If the US government failed to pay its suppliers by October 17 – the situation threatened by the current political stoush over raising that country’s debt ceiling – the result would be very serious for all economies including New Zealand, says Gabriel Makhlouf, Secretary to the New Zealand Treasury.
Speaking to TV ONE’s Q+A this morning from Washington, where he is attending the IMF World Bank annual meeting, Mr Makhlouf said while a US Government default is unprecedented, New Zealand would not escape unscathed.
“Certainly in NZ, the Reserve Bank’s put in arrangements which I think mean that our financial system’s in pretty good shape,” he told TVNZ political editor Corin Dann.
“But the world economy and the impact on the world economy would be significant…if US suppliers stopped getting paid by the US Government, it would have an impact on confidence, and it would have a big impact on markets throughout the world.”
Ironically, despite the political impasse over the debt ceiling that has lead to a partial government shutdown, "Actually, it is worth just saying the US economy itself, if you put aside the fiscal policy issues that they’ve got right now, is in pretty good heart," Mr Makhlouf said.
"Mr Bernanke, whom I met with the Minister of Finance, and with his successor-to-be, Janet Yellen, a couple of days ago, feels that the US economy’s recovery is moderate. A lot of the fundamentals are looking good, but it’s the fiscal side that needs sorting.
"The big topic of discussion, really, in Washington is about how the big transitions are going to take place over the next few years. How will the US or the Feds start to reduce its taper? How will China actually start to rebalance its economy? What’s the impact of the excess credit in China? How will Japan actually transition into the world it’s moving to, and how will Europe come out? It is slowly coming out of its position."
Watch the full interview here.