How will NZ be affected?

In answer to January's "Is this it?", YES!

With all the money pumped into the world's economic markets to date, I think we could see a year or less of a return to rising prices / inflation before further hiccups and depression. Interesting article by Bernard Hickey on how the crisis could affect NZ below.

Bernard Hickey: Day of reckoning near
Page 1 of 2 4:00AM Sunday Oct 19, 2008Bernard Hickey

There was a lot of hope early last week that the global financial and banking system may have survived the worst of the credit crunch.
A lot of official fingers were shoved in the dyke to hold back a torrent of collapses.
The US government pumped US$250 billion ($413b) into the balance sheets of America's nine biggest banks and has led a global attempt to unfreeze inter-bank lending by providing "unlimited" supply of US dollars for central banks to pump into their markets.
Europe's governments announced plans to pump US$2.5 trillion into their banks. Britain spent £200b ($561b) to buy controlling stakes in two of its biggest banks. All cut interest rates.
Most have announced blanket deposit guarantees or sharply increased the safe deposit thresholds for their deposit insurance schemes.
Phew, the stock markets thought, in a relief rally on Monday that was the biggest since the 1930s.
By Friday doubts had set in again as fears about a global recession splashed cold water on everyone's faces. Global stock markets gave up most of Monday's gains by the end of the week.

But let's step back a bit from the amazing events of the past few weeks and ask two key questions - what caused the credit crunch and how will it change the way we do things?
The answers are: too much debt, and we'll have to learn to live without too much debt.
Some facts about our level of indebtedness are needed to convince New Zealanders how serious the situation is. Firstly, Kiwi households are much more indebted than those in the US blamed for the sub-prime debt that triggered the credit crunch.
Our household debt to disposable income ratio has risen to 163 per cent from 110 per cent in the past five years. This is well above the 13 per cent seen in the US.
Our household debt servicing cost to disposable income ratio has risen from 9 to 14.4 per cent 10 years ago. Our debt servicing burden rose above the US' for the first time this year.
New Zealanders borrowed more than $50b extra from foreign banks and investors in the past 30 months through our banks.
The credit crunch has frozen global credit markets, making it difficult for our banks to easily and cheaply roll over that debt every few months. That heavy borrowing was reflected in our high current account deficit and borrowing needed to service that deficit.
For the past five years much of that borrowing was used to pay for imports and to invest mostly in each others houses, pushing up property prices.
But there's been an ominous change in the past year. We have stopped borrowing so much to invest in housing or pay for imports. We are now borrowing to pay the interest on the previous borrowing.New Zealand's interest payments and dividend payments to the rest of the world accelerated to a record $4.44b in the June quarter. About $2.2b of that was interest payments. Our foreign borrowings rose a further $1.6b in the June quarter.
This means we borrowed more simply to pay the interest on previous debt. This is like using a credit card to pay the interest costs on the mortgage but on a national scale.
The man credited with the discoveries that unleashed the atomic bomb, Albert Einstein, said: "The most powerful force in the universe is compound interest." He was right. Compound interest on unpaid debt will destroy everything in its path.
New Zealand has an atomic bomb of debt which is about to blow up the Kiwi economy for a decade or two. If we are lucky the Reserve Bank and our major banks will manage a controlled explosion that leaves plenty of walking wounded but is not fatal to everyone.
The worst case scenario is an almost complete cessation of new lending. The best case is a sharp reduction in new lending growth spread out over two to three years.

This is where the changes of behaviour have to come in. New Zealanders generally, our politicians specifically and our banking system in particular have to acknowledge a change of behaviour is needed.
Put simply, we need to stop borrowing more overseas as a percentage of GDP and actually reduce it. We must do that because if we don't our creditors will do it for us in a more violent way.
That means not borrowing any more overseas for a decade or so. In real terms that means New Zealanders need to stop spending and borrowing about $1.5b a month or $375 per person.
To put that into context, about $1.7b worth of residential property was sold in September. Total retail sales were $5.3b last month. Reducing spending on this scale will need massive changes in behaviour.
I'm not the only one who believes a serious adjustment is coming.
Westpac economist Brendan O'Donovan says New Zealand faces a painful adjustment to lower spending whether we like it or not.
"The mechanism for adjustment will be a lower exchange rate, tighter lending standards, and reduced credit creation," he says.
"Possible long-term side effects will be greater banking sector regulation and more stringent capital requirements. This is the long overdue cure to the economic ill of excessive borrowing. Like many cures, it will be painful but ultimately restorative to our long-term health."
Nouriel Roubini, head of economics at New York University's Stern Business School, sees major sources of stress remaining in the global finance system that mean rescue packages are likely only to prevent a meltdown, rather than reverse the process of "de-leveraging" indebted consumers and financial institutions.

