By Bernard Hickey
I feel like a priest who has been wrestling with his belief in god and has now decided god does not exist.
It's time for me to recant and to say what I've been thinking for months: the economic god of completely free markets and capital flows is not worth believing in anymore and we must look for other things to believe in and do.
I think New Zealand needs to have a debate about capital controls, about foreign ownership of assets, about measures to control our currency and about being openly nationalistic rather than internationalistic about our economic policy.
I think the Global Financial Crisis and the preceding decade of debt-driven instability in global capital markets and trade flows have demonstrated the failure of the economic model most New Zealand policymakers have adhered to for nearly 3 decades.
I think we need to rethink the way we run monetary policy, the way we allow foreign ownership of assets, the way we encourage savings, the way our financial institutions are regulated and change the things we are aiming for.
We should debate more specific controls on who owns what assets, whether monetary policy should still use the Official Cash Rate to focus on inflation alone, and whether banks should still be free to lend however much they want to whomever they want.
But first some background because this is not something that has come out of the blue. I've been thinking about this for a while.
'Mea culpa'
I used to believe in the primacy of markets and economic freedom.
I used to believe that New Zealand's interests, and the world's, were best served by completely free movement of capital and trade.
I railed against the tariffs and the exchange rate controls of the mercantilests and protectionists.
I argued in favour of unfettered free trade with China.
I despised the 'Think Big' policies of the Muldoon era and all the import licenses and exchange rate controls that went with them.
I believed the reforms of the late 1980s were ultimately good for New Zealand and if only we had gone a little bit further and a little bit faster we would have been OK.
I believed a free-floating exchange rate and the removal of tariffs and other trade barriers was a good idea. I believed in the law of comparative advantage and how encouraging companies to specialise the means of production in different countries ultimately made everyone wealthier.
I pointed to the amazing reduction in the number of people living in poverty in China as proof of what free trade can do.
I thought the 'Great Moderation' between 2002 and 2007, where interest rates and inflation was low while growth was high, was real.
But I think many of those beliefs are now wrong.
The Great Moderation was a Great Fraud
It's clear now that the explosion of global capital flows and low interest rate debt over the last decade was a direct result of those unfettered capital flows.
The 'Great Moderation' was actually a Great Fraud perpetuated by financial engineers in Manhattan and London who targetted massive short term bonuses by creating financial instruments that gave the appearance of reducing risk, but actually massively increased risk.
These investment bankers exploited all sorts of holes in financial regulations and in the way pension funds are allocated to enrich themselves at the expenses of middle and under classes in developed countries. The created a long term mess for short term gain. They privatised profits for themselves and socialised the losses for us all.
They worked in tandem with the managers of often publicly listed multinational corporates who specialised their operations in different countries, often moving manufacturing and services to lower wage economies in an endless hunt to lower costs and increase profits (often for their own personal benefit).
This seemed like a good idea at the time and even seemed noble, spreading the wealth around. But all it did was reduce real wages for the middle and under classes in developed economies, who then promptly borrowed more to keep spending as if they were richer. It was a recipe for instability.
All this debt-fueled consumption growth in the developed world that was funded and supplied by savings and production surpluses in the developing world.
It could not last. Like any Ponzi scheme, eventually the debt keeps rising until the interest bill overwhelms the ability of the borrower to pay.
Once asset values start falling then we find out who has been swimming naked.
This exposure and collapse of a giant fraud is what we have seen in the last two years. It has expressed itself in the usual way.
Now the fallout
Financial crisis has followed financial crisis. Banks have gone bust. Savings have been wiped out. Economies have gone into deep recession. Ponzi schemers have been put in prison.
Currencies have swung wildly. Unemployment rates have risen. Asset prices (both property and share prices) have plunged.
Governments have tried to put their fingers in the dyke to stop their economies being wiped out after the collapse of the levee walls. They are trying and failing.
Firstly, governments rescued those same banks that had engineered the explosion of debt. Private debt was transferred into public hands to try to save the system. The bankers were allowed to keep going, generating bonuses for themselves. Now the publics in those countries where this happened in the biggest way are waking up, albeit in a messy way.
However, this didn't stop the inevitable implosion. It just delayed and extended it.
Now investors are rightly worried that governments may not be able to afford the extra debt taken on to keep their economies pumped up after September 2008 and the toxic debt they took on that the banks couldn't handle.
The financial systems in many of these economies remain broken, but more importantly, households know they have too much debt already and won't borrow more to spend like they were. The great de-leveraging has begun and nothing can stop it.
So the tide really is going out and now we're discovering the underlying structure of the global economy is flawed.
Black Swans
Emerging economies such as China want to industrialise in a mercantilist way, holding down their currencies to subsidise producers at the expense of consumers.
The global economy is now dependent on production and saving in one or two parts of the world, China and Germany, offset by consuming and borrowing in other parts of the world, America, Britain, Southern Europe, Australia and New Zealand.
This is fine as long as the savers have somewhere safe to put their capital surpluses and the borrowers can keep borrowing. But it all ends when borrowers run out of borrowing capacity and the savers lose faith in the paper they're exchanging for the product they're producing.
There are some short term fixes. One is to cut interest rates to zero and hold them there forever. America is trying that right now. The other is to try and win a race to the bottom in a game of competitive devaluations. In a way they are the same thing. America, Japan and Europe are all trying that right now.
All this specialistion and separation of production, saving, borrowing and consumption in different parts of the globe has done is make it more unstable.
The most convincing argument I've seen on this is from Nassim Taleb, the author of the Black Swan, who says that financial and capital systems need to have redundancies and inefficiencies built in to cope with shocks, just as Mother Nature does. Here's his argument in a must read piece in the New Statesmen.
We need some redundancy
Essentially, I'm saying we need to build some redundancy into the systems for global trading and capital flows.
We need to realise that sometimes the system doesn't work. We need to have something in reserve.
We need to accept that a completely free and unfettered system of global muilti-national capitalism driven by an elite of CEOs and investment bankers will inevitably blow itself up in a frenzy of borrowing, bonuses, short term thinking and self interest.
If we're not careful there will be the sorts of revolts, political unrest and global tensions that sparks wars and revolutions. It's happened before. To think it won't happen again is naive.
So what?
So what has this got to do with New Zealand?
Surely this is all going to happen independently of us and we just have to open ourselves up and hope for the best.
We tried that and it failed. We increased our foreign debt by NZ$97.5 billion inside the last six years, but all that happened is our per capita GDP actually fell over that period.
We borrowed from the free and easy and low interest rate global capital flows to pump up asset prices and go on a spending spree. All we have left for it now is some leaky homes, a big debt and a hollowed out workforce.
We need to recognise that in a world of competitive devaluations, growing trade tensions and nakedly selfish vested interests (governments, multinationals and global investment banks) that we have to defend ourselves and be just as nakedly nationalistic.
We have to assume, just as Marx pointed out, that free markets will eventually overheat and blow up if we allow them free rein.
Income needs to be redistributed to offset the concentration of wealth that naturally occurs in such a globalised, free flowing world of capital. Ownership of assets needs to be monitored and controlled. The growth of foreign debt needs to be restricted.
Consumers and bankers need to be saved from themselves.
That is what I think we're starting to see filter through to our politicians from the grass roots upwards.
Stop the fudging and have a debate
The government's fudgey decision this week to give ministers discretion to reject foreign bids for large tracts of farmland is the first sign.
I'd much prefer we had a debate about this.
John Key is as aware as anyone that the inevitable result of these dislocations of capital and the means of production, along with competitive devaluations, is a global land grab for hard assets such as arable land, mines and technology. Bits of paper don't cut it anymore. No wonder the price of gold hit a record US$1,300/oz overnight.
No wonder the Chinese want to buy our dairy producing land and factories. Or the mines in Australia. (Interestingly the Australians wouldn't let the Chinese buy the mines).
China likes free trade because it wants to build factories and sell stuff to the rest of the world. It wants to own assets in other countries that can provide it with the raw materials and food it needs to keep that export machine going and employing workers from the countryside.
But China will not allow others to buy those assets in its country. It is point blank refusing to allow its yuan to appreciate quickly versus the US dollar.
US politicians, under pressure from voters, are revolting against the multi-national free trading system in a messy way, looking to impose tariffs. The Tea Party movement, however flawed, is a reaction to the failure of this global system and the way it has been distorted by vested interests to transfer wealth from the middle classes to the richest Manhattanites.
This is not going to stop and we can't ignore it.
America is trying to devalue and print its way out from under its debt. Europe will eventually have to do the same, if only to stop its single currency from exploding from within. China will not stop and Japan is about to announce a massive new stimulus in the wake of its second currency intervention inside a week.
Brazil has declared it is engaged in a currency war to try to stop its currency from rising.
Brazil, like Australia and New Zealand, has a freeish floating currency that is rising as others try to devalue and buy into countries with hard rather than paper assets.
So what do we do?
The Reserve Bank of New Zealand has already taken a baby step down this route to intervention to save ourselves. Its Core Funding Ratio (CFR) essentially directs our big four banks to stop dipping into these global capital flows and to fund much more of their lending from local sourxes.
That has stopped the mad dash into property and higher debt, although households have also worked out for themselves that the game is up.
The Reserve Bank could do a lot more. It could direct banks to have maximum loan to value ratios. It looked at this in 2006. It could require banks to put aside more capital for the 'wrong' types of lending into housing and consumption.
Remember, that in the last two years of the crisis our banks have lent more to households and to farmers against the value of property, but lent less to businesses, Reserve Bank statistics show. Farm lending is up NZ$7 billion to NZ$47 billion and household lending is up NZ$8 billion to NZ$181 billion, while business lending is down NZ$4 billion to NZ$72 billion.
The government could consider limits on foreign ownership of major assets and restrictions on profit repatriation.
Savings into New Zealand KiwiSaver funds and the New Zealand Superannuation funds could be directed into New Zealand investments.
Much more could be done to protect ourselves and reduce the possible damage from future booms and busts.
I don't have all the answers./I'm not saying we should throw out the baby with the bathwater and return to Muldoon-era currency controls. But other open trading countries, such as Singapore, have ways to control their capital flows and exchange rates. Why shouldn't we?
I'd just like to have a debate and start looking for a new way to run our economy.
Because the current way isn't working.
Your view?
226 Comments
I wouldn't be so sure of that. I agree that things look bad for the US but commodity economies should continue to do well for at the least the next 6-12 months.
