Hard News by Russell Brown

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Hard News: Death Spiral!

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  • John Farrell,

    But then there are all those saying it is broke.

    Dunedin • Since Nov 2006 • 496 posts Report Reply

  • Nat Torkington,

    My point, if I have one, is that prices aren't universally higher in NZ or lower in NZ. Depending on what you get, and when, the prices can be great or can be shit. The only exception is meat--regardless of the type of meat you get (except possibly for the minced up foreskins and nostrils that make up hamburger) it's probably cheaper in NZ.

    As Stephen says, NZ beef isn't readily substitutable for US beef because of the corn feeding. I love "The Omnivore's Dilemma". Strongly recommended reading to understand how the buggery Americans can feed corn to their cattle. (This is the foodchain equivalent of heating your house by burning $100 bills)

    Ti Point • Since Nov 2006 • 100 posts Report Reply

  • stephen walker,

    of course.
    current account deficit: 9% of gdp.
    house prices: way out of reach of single-income families
    most capital: foreign-owned with lots of dividends and interest whooshing off-shore
    savings rate: negative
    nothing to see here. move right along please.

    nagano • Since Nov 2006 • 645 posts Report Reply

  • InternationalObserver,

    But then there are all those saying it is broke.

    If we don't want to end up as a tin-pot banana republic in the bottom of the South Pacific we need to cast off the shackles of old thinking and embrace some radical new ideas to put us on the World Stage and be a Global Economic Player.

    Since Jun 2007 • 909 posts Report Reply

  • Rich of Observationz,

    But then there are all those saying it is broke.

    - they want to get elected

    - they have some sort of economic ideology to push

    - they are naturally grumpy

    - they have a vested interest in some business activity (like low-added value manufacturing) which the current NZ economy isn't optimised for

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • Raf Manji,

    Rob, globalisation of money in terms of free flow of capital is a major destabilising force. One the great ironies was Alan Greenspan being awarded a knighthood for services to financial stability.

    Well i was a trader for those years and it was probably the most unstable times the markets have ever known.

    Yes as Rich says unemployment is low (even though some of those employment statistics measure employment as 1 hour or more a week) and inflation is now back in the 1-3% range. But interest rates are very high by global levels, mortgage affordability is at extreme levels and the exchange rate is at abnormal levels, driven not by trade flows or productive investment capital but by speculative capital.

    That isn't healthy.

    What it has done is expose the underbelly of monetary policy and that is a very good thing. Lets hope the Inquiry into Monetary Policy brings about some conversations in this area with a wider range of policy interests.

    Christchurch • Since Jun 2007 • 14 posts Report Reply

  • Jason Dykes,

    After spending some time overseas in various places I decided there isn't a major problem with prices of food and other goods in NZ, the problem is with low wages and salaries compared with other developed countries. I think there's even less of a "bubble" with the housing market here than people are saying. House/land values are increasingly part of a global market for real estate & right now for various reasons it's quite fashionable to buy in NZ.

    The challenge is how to raise incomes for NZers so they have a chance of competing with overseas buyers. The double challenge is how to compete when you are export & tourism dependent & current economic practice serves to raise the value of the $NZ and make our exports & holidays more expensive.

    Perhaps the answer is to sell our homes and become currency speculators.

    Wellington • Since Nov 2006 • 76 posts Report Reply

  • Max Call,

    whoops - i get it now

    Hey Stephen from Tokyo,
    I am there next week for short visit (10 nights)
    Any recommendations/hot tips? (food, beer, sights)
    will be a bit of a culture shock for me (i have only travelled to english speaking countries before) and i want to make the most of it!
    I have (of course) read everything i can find on internet but there is nothing like a locals knowledge

    Fruit Bowl of New Zealand… • Since Jun 2007 • 153 posts Report Reply

  • AndrewD,

    then there are all those saying it is broke.

    - they want to get elected

    - they have some sort of economic ideology to push

    - they are naturally grumpy

    - they have a vested interest in some business activity (like low-added value manufacturing) which the current NZ economy isn't optimised for

    Remember all those business confidence polls over the past 5 years. All negative. It's the kiwi way. We are going to hell in a hand cart, everyday. Brash quoted them. And then the very people who said it'd be crap went big time with their granite Italian kitchens.

    This is not a crisis. But it might be. And if it is it won't be our fault. But the self interest of kiwis will cause a change of government and then we'll see if the guy who mocks Cullen's bluffs in the house about Japanese housewives actually has an idea of his own.

    I'd like to hear it now. He is after all the MONEY guy with an 8 mill burgled Parnell house.

    Big Ups to Nat Torkington's post.

    Auckland • Since Mar 2007 • 54 posts Report Reply

  • Max Call,

    what is going to happen to the housing market when all those baby-boomers retire and the govt lets higher than current levels of immigration (maybe even higher than a few years back)?