Roubini details the following major sources of stress globally:

The risk of a credit default swap market blowout.

The collapse of hundreds of hedge funds.

The rising troubles of many insurance companies - the risk that other systemically important financial institutions are insolvent and in need of expensive rescue programmes.

The risk some significant emerging market economies and some advanced ones too (Iceland) will experience a severe financial crisis.

The ongoing process of deleveraging in illiquid financial markets that will continue the vicious circle of falling asset prices, margin calls, further deleveraging and further sales in illiquid markets that continues the cascading fall in asset prices.

Further downside risks to housing and to home prices.

China and it's link to the USA

Saw my first report last night on BBC News, regarding the city of Shengzhen (??, the one near HK anyway) and how people were being laid off, manufacturing falling over, etc due to less demand from the US. First sentiment I've seen that discusses China being affected by the plight of the US economy.

Is this it?

There is too much news relevant to what I believe is the impending global financial implosion to post!! ;)
Gold hitting high ($US900), markets losing 10%, real-estate in US and UK declining... my prognosis fwiw...

US leads world into global recession/depression over next 4-5years (maybe into funk like Japan has been in from 90s)- commodity, property and share-markets enter bear phase. NZ, being the ‘tail-end of the dog’, is whipped badly although appears resilient at first (the commodity boom will delay this but our economy is small and easily manipulated (eg NZD) and NZ consumers have a high debt/income ratio (in world?), property price inflation at world high, etc.) Look at buying into shares (NZO, PRC, NZR, ports, rail, etc), property, Liontamer Water Fund, Chinese Markets, as markets finally bottom- how many years? Maybe when people start looking at you askance when you mention buying X as an investment!

Comments:
Jan2008: Factors from Oct 06 (> US consumer negativity as property busts, leading to lack of demand for product-producing (esp. Asian) nations, a weak dollar, higher interest rates (??), lower commodity prices, etc, across the world and eventually a global depression<) really seem to be coming home now… sub-prime fallout, much talk of US recession, etc. Global economy looks shakier than ever before but world banks are putting in a lot of taxpayer cash to prop up (restore liquidity). With collapse of sub-prime, US/UK/Europe have dropped interest rates which may create further inflation. However, there is now a big downturn in US and UK house prices.
June 2007: Strategy to maintain capital. NZD back up again as interest rates hiked, we seem definitely into GMorgan’s ‘hard landing’ scenario. Looking for correction in NZD as Uridashi trades unwind in late-07 (definite down-trend began about Aug 07) or as NZ economy fundamentals show we are a bad risk. It is excess global (Asian) liquidity that has kept NZ up over 2000s: shown with NZD-JPY declining and people become more risk adverse.

A Turning Point yet?

This summarises well where we're at- but whether or not this is the turning point is still out. Despite claims of 'rocked' worlds, markets are still well up on where they were 4 months ago: but NZ could be left high and dry, despite talk of a strong economy, growth is negligible.
Is the sub-prime fall out the catalyst??

The credit crunch: When the cash dries up

US markets dropped about 3 per cent overnight Thursday as the sub-prime crisis deepened.

You only find out who is swimming naked, venerable investor Warren Buffett once said, when the tide goes out.
The tide of easy money and cheap credit that has run for most of the current decade is turning, with a vengeance.
This change is behind the turmoil that has rocked world financial markets in the past few weeks.
Fears of "contagion" from the collapse of the dodgy end of the United States mortgage market have seen the risk premium in interest rates rise, share prices tumble and the European, US and Japanese central banks step in yesterday to inject more cash into their banking systems.
All of this occurs in the context of a world economy that is going strong.
And so far, credit spreads - the margins different classes of borrowers have to pay over the interest rates that risk-free borrowers like the US Government can command - have moved from exceptionally low levels to more normal ones.
But the danger is if that trend carries on to become a full-blown credit crunch.