Caution is certainly needed because all that needs to bring down world markets is another financial crisis in the US or Europe (or China). All possible if not likely in the medium term. In the interim there are some good gains to be made in the market. I took 25% of my money out of equities before the latest rally convinced it was set for a significant correction - was going to completely cash up. I'm glad I didn't.
I think the story for the markets at the moment is pick your sectors well, pick your companies better and take profits off the table regularly.
Jeepers Bernard : You appear to have left out the culpability of politicians and reverse bank governers in the global financial crisis . ............. Alan Greenspan artifically kept interest rates too low for way too long . Many state governments allowed non-recourse loans , whereby the mortgagee took no responsibility for their actions . Fannie Mae & Freddie Mac stimulated lending to those with low capability to repay them . Congress biffed out rules that required prudent levels of bank lending/ leverage . As happened in Europe too . Why did the Asian and Ozzie banks sail through unscathed .
This concatination of circumstances and a mass of stupidities led to the GFC . Not unfettered capitalism . The market-place would've pricked the housing bubbles years ago , but for the propping up by pollies and central banks.
Oh come all ye faithful! The free marketeers clinging to the tattered remnants of their ideology are a sight to behold. Well done Bernard for calling time on the tired, sad and flawed system that is the unfettered free market - not of course that we have ever had such a thing, oh no, as soon as the free marketeers and their ilk - farmers, business, investors - hit a bump in their economic road, what do they do? They run whingeing to the government for money, and that has happened for many decades, not just during the current GFC. And do any of the priests of the free market on this site believe the banks, the lenders, the investors and the greedy Wall St shysters should have been made to reap what they sewed? Of course they don't - they believed in the bail out! The antithesis of the free market! To prop up their facile argument in favour of unfettered capitalism, they of course raise the spectre of Muldoon - their last refuge. Fortress New Zealand would have crumbled anyway without any of the extreme right-wing policies of the 1980s and hello guys, we actually all know that now. Or they quote some obscure economic indicator to undermine Bernard's argument - well my free market friends, the link between the free market and the GFC goes like this: if it walks like a duck, quacks like a duck and swims like a duck, it's a bloody duck.
The free marketeers clinging to the tattered remnants of their ideology are a sight to behold. Well done Bernard for calling time on the tired, sad and flawed system that is the unfettered free market -
Um, show me where the free market is? We don't have one, America doesn't, neither does the UK or any country in Europe. Africa, nope. None in Asia either.
Hint, if there's a central bank, there's no laissez faire. We all live in centrally planned economies, which, as history has proven over and over again through the twentieth century, all fail after causing much human misery.
Perhaps the most important factor in the failure of the free market has been the lack of information available to investors (ie the lack of information that allowed toxic mortgage backed securities to be sold off far above their true value), and the information delay suffered by the public at large.
How many years after the US Fed started printing billions and then trillions of dollars did it take for the layman to find out about it? How many years does it take for inflationary effects of all that money printing to finally filter though to the public?
Unregulated capitalism sounds like a great idea but it could only be effective in a market where unregulated information was freely available to everyone. The big boys have used this information delay to amazing effect in directing wealth towards themselves and were all suckers for letting it happen.
I say regulate markets to the point where information delays are accounted for, or improve information sharing (unlikely but not impossible in this internet age surely?!) to the point where there are no delays.
Perhaps the most important factor in the failure of the free market has been the lack of information available to investors
Ironically, when you actually start to read and understand economics, that is precisely why central planning fails.
To post a favourite quotation of mine from Jamie Whyte:
Mervyn King, Governor of the Bank of England, complained recently that he lacked the powers required to fulfil his new statutory role of ensuring stability in the banking system. A more powerful Bank of England would do a better job. He is wrong. The economy would benefit from a weaker Bank of England, stripped of its principal power: namely, the power to set interest rates. .... No one should be allowed to set interest rates. According to Friedrich von Hayek and other advocates of the Austrian theory of the business cycle, it is this interference with interest rates and the money supply that causes an unsustainable combination of consumption and investment - a boom that inevitably leads to a bust. Conventional wisdom contends that the current recession was caused by the free-market zealotry of recent economic policy and by excessively low interest rates. It is an absurd view, given that interest rates are not determined by market forces. Interest rates are manipulated by central banks with a government-mandated monopoly in the issuance of money. Some of those still defending free markets protest that, contrary to popular opinion, banks were heavily regulated before the financial crisis. So they were. But this is quibbling. The role of central banks means that, at its core, we did not have a free market financial system. We had a command economy. Command economies do not fail because the central planning agencies lack the powers required to bring about the best outcomes. They fail because, without market prices, nobody has the information required to adapt the allocation of scarce resources to the demand for them.
Thank Reagan and Greenspan and his ideological belief / following of Anne R.
Asian banks and countries got caught in the Asian crisis a few years back and after being screwed over they did a very Keynesian thing they saved like crazy in the good times, now they have huge cash piles....to support their economy as needed whichthey are doing.
Aussie banks have not imploded yet, with a wage to price ratio of 9.1:1 in Sydney for instance the property market is grossly over-heated....spot the bubble waiting for the chinese prick....
On the contary, unfettered capitalism allowed immoral behaviour and the stupidity...the free market ideaology is about to come slamming down IMHO....
regards
Gummy,
I agree that Congress loosened the rules controlling the investment banks. They need to be tightened back up. They can't be trusted.
That's what I mean by control. We need to reassert control over the investment bankers.
It is in their nature to strive for freedom and short term profits.
It is the role of government to try to stop them. Or else the short termers will blow up the system. It is in their nature.
The real problem is when the politicians are driven by the investment bankers and their lobbyists.
That is what we've seen in the last couple of years.
cheers
Bernard
So you're saying that GREED is not tied to unfetted capilatism then? Or at least able to flourish unabated inside the environment that is sucking the world dry?
You also sho that there cleary can be no unfetted capitalism due to intervention. Not really sure this is likely to change too, so in fact the system needs to change, no?
Kleefer,
I'm very sympathetic to the Austrians. They are broadly right about the danger of debt and unrestrained lending.
But it's a bit old calling for the return of the gold standard and no government spending. It's just not going to happened.
The trouble is that unfettered investment banks are dangerous. They need to be broken up, neutered or shut down.
cheers
Bernard
Uh? My God (referencing your immediately above two posts Bernard).
I was actually half joking on another thread when I said the type of economics you advocate has been around before, in that incarnation having a funny march and wearing an under-nose mustache. But you really mean this nonsensical, contradictory rot!
I accused you on this very thread of having no coherent philosophical base, and now no historical knowledge, but I assumed some economic knowledge given this is an economics site, yet now I find I was even wrong in that.
You're embarrassing yourself Bernard. Book yourself into some institution - let's face it, you love institutions - get a grip and for heaven's sake, read some economics, at least enough not to contradict yourself intra-same-post.
Really, this stuff is so daft now, only Cunnliffe could possibly believe it. Seriously.
... hell, out of interest, humour me: once you've, quote, 'broken up, neutered, or shut down' down all the investment banks, and I presume by now you've marched the investment bankers to the gallows, where do you actually go from there? What's the next step after that?
(If John Walley and Les Rudd have any sense, they'll be running like hell from this thread after your above two posts.)
tribeless (I guess you see yourself as some sort of stand alone / piss into the wind kind of man).
Bernard is right to address the dominance of investment banks, in NZ our cash reserve is owned by the government and there-fore the people, so why do we need to borrow money from of-shore where the America FED is owned by private bank interests, when we can merely print money into existence if it is needed for ourself.
America is printing to devalue there currency base, so is China, Japan and Europe. Locally, Australian banks are the winners here - they made loans borrowing USD at a time when 1 USD brought say 1.50 NZD and lent in the NZD.
Now, in paying back the loans 1 USD is worth say 1.20 NZD so each NZD buys more USD currency. These banks are sitting on a huge wind fall profit on-top of their local interest charges.
In the mean-while our exporters are faced with selling their goods at higher relative prices, so making them less attractive. So we as a country become less able to service the banks that are hypothetically suppose to serve us.
My question to you tribeless is - is it any wonder that Australian bankers are not lobbying our respective governments to devalue the $ when the banks have so much to gain for them-self.
(please do not quote my USD to NZD and say the exchange rates are inacurate as they are just examples, I don't have the time tonight to give you a clearer picture of how much the banks are about to screw us out of).
Comment of the day (and night) in my view. Especially:
"... is it any wonder that Australian bankers are not lobbying our respective governments to devalue the $ when the banks have so much to gain for them-self."
Mark?
Cheers, Les.
My question to you tribeless is - is it any wonder that Australian bankers are not lobbying our respective governments to devalue the $ when the banks have so much to gain for them-self.
So on the back of this you back shutting down the investment banks?
The cause of the current crisis is not investment banking, it was what caused the credit/asset bubbles in the first place (and what is breeding them all over again as we go deeper and deeper in a crisis of sovereign debt at the hands of Nanny State Keynesian): that is, central (and fractional reserve) banking, politicians in control of the money supply, fiat, thus unsound, money, massive States building freedom stifling welfare states that we cannot afford, huge IR's to break individuals in order to bankroll this massive ediface of State that comprises half of our economy; IR's that only serve to shut down the private enterprise that has to pay for it all..
There's no point tinkering with the system, that's just Hayek's road to serfdom: you fix the distortions of one State distortion by causing two more.
Bernard says glibly a reduction in government spending is not going to happen, so his solution is massive further distortion of markets by the State (that caused this mess in the first instance). Well there is only the single solution as unpalatable as it is the Big Nose Statists: separate State and economy, return to sound money, et al.
Anything else, such as Bernard's advocacy of the fascist state - and that's what he's doing here, right down the patriotic nationalistic BS - not only worsens the economy, it leads individuals further and further into a serfdom that we will never shake off in our lifetimes.
Again, Peter Cresswell states the problem with this dreadful post of Bernard's most succinctly; especially read update four:
http://pc.blogspot.com/2010/09/feds-new-super-stimulus-will-not.html
And with that, I'm working today.
tribeless, I think you are reading what you want read with PCBlogsspot and spending too much time reading blogs in general - you could get a job or learn something.
You may find: http://www.youtube.com/watch?v=D22TlYA8F2E&feature=related
of benefit, it's a 2 hour documentary and it explains some of the history involved with America's fiat system and will at least give you some prospective facts.
I'm sorry tribeless, I was a bit rude.
The world is run by economic graduates and look at the mess we are in, I like a broad everyday look at policy because it is often explained in everyday english which is easy to grasp though I do find some sites like - http://www.acting-man.com/ or http://globaleconomicanalysis.blogspot.com/ between them offer the best of both worlds.
