90 seconds at 9 am: NZ$ is tallest dwarf

90 seconds at 9 am: AU resources bubble has burst; China heading for harsh winter; Fed eyes more stimulus; NZ$ the tallest dwarf

23rd Aug 12, 8:36am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news the US Fed has delivered its strongest hint yet that it will unleash fresh round of stimulus. And it is likely to deliver it "fairly soon" unless the economy improves considerably, minutes from the central bank's August meeting show. Markets reacted sharply and positively on the news.

The US dollar fell against most currencies as another attitude of 'risk-on' set in. The Dow and the S&P500 were in negative territory prior to the announcement, but in late trade the S&P is up in positive territory and the Dow is almost back even.

Commodities are rising. Oil is up over US$97 per barrel, pushed up by a decline in supplies and the stimulus talk, and gold has moved higher on the news too, up now to US1,655/oz.

Staying in the US, Congress has been warned that only by resolving their fiscal cliff issues will the economy keep growing. Perhaps the Fed minutes are a similar warning. The signs are not promising.

BHP, the world’s biggest mining company, has slashed its new project plans by a whopping NZ$84 billion after its second-half profit plunged 58% because metal prices declined and costs rose. There's trouble in China as stocks of raw materials grow sharply and there are predictions of a 'harsh winter' there. Brace yourself. The Aussie resources bubble has burst.

More fallout: Japan reported a wider-than-expected trade deficit in July as Europe’s sovereign-debt crisis and the slowdown in China dragged down exports and higher oil prices boosted imports.

All this has the NZ dollar holding at over 81.2 USc and the TWI starts the day at 72.8. We have what we might call the tallest-dwarf syndrome - we are in trouble but not as much trouble as everyone else.

Bernard Hickey will be back tomorrow.

No chart with that title exists.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

39 Comments

by Andrewj | 23rd Aug 12, 8:57am 1345669059

In Atlas Shrugged, Ayn Rand wrote -

"When a society establishes criminals-by-right and looters-by-law, men who use force to seize the wealth of disarmed victims, then money becomes its creators' avenger. Such looters believe it safe to rob defenseless men, once they've passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter."

"When you see that trading is done, not by consent, but by compulsion- When you see that in order to produce, you need to obtain permission from men who produce nothing- when you see that money is flowing to those who deal, not in goods, but in favors- when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you- when you see corruption being rewarded and honesty becoming a self-sacrifice- you may know that your society is doomed."

"When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask, 'Who is destroying the world?' You are."

by Trolleyboy | 23rd Aug 12, 9:45am 1345671906

I'm sure all of us could quote works of fiction to support our particular prejudices. I'm rather taken by Ursula Leguin's "The Disposessed".

by Andrewj | 23rd Aug 12, 9:50am 1345672203

Im just frustrated that I now have to put a RID Tag in all my Cattle and soon my sheep. For what benefit?

by notaneconomist | 23rd Aug 12, 12:28pm 1345681723

AndrewJ - I certainly share your frustration on those RID tags. NAIT another bureaucratic organisation that has a cost to farming.

I have read most of Ayn Rands books and while I know some people have put various negative labels on her works I think she was an extraordinary philosopher and writer.

She understood that laissez-faire capitalism was the only thing that could protect individual rights.

by Neven911 | 23rd Aug 12, 10:27am 1345674447

Andrew

Of course Rand was delusional, she was railing against government but as it turns out the "criminals-by-right and looters-by-law" are not just the governments but those who are large enough to influence them

by steven | 23rd Aug 12, 10:51am 1345675895

Utter fruitcake....and one of her disciples was Alan Greenspan in-arguably the world's single most powerful banker.....so who should be surprised that we are in this mess.

regards

by Neven911 | 23rd Aug 12, 11:06am 1345676789

Who said the Russians didn't win the cold war, Rand may turn out to be the ultimate mole

by notaneconomist | 23rd Aug 12, 12:37pm 1345682255

Steven - Alan Greenspan may have been a follower of Rands work, so may be he used what Rand warned of to his own advantage. There's always a flipside. Look at religion.

by steven | 23rd Aug 12, 12:53pm 1345683209

No I think he certainly seems to have attempted to put it into practice her works during the highlight of his career. He after all describes himself as a libertarian republican.

regards

by notaneconomist | 23rd Aug 12, 4:45pm 1345697152

Steven - When a persons actions are inconsistent with how they describe themselves then your BS radar should be ringing. You might have to change your batteries.

by meh | 23rd Aug 12, 11:15am 1345677357

Was she really delusional? @Steven below - fruitcake? There seems (IMO) a lot of truth in those few paragraphs.