That would spill over from capital markets into the real economy.
Because of our high reliance on imported capital, New Zealand is vulnerable to a full-scale reversal of the global conditions of the past few years when credit was too easy, encouraging complacency, to one where credit is tight.
Our net international debt of $145 billion or 89 per cent of GDP is extremely high by international standards.
"We don't know whether these tremors in financial markets signal a more disruptive move to come or constitute a gradual release of pressure on interest rate spreads that have built up over some time," Bank of England Governor Mervyn King said on Wednesday.
"So it's impossible at this stage to judge just how large and how persistent this tightening of credit conditions is likely to be."
The US Federal Reserve left official interest rates on hold this week, indicating it is still more worried about inflation than growth.
The Fed noted the volatility of financial markets, tightening of credit conditions and the ongoing correction in the housing market.
"Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy," it said.
Most local economists would give a similar view of the New Zealand economy. This week's news recorded wages growing strongly, unemployment at record lows and further gains in export commodity prices.
The main impact of the international financial markets' turmoil so far has been to send the NZ dollar lower and keep upward pressure on mortgage rates.
The dollar's decline, albeit only to historically very high levels, reflects the unwinding of "carry trades" where international investors borrow in a country where interest rates are low, notably Japan, and invest short-term where rates are high like New Zealand.

They run the risk that the exchange rate will move against them and in a risk-averse environment such trades tend to dry up.
Rising global interest rates have pushed up longer-term fixed mortgage rates here, leaving borrowers with nowhere to hide as Reserve Bank Governor Alan Bollard has pushed up short-term rates as well. Housing market turnover and prices are both weaker as a result. But it is the US housing market's downturn that is rocking global financial markets.
Swiss-based global bank UBS estimates that about US$1.2 trillion of the United States' $10 trillion mortgage market is "sub-prime".
When money was cheap and house prices were climbing a lot of mortgages were written with little or no equity put up by the borrower and no questions asked about their incomes.
Many loans are structured to have a sweetheart period up-front when the interest rate is low, but with a reset to higher rates two years into the term of the loan.
A wave of such resets is due next year, leading to concerns that we have yet to see the worst of the fallout from the sub-prime mortgage market. At the same time there has been a lot of risk-taking at the funding end of the transactions.


About 60 per cent of the US mortgage book has been "securitised", allowing banks to lay off their bets to investors. Mortgage debt is repackaged into various products with varying degrees of risk.
Hedge funds have been major buyers of the riskiest of these.
"As the value of the underlying sub-prime mortgages has declined precipitously, hedge funds have suffered heavy losses from their positions in these instruments, prompting significant writedowns and closures at several funds," a report by Citibank says.
The hedge funds have encountered the problem that any highly geared investor who takes a position largely with borrowed money has.
Leverage is fine in a rising market; it amplifies your profits. But it works both ways: in a falling market it can wipe out your capital.
In an era of globalised financial markets the fallout is not confined to the United States, with French and Dutch investment banks among the more recent casualties.
"At the moment we are seeing some contagion but it is not spreading too far," said ANZ National Bank chief economist Cameron Bagrie.
Although credit spreads had widened they were still not wide by historical standards.
"They are not suggesting an imminent crash. We are going from an environment in which things were exceptionally easy to one which is more normal," Bagrie said.
"If you look at the global economy, outside the United States - in fact outside the US property market - everything's still pretty strong."
The International Monetary Fund has just revised up its forecast for global economic growth. China's annual growth rate is running at 11.9 per cent.
Even in the United States, growth picked up from a weak March quarter to an annualised 3.4 per cent in the June quarter.
Bagrie said that if the markets became concerned about global economic growth turning south, falling commodity prices would be the main transmission mechanism to New Zealand.

So far there is no sign of that. On the contrary, world prices for a standard basket of New Zealand's export commodities rose 4.7 per cent last month to be 35 per cent up on a year ago.
Citibank said that while recessions were typically associated with substantial widening of credit spreads, the latter could also arise from purely financial market events in the absence of a broad economic downturn, like the collapse of the hedge fund Long Term Capital Management in 1998 and the demise of Enron and WorldCom in 2002.
"In the corporate sector balance sheets and profitability are far healthier than was the case in prior economic downturns."
It also points to other sources of liquidity for the global system which remain in place.
High oil prices have left the Gulf states with about US$1.6 trillion in foreign assets. China has foreign reserves of around US$1.3 trillion.
Russia, India, Korea and Taiwan have a further US$1 trillion between them.