Your reference to http://pc.blogspot.com/2010/09/feds-new-super-stimulus-will-not.html seemed to be like talk back radio stirring up more uninformed opinion but with childish swearing to punctuate non-existing points..
Yes.....Greenspan can hold his head up high on that one.....the anser to doing something that fails is not to do more of it to the extreme...its back off and/or take a different path.
the Free markets mantra has failed (certinaly for 99% of the world)....and worse than Keynesian or anything else...except possibly Sovietism....
regards
Bernard :) You were debating the other day a poll on whether you should go clean shaven, etc. I think you better put wearing one of those Che Guevara beret's as one of the options - I'll vote for that.
Luckily Peter Cresswell has put up a good post today as an anti-dote to this nonsense, especially read about half way down regarding the harm you would visit on us with protectionist, nationalistic policies.
http://pc.blogspot.com/2010/09/feds-new-super-stimulus-will-not.html
Also, I've stated in the past you have no philosophical base, which is what makes you so dangerous. And now I see you have no base in history either. This dark place you prescibe: human societies have been here before; it's a ghetto mired in serfdom and human misery. Central planning can never work: it is impossible.
Unfortunately, the economies that matter have already taken your advice, so it the great step backward again we go. Won't be getting out of this mess in my lifetime.
Philospohical? this is economics and not a huge set of blinkers....its simple, when something not only does not work but fails badly its time to look elsewhere....not do it more in the extreme...
Besides which even if you could convert Bernard to say Libertanz....that makes your votes all of 1001....so that only leaves a few 10s of thousands of votes for an MP....and a few hundred thou for a PM....wont happen anythine soon now will it?
Bernard Dangerous? no not to ordainary snae ppl....A danger to fanatics with far out points of view? certainly your kooky ideas get even less air time....an excelent outscome from a moderates point of view.
For my perspective its looking pretty much like a swing the other way (left) actually....I just hope it isnt as far as I fear.....
regards
You are right in one respect, we wont indeed be getting out of the mess caused byt free marketeers in your life time, and maybe mine (30 years?)....certainly when we throw in peak oil into the disaster area that will add to debt deleveraging dropping GDP...30 years from now we could be lucky if GDP is 50% of what it is today.
regards
Bernard: [Bankers] privatised profits for themselves and socialised the losses for us all.
Only because governments bailed them out... This had nothing to do with the free market.
And you forget that the interest rate is centrally planned. What has that to do with the free market?
We have fiat currencies: currencies you MUST accept. What has that to do with free markets?
Look, if someone gets a big bonus, that has ZERO impact on me. Unless I as a taxpayer am asked to bail him out. Because governments are now bailing out lobbyist, it's not the free market that's broken, it's the crony capitalist system.
You ask for more central planning. If there's one thing we can be sure of, is this: central planning has never worked.
On the "land grab": you cannot grab NZ land and take it. We either leave it bare, or if someone can use it for a productive use and pay council and other rates, employs locals, etc. we are all better if. Even if the owner is yellow.
Berend,
I agree the banks should have been allowed to fail.
And then they should have been regulated within an inch of their lives so they could never do it again.
Instead the US/European/UK/Irish governments did the worst of all worlds. It bailed out the banks, gave them a government guarantee and let them go on their merry way paying each other bonuses using that guarantee.
I'm still shaking my head wondering how US/UK/European voters have allowed it. Maybe we'll find out in this November's elections that they didn't.
cheers
Bernard
While I agree on being allowed to fail, I do think such a failure would have been occuring too late...letting them live is the lesser of two great evils....
When you look at the regulation that came out of the 1930s or the regulation in Canada or say India its pretty clear relaxing or eliminating was disasterous, ie those that didnt and we can include NZ here did reasonably OK.
Where can the voters go? GOP? even worse and yet more extreme....but I agree...I jsut dont see how a back lash can occur, there is no where to go.....yet.
regards
Come back to capitalsm , Bernard . It is not perfect . But it is the best way to help mankind , to provide innovation , and to efficiently produce the goods and services that we desire .................. come back dear friend , all is forgiven , come to the light .......
Just one thing to add: "But other open trading countries, such as Singapore, have ways to control their capital flows and exchange rates. Why shouldn't we?"
They also have a government that's only 20% of the economy. If we get their size of government, I'm for this.
Good point about Singapore Berend, now Bernard has brought it up as a country to follow.
I think think government spending is something up to 47% of GDP in NZ already, compared to 20% Singapore.
Also, from : http://www.economywatch.com/world_economy/singapore/
Quoting:
Despite the small geographic size of the nation, Singapore economy is one of most prosperous in the world, with a strong international trade link. Singapore economy is a capitalist mixed economy, with minimal government intervention in the market.
Especially, in comparison to Bernard's want of controls over foreign investment, we find of Singapore's economy it is:
Well the people of Singapore voted for it, it was not forced on them, so actually I would say they got it pretty well right on the money, and are understandably very happy. Having been to singapore a dozen times or more, and with many friends who live there, I can assure you that NZ would do well to take a leaf. Will never happen though because in NZ there are far too many idiots.
I will say that their geographic location and vision to exploit this via one of the worlds most important shipping/air ports provided them with a fantastic platform. It still required some joined up forward thinking from government to ensure its success. The word accountability and fear of failure come to mind. Two things we simply don't and are unlikely to have in NZ!
I will add to my last comment, that in NZ we have forgone many freddoms, which you are probably not even aware of, and we have an unstable economy, a globally manifulated currency, and are actively working against the best interests of NZ via polciy in this country.
Personally if the result is Singapore then i would happliy sign up to it, because the loss of freedoms I guess you are referring to, are things like public safety (low violent crime rates), severe senteces for drugs, murder etc, punishment for littering and other offences which in NZ we deem to be acceptable, so it appears. If that is the price for a well functioning society & stable economy then bring it on!
Here's how the Singaporean Monetary Authority intervenes in the market. It sets the exchange rate.
"Since 1981, monetary policy in Singapore has been centered on the management of the exchange rate. MAS manages the Singapore dollar against a basket of currencies of Singapore's main trading partners and competitors.
"The trade-weighted exchange rate is allowed to fluctuate within a policy band, and where necessary, MAS conducts direct interventions in the foreign exchange market to maintain the exchange rate within this band. The exchange rate policy path and the band are regularly reviewed to ensure that they remain consistent with underlying economic conditions."
Here's its latest Monetary Policy Statement
http://www.mas.gov.sg/news_room/statements/2010/Monetary_Policy_Stateme…
cheers
Bernard
Fair enough. Singapore is not perfect. I worked there for over a year. It's a family run autocracy with no free media and all sorts of vested interests.
But it now does have higher per capita GDP and a much healthier outlook.
No lack of economic nationalism there.
cheers
Bernard
Bernard - well said. Methinks you've become a CASPer. Well done. Keep up the good work.
Cheers, Les.
Les, both you and John Walley are advocates for 'supporting the real economy', per your site - yet you both constantly come down supporting a failed central planning model, with the State as king maker and bank: the last thing from a 'real economy'.
Is there any business group in New Zealand that actually advocates a free market? And for a slashing of the size of State?
(Answer: No). So, why not, given how badly our Western planned Keynesian nightmares have fared?
What is your philosophical base?
What do you call yourselves economically; that is, what camp? (And pragmatist is not an answer).
Mark - stay calm.
" ... yet you both constantly come down supporting a failed central planning model, with the State as king maker and bank: the last thing from a 'real economy'."
Nope.
"Is there any business group in New Zealand that actually advocates a free market? And for a slashing of the size of State? "
Yep. NZMEA for one, read the views on departments concerned with support to the economy and business. Nutshell in a - support via the tax system.
"What is your philosophical base?
I like this and see answer to next question:
http://www.johnkay.com/about/john-kay-philosophy/
"What do you call yourselves economically; that is, what camp?"
The economy is a complex adaptive system.
"And pragmatist is not an answer."
Yes it is
More here:
http://www.mea.org.nz/events.aspx
Click 'book reviews' top of the page.
Enjoy.
Cheers, Les.
We oppose picking winners (NZTE and others), we oppose the maintenance of tax havens (capital gains), we oppose the single target single leaver inflation response. Stop doing the first, sort out the second and lower existing tax rates on earning and wages and stop what is done to reduce demand in the economy showing up in the enhanced capital flows screwing the exchange rate.
More at: www.mea.org.nz, www.realeconomy.co.nz, www.johnwalley.co.nz
The difference is the difference between an extremist/fanatic libertarian such as yourself who only sees black or white and a moderate person who recognises that there is a place for some regulation and control...to stop the insanity as the free market doesnt plan at all...its choatic
This is very apparent from your posts.....yet in effect the libertarnz have 1000 votes come election time, this makes Destiny Church a bigger player....
There is also a huge difference between the real economy ie manufacturers who employ ppl and make things and the financial ponzi schemes that have sprouted like weeds as the result of "freeing up the market"....and the weeds are choking the real economy and employment...in fact look to kill it, if it hasnt already.
Actually pragmatist is a good answer....so far it seems to be performing well compared to any extremist be it left or right.
regards
Once the realisation hits, once you verbalise the fact that the emperor has no clothes it is hard to go back.
So keep saying it Bernard, and let it inform everything you ask of those in power.
What we have done cannot be the best we could have - the nonsense of "world's best practice" has to be challenged.
The trouble with your analogy, John, is that Bernard advocates giving this denuded, deluded emperor we call the over-regulated, over-taxed Nanny State, even more powers to distort the economy, and run roughshod over the liberty of individuals.
Although I agree with your last sentence (which doesn't marry with the rest of your post).'World's best practice' currently is Keynesian Big State economics: that must be not only challenged, but swept away entirely. You realise of course that the emperor's name is Keynes?
Sorry I try to be clear.
The absence of capital gains tax (of one form or another) leads to investment advantages in assets, not activity (you know doing stuff), and forces that activity to carry too much of the tax burden leading to reduced returns in that sector.
The single target (inflation) and single lever (interest rates) leads to capital flows that initially are parasitic on the fiscal distortion mentioned above and transfers wealth from the tradeable sector to the non-traded sector via the overvalued exchange rate.
These two complementary distortions choke our ability to earn a living - it is easier to borrow the forex we need - for a while at least.
Bernard has now recognised that the policy setting we have chosen has screwed us.
Search www.interest.co.nz and my blog (www.johnwalley.co.nz) on discussions around Singapore.
This has nothing to do with fiscal policy. There are some bankers that rorted the system. Thousands haven't done so. The ones that rorted the system have been rewarded by bailouts, instead we let the markets work, and their banks go bankrupt.