    Sometimes when I venture down to Papamoa (Fashion Island or Plaza) it sounds like I am in Britain.... they have all bought lovely $500k-ish houses out in Papamoa.
    For those that haven't ventured to this part of the country for a wee while - it really has exploded. Though i have heard recently that new house building is now in decline in BOP when I first moved over this way 3-4years ago Tauranga city was having to expand by 20 new houses per week to keep up with growth. We ourselves looked for a rental at this time and 5 of the 8 companies i contacted who dealt with rental properties didn't even have one property to show me! It is quite different now (saturation levels maybe?) and supply is definitely outstripping demand in both property and rentals but if immigration levels were upped again?

    Fruit Bowl of New Zealand… • Since Jun 2007 • 153 posts Report Reply

  • Michael Fitzgerald,

    Raf
    Poppin along to Water Wars?
    MC Kim Hills at the CHCH Town Hall Monday night.
    Last year the Art Gallery just wasn't big enough.
    It was great to see convicted water thieves stand up and attempt justify their thieft.

    Since May 2007 • 631 posts Report Reply

  • Lee Wilkinson,

    A lot of public anguish about the kiwis rise against the greenback is mentioned. The key point for me is that it is the greenback that is in free-fall. Hasn't anyone else noticed or are they too encapsulated to see the global picture. Look at the global currency movements against the US dollar just this year. For my moneys worth it may well be time to pull the pin on US investment because when the Chinese call in their loans its going to shudder bigtime. Current underwriting by Chinese investment interests in the US is around 2.5 billion dollars per day, thats big moolah in anyones book.

    Whangarei Heads • Since Nov 2006 • 45 posts Report Reply

  • InternationalObserver,

    Remember all those business confidence polls over the past 5 years.

    People are suckers for polls & surveys. My favourite is when someone (ANZ Bank I think) releases 'results' from their tally of jobs advertised in the newspaper. They actually add up the column inches in the Employment sections and try and claim that as some sort of 'indicator' as to employment trends! And the media report it! Nevermind the growth in online ads or use of recruitment companies.

    'Business Confidence' is nothing more than the National Bank (I think) emailing it's business customers and asking them how they feel things will be in the next few months/years. And yet some of their 'business customers' may not be qualified to balance their own chequebooks!

    I bet if we polled fast food customers we'd discover that more of them are "planning to eat healthier in the next few weeks/months". This should therefore be attributed to the Ministry of Health's Eat Healthier Campaign and should also validate more money being allocated to the Ministry of Health's next Eat Healthier Campaign.

    Since Jun 2007 • 909 posts Report Reply

  • Lee Wilkinson,

    They key with Bretton-Woods was that in 1945 the US dollar was stable enough to base other currencies on and as a fair and equitable neutral tender. This is no longer the case and it may now be the time to look at the Euro or even the Rouble.
    It seems odd that in todays global market that the benchmark should be a falling currency and until the US govt addresses that it can only continue to de-value

    Whangarei Heads • Since Nov 2006 • 45 posts Report Reply

  • rodgerd,

    If you're old enough to vote you're old enough to go to jail!!

    No incarcertation without representation!

    /me throws tea into harbour

    Wellington • Since Nov 2006 • 512 posts Report Reply

  • rodgerd,

    Gah. One t in incarceration, please.

    Wellington • Since Nov 2006 • 512 posts Report Reply

  • Rich of Observationz,

    current account deficit: 9% of gdp.
    house prices: way out of reach of single-income families
    most capital: foreign-owned with lots of dividends and interest whooshing off-shore
    savings rate: negative

    Three of those are just numbers. They are inputs but they don't have any practical effect on actual people. You aren't stopped from going on holiday because the current account deficit's excessive. Although people might be xenophobic about furriners, it doesn't actually have much practical impact that companies are foreign owned - why is it better to work for a a wealthy kiwi than a Japanese pension fund?

    The only one that does affect people is house prices. They're high because the minority of the population who primarily live off assets have a disproportionate influence on political decisions. If the government took decisive action they could burst the housing bubble - as Nigel Lawson did in the UK (1988). They don't because a minority make money out of house price inflation and a majority are conned into thinking they will one day.

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • Raf Manji,

    Thanks for the tip Michael. It should be an interesting night and probably a microcosm of water disputes taking place globally (think Darfur, M.East).

    Lee, Although the USD is in a major downtrend the NZD has had major moves against the Yen especially. Australia, the US, Japan and China are our major trade partners. Kiwi/Yen is at crazy levels.

    But looks rates go up and down over time so there is an argument not to be too concerned. It's when your currency becomes a toy for global markets that you have a problem of instability.

    The reason floating rates were chosen at Bretton Woods was not because of the stability of the USD, it was simple grab for economic power by the US. If the Bancor as suggested by Keynes had been adopted the world would look very different.

    Rich, yes house prices are the main problem but they always are. That's where the majority of people's disposable income goes. As for Nigel Lawson he was caught, like all Chancellors, with his pants down. They all believe they will be the ones to end the boom/bust cycle (witness Gordon Brown pontificate). The problem is that they cannot control it.......it's built in to the system. The banks dictate what happens not the finance minister.

    The Fed's given up publishing money supply numbers!

