Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news the US Federal Reserve is sticking with its 'Twist' plan to buy longer term bonds, but is holding off from another round of money printing.
The Federal Reserve released the results of its latest monetary policy committee meeting this morning and detailed its new economic forecasts.
It said growth had been marginally stronger in America in the third quarter, but the Federal Reserve lowered its forecast for growth 2012 to around 2.7%, while it saw the unemployment rate remaining high around 8.6% by the end of next year. See more here at Bloomberg.
Federal Reserve Chairman Ben Bernanke later told a news conference there remained significant downside risks for the global economy and the world's biggest central bank could do more to stimulate growth, but was not willing to do so now.
There was one dissenter who wanted to do more. At the last meeting there were a record three dissenters who opposed the 'Twist' plan.
US stocks were up around 1.5% in late trade, with little to celebrate from the Fed's decision or comments. See more here at Bloomberg.
European stocks bounced somewhat after Tuesday night's savage selloff in the wake of Greece's shock decision to hold a referendum on its Euro zone membership.
The focus is turning to Italy now as its bond yields rise to unsustainable levels over 6%.
Prime Minister Silvio Berlusconi was holding an emergency cabinet meeting this morning to prepare some concessions to take with him to the G20 summit tonight. See more here at Reuters.
Meanwhile, Greece's parliament will hold a confidence vote on Friday night and US non-farm payrolls data is due on Friday night.
Credit Default Swap spreads for Greece surged by 5,700 points to 8,900 points, suggesting most now expect an uncontrolled default and exit from the Euro zone. Italy's CDS rates, which are a measure of bond market confidence, also rose to 515 points. To compare, New Zealand's CDS rates are under 100 points. Interestingly, Germany's CDS rates have risen to near 100 points too.
Meanwhile, the Institute of International Finance (IIF) has warned that plans to recapitalise Europe's banks face serious problems and that banks are instead selling bonds and calling in loans to improve their capital ratios, both of which would worsen Europe's financial and economic crisis. See more here at Bloomberg.
Meanwhile, the New Zealand dollar has dipped under 79 USc and is down from over 82 USc on Monday. Markets will be watching New Zealand jobs figures due at 10.45 am today. The unemployment rate is expected to fall to about 6.4% from 6.5%. See more here in BNZ's market report on our site.
42 Comments
Prime Minister Silvio Berlusconi was holding an emergency cabinet meeting this morning to prepare some concessions (read underage hookers) to take with him to the G20 summit tonight.
Which brothel is it to be held in skudiv?
Fantastic A.J. if that's not photo of the year then I'm buggered if I know what could beat it.
Pissed myself......for different reasons to George P. altogther.
Let's hope he puts it up at top ten at whatever time of the day the new ten is.
ta much.
Liked this guy's take on deficit spending, disagree with Ambrose.
You start from a false premise.
The purpose of deficit reduction is not to stimulate growth but to avoid default. It is obvious that a contraction of government spending is going to reduce GDP because government spending is one of the four components of GDP, along with consumption, investment and net exports.
It is also obviously true that as GDP declines then so do tax revenues. No argument on that one either.
But what you fail to grasp is that once a country gets into severe debt difficulties - ie when the debt to GDP ratio is very high and the deficit on the public accounts is also high - then its choices are (a) to cut the deficit sharply and accept declining living standards as a result; or (b) to keep borrowing and spending and run a very serious risk of default.
Default in the case of a country too large to be bailed out (like the UK) means the closure of hospitals and schools, the collapse of public services and serious civil unrest. It is catastrophic, absolutely unthinkable.
You share with the economic illiterates of the Labour front bench a belief that there is a soft landing to be had, where growth can be stimulated with a bit more borrowing and GDP growth kicks in to solve our debt problems. You can do that when you have a debt to GDP ratio of say 40% and a deficit of say 4% but to argue for more borrowing when debt is 80% of GDP and the deficit is 9% is, forgive me for saying so, chronically stupid.
"Default in the case of a country too large to be bailed out (like the UK) means the closure of hospitals and schools, the collapse of public services and serious civil unrest. It is catastrophic, absolutely unthinkable"
Yet if a sunstantial part of their GDP is going to pay the money back then that % is then "free" to support schools etc....
"forgive me for saying so, chronically stupid." LOL....yes and no.....the assumption is you can get growth to bail you out......if that is guaranteed not to happen, and with peak oil that is certian well then that (more debt) isnt an option....
"soft landing" a decade ago that was a maybe option.....its now a Q of how much is going to break and never be repaired...
"serious civil unrest" I think thats a givn now myself.....and some countries like Pakistan which are in about the worst (economic and civil) state possible have nukes......
regards
First, you are confusing the debt and the deficit. They are not the same thing.
The debt is a balance sheet number and the deficit is the rate at which we add to it each year. If you want to talk about cutting the debt you have to swing the public accounts into surplus so that there is surplus cash to pay down the stock of debt. That is not possible in the medium term.
But to answer your first question directly, it's just arithmetic: as long as government spending falls by more than the reduction in the tax take as the economy contracts the deficit will decline.
