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90 seconds at 9 am with BNZ: US politicians court global markets armageddon with last minute game of debt ceiling chicken

90 seconds at 9 am with BNZ: US politicians court global markets armageddon with last minute game of debt ceiling chicken

Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news Republican and Democratic leaders are in crisis talks this morning (our time) to avert a catastrophe on global financial markets.

See more here from Reuters on the last minute discussions.

America needs to raise its US$14.3 trillion debt ceiling before August 2 or it will default on its debt. America's AAA rated sovereign debt has been seen as the safest in the world and is the basis for much of the trade in global credit markets.

A default is seen as an armageddon scenario that would unleash chaos on global financial markets and eventually trigger a new global rececession.

Talks between US President Barack Obama and Republican leader John Boehner broke down acrimoniously on Saturday with many experts saying there seemed little prospect of an imminent deal. However, US Treasury Secretary Timothy Geithner has warned Congress it must agree a deal over the next 48 hours to give it time to pass any legislation before the August 2 default.

Markets are nervously awaiting the opening of Asian time zone markets, which include our own, for signs of how markets might react. See more here at Reuters on the possible market fallout from a debt default.

If America were to default on its debt, its credit rating would immediately be downgraded. Many see a collapse on global stock markets and a Lehman-style freeze on credit markets.

Obama had been pushing for a plan to reduce America's budget deficit by over US$4 trillion, including a mix of spending cuts and tax increases. But Republicans, many of whom are 'Tea Party' Republicans dedicated to the reduction in the size of government, are vehemently opposed to any tax increases.

They would prefer Obama agree a short term deal that only involved spending cuts that would require Obama to come back again to Congress in 2012 before the next presidential election to ask for yet another debt ceiling increase, which would make it more difficult for Obama to get re-elected.

Any US debt default would make it more difficult and expensive for New Zealand to roll over its foreign debts. It would likely trigger a slump in the New Zealand dollar, but it would also increase the risks of a new collapse in global trade and a slide back into recession for the global economy.

We will update this article with developments from Washington and on global markets through the morning.

(Updated with more links and background)

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44 Comments

Bernard I just can't see the debt ceiling being the tipping point. I think they will agree to a deal of some desription. Not that I would be upset if it wasn't lifted :)

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Upset - I think you would be.....if its as bad as BH suggests then this could be the trigger that plunges us into a depression....Ive been expecting tit to be the EU and Im sure then and forever more the US would blame the Europeans totally for the Depression/mess...now it maybe the US who (justifiably) take the fall.

Im not sure if "investors" would see it as a "harmless" game of chicken or a serious default....the US can pay after all  (at least for now).

The unknown is the tea part republicans, these are really out there nutters IMHO....I can but assume they either dont care about a default or want it (I think the latter myself)......I assume if the US defaults it has to immediatly balance the budget?.....which I think is what the tea party wants no matter the cost......at that point I would assume the GOP will just implode as ppl blame them for the resulting mess.....but who knows...

regards

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Steven  watch Ron Paul, here it is again

Ron Paul: "We Will Default Because The Debt Is Unsustainable"

http://www.youtube.com/watch?v=MHk-vvsDWnM

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I did and I noticed the glitches, hence I wonder if its his actual speech or if someone has edited / doctored it....so I'd like to see the original...

regards

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Interesting that there so many glitches....has it been doctored I wonder?

regards

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 Hey...did you lot forget about the boondoggle in europe...hope not!

Whether Europe can muddle for more than just the summer depends on two conditions:

1) a return to brisk global growth, not obviously on offer as the fiscal squeeze intensifies across the West, and Europe's PMI surveys drop to a 23-month low. HSBC's manufacturing index for China falls below the contraction line of 50.

2) A willingness by the ECB to pursue ultra-stimulus, steering the euro towards 7 yuan or $1.15 to the dollar, and pulling the 1-year Euribor rate used to price mortgages in Spain from 2.2pc to 1.5pc. Such a policy would cause apoplexy in Germany, of course. There lies the rub.

Europe's leaders have at least stopped imposing 1930s debt deflation and depression on the rescued trio of Greece, Portugal, and Ireland. There is a genuine switch from austerity to growth. The penal loan rate has been cut to 3.5pc, with a Marshall Plan for good measure. These countries are no longer condemned to a certain death spiral.

Ireland can hope to stabilize its debt trajectory. With a fat trade surplus, it has every chance of pulling through. The policy of "internal devaluation" within EMU through wage deflation may in this particular case work, thanks to flexible labour markets.

Sadly, Portugal is deeper underwater. The current account deficit is still 8pc of GDP. The loss of competitiveness has run too far. It is hard to believe that debt restructuring can be confined to Greece once the taboo is broken -- or that's Greece's initial debt relief will be the last -- whatever they say in Brussels.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8658334/Europes-ideologues-took-the-whole-world-to-the-brink-of-disaster.html

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http://www.telegraph.co.uk/finance/financialcrisis/8656989/Eurozone-deb…

drjonathanwilson Yesterday 07:38 PM Recommended by 
118 people   The big, but not unexpected disappointment, here is George Osborne - his agenda? - Britain joining a "fiscally consolidated" EMU.

