Economic Mayhem? Have The Politicians The Will To Solve It?

What a tumultuous week it has been.

Global stockmarkets reacted to the unprecedented news the US had lost its AAA credit rating with Standard and Poor's as everyone expected they would - with all the organisation of a herd of Wildebeest being chased by lions and hyenas, The markets yo-yoed as investors tried to make sense of what was happening.

Many were asking if the US and the Eurozone were both "debt men walking" but by week's end, a sense of rationality had returned, although rumors continued to swirl about the future of France.

Increasingly the markets and ratings agencies are "wagging the dog" with little more motive than to make a quick buck or gain some publicity. Partially this is because world Govts - our own included - have taken a hands off, middle of the road approach to economic management.

But until the Obamas, the Camerons, and the Sarkozy's of the world step up and manage the global economy, the markets and ratings agencies will continue to hold sway, with economies being driven by rumour and vote grabbing, instead of rational planning.

Trans Tasman's Economic Debate looked at the issue. www.transtasman.co.nz

"Economic Debate – Where To Now For The Recovery?

The European Commission this week advised it is premature to say the 27-country EU is entering a recession. The Commission’s economic forecasts (a spokesman said) are more positive than those “by actors in the financial markets.”

Data published a day later, however, showed German exports declined in June, adding to evidence the EU economy is losing momentum as the global recovery falters and debt concerns spook the money markets. The EU accounted for $5.2bn of NZ’s $46bn export revenue in the latest June year.

Analysing the US economy just before Standard and Poor’s downgraded its AAA credit rating, The Economist cited a trove of GDP data showing the recession had been much deeper than previously understood and the recovery much more tenuous. US output has yet to retain its 2007 peak and on a per-person basis, inflation-adjusted GDP stands at virtually the same level as in the June quarter of 2005. America is “six years into a lost decade.”

Consumption spending fell in June for the first time in over a year, despite a fall in petrol prices, and US Govt consumption and investment has dragged growth down in five of the last seven quarters, thanks to cuts at the state and local level and falling defence spending. Growth will be further dampened when stimulatory fiscal measures expire. Bugger. China The Great Hope? The US market generated export receipts of $3.9bn for NZ in the latest June year.

Our exports to China grew by a whopping 37% to $5.6bn and will keep on growing strongly – right? Don’t count on it., Reporting on China’s attempts to rebalance its economy, the Wall Street Journal says a small but rising number of Chinese economists are predicting sharply lower annual growth rates than have been enjoyed in recent years.

With Europe in crisis, and Japan and the US struggling with their debt, the WSJ reported demand for China's exports will stagnate. NZ can only hope consumption growth doesn’t follow suit.

The PM seems untroubled. He says we can take confidence from the fact our foundation stones are much stronger than they were three years ago. Great.

But The Economist began its appraisal of the US economy by recalling a New York Times article hailing the US Govt’s efforts to lift America’s economy out of recession and into a strengthening recovery. Headlined “Welcome to the recovery,” the article was written by US Treasury secretary Timothy Geithner just 12 months ago."

It's clear no-one really knows what is going to happen in the next 12 months. The projections of Govt agencies seem far too optimistic.

Politicians drift from election cycle to election cycle, with a few soundbites thrown in to appease the masses. The old economic rules seem not to apply to this globalised interconnected world, where states can't operate in isolation.

NZ needs a better, more intense, political management of the economy. Not intervention as such, but a more pro-active stance to push the re-balancing of not only the NZ, but the global economy as well.

Do the politicians have the will? So far, you'd think not.

ends

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