Forum Archive Index - June 2001

["Peter" <pmaiden@xtra.co.nz>]

A few weeks ago I related US consumer's 'heroic' efforts in stopping the US from sliding into recession.

 

The Fed gave them a pat on the back the other day by lowering interest rates only 25bps - the Fed obviously thought that these 'heroic' US consumers were winning the battle.

 

Are they? Read this bit of startling research from MGIC Capital Markets Group

"American homeowners are in the process of rewriting the traditional rules of refinancing: rather than getting a new mortgage at a lower interest rate, they are taking out larger loans at rates slightly higher than what they were paying before. After a statistical analysis of recent refinance transactions in a 14 million-loan national database, mortgage market researchers report that the average borrowers in the current refinancing boom took out loans $41,000 larger and at an interest rate 0.6 of a percentage point higher than they had prior to the refinance. Why would people do that? Because they have credit card debt and other debts that at even higher rates! And it's getting harder and harder to pay them"

Only time will tell whether the 'heroic efforts' of the US consumer will win the war over recession.

We in NZ should follow this battle closely. If the 'heroic' consumers lose the war we are in trouble.

A recent paper from WestpacTrust says that any slowdown in the US is likely to exert a significant negative impact on NZ's growth prospects. One piece of data form the report was that a 1.5 percentage point drop in US activity would reduce NZ GDP growth by 0.9 percentage points - from the effect on trade alone.

After yesterdays announcement of nil GDP growth in the March quarter we don't have much to play with - do we?

Come on you 'heroic' US consumers - keep spending and avoid this poor (literally) country of ours down here in the South Pacific getting poorer.  You need to save us because we have already made our 'heroic' efforts over many decades to spend our way out if trouble  - and it didn't work. You need to save us because the policies of our current coalition government have failed to deliver growth - but we still live in hope.

Cheers

Peter

 

 

 

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