    Inflation targeting doesn't work....it's why Australia has outperformed NZ.

    Christchurch • Since Jun 2007 • 14 posts Report Reply

  • Rob Stowell,

    I'm not so concerned about house prices. If we had a trade surplus of 9% of gdp, they'd be rational, and probably affordable (assuming we had jobs...). But I'm guilty of this "living on credit" thing too. Doing it for a year might be a dangerous lark. Doing it for four or five years, it's a tough habit to break. I've not heard a plausible suggestion about how that can be turned around without serious economic pain (not an election-winning platform!)
    The Water Debate sounds great. When our younger kids went to Auckland, they were intrigued to drink "swimming-pool water" straight from the tap. This winter our tap-water is cold and absolutely delicious. I hope we don't lose it.

    Whakaraupo • Since Nov 2006 • 2109 posts Report Reply

  • Raffe Smith,

    I just want to add to the chorus on The Omnivore's Dilemma. Brilliant book, just don`t read it while you are travelling through the US, as I did... It may put you off certain foods, and I became obsessed with checking the packaging for ingredients derived from corn.

    Mount Albert. • Since Nov 2006 • 40 posts Report Reply

  • Kumara Republic,

    When housing demand outstrips supply, and land is at a premium, the obvious solution is to build taller. It won't suit every corner of NZ, and it's not a trouble-free task, but there'll always be faux-greenies from the Kingdom of Suburbistan who take the quarter-acre section as gospel - not so much out of eco-altruism, but out of property value egotism. WellUrban provides some enlightenment on the issue, as does David Owen in the New Yorker.

    The southernmost capital … • Since Nov 2006 • 5430 posts Report Reply

  • Nat Torkington,

    Although people might be xenophobic about furriners, it doesn't actually have much practical impact that companies are foreign owned - why is it better to work for a a wealthy kiwi than a Japanese pension fund?

    Rich: imagine two NZ companies--one sells to a foreign owner and the other remains locally owned. They both make a shitload of money. They each reinvest some of that in their businesses, and the rest is issued as profit to the stockholders. In the case of the NZ company, the money is ploughed back into the economy: marble kitchens, sports cars, personal trainers, unregulated homeopathy. In the case of the foreign company, the money is taken overseas and ploughed into another country's economy.

    That's how I've always seen it, anyway. I'm fuzzy on the "money is taken overseas bit". It's possible that economists say "ah yes, but to take the money overseas they must sell their NZ dollars and buy the local currency of their country. In so doing, someone else buys their NZ dollars, someone who will spend those dollars and thus the economy will see the benefit of the profit even if it's not the profiteer directly reinvesting." As I said, though, I'm fuzzy--it seems to me like I'm confusing buying currency with spending it.

    Any economists out there who'd care to enlighten me as to where I'm wrong? :-)

    Ti Point • Since Nov 2006 • 100 posts Report Reply

  • Barry Torkington,

    Nat: careful now; drilling down in an economists field usually involves hitting a lot of effluent. A really interesting topic, though, and who would have expected the controversy regarding the RB policy; after all, it was enshrined in legislation as a sign it would never be altered, and this would give comfort to investors/speculators that apparently are so in need of warm and fuzzies.

    The thing to understand about the RB policy is that it's basically crap. Limiting inflation to less than 3% is only as worthy or valid as the definition of inflation. In the 5 years away in the US we return to house prices that have doubled, fuel costs have doubled, electricity costs have almost doubled, food cost are steadily climbing. I consider inflation to be the difference in buying power of my dollar, over time, and now it seems to buy less than half of what it did 5 years ago. Price stability?

    I can't see the Holy Grail of current policy; the need to maintain the status quo. Someone must be banking shitloads of cash somehwere, but it's not kiwis - they're too busy importing people so everyone can borrow more to buy imported shit they don't need with money they don't have! It sure sounds like a receipe for a fair dinkum '20s style crash. Keep the wood shed full.

    Ti Point • Since Jul 2007 • 3 posts Report Reply

  • WH,

    Yes as Rich says unemployment is low (even though some of those employment statistics measure employment as 1 hour or more a week) and inflation is now back in the 1-3% range. But interest rates are very high by global levels, mortgage affordability is at extreme levels and the exchange rate is at abnormal levels, driven not by trade flows or productive investment capital but by speculative capital.

    I agree. Its the effects of monetary and fiscal policy on the real economy that make this debate interesting. An exports-based economy needs to keep prices, interest rates and the exchange rate stable. This is needed to ensure that people continue to make products here, and that people overseas buy those products in the face of global competition.

    Ultimately this is a debate about our long term real national (read individual) income.

    Since Nov 2006 • 797 posts Report Reply

  • Barry Torkington,

    Weston: so, in an export based economy (NZ), continued production relies on stability of exchange rates (maintaining competitiveness). Where is the downside of pegging the NZD to a basket of our trading partners currencies? Wouldn't this deliver relative stability over the medium term, and encourage investment in production rather than property? Real products to real customers.

    Ti Point • Since Jul 2007 • 3 posts Report Reply

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