What do you think is going to happen next? We'll get more of them.
I fully believe there are always people who are gaming the system. Always been. Always will. Despite that, we overlook the countless others who have not done so. And we didn't let the market work, i.e. let the bad banks fail. No, we the taxpayer were forced to prop them up. That's not free, that's not market, that's crony capitalism.
I think there was a case for capital controls when it was evident that overseas credit was being used to fuel a housing / land price bubble. Too late now, that horse has bolted.
I've just finished reading Taleb's Black Swans book. While it writing style is quite antagonistic he makes a very good point; modern portfolio theory (Black-Scholes option pricing etc) is based on the assumption that markets have a Gaussian distribution, i.e. extreme events are extremely unlikely. They're not, markets are chaotic systems, so risk was seriously mis-priced.
"The most convincing argument I've seen on this is from Nassim Taleb, the author of the Black Swan, who says that financial and capital systems need to have redundancies and inefficiencies built in to cope with shocks..."
I think you might be doing Taleb a disservice by using his lessons as a basis for arguing for greater central control of the economu. Taleb has said in a few interviews I have heard that it is centralisation of control that represents the greater global risk.
He has said that he would prefer to live in a world in which human error has very little impact on the economy. He defines a robust economic system as one in which an error by an individual does not lead to massive problems.
I consider this is an argument AGAINST greater controls over currency, trade, etc.
Fair enough. He is arguing though that these increasingly large, centralised, globalised investment banks and their inevitable concentrations of risk are dangerous.
I think they should be broken up. Taleb is also wary of 'Too Big to Fail'.
The Black Swan author Nassim Nicholas Taleb says that solutions to the current financial crisis are simple. "Look at mother nature. Mother nature does not like leverage and mother nature does not like 'too big to fail.'"
http://marcfaberchannel.blogspot.com/2010/06/nassim-taleb-look-to-mothe…
And here's an academic paper he wrote on Too big to fail.
Too Big to Fail, Hidden Risks, and the Fallacy of Large Institutions
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1398102
cheers
Bernard
Stop panicking Bernard! The cure for competitive devaluation is competitive devaluation. Just as the cure for high prices is high prices. The USD, Yen, Yuan, Euro and pound are all massively overvalued and there will be plenty of fallout from this politically engineered mess.
Central planning by the governments' concerned is the cause.
I agree we need to look out for ourselves a bit more though. We do tend to be a bit naive and fall for the daft ideas others try to sell us (for their own benefit, not ours, I might add). Property, be it mines or farms is easy to tax so we always have that as a backstop.
Talking of backstops, why do we own LAVs ? Hopefully we've got some good missiles should we need them. Talk about nonsense, we spend millions on infantry equipment that is only useful for offensive warfare, when we are an island nation. Duh.
BH - I think RW is actually suggesting that the RBNZ intervene directly in the Forex market, printing NZD as required but sterilising the domestic market through conitnuing monitoring of the Core Capital Ratio for the banks. The 'printed NZD' starts out offshore and can't get back into the real NZ economy unless the banks can get hold of it. They can't do this without first raising further domestic deposits - which they can't do in the current climate. Once things perk up and the NZD has fallen a lot due to the RBNZ intervention, the RBNZ can buy back its own NZD thus making a profit and dampening money supply growth at the same time - a win-win counter-cyclical approach that doesn't require touching the (frankly currently useless) OCR lever.
Of course foreign owners of NZD who are not speculators could buy NZ assets with their rapidly devaluing NZD, but thats actually only about 5% of the total foreign ownership of NZD. And as we have decided we're not going to sell them any land they might just have to invest in productive plant - which has to be a good thing, surely?
The RBNZ shouldn't be setting interest rates, the natural rate of interest is zero.
The RBNZ should only monetise "real" assets, let the banking system buy each others bonds, but when it comes to "reserves" it should be demanding paper over real assets or production. Have a look at some of the original rules over what the federal reserve could hold on it's balance sheet. Commercial paper backed by real production.
The problem is that there is no "clearing system" for debt, marking to market is not the same as finding the market price. If the central bank was allowed to buy a wider range of "assets" and if there was a limitation on this that these assets had to be real then this would be a big improvement. So QE could be OK but the rule is that the debt has to be cleared some time later. The RB has to sell the note no matter who would be forced under. Just think, what if the Federal reserve forced all of it's assets on it's balance sheet back on the market and at the same time offered to buy real securities backed by real assets. All the fake reserves would disappear, the big firms would go under, the $ would be toast etc etc.
Our RB right now should be selling every US$ it has access to for gold, it should sell NZ$ for US$ and buy gold with it. This would force price discovery on the value of the US$. Is it a race to the bottom? Not for NZ being resource rich surely our $ is backed by something, we just need it to be backed by our production not our assets so yes capital controls are required.
Bernard , the problem with capital and exchange controls is that they cause horrendous distortions , which need to be compensated for through devaluations or revaluations which become political decisions driven by short -term criteria and expedience . In my personal experience , it can lead to currency black markets, shortages and all sorts of unintended consequences.
For example how to you 'fix' the exchange rate and how often do you adjust it ? An under-valued currency protects inefficient producers, and when the crunch of an adjustment comes jobs are lost and industries destroyed . It sometimes also protects efficient producers , such as NZ dairy , but when the currency is completely out of kilter they are a powerful and united lobby whose influence is not necessarily in everyones overall interest .
Realistically , Free Market laissez faire capitalism is the best of all the evils. Having lived under the yoke of meely mouthed Marxists where people got a good free education and nothing else , I can assure you the New Zealand economic model is very good . Like a machine that is running well , we need to care for it and service it properly , but no need for an overhaul , and certainly no need scrap the machine.
Boatman
I'm not suggesting Muldoon style controls. You're right. A very blunt axe.
The Core Funding Ratio has had a major effect without too many distortions.
Other countries much larger and more sophisticated than us seem to manage their currencies without destroying their export sectors and allowing their household and farming sectors to gorge themselves in foreign debt.
Why not us?
You say: "The New Zealand economic model is very good."
Why then do we have a hollowing out workforce where an increasingly old and/or beneficiaried group of people are being supported by a dwindling group of indebted workers?
Sorry. It's broken.
We need to fix it.
cheers
Bernard
Fair enough , I see your point , however I still see the broad NZ Economic model as a good one .
I am not an economist , and during my first lecture as a student in economics in 1981 , the lecturer started by telling us where we could see the grave of Karl Marx , so I guess I come from the wrong side of the fence, had the wrong lecturers and the wrong textbooks, but I have since read widely about Keynesian monetray theory and and Friedman , and I think Nouriel Roubini and Nial Fergusson are great modern thinkers .
I have some views , that may be wrong , but which I can relate as observations
NZ IS DOING QUITE WELL
Kiwi's keep crticising , hammering and beating up yourselves , when in fact you are doing quite well . New Zealand has its faults but it is really an exceptional little country , and 4 million people produce an amazing amount in per capita GDP , when you consider the population is that of a medium city elsewhere . Everything works , the infrastructure is well maintained and corruption is minimal . You , Bernard should look at the good side too
YOUR FREEDOMS ARE BRILLIANT
I love the freedom we see in NZ , it is rated among the easiest places in the world to do business . Do you really want to change all this through controls ? I honestly dont think you should try to change all these things through controls and regulation . You see if a man is forbidden to hold say foreign currency , he will do anything stupid to get it . I dont know why ....its. human nature to try and hoard scarce or forbidden or controllled things.
GFC APART THINGS ARE STILL GOOD
The free market system seems to have worked well for NZ over the past few years I have lived here , living standards have got better , most families have two cars like Americans, there are more rich listers than ever before , the Govt ran a budget surplus until the GFC . Okay , the economy has been too focused on property speculation to the detriment of other investments , but the labour Govt allowed this distortion. The NZX is weaker that Australia only becsue the people here refuse to allow mining ( the ASX index is mostly mining and primary products like cement , etc ) and we dont have compulsory savings for retirement .
YOU CANT AND DONT WANT TO COMPETE WITH SLAVE WAGES
NZ cannot compete with say a former communist country in labour costs . I come from a country with a weak currency and skilled bricklayers earn the = of NZ$20 a day for 10 hours a day work . Clothing factories are run as sweatshops with fire risks . NZ cannot compete with this and you dont want to when you have a better educated workforce . I dont like high taxes in NZ and I dont like paying for people not to work , but the Government can address this issue by reducing the handouts to beneficiries after say one year of unemployment.
TOOLS OTHER THAN CONTROLS
There are other ways to fix this then through politically motivated controls . The Reserve Bank has many tools in the toolbox , they can weaken the currency if the want to , they can even slow down the property market by making banks insist on a 30% deposit for a house.Singapore did something similar when the bubble got too big .
NZ HAS AMPLE WATER AND ELECTRICITY AND ENOUGH FOOD
People here will never starve . Food security is an issue for most countries but NZ is a lucky country , it does not need to import food .
If anything , NZers are mollycoddled in too soft a country where its expected the state must provide too much , free this and free that . It results in a culture of expectation not even seen in the wealthiest countries.
WE CAN AGREE TO DISAGREE
So I can see your point, but we must agree to disagree . Controls are no good for you, me or anyone , they build resentment, restrict what I can do with my money which should be mine to do whatever I please with after paying my taxes.
Nevermind waiting that long. Bernard has a 'double-shot thingy' this coming Thursday, so these too please:
and, if doing what I've outlined with fixed/floating rates is too radical, how about the 'Principle Repayment Rate' (PRR) idea? It has the same benefits as banning fixed rate loans, eg. lower i.rate peaks (you pay less!) and we end up with less national private debt.
Why not?
Cheers, Les.
The "race to the bottom" for currancy devaluations is the end result of a fiat money system. Until money represents an asset (be it gold, silver, oil, food, etc) instead of debt, there is very little disincentive to print more. Todays governments are suffering from years of debt issuance. What incentive is there to save if the governments can just print more and wipe out half (or 98%) of the value of the fiat debt notes? Currency controls are not necessary if a dollar here equals the same amount of gold as a dollar anywhere else.
I keep waiting for somebody to set up a Kiwisaver fund that buys NZ mined gold and allows me to save that for my retirement.
And who came up with currencies like gold? The market.
Who came up with fiat currencies? The market (and demonstrated it didn't work as banks using them went bankrupt on the inevitable bank run).
What did the government force on us? Fiat currencies. Governments love them. They don't work. We still have to use them.
