. I don't know if we will ever see 100% of the money back, but those piece of paper in the vaults in Washington and Whitehall represent real debts, real Banks, real companies. Now I suppose some portion of a Million Euros in Eurozone sovereign debt represent "something", but most of it represents just past expenditure that is gone for ever. Even if they were both trading at 20c on the Dollar, I would prefer to be given a share in Lloyds Bank than an equivalent amount of Greek sovereign debt.

" It was called hyperinflation, it destroyed the economy and it led to the rise of Hitler."

You are correct in saying that this is what they remember. In the real World, however, hyperinflation was a one-year episode in the early twenties and Hitler didn't come to power until the Thirties. Hitler *tried* to make an issue of hyperinflation, but completely failed and when he tried out his coup, ended up in jail.

What put Hitler in power is well-known and obvious. Because Germany was, as usual, over-dependent on exports, they were hit harder than most by the collapse of World Trade when the Depression began, and soaring unemployment put the Nazis in power.

drjonathanwilson Yesterday 06:33 PM Recommended by

16 people Ambrose

The key decision, as you marvellously describe as their Rubicon moment - is whether Germany is willing to go into a full debt union with the PIIGS or lose their cherished foreign policy goals.

If Germany waits, it will by default lose its foreign expansionist goals because the markets will make that decision for them.

If Germany acts now and forms an EMU wide debt union with all the necessary trappings of centralised fiscal and tax control then Europe and the world will know that the Germans forgot nothing and learnt nothing from two world wars.

Jonathan