Brian Fallow has another thoughtful look at the global financial system in today's NZ Herald. The conclusions for New Zealand are disheartening but true
Rising risk aversion won't be pleasant for New Zealand.
Adjusted for the size of the economies, our external accounts are worse than the United States', with a current account deficit of 8.4 per cent of GDP (the long-run average is about 5 per cent) and net international liabilities of $160 billion or 90 per cent of GDP.
Unwinding untenable current account deficits involves some combination of a weaker currency and slower economic growth. The more it happens through the exchange rate, the less growth has to suffer.
But given how much of what we consume is imported, a weak kiwi dollar will be no fun for the household sector.