The YEN Carry-trade 2007

Housewives Outmaneuver UBS, Deutsche Bank in Yen Carry Trading
By Kosuke Goto
June 18 (Bloomberg) --

Japanese businessmen, housewives and pensioners betting against the yen in their spare time are wrecking the forecasts of the world's biggest currency traders.
The yen has slumped 4.6 percent to a 4 1/2-year low against the dollar this quarter, making it the worst performer among 72 major currencies and confounding predictions by strategists at Deutsche Bank AG and UBS AG for gains of about 1 percent.
The banks didn't reckon on the risk appetite of Japanese individuals, who are borrowing money like never before to buy currencies with higher yields. They tripled their trading in the year ended March to a record $11 billion a day, according to Tokyo-based Yano Research Institute Ltd., publisher of an annual report on the business. Globally, currency trading by retail investors rose 54 percent in 2006, according to research firm Greenwich Associates in Greenwich, Connecticut.
``Japan's interest rates are too low,'' said Hiroshi Ono, a 40-year-old sales clerk at a telephone company in Tokyo. Ono said he has made about $17,000 since March by borrowing $200,000 of yen and buying U.S. dollars to take advantage of the 4.75 percentage-point difference between Japanese and U.S. interest rates.
Japanese investors are borrowing yen at the central bank's 0.5 percent overnight lending rate and buying higher-yielding currencies in New Zealand, the U.K., Australia and even Brazil to increase returns on 1,536 trillion yen ($12.5 trillion) in savings. The strategy is called the carry trade.

Low Rates
Japan's overnight rate, the lowest among major economies, is 7.5 percentage points less than New Zealand's key rate and 3.5 percentage points below that of the European Central Bank.
``Japan's margin traders have the power to support currencies against the yen,'' said Derek Halpenny, a strategist in London at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's biggest lender. ``We estimate they make up 15 percent of yen trading in Tokyo hours. Maybe even more.''
The yen slumped 1.4 percent last week, its biggest drop in five months, to 123.44 per dollar. It dropped 1.5 percent to 165.26 to the euro. Halpenny predicts the yen will reach 125 per dollar before ending Sept. 30 at 123.
``The yen carry trade is still alive,'' said Koji Fukaya, senior currency strategist in Tokyo at Deutsche Securities, a Deutsche Bank subsidiary. ``Capital outflows from Japan remain steady and more than we expected.''
The Frankfurt-based bank, the biggest currency trader according to Euromoney magazine, forecast at the end of March that the yen would trade at 117 per dollar by June 30, matching the median of 39 analysts, traders and investors in a Bloomberg News survey. Zurich-based UBS, ranked second, predicted 116.
In late December, Deutsche Bank forecast the yen would rise to 113 yen by the end of the first quarter and UBS predicted 111. It fell to 117.83.

Bane of Pros
UBS and Deutsche Bank are sticking to their forecasts for a stronger yen, saying central bank curbs on money supply will starve the carry trade.
``Tighter global liquidity will contribute to increased volatility and enable the yen to strengthen as the carry trade is unwound,'' said Ashley Davies, currency strategist in Singapore at UBS, which expects the yen to gain to 121 per dollar in a month and to 117 in three months.
Retail investors' strategy of selling yen during rallies helped push volatility implied by one-month dollar-yen options on June 5 to 5.85 percent, the lowest since the Bank of Japan began compiling data in August 1992, compared with 10.15 percent on March 5. Lower volatility may encourage carry trades, as it implies smaller exchange-rate fluctuation risk.
``They are the bane of professional currency traders,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., who has been trading in Japan's capital city for 25 years. ``It's becoming hard to make money as the dollar-yen doesn't move as it used to, because of their constant buying on dips.''

Global Trading
Global trading by investors other than banks, fund managers and companies surged 54 percent last year, said Peter D'Amario, a consultant at Greenwich Associates. The category, which includes retail investors, accounted for 16 percent of trades handled by 1,700 firms surveyed, up from 10 percent a year earlier. It grew 80 percent in Europe, 55 percent in Asia Pacific and 30 percent in the Americas.
In Japan, individuals have opened 600,000 so-called margin trading accounts at brokerages that lend money for currency bets, 80 percent more than a year ago, according to Yano Research.
When the yen fell to a two-week low of 162.20 yen against the euro on May 25, Naoko Ogawa, a 34-year-old freelance writer, used a 1,000 euro ($1,300) deposit to buy 10,000 euros. She sold four days later, close to a then-record high of 164.29 yen.
Buying on Dips
``You just need to buy the dollar and the euro on dips, then sell them at a profit,'' said Ogawa, who added that she has made a 20 percent return on her 1 million yen trading account since December. ``It's better than stock trading, as you can rely on daily interest.''
Deposits in margin trading brokerages have risen 60 percent to $4.9 billion in the past year, Yano Research found. While that's about 2 percent of the $272 billion that Japanese individuals have put into mutual funds that invest overseas, borrowing typically makes their positions 10 to 30 times larger.
Japanese traders stepped up their purchases of the New Zealand dollar when the Reserve Bank of New Zealand sold its currency on June 11, weakening the so-called kiwi by as much as 1.8 percent.
Margin traders' net long positions in the New Zealand dollar against the yen doubled to $347 million on that day from $180 million on June 8, according to data from Tokyo Financial Exchange. Long positions are bets that a currency will rise. A carry trade that bought the New Zealand dollar funded with yen would have returned 14 percent so far this year.