I don't know a race to the bottom is possible though: the markets will detect printing very quickly, and interest rates will rise more rapidly than the printing press can print.
The Phoenix who kicked ACC conceded a penalty, but the goalie averted the goal – the score is still 0 : 0 with some exciting play time to come. Who is going to be the winner ?
Who owns what and how much ? Where does the money come from to pay for the bills ?
Any transparency ?
http://www.nzherald.co.nz/sport/news/article.cfm?c_id=4&objectid=10676562
Bernard, free market is not the problem, the root problem is fractional banking, creating "assets" out of thin air and the usury of interest, which enslaves people who are unable to work out that the exponential curve of interest is killing them.
Root problem Federal Reserve, private bankers buying politicians and gaining all the power first in a state, now all over the world and pulling the strings.
Root problem no ethics or simple common sense, one cannot lend somebody money who has not the means of repaying it.
Root problem "I want it now" or "buy now, pay later" induced by advertising by companies who are themselves driven by the presumed need to increase their turnover at all cost.
Root problem: there are no Statesman any more, only self serving politicians.
Total regulation by states has never worked and will never work. Samples aplenty.
Solution? I don't know the answers, a beginning would be if we could find a STATESMAN in New Zealand, or at least a few politicians who would wake up and face the facts and have the courage to tell the people how things really are, instead of being just the bearer of gifts for the populace before elections.
Berend de Boer - "The Market" is a human construct... It is what we allow it to be (within resource constraints of course).
The Market is not Holier than thou, it is thou.
As Charles Darwin once said... Its not the Strongest, or Smartest that survive, It's the most Adaptable.
can you adapt?
Roger : Do you agree then , that the " too-big-to-fail " investment banks should've been bailed out ? 'Cos I don't . They got bloated , greedy , and lazy . They ought to have been slain by the market place . And the myriad of smaller , efficient , intelligent banks been allowd to grow to fill the void .
Thanks to his desire to save some of the worst culprits in the global financial crisis , Barack Obama has stomped over the smaller rivals who did no wrong . There is central planning at it's worst . And a 100 % rebuttal to Bernard's theories .
The marketplace is about survival fittest , and that is what produces the most efficient outcomes . Politicians , the MEA , and Bernard don't seem to get that .
[ the Degenerate : Roger T. ]
The problem was they were allowed to become too big to fail...if they were allowed to fail now the entire financial system would collapse....no EFTPOS, CC...no way to get food etc etc...
What you are in effect saying is let it collapse and let there be chaos and yes death...
So re-instating the former regulation would be a very good first step and keeping them small enough that inded they can collapse as individuals and not destroy the entire system.
Survival of the fittest...well in which case ppl have the choice to band together in a society to protect themselves from robber barons...which we have done, hence our modren society...
What you are advocating is who ever is the most powerful individual takes all....that in effect leads to slavery as that person can do anything they want....
To see how such outcomes can happen there are some fasinating online multi-player games such as Facebook's Kingdoms of Camelot, and many others....these allow individual players or alliances/societies and you know what the alliances/socities form and do better....than the individual...it is totally fasinating to watch the inter-actions...
Now if the individual and fittest was trully the best answer we would see that effect in such games....we never do, highly individual and anti-social persons "die" really quickly....
This is the true example of on an outcome of "survival of the fittest" it shows up that organised societies survive better and longer.
regards
Now I am confused. This embedded commentary is too hard for my small brain.
As a independent NZer I am concerned at the ineptness of our dear leaders. The World Central Bank has let us down.
I'm not sure the US administration had a lot of choice when things blew up. They copped the result of a lot of bad decisions made over the long years of the last two centuries.
The US is first and foremost a military economy. The free market system has served them well for the most part. They are still the most powerful nation on Earth. They are also our allies as they share many of the values we do.
I am not a great fan of command economies that treat their citizens as their property. I think choice is preferable to compulsion. But bad choices lead inexorably to bad outcomes and with them loss of choice.
Hope that helps!
My comment about "survival of the fittest" is that it is not Darwin. Adaptability was what Darwin identified. Survival of the fittest was an attempt to justify the social inequality of the day. I was trying to be clever. My apologies.
I do seem to be giving the wrong impression rather a lot today.
Unbriddled capitalism and unbridled socialism are the flip side to the same coin.
How come it 's taken so long Bernard to see the problem of the free trade/few controls mantra? Unbriddled capitalism is as bad as unbriddled socialism, actually they are the same coin, different side. John Key has pretty much got it right with a middle approach, the danger could be if/when re-elected, the ideolgues in the National Party force a swing to the right (privatise ACC etc) and ACT could live on in disguise.
The right wingers maybe could swing things thier way, but, how much damage can they do to the country in three years? not a lot, themseleves? hugely.
Lets not forget the voter, labour could say I told you so and look how long Natioanl would spend in the wilderness...2 or 3 elections trust would be broken....thats a lot more damage the other way.
regards
Bernhard, the only “problem” you and some others have – you are independent, a sharp thinker expressing honest and wise view points for the best interests of New Zealand. Unfortunately these qualities ar often not valued and supported enough, in today’s rather selfish, corrupted and greedy world.
My vision for New Zealand:
Well, the world is struggling, fast moving and changing for ever- time for New Zealand to find visionary solutions.
In the current situation it is probably wiser to listen to philosophers, environmentalists, ecologists and humanists (I’m not religious - sorry) and find the right answers to solve our upcoming challenges.
Greed & Megalomania
The people of New Zealand are not only suffering under too much consumption but Greed, Megalomania of a minority – including corruption and a bloated government without a clear economic direction for years.
How much longer is the younger generation waiting for a revolt in “Beautiful New Zealand” ? The “Powerfools” in this and other countries are not only destroying theirs, the public’s natural environment, the land, the waterways and the air, but also their future, our souls and pride. The BB generation is currently causing enormous damage in our society not investing, but for them selves– costing this, but especially the next generation Billions to clean up the mess in may sectors/ levels. Not to mention our bubbly Property Industry – making our NZkids renting flats on Rook Creek Rd or worse, while foreigners living in flash houses on Orchid Park Drive – HA this is all crazy!
Viva the peaceful revolution - before it is too late !!
Ethics- Philosophy- Economy
More and more country are losing the battle against a clean and green environment, healthy food supply/ production, fresh water and air – quality of life. As a remote and rather under-populated country we have an exceptional chance to be different. The key is branding New Zealand - the introduction of a “GREEN & CLEAN” economic philosophy – why ?
For years our economy is so unbalanced, unstructured and unorganised- badly managed, when serious philosophical questions have to be asked. What is New Zealand way of life in the 21st century ?
The large and increasing national account deficit seems to force the government into stupid actions of desperation. Obviously falling into a trap by considering revenues form:
- natural resources damaging our environment/ nature and eco- tourism -
- opening more land for intensive (dairy/ sheep) farming destroying our environment, undermining animal welfare standards and in disregard of the influence of climate changes –
- doggy immigration policies leading to social, employment and housing problems etc.-
- no quality, skilful job- creation (see below) -
I’m proposing a clear, consistent, long term strategy for our economy to be the world leader:
“New Zealand’s Green Sustainable Economy Model of the World”
Such a model would make us unique in the world, inspires, lift ethics, spirit, pride among the population and feed into many sectors of our economy and society. But it also supports strong and already existing sectors. It would make Billions in revenue, the country would prosper.
Industry and Ecology
Today and in the future “Green Industries” offer new, good opportunities for NZ’s economy. Manufacturing Research & Development in sectors like Power, Transport and Telecommunication, in fields where we relay on foreign dependency most, even to a degree that our national security is at risk is essential. Building sustainable niche markets, producing and branding quality goods for us and to cover export demand will be successful.
Energy, Public Transport, Telecommunication
Two examples of how we should proceed with infrastructure questions in Energy and other such as Public Transport. Financially and economically it doesn’t make sense to import or to produce heavy and expensive machinery/ equipment like turbines/ generators, nuclear power plants or heavy trains.
Such imports are mostly under overseas contracts, managed and installed by overseas technicians and workers, without hardy any local workforce especially skilled ones.
In stead we should research, develop and produce –SMALLER UNITS- manufactured and installed by Kiwis in our own country. A step, when supported by government with enormous, but positive implication for our country:
- increase employment opportunity -
- better education after school –
- technical skill and knowledge improvements -
- higher wages/ imports of brainpower –
- positive influence to other sectors/ fields such as Science and Research -
- less quality imports / reduction of account deficit -
- control and sovereignty –
- quality infrastructure services –
- national security improvement –
- almost no affects because of natural events -
Sustainable Public Transport - developing a sector of industry to cover public mobility within a 100- 150km radius. Innovative businesses producing SMALL QUALITY UNITS starting from bikes, scoters, light rail systems and the interaction within, hardly seen in other countries. All planned, developed, installed, maintained and ran by Kiwis.
Sustainable Power supply/ savers SMALLER QUALITY UNITS developed, produced, locally/ regional installed and ran/ maintained by Kiwis.
A clear strategy to master the international dependency on fossil fuel, gas and power consumption.
Please, read and understand this in context to my many other articles.
Each time a man stands up for an ideal, or acts to improve the lot of others, or strikes out against injustice, he sends forth a tiny ripple of hope... and crossing each other from a million different centers of energy and daring those ripples build a current that can sweep down the mightiest walls of oppression and resistance. ~Robert F. Kennedy
Some politician seem to be on the same track:
Douglas Carswell MP (Conservative, Clacton) introduced legislation into the UK parliament that takes the first step towards ending fractional reserve banking. The bill would have the effect of making fractional reserve banking impossible, requiring a shift to full-reserve banking (where the bank either lends your money, or keeps it safe, but doesn't claim to do both at the same time!). In plain English, it would stop private banks being able to create money as debt.
Bernard... So u are the one we can blame for the mess.. !!!!
A laissez faire, global free trade, zealot who has now recanted..!!! I wonder what Mike Moore would think of that..!!
BUT are u sure what u now propose is the answer.... or would it send us down another twisted distorted path...????
Great article thou.. thought provoking..
cheers Roelof
I see Tribeless raving on about Nanny State yet again. His/her version of Nanny State implies being overseer to everything.
How does that idea conflict with setting a few rules at the top level such as the recent RB move over borrowing sources of the banks?
There is always a middle way.
Yes let the overseas investors buy into the NZ story if they are prepared to see it our way. Let them lease farmland with a fixed term. At the end of their term they will have either met our need or they can move on.