It comes back to govts. who enact the laws and allow themselves to be influenced. And ultimately society who elect govts. Who is responsible - we the citizens are.

by Stephen Hulme | 23rd Aug 12, 11:28am 1345678083

In every way.

by steven | 23rd Aug 12, 1:01pm 1345683669

Oh yes I think there is truth there, the problem though is the rants against Govn when really its almost against anyone who establishes a monopoly.

So where for me it goes wrong is only focusing in the danmage govns can do and ignoring the damage private individuals and corporations can do left to their own ends. For me at least I see no other method but Govn to caontain them, despite Govn's limitations.

regards

by notaneconomist | 23rd Aug 12, 4:34pm 1345696447

Mist42nz - When we export the 100% pure NZ tax and bureaucracy we could use these tags and the scanning equipment at the ports to ensure it can't come back.

Now on this new commodity I think it should be with the soft market with pork bellies. I think thats where the pigs back best fits in best.

CFD's maybe? Given China's interest in NZ assets, think it could be goer and they do like PURE. Maybe its best bundled a bit like mortgage debt that way you can sell more of it at once.

by kin | 23rd Aug 12, 8:57am 1345669067

The fact that the world is going into GRII (Great Recession II ) is obvious even to someone with half a brain.

China's hard landing is unstoppable (despite every commentator's hope and prayer) and will soon end up in a big pile of unpayable Reminbi Debt. However the Chinese will just print whatever necessary to cover the hole (like they did in the 90's)

US QE3 will do nothing except booze the Dow index for another two months, but with rising food inflation due to the drought, this will cause even more trouble down the road until the economy get strangled by inflation.

The big billion dollar question is : What is NZ going to do about their own mini version of Hard Landing and unpayable NZ$ and external currency denominated debt ?? Will our Goverment do a quick devaluation or hope for the best and suffer an even greater crash and burn ?? It is obvious that this should be done quickly and our currency adjust to our real productivity as soon as possible before the storm hits.

What action will our great smiling and waving leader choose ?

My bet is the latter.....

by Gummy Bear Hero | 23rd Aug 12, 9:09am 1345669768

It's not obvious to me that the world is going into Great Recession II , and I have half a brain .......

...... so the laughs on you !

And if you devalue the NZ dollar , as you suggest , the property market in NZ will collapse quickly & messily : Residential , farms , commercial , the lot . Do you really wish NZ'ers to endure that , what the Irish & the Americans have been through ?

by Stephen Hulme | 23rd Aug 12, 9:20am 1345670453

GBH - yep you are right - the whole facade of well-being, albeit false, would unravel together with the Aussie banks enjoying the luxury of pilfering NZD 3.0bn for the home team.

by meh | 23rd Aug 12, 9:52am 1345672322

What exactly have the Irish and Americans been through Gummy - their fantasies and illusions have been exposed for what they are and it's up to them to see the opportunity to reevaluate their personal beliefs and take personal responsibility. Their own fault if they don't make the most of it.

Maybe it's what NZ'rs need too, although I doubt very much we'd act any differently.

by kin | 23rd Aug 12, 9:58am 1345672688

Yes Gummy,

We really should not be woken from our dream life....let us just dream on until the final nightmare....

So the Americans, Europeans and now even the Chinese is waking up to reality...surely we can make our dreams last a little longer.....otherwise all the weeds grown will go to waste...

by steven | 23rd Aug 12, 11:12am 1345677124

You are right, we are actually going into a Long Depression mk II.

Devalue, I suspect not, the bigger likelyhood is private and then Govn austerity drives us to the above.

regards

by notaneconomist | 23rd Aug 12, 1:06pm 1345684009

GBH - I think some of these bloggers here are wanting a great big crash. I can only assume they have never had real struggle in their lives. They think their lives are difficult but have no idea how good life is. I can't for the life of me understand why some people would want others to endure extreme hardship.........Narcissistic Personality Disorder... comes to mind.

by DC | 23rd Aug 12, 9:13am 1345669998

NZ needs to print to stay competitive on a global level.

