90 seconds at 9 am: Fed sticks with easing

90 seconds at 9 am: Fed still easing; Cyprus banks closed till Tuesday; Britain halves growth forecast; Korean broadcasters and banks attacked; NZ$1 = US$0.823, TWI = 75.9

21st Mar 13, 8:55am by David Hargreaves

Here's my summary of the key news overnight in 90 seconds at 9 am, including news the Federal Reserve is pushing on with efforts to stimulate the US economy through its monthly US$85 billion mortgage and treasury bond purchases.

The Fed says unemployment remains too high. It released new economic forecasts trimming growth prospects for this year and next.

The Fed now says its top estimate of growth this year is 2.8%, down from a previous forecast of 3%, while its top end forecast for next year is now 3.5% against 3.4% forecast in December.

The news sent Wall Street heading towards new all-time highs.

And that news out of the US came as the emerging chaos in Europe continued to mount. Cypriot officials have said the country's banks, which were closed to prevent mass withdrawals, will remain shut until at least Tuesday after parliament overwhelmingly rejected the EU-IMF bailout plan.

Overnight the Cypriot cabinet began an emergency meeting to discuss alternatives but the early word is that no agreement has been reached with international creditors.

There's also been discussions with Russia over a loan. A lot of Russian have accounts in Cyprus. But there was no agreement after a first round of talks.

In Britain the Chancellor of the Exchequer George Osborne has halved his forecast for UK. economic growth this year to 0.6% from 1.2%. He's also announced cuts to business taxes and strong incentives for home-buyers. He's also paved the way for potentially big changes at the Bank of England, asking the central bank's top policymakers to report back to him in August about the merits of setting "intermediate thresholds" for monetary policy.

South Korean authorities are investigating a hacking attack that brought down the servers of three broadcasters and two major banks on Wednesday. The army raised its alert level due to concerns of North Korean involvement in the activity. Police and government officials have declined to speculate on whether North Korea, which has threatened to attack both South Korea and the United States after it was hit with United Nations sanctions for its February nuclear test, was behind the hacking.

Locally, much of the interest today is going to be on release of December quarter GDP figures at 10.45am. The expectation is that our economy made a strong bounceback in the quarter from September's lackustre 0.2% growth. The Reserve Bank's picking the economy grew 0.8% in the latest period while the average pick among economists is 0.9%. Any figure that comes in higher than that might see wholesale interest rates and the Kiwi dollar blip up a little, but in the main the markets are already looking ahead at he prospects for the first two quarters of this year with mounting concern about what the current drought might do to economic growth in the immediate future.

The kiwi dollar starts today little changed at 82.3 USc, 79.2 AUc, and the TWI is at 75.7.

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10 Comments

by Andrewj | 21st Mar 13, 9:01am 1363809668

http://www.golemxiv.co.uk/2013/03/plunderball-the-new-euro-banking-game…

Well it turns out other countries have been preparing to enforce this same – ‘force losses on all depositors’ – idea. New Zealand, as reported in an article by interest.co.nz has been working on what it calls its new Open Bank Resolution Policy (OBR). If put in place – and that is the NZ government’s intention,

This is at best highly disingenuous. Actually everything has changed. Under deposit guarantee depositors only lose ABOVE a threshold amount. Under OBR they ALL LOSE a given amount straight away.

by Andy Rodgers | 21st Mar 13, 9:50am 1363812652

Andrewj - Thanks for that link. I now fully understand why the NZ banks have been so keen to issue covered bonds. With the full approval the RBNZ, banks are ensuring that in the possibilty of a bank failure the covered bond holders will be paid out fully while depositors get screwed. I am now seriously looking at what to do with my funds in NZ banks.

by Andrewj | 21st Mar 13, 10:02am 1363813343

You just need to get hold of some covered bonds yourself, but they are probably owned by the other banks, all owning each others covered bonds..

by martinv | 21st Mar 13, 5:59pm 1363841949

A friend tried to buy some - minimum purchase $500,000.

Members club only, please leave.

by Andrew in Finland | 21st Mar 13, 10:39am 1363815559

But NZ currently has no deposit insurance?

That was just a temporary add on from 2008 to 2011.

Without OBR, the bank closes, the covered bond holding banks get paid out via assets secured on the best mortgages and the depositors are left whistling in the dark.

With OBR the bank is open and the depositors are whistling in the dark

by steven | 21st Mar 13, 11:09am 1363817365

However pre-2007 there was no NZ depositor guarantee scheme anyway? In 2010/11 the banks bailed out of it? So in effect depositors have no guarantee of cover except the implicit backing of the Govn forced to bailout aka Ireland to stop a banking and hence societial collapse? Which is really a moral hazard, ie the depositor expects an innocent party to cover their loses from their gambling with no explicit gain by that innocent party.

Now depositors have an explicit not guarantee, take note you will get screwed if it goes wrong.

So I'd say just the opposite to,

"dis·in·gen·u·ous (d s n-j n y - s). adj. 1. Not straightforward or candid; insincere or calculating"

You are specifically told, you are not covered totally. Your losses will be a % to cover the bank losses, that might be 10%, 50% or 100%.

To me any investment or activity has a risk, nothing is risk free, here its up front, put your money on deposit and get interest (profit) and it is at risk, I just dont see the issue.

regards

by scarfie | 21st Mar 13, 2:48pm 1363830516

No problem with what you say except that most people don't understand the exact nature of their bank balances. If they really knew they might make alternative choices. ie: most people believe the cash is stored away in a vault and it is totally risk free.

by notaneconomist | 21st Mar 13, 4:43pm 1363837430

AJ - The fact that the RBNZ would want to steal depositors funds in the event of bank crisis sends a very clear picture that they are desperate.

by Andrewj | 21st Mar 13, 9:08am 1363810133

I think Ludwig Von Mises was right all along

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved”

>>>>

As Financial Times' associate editor and chief economics commentator Martin Wolf reminded readers this past June, "It is often forgotten that the failure of Austria's Creditanstalt in 1931 led to a wave of bank failures across the continent. That turned out to be the beginning of the end of the gold standard and caused a second downward leg of the Great Depression itself."

That is true. But the history preceding the failure is critical to observe.

In it, we see the ordering of the debt supercycle - what we'll call here the debasement cycle - quite clearly: Lax lending standards and easy money led to a credit bubble, eventually resulting in bad loans, touching off major losses at too-big-to-fail financial institutions without adequate capital, followed by government guarantees of the banks (i.e. bailouts), and ultimately resulting in a collapse of the monetary system.

The problem was not tight money in the critical years that began the depression starting in 1929, but all of the easy money - the real estate bubble, the stock market bubble, and the explosion of consumer spending - in the decade prior that were consequential.

Like today's crisis, this was a fatal conceit that we could have everything by cheating the laws of nature; that there is a shortcut to prosperity wherein savings and hard work can be averted.

http://www.realclearmarkets.com/articles/2012/08/22/anstalts_shadow_loo…

by steven | 21st Mar 13, 11:12am 1363817529

"The problem was not tight money in the critical years that began the depression starting in 1929, but all of the easy money - the real estate bubble, the stock market bubble, and the explosion of consumer spending - in the decade prior that were consequential.

Like today's crisis, this was a fatal conceit that we could have everything by cheating the laws of nature; that there is a shortcut to prosperity wherein savings and hard work can be averted"

I think that is correct, and we have had 3 decades of it and not 1.

regards