The NZ work ethic has gone to the dogs and i for one can see why. Many of us pampered ourselves with living high on debt, falling for all the adverts on the box every night that keeped telling you "you need this", "your nothing without that" etc etc. Now reality bites and some just can't stand it so they look for scapegoats and those scapegoats just so happen to be the very people most of us voted for. But can we dare to look in the mirror and own up?
great postulation there Bernard !
i was wondering where all the good posters had gone to now Real Esate pron is no longer chic?...congrats on finding the new motherlode!...all the regulars are out in force above wearing their knowledgeable spring bonnets!
btw i'm not sure whether i'd like to live under the singaporean model.. shades of current kiwi tv series " this is not my life"
Temasek and the Overlord's shady dealings with the generals in Burma etc made me uneasy and the only billboards allowed up there are ones advising you what to do in the case of depression or suicidal ideation?...and i don't wonder..
however, a benign dictorship like they have definitely works and is wonderful if you're a control freak who likes peace and order....just all those robotic singaporeans are a bit spooky and peak hour traffic....well,there isn't any 'cos it costs so much to own a car!?
so how would that model work in nz....plus they have runaway housing inflation a the moment. ...easy answer is it wouldn't unless we're all living in a Bernardian utopia with the only black swans in sightbeing at Western Springs gardens?
Good reading, but nobody has put it in context.
First, well done Bernard. It takes as much guts, in your circles, to say what you have, as it does for an ex-Brethren to resist the pressure to return.
From Peak Oil (2005) on, I looked for the commenters most likely to 'get it', and came up with you, and Cameron Bagrie, in you respective fields, Kim Hill and Chris Laidlaw in theirs. A bonus has been Bryan Crump, RNZ Nights. That's about it, though.
The rest seem to be various grades of shallow, ignorant, etc.
In Context:
Bernard is right, but for the wrong reason(s). He's addressing the symptom, rather than the cause (but that's much, much better than continued faith-healing).
Getraud gets it rightest so far - fractional reserve is/was a recipe for disaster. It (and usury) demanded an exponentially increasing physical underwrite from the future. Clearly, at the point where the future couldn't physically underwrite anymore, the system was going to be impossibly levered.
We've done that, but you wouldn't know. Weve got a Government borrowing how many millions a week on our collective behalfs? And we accept tax cuts from it without a murmur. They.ve got to be paid back from?
The future.
Post Peak.
It's a ponzi, on our kids. This isn't about Left, Right, Green, Red or Blue.
This is about fascing reality with maturity - which last time I checked, didn't mean blame-shifting, or denial.
PDK -
Q "We have got a Government borrowing how many millions a week on our collective behalfs?"
A: approx NZD 250 mio per week... to maintain Status quo, relative to,
the big four banks who loaned into the economy approx 1 Billion per month,
net result is a decline of about 8% of new money entering the economy... Imagine what it will feel like when new money enterening the economy equals the wealth we create with what we have.
Bazza Mckenzie got it right
BazzaMcKenzie
Today 12:04 AM
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Ambrose, you are right to identify the continuation of economic deterioration but you are confusing deflation with depression. Deflation is not itself a problem, depression is, and that is what Western government and central banks have inflicted on the world.
Without continuous expansion of fiat currency, deflation would be the norm in a healthy economy. The reason is simply that industry without government intervention makes continuous gains in productivity and that leads to continuous widespread price reduction. That is deflation.
We have had government, central banks, and even yourself Ambrose, telling us this would be a calamity because everyone would then stop buying. That of course is nonsense.
Look at the whole computer and electronic industry. For decades, everyone has known that the price of a computer or a TV or any number of other electronic goods would be less in a few months than the current price. Did that stop demand? Of course not, we have bought enormous volumes.
Does anyone imagine that if the price of food was falling regularly people would stop eating, or if the price of fuel and cars were falling progressively we would stop buying cars and driving?
Certainly deflation rather than inflation would produce some differences in behavior within economies, in particular a concentration on production, and especially efficient production, rather than speculation. How terrible would that be?
The reason we have long become used to inflation rather than deflation is that inflation is endemic because of currency printing by central banks. Every note or coin of fiat currency produced by a central bank is a tax, of equivalent amount, on the rest of the community, imposed by devaluing all existing currency proportionately, ie inflation.
That is the reason central banks almost always report annual profits. They have a license to steal and declare it as legitimate income. They are deathly afraid of deflation since there would be absolutely no basis for printing more currency and they would go broke. Oh shame! That would be terrible.
Central banks typically pass their surplus profits to national governments, so the latter also have a vested interest in inflation.
This process of continuous creeping taxation, together with more overt taxation, irreversible growth in government regulation and the encouragement of speculation by everyone induced by government sponsored inflation, has destroyed most of the real productive capacity in western nations and made mendicants of a huge proportion of the population.
That is the cause of the depression we are now suffering. The figures you quote are indications of depression not of deflation.
And yes, during depression there can be deflation because demand drops below production, just as there can also be inflation as production drops below demand.
Pushing out more fiat currency to allegedly counteract "deflation" will not restore productive capacity to the economy. In fact, since it is a further huge tax on those holding currency now or in the future, it deters investment and growth. It guarantees continuation of a depression.
The world is in the early years of a depression manufactured in Washington, New York, London, Paris, Bonn, etc.
All good stuff as far as it goes. But why?
Is it because inflation favours those who work for government?
Is it because, since all men got the vote, not just property owners, the number of people who work for government has steadily increased?
If I worked for government I would vote for whichever party was likely to increase my wages the most.
Is this the root of the common weakness in the democratic nations?
Our turn is coming
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8028737…
Strewth, when it rains it pours eh:
Gareth Morgan: Reserve Bank lives to lose another day
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10676501
(Just one of those days I guess.)
"The increase recommended provides little effective tightening on New Zealand's foreign-dominated banking system anyway, and it remains instructed to favour property over all other forms of lending. The supervisory negligence lives on to materialise another day. Pity the taxpayers that have to underwrite such inadequacy."
So do we need a more sovereign (nationalistic - don't actually like this word) approach here as well? We don't have to be vanilla (orthodox) Basel III, do we?
Cheers, Les.
I think the Indian Reserve Bank and the Fiscal/Financial policies are doing a fine job of balancing free market initiatives with capital/forex controls to give a positive direction to the Indian Economy. Brazil is another country which is thinking of forex controls to reign in speculation.
Ultimately 'speculation' and creating more and more ways to speculate without any underlying commercial base is what drove the Americans to screw the world economy and bring on the GFC. The politicians and administrators there helped massively by rearranging the deck and rules to favour the speculators.
A good mix of incentives and controls is always good.
Excellent article, one of your best Bernard.
I flirted with mild socialism as a student, then libertarianism.
Then realised the futility of both.
The middle ground is optimal.
Capitalism is stong but it needs regulation.
The pure Free Marketers are just as deluded as the socialists.
The free market philosophy is noble but ultimately fundamentally flawed. It relies on an unrelenting faith in humanity that is just not supportable based on the vast evidence of history. Humans being humans we unfortunately need regulation (but just make sure its not too heavy handed)
Bureaucracy can be painful but is an unfortunate necessity.
As an architect I've grappled with these questions. My instinct is that architects should not be tied down by the control of planners, that we should have freedom to create and express. However, of course such a libertarian view is incredibly naive. The fact is many architects either don't have the talent to deliver on that unregulated promise, or the balls to stand up to their paymasters.
Some....the better ones....many though dont want to spent the money on 50mm of insulation as no one can see it....let alone see a bigger picture.
15 years ago my main interest and speciality was passive cooling. I came to NZ and aimed to do such work, ie that NZ has a low air temperature relative to the sun energy falling....this makes it closest to the ideal as practical for passive cooling techniques....What I did find was that if it wasnt cheapest first cost forget it.....if it compromised the architect's vision forget it....hire professional engineer's to do desgin? forget it....use the local plumber....install another split. What I saw over 5 years of struggling as an engineering consultant destroyed my interest in that subject...........
So now I do IT....I do (even if I say so myself) great designs....that work very well.....I also get paid fairly well and have good job security....and enjoy myself/life...
Sad, there could be close to zero use passive cooled buildings in NZ taht would have cost the occupier minimal energy day to day....we had a decade to do that....instaed the got crappy building regs that allowed leaky homes.....
Another example of how a "free market" just doesnt work.
Well done Bernard,an excellent piece. Matt In Auck. has put it perspective. A nice change , I was sick of the ongoing meaningless exchanges between property bulls and bears or people boasting of their profits from copper /gold/stocks/property.
My view has been that systems shape societies and the recent turmoils have systematic causes.
I agree with most of your views for a change .
I like these debates , as they make people think about issues . There has been much comment about the 'hollowed-out workforce' , but the government stats still show over 93% of New Zealanders are working . If thats true , then thats pretty much closer to full empolyment than most countries. Maybe we are not working optimally ? Or maybe under- employment instead of unemployment is the real issue . The public sector here looks very big to me for such a small popn. but the public sector is far more efficient here than many other countries . Anyway , my wife is looking for staff for her business and its not easy finding the right people , so what does that tell us about the workforce ? Possibly , Its a skills issue rather than a numbers issue .
Bernard, I'm glad you have finally seen the light.
You could have asked small exporters years ago and come to the same conclusions.
China, Brazil, Singapore, Taiwan, South Korea all have some form of exchange controls
so why does a cork in the South Pacific think it can take on the FX speculators.
Now down to just borrowing ONLY $ 5 billion every 90 days WOW ! Progress !
It will come to and end - the only issue is when !
I still think Dr Bollard has it covered with his Core Funding Ratio - don't forget he intends to put it up to 75% or more if required.
It works like this Bernard, higher deposit interest rates lead to more saving.
Once private and government sectors are net savers we run a trade surplus. It really is that simple. Something to do with double entry bookeeping.
But why did it take you so long, Bernard?
Given NZ legislators implemented neo-liberal orthodoxy in it's most zealist form anywhere - it seems doublely strange that thinking people who "lived" the experiment first hand can take so long to come to the realisation that markets aren't "pure" and "trickle down" didn't work.
But where to from here? Plenty of good suggestions from NZMEA on how we need to react to external forces/globalisation, but we also need something dramatic to put our internal house in order - welfare/tax reform. And we need to start thinking like an island where the energy crisis to come is concerned.
