morbius glass

Reviews – Comics, DVD’s, Books. Finance – FX markets, Stocks, Economics. Culture

Overview of countries effected by credit, liquidity and inflation; recession conditions – Japan, Spain, Iceland, Australia, New Zeland – (update 8). US dollar rises, global recession conditions drop high yield currencies – Australian and New Zealand

Posted by Adrian on August 12, 2008

The point with the US Dollar is that it was so oversold, so depressed as a currency a global slump (recession) inevitably has forced the USD upward.

The European currency (EUR), and the Australian AUD with the New Zealand Dollar NZD all outshined the USD for a prolonged period. With the AUD/USD dropping 10 cents from 0.93 (after highs of 0.97 – July 22nd 2008 ) to 0.87 in 10 days (3 Aug 2008 to the 12 Aug 2008). This is of course because most of the market and more so the Australian and New Zealand central banks, created and over confidence with the AUD and NZD – and the local economies. The Reserve Bank of Australia slammed the breaks on the Australian economy right in the middle of the credit crunch, shoving the cash rate to 7.25% and New Zealand (which has been in recession from last two quarters of 2008 ) cash rate at 8.00% (rates were cut from 8.25%). The retail banks, courtesy of their over lending and greed policy (no risk management) have copped a hammering in the Australian stock market; all from margin lending stock brokers going bust, over leveraged property trusts going bust and the banks exposure to the CDO and US mortgage market. So the banks passed on higher interest rates on credit to the everyday consumer, in some cases 2.47% above the RBA (Australia) cash rate of 7.25%. Essentially the consumer is getting stung for bad gambling by the banking sector.

The point being, the tight credit environment or rapid deceleration of credit markets, is causing havoc in the global banking funding system.

Either way tight credit conditions for Australia and the world for that matter, was going to send the global economy into recession (in which is now at a tipping point). The RBA and the RBNZ have room to move, they may cut aggressively, like the US and soon the European Central Bank – or be dovish and cut conservatively. Global inflation conditions are still too high, even on a dramatic economic slowdown (such as we are having). The exasperation of inflation will occur if the central banks fall in line with US rate cutting policy; it is not unfeasible for the US Federal Reserve, in light of a dramatic global slump, to cut rates down to 1.00%, from the current 2.00%. As most central banks will start to cut rates, the US may also.

Bank economists are now crying out for a rate cut in the Australian economy, this of course will do little for the Australian consumer as the banks will be minimal on passing on RBA rate cuts.

The other concern is the slowing demand from China, this may ease inflation commodity prices, but if the global central banks aggressively start cutting rates. We may see a return to inflation with commodities.

Advertisements

2 Responses to “Overview of countries effected by credit, liquidity and inflation; recession conditions – Japan, Spain, Iceland, Australia, New Zeland – (update 8). US dollar rises, global recession conditions drop high yield currencies – Australian and New Zealand”

  1. Great Blog post. I am going to bookmark and read more often. I love the Blog template if you need any assistance customizing it let me know!

  2. Julie London said

    Good content, however the spelling and grammar could be improved upon. (New Zealand.) Thanks for making some good points which with hindsight are quite relevant, both the RBA and the RBNZ slashed rates, the RBNZ dropping the OCR to 5pc by early December. Incidentally I just found this blog entry on a google search for “countries affected by the credit crunch” – it was number 1!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: