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Statue of Liberty - Source: Reuters
The US government announced this week that over the next 10 years it will rack up a whopping budget deficit of $US9 trillion. That's $9,000,000,000,000.
The good news from the announcement was that the deficit for the year at least will be slightly lower than anticipated - it's down from around $1.8 billion to a mere $1.58 billion. Apparently, the government didn't need to spend all the bail out money it was planning to.
What's interesting though is that despite the huge deficit demand is still strong for US government debt.
According to OM Financial, the billions in bonds being offered by the US Treasury this week were snapped up with low yields. Apparently the world has not lost faith in the ability of the US to start growing strongly again and repay all its debt.
And what a debt mountain it is that the US owes the rest of the world.
According to an IMF sourced graph supplied by OMF's Kevin Morgan on NZI Business the US owes the world around $60 trillion.
That's about four times its annual gross domestic product.
The rest of the world has debt obligations of around $18 trillion - only about half of its collective GDP.
In other words, the world is lending its surpluses to the US.
Why is it doing this? Well at a most basic level the rest of the world still needs the US consumer to stay afloat and keep spending.
Countries like China and Japan and Germany are, for the time being, at least still very reliant on exports and they need to be able to keep exporting their goods to US consumers.
China is trying to move away from this dependence on US consumers and has apparently upped its domestic spending considerably in a bid to drive up domestic demand and have less of a reliance on exporters.
According to a media report on the China View website, the Chinese government estimated recently that consumer spending contributed 53.4% of its gross domestic product in the first half of the year.
This is up from 45.7% the year before but still well short of the US where 70% of GDP is made up of personal consumption.
Still, if the Chinese figures are correct it is encouraging for the likes of New Zealand and Australia as China will look to countries like New Zealand for the natural resources and food it needs.
Already, I think we could be seeing the impact of this change.
Exports of New Zealand logs are surging at the moment thanks to demand from China, while Australia's economy has been significantly boosted in recent months by increased demand for its natural resources.
Resins maker Nuplex, when announcing its result this week, also noted that the only market where demand was growing was China.
For a country with a free trade agreement with China this all bodes well.
The fly in the ointment though is that the rest of the world is on to us! And they are buying our currency as a result.
Interest rates in New Zealand and Australia are still substantially higher than in the US and Japan. And with China going well right now, New Zealand looks like a pretty solid bet.
This of course isn't great for exporters looking for a low dollar to boost returns.
In fact Australia may even be on the verge of hiking interest rates.
We will find out next week just how far away that point is when the RBA reviews their cash rate.
Right now it stands at 3%.
Any move or clear signal of a move upward will be significant for countries in this neck of the woods, so watch this space.
Read more of Corin Dann's blogs.