On the whole, this thread just got worse and worse. I'll make my final post to it by putting up a lovely letter from economist Don Boudreaux, as an antidote against all the protectionist, nationalist mercantilists - read dinosaurs - including Bernard, on this thread:
http://cafehayek.com/2010/09/people-not-nations-trade.html
Quote:
The illustration accompanying Anatole Kaletsky’s op-ed on the alleged inadequacy of market forces to govern international trade shows U.S.-bound Chinese and Japanese cargo ships loaded down with multitudes more goods than are being carried by the much smaller Asia-bound U.S. ship (“Blaming China Won’t Help the Economy,” Sept. 27). The insinuation, supported by Mr. Kaletsky’s essay, is that this pattern of exchange is both undesirable and will persist unless Washington intervenes more actively in international markets.
Please tell me why such a pattern of trade – with Americans routinely getting lots of imports in exchange for relatively few exports – is something to fear. Shouldn’t we celebrate it? If as workers we strive to exchange each hour of work for the greatest possible number of goods and services – that is, strive to import ever-more goods and services into our households for each hour of work that we export from our households – why shouldn’t we also want to get as many goods and services from foreigners in exchange for each dollar’s worth of goods and services that we sell to them?
Exports are the price of imports, just as hours worked are the price workers pay for household income. Why should we want to pay higher prices for the goods and services that we consume?
Sincerely,
Donald J. Boudreaux
You wonder why Americans wanna go back into sweatshops to produce clothes and widgets , when their tech industry dominates the world at the upper end of innovation and manufacturing . Typical of the Yanks to feel that bulk is good , small is bad ! NZ should be so lucky to have Microsoft , Apple , Cisco , and the like .
I would change the RBNZ inflation target from its current 1-3% to + or - 2% though. Mild deflation is nothing to fear (look at LCD TVs) just as mild inflation is nothing to fear. Unions seem to like inflation, I guess it makes their officials look like they deserve their %. Mild booms and busts are a good thing. The thing to avoid is catastrophic collapses.
To me this is the main concern with command economies - when they fail they fail massively.
The major debt boom was caused by central banks not understanding economics. They were not aware of the debt bubble and did not head it off by raising interest rates fast enough. So we can either get rid of central banks and adopt a commodity based currency like silver dollars and let markets set interest rates or we have to keep tinkering with the rules of the central bank.
Personally I think Dr Bollard does alright in a difficult job. He just needs to err on the side of caution and that means to encourage saving with a gentle pressure.
"fail massively" So far it looks like a "free market" economy has only out lived command by a few decades........right now we are not looking at a massive failure of a Command and control economy but a free market one...and it looks to be the biggest of the lot!
regards
Not sure I agree the US is a free market economy. They are a command/military empire served by a free market economy that spreads the illusion they are a free market economy run by the people for the people. Similar to how urban Aussies are under the illusion they are tough outback types.
What’s probably not widely understood here, is that US QEII will result in inflation for everybody that buy's or consumes goods that have a USD component,
The Oil trade for example is conducted in USD... and as we all know virtually all products and services have an Oil Cost component.
The US's 'get out of jail free' card is the ability to Tax through Inflation (Money Printing)... Your hard earned NZD denominated savings...
Spend it quickly... for tomorrow it will Buy less.
They're trying to export their debt. Unless 'the rest of us' go for massive pay rises ( to pay for the exported asset price inflation) our option is further debt - their debt. Do we have the capcity to re-price our exports with a higher (wages) labour component? Or do we have the capacity for further debt? Probably neither. So we will end up with higher unemployment here; the unemployment that the States will also export.
John Whalley in particular seems to not like my recommendation of higher interest rates to encourage saving. That is because he fears the rising interest rates will cause the currency to rise. Sometimes this is true. Interestingly the relevant function here is called the Production Function (ironic isn't it);: it starts off looking like an exponential, then slackens off to look like a direct relationship, then the system hits a limit and the volume falls rapidly. Also called an S function.
So it took a while before the good Dr Bollard got interest rates high enough to change the mad debt buying - had he raised them earlier and harder and had more borrowing been under his control the dollar would have fallen sooner. You cannot lend to people who will not borrow.
Michael Hudson is excellent on debt and the destruction caused by it, and on S functions. John Mauldin covers the relationship between savings and the current account rather well.
Bollard showed a fallibility in being unable to real the market accuratey . So why does Bernard Hickey want to entrust more power into the hands of the central bureaucrats ? Bollard , as you say , needed to raise the OCR earlier , and much harder . We on the outside , in the street , could see that , so why did the $ 500 000 / year man get it so badly wrong ?
Greenspan in America was so much worse . He truely aided and abetted the ponzi housing bubble ............. And he was ( I say was ) , lauded as the greatest governer of the federal reverse , at the time .
Debt grows; leverage everywhere – what happens when the real economy cannot make enough to pay the interest bill at any interest rate? Production functions be buggered what will lead to saving is either have more to save or be compelled. More saving is pointless if the investment flows to areas that are intrinsically low return, made passingly attractive by fiscal distortions (absent capital gains tax).
I have many fears, (that are starting to be shared by a growing number of people) exchange rates too high for most exporters to make a living, interest rates so high they compound the exchange rate problem, the policy of others polluting the purity of the NZ approach while the things that have the potential to earn us all a living in the world go to hell in a handcart.
Roger how could I be against making an honest profit. The key is the word honest - if profits are made churning financial instruments, if profits (on capital) have to be tax free to make sense, if profits are made from massive leveraged risk (passed to others) as opposed to the honest trade in stuff they are, as we have seen, an illusion.
We have long been of the view that being pro-trade, anti-speculation, pro lower and broader taxation, pro dislocating the exchange rate from domestic inflation control tools - is the way to a better future for NZ. I am very pleased that Bernard has joined the growing clan of heretics – hope that soon we will see an appetite for change in our politicians.
Mind you heretics can end being burnt. We will see.
Yes, I guess I meant NZ savers not US ones.
I am convinced that the exchange rate adjusts down when both the private sector and government sector are net savers. John Mauldin covers this. There has to be a surplus in that situation.
The trick is to make the transition without too much pain, thereby avoiding a political backlash.
".. the inevitable adjustment ...is being shifted on to countries that are both attractive to capital inflows and unwilling or unable to intervene in the currency markets on the needed scale."
Re the article above. (Iain Parker | 28 Sep 10, 7:43pm )
The Hudson address to the Oslo conference is more easily read at
http://michael-hudson.com/1998/09/financial-capitalism-v-industrial-capitalism/
FWIW
I'm a right wing free marketeer , and I do " give a crap " ( as you so delicately put it ) about fairness and justice . .......... But I do not " give a crap " about propping up corruption , stupidity and laziness !
[ Hit the button once , get two blogs ! Curious . Must be good stuff I just wrote ............ Makes a change for me ]
Did you also notice , during your school days , that the High Schools and Universities are hot-beds of socialism ? Never come across so many reds in all my days . And these folks are ( or were ) in charge of impressionable young minds . ............ The few National voters among the lecturers were teaching agriculture or commerce .
Yes I think that was more than a little unfair Nonny 1.......there's no shortage of greed in any institutionalised body......by nature some people look for ways to exploit any advantage they can regardless of that institutions ideology.
If reforms are to ever be placed upon the "Free Market" they will first have to suffer a test of strength against an arrogance born of power and smugly displayed when opportunity arises....by that ..FLAGSHIP...of the Free Market.......Bank'y Boy
The "Free Market" needs to have a long think about it's Flagship in order to minimise reform.
What a first class thread...! with some real considered input...loved it.
Not much point in posting much as Gertraud T. covered it well...Powerdown connected the dots for us....Justice encapsulated our shortcomings as citizens who give a toss to work ethic....Matt S. was a revelation ...Nomad returned to find refreshment...GBH...played Devils Advocate with conviction and experience...........the list goes on........ and then...POP! Wally's back.............Bloody Brilliant....thank you all for an evening enjoyed....I got a headache now..!
the above article by Bernard is also in todays Herald here:
http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10676862http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10676862
if you want to get some good mainstream public debate going on this worthwhile topic, log in and post your thoughts for the "sheeple" to read and ( gulp) absorb!
bernard for supercity mayor..why not?
Why not..? Donald Mac.......because on the strength of this article alone he has been outed
as a reformist....a stirrer....a malcontent....a teller of inconvenient truths......and we all know
what happens to their political aspirations don't we...? ......it's
a shortage of capital.........?
Brown enjoys the advantage of having an arrogant S.O.B as an opponent...and had blue boy taken the time to know anything at all about about our indigenous people...he would not have come off looking like the arrogant SOB he is.
He's got safe hands because he knows where they are either in or en-route to your pockets.
But alas a lack of real super people for super jobs in super-cities leaves us to pick something amid this rabble.
If Brown wins ....he will learn the ways of compromise until he himself is compromised.
and so it goes Ad nausium .
happy day DonnyMac.
Got the " toe shine boy " lugging rocks to build a breakwater on the beachfront . At the end of the day he'll get some rice and a few pesos . ....... If I wasn't here , he may have neither rice nor munny , today . ............ I am trying to encourage the local youngsters to keep their formal education going , but their families desperately need food .
Christ Bernard! You've lost the beard and now your mind at the same time... Clearly a mid-life crisis in the making...
A few points, which the ranters above have missed.
What would happen if NZ did this? We are a small open economy and now you are recommending that we shutter the doors and become introspective and inwards focused.
This is what will happen...
1 New Zealand's credit rating will be severely cut... our AA rating will become a thing of the past... might be lucky to hold onto a single A, maybe A- but a rating in the Bs would be more likely
2 No foreigners will want to hold New Zealand assets or liabilities - NZ debt will be sold by the truckload, which will drive up interest rates dramatically... think 15%+ for 90 day bills... 17% for mortgages
3 The value of the currency will collapse... which some will say is good for exporters, but terrible for the rest of us. Foreigners will dump NZ assets and in the process destroy the prices of these assets - land, businesses houses etc...
4 Inflation will be unleashed by all of the above... the economy will stagnate and unemployment will start to rise quickly.... Emigration will increasing dramatically as people quit NZ for more economically friendly places... like Australia
5 Businesses will likely start leaving too. Longer term the Govt will have to increase taxes and borrowings to fund the controls Bernard thinks are so great... which gives everyone less of an incentive to be here..
Bernard has often forecast a collapse of house prices - I guess this is one way to go about it...
Want to send the economy to hell in a handbasket?? Bernard is your man for the job.
The terrifying thing is everyone of this things are / will happen if we persist on the road we on.
Bernard, I hope you're still following this thread.