Yes, this means everyone will get poorer, the economy will shrink and there will be higher unemployment, but it's the best that's on offer to a country facing default. There is no soft landing when your debt spirals out of control.
As to your second point, the debt to GDP ratio in previous years was manageable only because the deficit was small (or non existent) and because there was a long period of sustained economic growth. The three components of 'debt dynamics' - the stock of debt, the deficit and economic growth are all interlinked and arguably a country can manage quite well if any one of them is in good shape, even if the other two are not.
It's when you have three red lights flashing that you are in real trouble because default is inevitable. That's exactly where the UK is today. We have never been in this situation before, so in that sense Gordon Brown really has made economic history.
Lastly, the yields on gilts reflect not the market's resounding vote of confidence in the UK economy but the jaw-dropping risk profiles of almost every other investment imaginable. Pension fund managers, sovereign wealth funds and banks have no idea where to invest their funds now because there is a such a high risk of losses. This is true of gold, equities and many sovereign bond issues.
The UK and the US have been favoured only because they have their own central banks and can print money if needed (which of course both have done and are doing), which is an easier form of default to swallow than the one on offer for, say, holders of Greek government debt, where 50% write downs are on the table.
Which raises a paradox because if the Eurozone sorts out its woes and the equities markets start to surge the yield on gilts will rocket. It's the last thing George Osborne needs.
Anyone after Trade Me shares? Apparently First NZ Capital, Craigs Investment Partners, Goldman Sachs & Forsyth Barr have been brought on board to help UBS peddle 'em to retail investors.
Morning Gareth.
I'll take two......no wait ...three, cheaper than gift tokens and you don't care where they are when you toss them in a drawer.
ah yes.....one for my wall....I will frame it.....not if its over $2 mind....
regards
Not shares these days......in the future once the dust has settled, yes.....
I suspect the asking price will be un-realistic.....
regards
The current owners of TradeMe , Fairfax Ltd , are deeply in debt . The " goodwill " , shown as an intangible asset in their ( Fairfax's ) balance sheet accounts is greater than the company's market capitalisation . Indeedy , their current share price has fallen back to just a tadge above the levels they plummeted to during the GFC sharemarket capitulation .
Fairfax are in strife ! .... Gummy expects that they'll sell another tranche of TradeMe shares sometime after the IPO .
.. as terrific as TradeMe is as a cashflow positive business , the huge overhang of Fairfax's holding , may suppress the share price until that holding is unwound .
The squid strikes again.
Hilarious Video of Eurocrats in Action, Ripping Off Taxpayers and Running Into Walls to Avoid the Cameras http://globaleconomicanalysis.blogspot.com/2011/11/hilarious-video-of-e…
Italy's 'shock therapy' as eurozone manufacturing buckles Europe is sliding into a full-blown industrial recession with contraction spreading to Germany and a drastic decline under way in Italy, greatly complicating efforts to contain the region’s debtcrisis. http://www.telegraph.co.uk/finance/financialcrisis/8865957/Italys-shock…
This represents one of many downsides to what Papa has done. He could lose the referendum, and plunge the EU into a crisis from which it would never recover. From this crisis, it is very likely that a full-blown global slump could ensue….there having been, naturally, no possibility at all that such might happenbefore he pulled this particular rabbit from the hat.
http://hat4uk.wordpress.com/It's called the Greek Gambit....one must realise any referendum in Greece will be carried out by the same 'honest' pointy heads and political wannabees that we find woven into the Greek tax culture....QED this is the PMs way of putting the squeeze on Merkozy....The result of the vote will be what the elite in Greece want it to be.
So effectively your saying the bail out will proceed and Greece will remain in the E.U. is that right Wolly...?...provided the results of the referendum are fixed of course.
Nope...I am saying the future there will depend on who is placing the bets and how they are betting. To think the Greek pollies are not into the trading up to their necks is foolish..ditto the armed forces bosses...and the tax dept characters...and the bankers...and the wealthy with no names...and the tealady in the Parliament. The vote will be as honest as all other Greek elections and run by the same highly efficient govt bureaucracy....
Thanks Wolly ,so uh where's all this betting money coming from exactly...? don't get me wrong ,I'd guess the opportunists are out in force....but it's not a situation where you can lay off the bet ....you either have control to win big or risk losing it all.
Would you say George has got a bet on ...and if so which way do you think he's punted..?
Christov my dear chap...nobody makes such bets with their own money...do the MFGlobal thing!.....There you are deep within Athens in sole charge of the management and control and security over the referendum that will determine which bets win.....do you want a new mansion...a luxury boat or three...and a Swiss bank account stuffed with millions of euro...or are you happy with unemployment prospects.
Yup I see that Wolly....in the administration that is under standard bribery and corruption....what you and I were talking about was the kind of funding we would be talking to ensure the desired the outcomes for those who bought into the bank holdings.
I mean any given Sunday I'd say you would be right.....but when the German /Franco /IMF interests say .........this is getting out of hand.....I think they mean it literally...! beyond the control of bribery..inducement...lobbying... I think they mean ...OUT OF CONTROL.