It is his right to hold such views but he lacks sufficient integrity and manhood to enter open public debate about Britain's future relationship to EMU. And so he hides behind innuendo, weasel words, a nod here and a wink there. 

His plan? To incrementally increase British taxpayers contribution to EMU fiscal consolidation to the point where the argument will be made that Britain has the costs but none of the influence in the running of "EMU fiscal consolidation".

At that point Mr Cameron and Mr Osborne will commit the Conservative Party to joining the Euro.

Jonathan   Europe's ideologues took the whole world to the brink of disaster   Champions of the European Project can claim a dubious vindication. http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8658334/Europes-ideologues-took-the-whole-world-to-the-brink-of-disaster.html#dsq-content

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Hey Bernie,

Not raising the debt ceiling doesn't mean a defult.  Debt payments are a small part of outgoings.

Obama is trying to spin it that way though, sounds like you have fallen for it.

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Reads like something fell on your head basher....if the boondooglers opt to pay the debt interest it means not sending out pension cheques...think about that! The pile of toilet paper isn't enough for all the bums.

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So something else gets not paid.....somone has to make the call on where the money goes....however I think the debt repaymants are quite large sums as a one off payments? v tax income which is more of a trickle?.  So unless that somone keeps a positve balance which means even more accounst not paid, it may well be at some stage there isnt enough $ to pay a bond......bam its over....

regards

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Don't get me wrong, the yanks, and by extension the rest of the world is buggered.

Just saying that if they so chose to, congress could decide prioritize cuts to other areas (like military spending or interest payments to the fed) before cutting medicare, social security, or interest payments on its bonds.

This could postpone obamadebtion a little bit longer. 

Past the point of no return now.

http://www.youtube.com/watch?v=Cp-ou4DXewohttp://www.youtube.com/watch?…

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We won't get you wrong basher.....but you ought to see that there are markets that will survive the demise of the american economy....and it is the trading between these markets that will continue....haircuts for sure for the fools who bought into the american bond madness and the piigs shite....

Beyond that implosion we will see the economies that are built on cultures that encourage individual effort and saving instead of debt...prosper!

It's up to each Kiwi to decide what they want to be...social bludgers demanding a lifetime of handouts...or willing to make the effort to learn skills and save for what they need...

Labour will have to fight to stop that sort of social change taking place.

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I am calling it the coming "Great Reset"

The US is insolvent and about to fall over, Euro is falling apart, Japan have dug themselves a monumental big debt hole, UK is upside down.  If any one goes the rest goes.  And I don't think it is far away.

Not quite sure what it will all mean for NZ, I think we may be better off than a lot of other countries depending what form the next monetary system will take.

Once we are out the other side there will be plenty of opportunities. The west will lose its advantage and the world will be on a level playing field.

I hear Garath Morgan has a new book out next week about his big Kahuna idea, I like that system he is proposing.

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Yup...the domino are tipping...just a case of trying to avoid the fallout....new fiat currency on the cards...a parcel of stuff I think....out of the hands of shite bankers...that will be the hard task...keeping the dirty fingers out of the pie.

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The Germans are revolting!

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 Now – exciting times – a race to the bottom - who is revolting first the French, the British, the Germans, the Americans, the unionists, the left, the right, the tea party, the anti smokers, the pro guns, the Fucku lobby, the anti fertilisers, the sunny rot, the $ knitters, the Mexican Gulf, the beard collectors, the anti toothbrush, the grabbies, the melting iceberg, the gold bullion, the pro limejuice, the oil spill, Wally, Kunz or hiha mother earth ?

Revolting comes too late unfortunately – one of the little devils grew into a monster – eating us.  

Looking into current developments on many fronts – the world will never recover again, simply because among the powerful in societies ethic and moral requirements and standards don’t prevail.

 

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Outstanding post Walter. Comment of the week I hope.

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 It won’t happen scarfie, the admission is to hard for the individual, running away - busy - but powerless from the monster eating us.

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 "More than 40,000 children are being fed by charities every week as low-income families struggle to cope with soaring food prices."  herald

Yes...so.....let's look at the positives:

That's 40ooo kids who will grow up learning why it's not wise to produce more babies than your income can afford to feed.....

It's thousands of adults who might, just bloody maybe, learn something called family planning........ But I doubt it.

It's an encouragement to all parents to shift their arse away from the gogglebox in the weekend and start growing their own bloody food.

It's a reminder to parents not to believe the bankers bullshit about it being a great time to take out a mortgage and buy a price bloated friggin property.

It's a boot up the bum for any parents of any of the 40ooo who waste money on fags gambling and booze every bloody week.

"Oh you awful bloody sod Wally....it's everyones right to pop out as many sprogs as they want..."

