We've certainly experienced a big chunk of the downturn so there might not be too much more.
It would appear that we've avoided systemic meltdown for now at least.
And its difficult (from this point in time ) to imagine markets going significantly lower than they've been already. (Note that we're guite a long way up off the low points already so we could still go down a fair bit from here without going to a new nominal low)
Or, has this just been the sucker rally created by govt bailouts and guarantees - giving the smart money another exit point before the real killer wave unfolds?
New Zealand should recover faster than in a decade. I was actually referring to America's general case and the effects it will have on global markets, across the board when I mentioned a decade of stagnation.
As for America specifically I actually envision they will experience stagflation, just like in the 70's; where 1. stagnation equals slow growth and 2. stagflation equals simultaneous high unemployment and inflation.
Just look at all the huge assaults of the federal government into the private sector, in fact the last time their government expanded this much, this quickly, was under FDR's New Deal.
Still there are differences between now and the Great Depression obviously and I don't think their unemployment will be any where near as high as 25%. But I still struggle to see how all that additional money in the economy isn't going to catch up with them eventually.
Adequately hidden thunder...
3 years ago
Edited 3 years ago
The US model doesn't point to stagflation to me. It points to a sharp rebound followed by even sharper drop.
Anyway I struggle to understand how the worst is over. With inflation creeping in, the only option is for the Federal Reserve Bank to quit it's "quantitative easing" strategy and to increase interest rates.
If inflation starts to break away, I can see them increasing dramatically too and that's when we will really see the shit hit the fan.
According to the Reserve Bank of New Zealand, since 1990, New Zealand has been a net borrower. Thus, the current account deficit has reflected the amounts of other countries' savings that New Zealand has had to borrow, in order to finance spending.
Now Consumer spending is the spending of New Zealand households on everyday goods and services. This spending accounts for around 60 percent of expenditure amongst our GDP. Consumer spending is directly correlated to house hold incomes which are influenced by disposable income left after mortgage/debt repayments and is why our OCR has been lowered, in order to compensate and encourage spending. Unfortunately by lowering interest rates it tends to prevent over valued housing from coming down.
Obviously the fact we are mainly a service sector economy outweighs the need for affordable housing from our overlords. But that aside the only way I can see New Zealand being further further shocked is if the Federal Reserve Bank in America experiences break away inflation (possible) and Ben Bernanke hikes their interest rates in order to compensate. The cost of servicing their debt will then become quite severe and private companies in America, may then request that countries which hold debt with them, pay it back to help them with their own troubles.
Here is our current account balance
So it all depends on how much of our current account balance constitutes American debt or other foreign companies who have lent to us that are also tied into American debt. There is potentially for trickle on effects of course.
I'm not sure how long Ben Bernanke can continue with this "quantitative easing" strategy, logic tells me it can't last, and so if New Zealander's are wise, they will be using this opportunity to pay back outstanding foreign debt to lower our current account deficit.
Onehappy, private companies which hold this debt, will still be earning money at the moment. Profits may have declined but they shouldn't have stopped completely. All I am saying is that if possible any revenue available should be allocated to paying back foreign debt.
It depends on many factors though, obviously I am coming from a macroeconomic perspective and each company has its own microeconomic priorities to consider, which I obviously can't see. It's simply advice.
rival if you genuinely thought there was massive inflation coming then why are you exhorting people to pay off debt?
you know that in an inflationary environment it is better to be endebted as the real value of that debt is decreasing and you can pay off that debt easier as nominal money become worth less over time.
Because unless we forfeit IMF/OCED rules of having floating exchange rates pegged to the US dollar, our Reserve Bank of New Zealand will use open market operations to decrease the value of the New Zealand dollar in response.
They always manipulate our dollar so its value is under the US dollar. Bollard talks about how our dollar is overvalued, but it's not, it should be more valuable than the American dollar, he just says that because it's going to hurt exports.
I would like us to decouple if things get any worse, especially if Ben Bernanke (despite claiming to the contrary) attempts to monetize US debt, but our debt at the World Bank and our obligations to OCED and IMF membership put political pressure on us to remain members.
The Federal Reserve has called the bottom and tapped the brakes.
The Fed funds rate stays where it is, but the deadline for buying long-term debt from the banks has been lengthened; admittedly thatâ€™s not exactly a megaphone to announce the war is won, but unless there is an unexpected double-dip, history will record it as the turning point.
The key change to the wording of the statement is that instead of saying â€œinformation receivedâ€¦suggests that the pace of economic contraction is slowingâ€, as it did in June, this morning the Fed said the latest information suggests â€œthat economic activity is levelling outâ€.
That information includes a fall in unemployment, a rise in consumer sentiment, a bounce in the leading indicators, a tick up in vehicle distances travelled and above all a 50 per cent rally in the stockmarket.
Last night George Soros also called the bottom, telling Reuters: â€œâ€¦ the economy has actually bottomed and I think we are facing a positive quarter, and I think that is largely due to the stimulus.â€
I'm not so optimistic myself, mainly because i'm not really sure if anything has been done to restore a 'reasonable' level of profitability to business. The only thing i can see doing that is a new round of financial speculation, ie the same thing that led us up to the current crisis - and it would probably create an even deeper slump if it does occur. So i would expect the 'recovery' to be weak or unstable. A lot of what happens in the future depends on America giving way, surrendering its domination of the global economy and politics, and compromising the 'American way of life'. Obama would be the best president we've had for a while to do that, but he's still an American president.
"Stiglitz is, with the orthodox liberals of the Right, convinced that the system of growth of the two decades preceding the meltdown of 2008 was fundamentally 'healthy' and that, as a result, some improvements in the 'management of financial risk' are the sum total of what 'must be done'. Liberal economists simply ignore those analyses, which relate financialisation of systems to declining hegemonies throughout history, superbly argued by Giovanni Arrighi (The long twentieth century, 1994). I had qualified since 2002 the current pattern of financialisation as the 'Achille's heel' of globalisation, preparing 'an imminent financial catastrophe'."
"The fact that the situation is as it is indicates that the chaos of the global system is not being resolved. On the contrary, the world is heading for even greater chaos."
"'Financialisation is not an autonomous factor, it appears as the logical counterpart to falling wages and a reduction in sufficiently profitable investment opportunities. This is why rising social inequality (within each country and between zones within the global economy) is a constitutive trait of the functioning of contemporary capitalism'
This is the choice of the whole United States establishment ... in effect, the model in question ('social and international inequalities associated with financialisation') is the only one that allows the United States to maintain its position of hegemony ... (ending it) ... would transfer the burden of the social crisis to the United States itself."