I mean God forbid what is the world coming to when these bloody peasants can invoke some kind of will upon the direction their Country may now wish to take.
They misunderstood the E.U. from the get go, that they had already surrendered their Sovereignty when being bankrolled into a Union of Alliance....who feel there is no leaving.
You can be Greek at home,but firstly you are now an E.U. citizen you must comply.
Well I think the penny has dropped in the Greek populus.....and we are seeing ...um no I don't think so.
Just want to point out, Greece is now being run by the IMF, not the EU, This is Sparta!
Fair Comment ...skudiv...maybe the Greeks talked to the Argentines.
In Yesterdays Top-Ten-Hit-Parade
Number 7: the Greek elite are buying property in London as fast as they can find berths for their yachts. They're voting with their spinnakers, on the basis that the game is up. In any future Greece on offer, they will have to start paying taxes and they do not want to. One banker said the Greek super-rich have mostly left.
Number 8: Chinese millionaires are leaving en-masse, heading for NZ
Mirror, mirror on the wall, which of the two, is the smartest of them all
Papandreou has been given the whisper to delay the Eurozone scheme of arrangement by holding a referendum so the few remaining elite greek stragglers can get their galleons out.
/sarc off.
He's playing hardball.....good for him (in a way) France etc will now be looking to save France....he's locking Greek fate to the fate of the EU and in turn France....nice play IMHO.
regards.
Yes Steven , his playing hardball is the sign of nothing to lose in this case.....I don't think it is Greek genius....i think it is genuine fear motivating this...not the civil unrest kind....but full scale bloodbaths.....I think your looking at a man who is damned if he does( in the truest sense) and damned if he doesn't.....
The bribes he's been offered or the threats by the IMF probably won't count for much if he's dead.
"global slump could ensue"
Is there anyone on Interest that thinks this isnt a given?
I'll exclude GBH whos Prozac must be issued in 10litre buckets....
regards
he's got drip, you can see the bag, its under his arm, like where you carry a gun. When its time to tango he just drops one of those blue pills into the mix.
Helicopter Ben. I was suprised he didn't even attempt to put a floor under this bear market rally. I felt he could've, the top must've been last week. Anyone feel like catching daggers? Short paper - long physical.
And nobody is suggesting insider trading is going on behind the fiasco in europe, or that said rorts are being carried out by those jerking the strings. Wonder how many Greek billionaires are betting on a yes vote having bought up shares in the banks that hold the debts...or how many times they have done the same trades...and how often they tell the political players which way to sniff....and who exactly will be 'managing' the vote to ensure nothing in the way of a scam is carried out......!
I think there is a real and present danger of Greece becoming a Syria within the so called democracy of the E.U. here Wolly ,and George P. is acting out of real and present fear of just such an event.
Of course there will be baubles waved in certain quarters and measures taken to direct the outcome.........but currently to the Greeks a Pig in a dress wearing rouge lipstick and lederhosen ...is still a Pig.
Of far more concern is whether the British prison inmates cricket team ( the porridge 11) will be boosted with the inclusion of three Pakis very soon for the next few years!
It's worth placing a bet...no!
Cunny facing a fall down the political dunny!
"Labour leader Phil Goff has promised to show New Zealand the money tomorrow and reveal his party's fiscal plan which will involve borrowing $2.6 billion more than National over three years." herald
Voters will know it is cunny who has the spreadsheet with all the answers....Goff has just managed to shift the pain over to cunny....brilliant move Phil Goff.
"The question I’m trying to answer right now is how the final act will be played. At this point I’d guess soaring rates on Italian debt leading to a gigantic bank run, both because of solvency fears about Italian banks given a default and because of fear that Italy will end up leaving the euro. This then leads to emergency bank closing, and once that happens, a decision to drop the euro and install the new lira. Next stop, France."
http://krugman.blogs.nytimes.com/2011/11/01/eurodammerung/
All over bar the shouting it seems......maybe I should get a new TV at Xmas, the riots will look much better on a LCD/LED I suspect....
Anyone got suggestions for TVs that show off flames well? suspect there will be a lot....
regards
"The question I’m trying to answer right now is how the final act will be played. "
"I know not what weapons will be used to fight WWIII, but I know WWIV will be fought with sticks and stones" - Albert Einstein
I love that quote of AE....
regards
Meanwhile Dyson is warning us all of the dangers of voting Labour...we would end up with her policies on immigration....
. http://www.stuff.co.nz/national/politics/policies/5901933/Labour-to-maximise-migrants-skills
The Collapse of the Tower of Financial Babel
http://theautomaticearth.blogspot.com/2011/11/november-1-2011-collapse-…
regards
Australian Press note a November coup could be plotted on current PM Julia Gillard with Kevin Rudd to push for the job of PM
KEVIN Rudd is being urged by key backers within the Labor Party to challenge Julia Gillard for the leadership as early as this month.
Labor figures behind the push for the former PM to take back the job he was removed from last June have confirmed he was now being advised by his closest confidants not to wait until next year but to launch a challenge as early as the second last week of November
Read more: http://www.news.com.au/national/november-coup-plotted-on-julia-gillard-…
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