Real, Lira
Deutsche Bank officials began weekly visits with 30 Japanese margin trading brokerages after the orders they channel through the firm doubled in a year, said Drew Bradford, head of global finance and foreign exchange in Tokyo, where the lender's currency sales team has tripled to 17 in a year.
``The growth is phenomenal,'' he said. ``They are buying pounds, Australian and New Zealand dollars. The more adventurous are looking at the Brazilian real and Turkish lira.''
In an April report, the Bank of Japan highlighted the risk that investors may make imprudent decisions based on ``favorable'' assumptions about foreign-exchange and interest rates.
Governor Toshihiko Fukui followed that with another warning, saying expectations that rates will stay low could invite ``inefficient'' investment. ``If stock and bond markets or the yen carry trade become unbalanced and unwind, that would have a negative effect on the economy,'' he told lawmakers on June 5.

Hire the Housewife
When the carry trade collapsed in 1998 following Russia's debt default, the yen jumped 20 percent in less than two months. The biggest challenge to the strategy this year came when Chinese stocks slumped on Feb. 27, prompting fund managers to cut riskier investment and pay back yen loans. The yen rose 2.3 percent in a single day, the biggest gain since July 2005.
Japan's recovery has actually helped to weaken the yen by increasing the appetite of local investors for risk, said Masafumi Yamamoto, currency economist at Nikko Citigroup Ltd. in Tokyo and a former Bank of Japan currency trader.
``It is likely Japanese retail investors will continue to increase their foreign currency exposure, especially to that of high-yielding currencies like the New Zealand dollar,'' he said.

The end of cheap money?

An era of cheap money - gone

Rates around the world are heading higher, which could mean the beginning of the end of an era of supercheap capital.
By Grace Wong, CNNMoney.com staff writer
June 14 2007: 2:28 PM EDT

LONDON (CNNMoney.com) --
This month's rise in global interest rates is probably a sign of the beginning of the end of an era of supercheap money - a change with profound implications for the recent record-setting stock rally, the buyout boom and economic growth worldwide.
The question now is how much more rates might rise in the United States and elsewhere, and how that will affect world markets - and hundreds of millions of investors and consumers from Tokyo to Frankfurt to New York.
The yield on the 10-year Treasury note, which affects rates throughout the economy, has spiked to the highest level in five years on growing worries about rising rates worldwide.

For years, the world has enjoyed historically low interest rates. This has helped fuel a boom in corporate mergers and private equity buyouts and a rally in stock prices and in other assets, such as real estate. But with economic growth outside the United States picking up and fanning inflation, central bankers around the world are pushing rates higher in a bid to cool growth and avoid bigger problems later on.

Mortgage rates: biggest spike in 4 years
"There's been too much global liquidity and now we are seeing a shift away from multi-decades of declining rates and declining inflation," said Josh Stiles, managing director of research firm IDEAglobal in New York.
"This is the end of the cheap money cycle," Marc Pado, U.S. market strategist at Cantor Fitzgerald in New York, said.
The European Central Bank, which sets rates for most of Europe, hiked rates to a six-year high last week. The Bank of England and Bank of Canada are both expected to raise rates next month, and the Bank of Japan is expected to hike rates by the fall.
Higher rates raise the cost of borrowing for businesses and consumers and are poised to impact everything from economic growth and corporate profits to the performance of stocks and bonds and the payments that home owners make.

Here's a brief look at what higher rates will mean for global economy, financial markets and investors around the world.

Bonds
There has been no market where concerns about inflation and rising interesting rates have played out more dramatically than in the usually staid bond market.
The yield on the benchmark 10-year Treasury note hit 5.3 percent this week, the highest level in five years. Yields have backed off a bit since then, but are still up from just 4.5 percent three months ago. The drop in bond prices - and rise in yields, which move in the opposite direction - has come as bond traders unwind bets that rates would stay low - or even head lower still.
"People are being more optimistic about the U.S. economy, and therefore have written off rate cuts from the Fed that they were expecting," said Laurent Fransolet, head of European fixed income research at Barclays Capital in London, referring to the Federal Reserve.

