Look past the headlines and you will find the Reserve Bank achieved little yesterday to lower mortgage rates for most people. The effects will dribble through to home owners over the coming year or so, but not as quickly and not as much as the Reserve Bank would like.

This is not the Reserve Bank’s fault. We are an open economy with debt-loving home buyers that are price-takers when it comes to interest rates. The price-makers are international markets. The nightly woes of Freddie Mac, Fannie Mae, Lehman Bros, Bear Stearns, Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson, European Central Bank President Jean Claude Trichet and the hapless British Chancellor of the Exchequer Alistair Darling are just as important to New Zealand home owners as anything Reserve Bank Governor Alan Bollard does. Most just don’t know it.

It is the inevitable result of our

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The stockmarket reaction to the US government bailouts of Fannie Mae and Freddie Mac was initially one of euphoria and hope that the Credit Crunch may be over. That lasted a couple of hours before the reality of a deeply troubled global financial system dawned on traders and investors.

Here’s one example of the fallout that is now rippling through the world’s financial markets.

The first to think about what the giant bailout meant were those who trade in the equally gigantic Credit Default Swaps (CDS) markets for derivatives over so-called agency bonds. This is where the buyers of bonds essentially take out insurance that the US government-mandated ”agency” issuing the bonds does not go broke. It it does the seller of the Swap has to buy back the bonds.

This market and the CDSs issued are reported to be worth US$1.4 trillion. That’s worth about 12 times New Zealand’s GDP.

If the agency did go “broke” then

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I’m told there’s a hot new documentary out that’s set to do for the boring world of national debt what Al Gore’s An Inconvenient Truth did for the boring world of greenhouse gas emissions. It’s called I.O.U.S.A.

I haven’t seen it yet, but there’s certainly an amazing story to be told about how Americans have borrowed too much for too long from the rest of the world. Here’s the trailer on Youtube. Worth watching if your ‘broadband’ is better than mine. It took me 25 minutes to watch a two-minute trailer. I’ll leave a rant about broadband for another day…

Households there borrowed too much to pump up their house prices and believed the resulting growth in their home equity was real. They then spent a good chunk of it buying SUVs and flat-screen televisions and an enormous amount of fatty food.

They could do this because Federal Reserve chairman Alan Greenspan

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There is no guarantee that mortgage rates will fall when Dr Alan Bollard cuts interest rates, as expected, on 11 September. This is because of the international credit crunch which has widened the gap between official central bank interest rates and mortgage rates over the past twelve months. When the credit crunch began just over a year ago the US Federal Reserve Board’s official federal funds rate was 5.25% and the one year adjustable mortgage rate was 5.84%. The gap between the two was a mere 0.59 percentage points. The Federal Reserve Board dropped its official rate from 5.25% to 4.75% on 18 September and further cuts were implemented until the current rate of 2.00% was established on 30 April. However mortgage rates have remained stubbornly high and the gap between the official federal funds rate and the one year mortgage rate has risen from 0.59 to 3.29 ...