 

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...Sprogs who are then controlled by alcohol, gambling, and fags, and who go on to empty your garbage, clean your offices, dig your roads, and screw caps on bottles in factories for the minimum wage.

You National Socialsts need an underclass Wolly, and let's face it, National Socialist Muldoon was the one who created this mess in the first place.

No?

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Bollocks shagpile...you are just desperate to excuse the social decay that pervades this country...if the handout culture had not been fostered, to buy votes and power by decades of useless lying scum politicians, we might today have a thriving economy.....instead we have the exact opposite.

 

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Yes. Look at the government and its members. Look at its leader and deputy leader. We're lumbered with a credit and debt mentality and economic actuality. All so that the country's wealthiest people can shoulder even less social responsibility than they already do. (Which is to say almost none.)

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I can assure you I am no apologist for the National Socialist party who got us into this mess in the 1970s. Hell, I was still in nappies.

Perhaps you can be a bit more constructive with your comments, like telling me how to change my username to "Shagpile".

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The weather today is cold, dark and gloomy. The news doesn't do much cheering too.

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John Key has promised us a trade deal with the Masters of Capital.

Why is the sun not shining?

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Denninger

Hmmmm.... did they wake up?

I don't care who roused them from their sleep, but if it happened.... well, then it's about damn time.  Now let's see if there's follow-through, because I'm tired of words that turn out to be lies.

http://market-ticker.org/akcs-www?post=190618

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The richest country in the world has 1 in 7 residents receiving food stamps.  Time to come clean - tea party guys are realists - not nutters!

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Amazing how things change, in the Autumn we were told to expect $150 for spring lambs now they are talking $95. The apples and grapes around here remain un-pruned the engine is out of fuel and our export market in the Uk is in trouble. Apple growers were told to budget on a .68 $ now at .86 they are stuffed and very few family orchards will remain.

UK growth slump 'to last a decade,' says top economist

Britain is facing a decade of hyper-weak growth as the result of the 20-year credit boom that saw the nation and households build up unsustainable levels of debt, one of the UK's leading economists has said.

http://www.telegraph.co.uk/finance/economics/8656845/UK-growth-slump-to-last-a-decade-says-top-economist.html#dsq-content

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Lambs selling for $145 at the mo!

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New seasons estimate $95. Fish from Vietnam in pack and save  $10 a kg.

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 Radiated, fine "Matsusaka Beef " from Japan (keeps you warm) now on special = NZ$ 64.- p/kg

 http://japanfocus.org/-Asia_Pacific_Journal-Feature/3577

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surprise surprise

The UK, Europe, USA (and perhaps NZ and Aus to a lesser extent) are sure to face a prolonged period of sub-optimal growth, ala Japan

this is the inevitable hangover that comes after these debt fuelled property bubbles explode   

the demographics of an ageing population won't help either, ala JApan 

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Ostrich - I agree, but I think we won't "be as bad" because of Asia

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FYI the Republicans are pushing for a short term debt limit increase which Obama has promised to veto.

http://www.bloomberg.com/news/2011-07-24/boehner-said-to-tell-republicans-no-deal-yet-as-obama-to-meet-pelosi-reid.html

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Yup...Bernard has yet to grasp the fact the leg bone economy is joined at the political hip...got to change the culture before or in conjunction with the economic policy mix.

Seems the culture could benefit from a few of decades of recession anyway...a whole generation growing up learning all about being frugal and prudent and not financial idiots like their parents have been.

Out with the cellphone culture and in with the individual responsibility and attitude change.

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Here's the latest from Reuters: No sign of a deal emerging yet.

Gold up to US$1,616/oz and US stock futures down by more than 1%.

http://www.reuters.com/article/2011/07/24/us-usa-debt-idUSTRE7646S620110724

 

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FYI PIMCO's boss (who manages the world's biggest bond fund), says America's AAA credit rating may be downgraded anyway even if it raises the debt ceiling

http://www.bloomberg.com/news/2011-07-24/u-s-vulnerable-to-downgrade-el-erian.html

cheers

Bernard

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I thinks it is shocking that the US Treasury would dare to issue a paper currency that is so unsuited to bum wiping....can't those crooks at least make the notes more absorbant and heaps bigger......!

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Wheres Global Warming when we need it o  PDK and Co ?

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The Chinese set out some 25/30 yrs ago to replace the US dollar as the main trading currency...even making moves and noise to that effect a while back....OH how they would be sitting back and rubbing their hands now....

 

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I think before that can really happen, China and the Chinese have a number of credibility issues they have to deal with. Not least their reliability and honesty. As they say, those who fail to learn the lessons of history are condemned to repeat it. Let the buyer beware!

http://www.timesonline.co.uk/tol/money/article702639.ece

Ironically, it's a matter that is still working its way through the Courts in the US as we speak.

http://cnbusinessnews.com/default-over-chinese-gold-bonds-puts-kmt-unde…

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