GBH, I agree, would a solution be to print a little by little? Yes it would drop the value of property but I hope not slowly and messily. A drop in house prices as discussed by every Kiwi would be very welcomed by most, but unfortunatley not welcomed by those who pull the strings.

by kin | 23rd Aug 12, 10:09am 1345673369

On the contrary, I do not believe a devaluation will cause our house prices to drop. Infact I believe house prices will mantain or even go up in the event of a devalueation.

Simple economics will show that in an open economy, a devaluation will cause inflation in all assets (including properties) and their related materials. The problem with inflation is that is will cause a rise in interest rates (and thus mortgage repayments) causing distress to highly geared owners. Non geared owners will gain instead of lose. Meanwhile the rise in construction materials (at least the imported parts) will keep property pirces high if not higher ...Overall a devaluation will be good as it increases our competitiveness in the export sector and thus our exports earnings leading ultimately to higher employment (first in the export sector) in the overall economy over time.

However in an even like GR II, inflation may not rise as much as expected and therefore the subsequent rise in interest rates may not cause as much distress as expected. That is one reason why the FED is willing to try QE3 (if ever).

by goldenfox | 23rd Aug 12, 11:18am 1345677538

With the US and China manipulating there currencies and nations like Switzerland, Brazil, Korea, Romania, Taiwan, South Africa, Colombia, Vietnam, Indonesia all responding with capital and currency controls. Why is the RBNZ and RBA sitting on there hands? Domestic Manufacturing and the low-medium skilled Services are being slaughtered by imports, and offshoring.

Its time to print

by powerdownkiwi | 23rd Aug 12, 10:10am 1345673420

Good interview on Nat Radio currently, re fracking, resource extraction vs current land-uses.

Actually, it ended up a bit tame. Ryan is one who doesn't really get it. Too steeped in 'the economy'. The thing ended up in a debate about the safety of fracking, which is a deckchair issue.

It was the exponentially-increasing land-use conflict, in a system requiring both land-uses (energy extraction and food production) that was the big story.

She missed that.

by steven | 23rd Aug 12, 11:13am 1345677201

"It was the exponentially-increasing land-use conflict, in a system requiring both land-uses (energy extraction and food production)"

yes...Dwyer and a few others see it though...

regards

by wtf | 23rd Aug 12, 11:20am 1345677638

Dick Smith gets it. Maybe he could have a chat with JK and BE

His firm belief is that we can run economic systems without the need for constant, hard growth. If not, "we're all doomed".

"You can still have growth in efficiencies and quality of life but just not in using more and more resources."

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10828665

by steven | 23rd Aug 12, 11:42am 1345678964

yep

by powerdownkiwi | 23rd Aug 12, 11:43am 1345679005

I met him back in '81. I think he claims his daughter convinced him more recently, but I suspect he knew it all along.

He sponsored the 'Dick Smith Explorer' back then, for Dr David Lewis. I have pix of us building the rig, raising the masts etc. Great times.

Another who knows what is going on is this fellow:

http://www.okeanos-foundation.org/about-us/

I think it's inevitable that if you can see the bigger picture, you can see the problem, and that the only way to deal with it is to be proactive. No coincidence they were both funding the same kind of awareness-raising ventures. Makes the bleaters-on hereabouts, look a little pale in comparison.

by steven | 23rd Aug 12, 11:55am 1345679724

Yes its interesting just who bleats. If you look at the business ppl we see the noisey hard right wingers and those of equal or more extrem ilk in here hell bent on ignoring the problem. The pollies are not better, I watched the parlimentary channel 2 nights ago both sides arguing over the RMA v territorial limts etc.....or in other words, arguing over where to put which deckchairs.

Then we have a few who see the problems...seems to be a clear divide between those who wear (red or blue) blinkers and those who do not....

regards

by David George | 23rd Aug 12, 12:44pm 1345682658

Latest report from the Ministry of Social Development just out. Confirms what a lot of us are experiencing. Herald reporting below, full report available at: http://www.msd.govt.nz/about-msd-and-our-work/publications-resources/monitoring/household-incomes/index.html

"The Household Incomes Report measuring the wellbeing of New Zealanders by their after-tax incomes has revealed a fall in average wages for the first time since the early 1990s. It shows the gap between rich and poor widened substantially in 2011, putting inequality at its highest level ever. Middle and lower class workers saw their incomes fall sharply, while wages rose for high earners. Incomes for the richest New Zealanders - named as decile 10 earners - rose the most sharply. The median income for all workers fell three per cent in real terms after going up little from 2010 levels." What happened to Kohn Keys claim that we would be enjoying 4.5% wages growth - above inflation. Heh! Or was that just for the top 10%?

by Stephen Hulme | 23rd Aug 12, 12:58pm 1345683487

What happened to Kohn Keys claim that we would be enjoying 4.5% wages growth - above inflation. Heh!

Or was that just for the top 10%?

That was always the plan - how else does crony capitalism work? - this current mob of executive parliamentarians make gangsters look good.

by notaneconomist | 23rd Aug 12, 4:13pm 1345695187

Stephen H - Christchurch happened, Pike River mine happened, ACC fiasco happened, Inherited a public sector of approximately 50%, Euro-zone keeps happening, US sold its debts off to China and I think that might not be happening anymore, QE1, QE2 and more.

The 4.5% wages growth has to be produced by the private sector first. In order for the private sector to be in a position to be able to offer wages growth for everyone they have to make way over the 4.5% extra in profit. The private sector pays the tax which provides the public sector with the money to provide this sectors 4.5% increase in wage growth.

by Stephen Hulme | 23rd Aug 12, 4:36pm 1345696566

What did these guys and gals fail to understand then?

CEO pay packets 9.9pc fatter

Chief executives pocketed extra earnings in 2011 that were equal to more than a whole year's salary for someone on the minimum wage.

by notaneconomist | 23rd Aug 12, 5:44pm 1345700683

Steven H - I have to question if minimum wage is an appropriate tool. It sets a floor for wages and takes away competition in the market place. The people who are the lowest paid don't get to negotiate.

I am also not in favour of those employment agencies, while they are a very lucrative business to be in they are just like the middle man in the market clipping the ticket on the way through.

Some employers might pay around $20 per hour to a recruitment agency and the agency employs the labour and pays them minimum wage. These low wage earners will often be contracted for 3 months and then the recruitment agency says that that job is finished and offers them another contract for employment somewhere else and repeats the process. We had a young guy from the UK living with us for about a year and this is what happened to him. Some Companies use the recruitment agencies so they can see if the potential employee is going to be suitable if not they have no further commitments.

It appears employment contracts and minimum wage have very direct affects on employees income. Legislation is the problem.

When I was young and you wanted a job we didn't have all these laws and so you did your own investigation of the employer and the rates of pay that you could expect. If you struck a particularly bad employee you could walk and word would get around about that employer and many would go under simply because they failed to look after their staff. It was actually a pretty good system and if you were good at your job you would get poached. It kept both sides honest - good worker, good pay, poor worker, poor pay and poor employer, poor business or no business etc.

The market was allowed to work itself out.

I was lucky that I had a couple of really bad employers and used the experience to look after my own employees when that time arrived.

by Trolleyboy | 23rd Aug 12, 5:42pm 1345700538

Interesting, then, that in spite of that the well off became more well off. It suggests that the wellbeing of the majority of citizens is not national's concern.

by David George | 23rd Aug 12, 1:12pm 1345684364

I think a lot of it is down to the income tax cut for the top earners - the reported figures are after tax.

When Reynolds on $5,000,000 gets a $300,000 a year tax reduction. The rest of us get little change in our income tax plus a 20% rise in the GST rate and even the paper boys and girls get a tax increase this is the result.

It's the Nacts way of "sharing the pain".

by notaneconomist | 23rd Aug 12, 3:11pm 1345691465

Kiwidave - Mist42nz is correct on the fact above.

Look at tax structures not the people who have earning power.

by notaneconomist | 23rd Aug 12, 3:11pm 1345691466

Kiwidave - Mist42nz is correct on the fact above.

Look at tax structures not the people who have earning power.