Benchmark Treasury yield hits 5-year high
After having been so low for so long, investors are waking up to the reality that yields will rise to more "normal" levels. Long-term Treasury yields have been kept low in recent years, in large part due to strong buying from foreign central banks. But as those overseas investors diversify their holdings, their appetite for U.S. government debt is expected to drop, analysts say. That in itself could feed more bond market selling and more upward pressure on rates.
Bond yields aren't just rising in the United States. The yield on a global basket of government bonds is at 4 percent - the highest level since December 2000, according to the Lehman Brothers Aggregate Global Treasury index, which tracks the performance of government bonds from 33 countries.
Those heavily invested in bonds may be lamenting the heavy selling, but the rise in yields may be something investors have to get used to, said Ken Mayland, president of ClearView Economics, a firm specializing in economic research. "Demand for capital has become much more intense. The improvement in the world economy justifies paying a higher yield - that's not a bad thing," he said.
Higher yields also make bonds a more attractive investment, and if yields keep climbing, as many market watchers expect them to do over the next few years, that could lure some investors away from stocks.

Stocks
Global stock markets have rallied, supported by the buyout boom and a flood of funds from investors large and small alike. But rate concerns pummeled stocks over the past two weeks, until the markets snapped back Wednesday and showed further signs of life Thursday.
Before the recent pull back, the Dow industrials and broader S&P 500 had risen to record highs. Stocks in Europe were rallying too. The pan-European Dow Jones Stoxx 600 is close to its record high.
Why all the turmoil in stock markets? Rising rates dampen economic growth, and that can hurt corporate profits - and stock prices. They also are likely to crimp merger and buyout activity, which has been a key source of support for stocks worldwide.

"Valuations are a function of interest rates," says Christopher Zook, chairman and chief investment officer at CAZ Investments in Houston. "As interest rates move higher, valuations will come down," he said.
Investors are starting to reassess their willingness to take on risk, but rates will have to move much higher before they really start to hurt the stock market, analysts said. The recent selloff took the Dow industrials and the S&P 500 down about 3 percent apiece - a modest decline given the market's recent run. Still, it's not clear the selling is wrung out of the market yet.
Peter Dixon, strategist at Commerzbank in London, expects markets to level off as investors reassess where they see opportunity.
"The warning shots fired by the market will perhaps make investors stop and think about whether they can continue to pile into asset classes without abandon and not have to pay the price at some time," he said.
It will take some time for this to play out in the market, and some markets may be hit harder than others. Dixon thinks European stocks will sell off less than in the United States, mostly because recovering consumer demand should offer support.
Economic growth
Rising rates could hurt economic growth, especially in the United States, where rising mortgage rates could threaten the already fragile housing sector by increasing the burden on home buyers.
The housing sector already faces pressure from an oversupply of homes on the market and falling home values in some markets. The sector also faces risks from ongoing problems in so-called subprime loans to borrowers with weak credit.
Weakness in the housing sector has worried economists, and the market still may worsen. At their last meeting in May, Federal Reserve officials said the downturn in housing was turning out to be more severe than expected.

Rising rates threaten the buyout boom
But even though central banks abroad are raising rates, the Fed won't necessarily follow along. The U.S. economy grew at just a 0.6 percent rate in the first quarter - the weakest in just over four years - though the second quarter looks to be stronger.


Still, Paul Donovan, senior global economist at UBS in London, noted that inflation seems to easing and said he expects the U.S. economy to slow further in the second half. He believes it's actually more likely that the Fed will lower rates eventually, rather than hike them, as many investors now fear.

And when it comes to the global economy, the outlook remains upbeat. The main reason central banks are lifting rates overseas is that global growth has been strong, and isn't slowing as much as economists had expected.

"Globally, growth has in some cases surprised on the upside. You've got a situation where rates are rising because growth isn't slowing relative to where expectations were rather than a situation where rates are pushing down growth," Donovan said.

He expects global growth of 4.9 percent this year, which matches the forecast from the International Monetary Fund.

Things getting weirder...

1) RB selling NZDs to force down the exchange rate... looks like desperation.

2) Meta Dwyer (real estate agent) selling a house in Mt. Pleasant and not allowing potential clients to view it UNTIL they have made an offer!

3) A construction firm sending all it's staff plus partners to Australia as a bonus.