NZD crisis: fair warning

[UPDATE: 29/10/2008 (the day after)
What the RBNZ is saying is that they anticipate an emergency situation arising where "markets become dysfunctional" ie. the day everyone decides to stop lending us their money. At what rate is the swap set at I wonder. I don't know the mechanics of how it will go down. If this is going to be used to defend the NZD - to put a floor on the exchange rate - it could be courting danger. The RBNZ was probably reasonable in entering the market to buy USD at 74 and 75c (as I recall) but would they be smart to start buying at 55 or 54... or 53... or 50... keep going. I think the US is in a poor condition long-term and actually grossly over-valued right now. It would be ill-advised to start buying USD at such a dip. But as I said I don't know the details just what the statement above says. I believe the Icelanders - in their desperation - even tried to peg themselves to the Euro at one point in their bumpy ride to the begging bowl of the IMF. But let's not go there.]

Today's situation:


My previous calls:










This was the headline I said would put a bullet in us. I was saying it on Sunday, last fortnight, and in May and in fact ever since I started this blog in 2005. Here are some of the many examples of my unheeded warnings a selection of which appear in images above.

So the crunch time - long predicted by myself at least - seems to have arrived.

Fortunately the credit agencies are spraying lead into other countries at the same time, so we are limping through without as much damage to our exchange rate as would otherwise have been the case. At least that is the situation today. The downgrade came around the time we were beginning to tank anyway, so I can't claim for certain whether the agency was to blame or not.

NY Times:

Officials are growing increasingly concerned that the pullback is affecting currency markets, with economists warning of a growing disequilibrium in global exchange rates.

Although confidence may be shaken in the American economy, foreign investors still see the U.S. dollar as more reliable than most other currencies, with the rush to the dollar sending its value soaring against the euro, the British pound and a host of emerging-market coins in recent weeks. As currencies weaken in emerging markets including Brazil, Mexico and South Korea, corporations in those countries that have foreign loans or other bets in dollars are being slammed as debts suddenly become more expensive to pay back.