Land rationing by urban regulators is what led to the crisis, and will continue to ruin our economies regardless of all the other stuff you are talking about doing. The property booms and busts in non-USA markets that did not have innovative financial inventions, STILL stuffed those economies and are continuing to do so. A whole lot of financial bets just involve shuffling credits and debits around between different parties, and should be the first liabilities to be simply written off in an organised bankruptcy type proceeding - but LOST EQUITY IN A BUBBLE involving millions of owners of property and trillions of dollars of total lost equity is GOING TO RUIN AN ECONOMY regardless of whether there were clever bets placed on the likelihood of a crash or not.
I do agree that the financial sector needs regulating under "gambling" laws rather than financial system laws, when it indulges in what is straight out gambling. Credit default swaps and other derivatives are a good idea, not a bad idea, when utilised as insurance and kept ON, not off, the balance sheet. But naked gambles on market movements, via derivatives, where no party to the transaction even has an interest other than the gamble, should be recognised as gambling, and regulated as if it was the T.A.B. But most nations, including NZ, had not even developed markets for these instruments - yet that is no guarantee that we do not stand to lose even more "equity" in our property bubble (per capita) than the USA did in theirs.
You are absolutely right about the "suckers boom" 2001-2007 or thereabouts. WTF were our politicians and official watchdogs doing? But it is not this suckers boom that is responsible for NZ's declining productivity, shrinking tradables sector, and "hollowed-out workforce", THAT is the result of years of anti-business, anti-progress political ideology and an increasing "State" share of the economy. THAT is what we desperately need to undo. Remember how easy it used to be to buy land and put a building up? Haven't you read Hernando DeSoto? FFS, if it was as easy for the private sector to build "Think Big" projects as it was for the Muldoon government, NZ would be powering off into the top 3 of the OECD today.
But I have very little hope. The socialists and greenies (who are socialists in disguise anyway) have captured our institutions. The Bernard Hickeys are capitulating, and the "Cuba-isation" of NZ is proceeding nicely, thank you. A return to government economic controls and protectionisms will just top the process off nicely.
The crowning absurdity, the crowning hypocrisy of the whole Left/Green ideology as it has captured NZ today, is that it is guaranteed to collapse our economy, simply by putting resource use off the agenda, and bankrupting whole sectors of the economy by regulatory delays and cost impositions - often which lead to massive transfers of wealth to lawyers and consultants and bureaucrats WITHOUT the productive project even occurring. Then "the free market" is scapegoated for the inevitable downturn and more policies advocated that will ruin the economy still further. Meanwhile, the world is supposed to be running out of resources, so we will leave ours in the ground for our descendants - but we won't invest in defence, and we spit on our powerful allies. If the world really DOES run out of resources while ours are still in the ground, you'd have to be bonkers to think our OWN descendants are going to get to utilise them.
Eeek! Well done Bernard... but.."It is the height of folly to be wise too late"...All that you said is what we should have done.Hindesight is a wonderful teacher!....After the dust has settled it will be all different again with different sets of priorities.Whatever the "New normal" is to be,we must have a society thats inclusive.But NZ. is the best place on Earth to ride out the storm whatever way you look at it. Free markets would be great if the nature of humankind wasn't to lie and cheat.
.At the moment Israeli troops are massed on their northern border with the Syrians on the "Highest state of alert"..A worm written in Siemens machine code has shut down Irans Nuclear facilities. I'd guess China is weighing the pros and cons,and wondering if the worm has burrowed into the launch system of their missiles? After all they supplied the nutters with missiles and weapons ,and allowing their proxy state (North Korea) to undermine the US..dollar ..lets hope it all goes the way of Pragmatism.
Bernard what nonsense are you seriously suggesting we revert back to an environment where bureaucrats end up effectively controlling virtually every facet of our economy, that’s what will happen its unworkable.
The type of centralist planning clap trap leads to privilege and potential corruption look at the Chinese. The current structures have not failed but the management has.
The current situation has been created in recent decades by ignorant self severing dishonest politicians within the western world who have promoted and allowed the undermining of the independence of the central banking system to serve their own ends. Within this doctrine the central banks have sanctioned the creation of credit growth rates of 4 or 6 times the underlying economic growth, setting interest rates at ridiculously low rates for extended periods consequently unleashing a massive tsunami of credit around the world distorting every market in its path creating endless bubbles and busts. Moral Hazards abound with market players appetite for risk soaring with the surety the central bankers will always bail them out. They have barstardised the capitalist system it is not a perfect system nothing is but it light years ahead of anything else.
This madness has as we all know has created a colossal unsustainable debt mountain within the private and public sectors the bankers are just players within the game.
The Greenspans of the world talk of the free market but they are some of the greatest interventionists forever trying to avoid the recession for their political masters. If we had had the recessions we should have over the last couple of decades (probably 2-3) the banks and borrowers would have been burnt people would have felt real pain and learnt prudence and that asset prices do fall etc. Markets are naturally unstable read Minsky.
It has been all about orchestrating the illusion of growth at almost any price, inflating assets, debt creation helping the pollies avoid the hard decisions. Politicians from every political persuasion have over promised for decades it has only been a matter of degree. These promises have resulted in a vast accumulated legacy of unfunded and unsustainable social entitlements. The overall take by Governments is now simply too high but needs to grow higher. Each new crop of politicians have kept kicking the can down the road to the next batch as the debts pile up. Citizens all over the world know this the bills are coming.
We have created a world of endless rules and regulations with costs forever being imposed upon business, ludicrously generous welfare systems, a sense of entailment at every level, a culture of Government bail outs as of right there is now limit to what a Government can do.
This environment was created and nurtured by the politicians the markets have just responded to the environment. Sorry but it is certainly almost too late to undo we crossed the line a long time ago.
Colin I don't think he intended to be read as endorsing bureaucrats gone wild or anything remotely like it.
The reining in of a "Free Market" banking system that has gone hog wild on it's own agendas(with the power to do so) is a prerequisite to find a ground zero....then we can stand around like stunned mullets for a while as we absorb what really lies before us as the smoke clears.....then we can make a start based on conclusions proven.
You elect your Government to Govern in your interests however disingenuous that may
sound to us....it is always difficult to believe they are even capable of that, given they are
secondary in the chain of power......and agenda..........or at least they (and I mean both
majors) behave that way.
Bernard - Been reading the comments to this article on Stuff... You have definately struck a cord here...
Seems almost everyone would support overturning the Money Lenders Tables at this point...
The Bad News is none of us are up for Crusification... Apparently it did'nt work out too well for the last two chaps who did that.
I do so agree Bernard but what I want to know why has it taken you so long to see the current economic system does not work and could never work. Why did all the journalists join the band wagon of espousing greed is good? I know all the economists and the politicians did too but surely it is a journalist’s job to question all such one liners. Do the Fairfaxes, O’Reillys and Murdoch’s of this world instruct their journalists what to say or do they let their journalists know what they (the Fairfaxes, O’Reillys and Murdoch’s) think and the journalists fear for their job so they toe the line. I think it is super that you are writing this article Bernard but I note it is not in the Auckland Herald nor the Dom Post and that it is after the horse has bolted. It would have been wonderful to have such thinking during the two last decades.
@ Particia
Similar to politicians, journalists, particularly economists are reacting and not acting, one reason why I think philosophers, who see the “Whole Picture” should have far more say in today’s complex and fast changing daily life.
Urgently needed visionary ideas leading into a better world are not coming from calculators and economic history books. What I see here is enough prove of that - constanly going around the circle again and again - day after day.
And one of those 'independent' ones is pretty biased.
Owned by a Business Roundtable type - not first-generation wealth either.
Edited by a fellow - unless I miss my guess - chosen for his ability to inrease hick-town circulation, not for his editorial prowess.
And it has a history of endemic Genghis- Khanery (in the older set) and the newer ones reflect the brainwashing their generation grew up with.
'The Economy' accepted unchallenged.
'Growth' accepted unchallenged.
etc.
Despite prodding, they don't get there. So independent isn't enough alone.
We have real cause to beware of the paper tiger, China, in all of our dealings with that country.
I was told today about Chinese people purchasing sections in the Hamilton North areas, and building spec houses using imported chinese labour and imported chinese products in the fitting out the houses. This includes kirtchen units.
If you think we have a leaky house syndrome, just watch out in five years time as the quality of the construction is sub-standard and it would be the caveat-emptor for any unwise purchasers.
But St Bernard - when you were nailing your original and never tried before 95 theses to the castle door didn't you see that some of your ideas were already posted there. That the church already believes in heavy income redistribution ( I know you want more but the ones with all the cash are leaving the church for some strange reason), that we are already introducing tighter rules on non Christians grabbing our farms ( try Uruguay you heathens) and that we've already overturned those nasty money lenders tables with our CFR boot.
Tell Rome she can only collect 50% of the usuary we owe on her investment eh ? - big brave words from a little monk but that'd be the last we'd see of much needed investment cash from her coffers. And invest all your hard earned and saved shekels in the local farm and lose most of it when commodity prices tank, rather than spread your risk internationally like any wise servant charged with growing and protecting his investments should do.
Suggest you try a pilgrimage - the road to Damascus might be worth a shot.
I have a suspicion that in 100 years we may be looking back at "free/liberal markets" as a wonderful idea that was never tried. Which, if I remember rightly, is the same wonderful epigram applied to the failure of Communism.
Our experience of the 20th century will probably be that no matter how compelling the arguments are in favour of some "-ism" there will always be someone who will bypass the rules of the game to make sure they win - doesn't really matter whether we are talking about Stalin or investment bankers.
Don't have a fix for this one sadly. However, I suspect we are now entering an era of realeconomik and whatever policies we follow in NZ had better reflect that there will be no prizes on offer for the doctrinally pure.
Iain
So - disengage from international capital markets, presumably either default on debt or progressively pay it off by limiting import based consumption. Once debt has gone , what then ? - a sort of international farmers swap market where we hope the price we get for our scenery, meat, milk and whatever we manufacture will be enough to create a surplus so we can buy those imports deemed essential. Kinda like a Cuba with snow ?
The youtube docoson Cuba were fasinating....the interesting/scary thing is to make it work it seems there has to be a totalitarian regime in place with the power to take excess of some to give to others....so no one starves...So civil emergency declared on a national basis lasting a decade or more seems likely...."The long emergency" indeed....the Pollies would love it jobs for life.....
The Libertarians will be getting heart attacks en-mass (well all 1000 of them) once they read what I just said....lol......
If they bother reading my stuff of course.....probably dont....
regards
The youtube docos on Cuba were fasinating....the interesting/scary thing is to make it work it seems there has to be a totalitarian regime in place with the power to take excess of some to give to others....so no one starves...So civil emergency declared on a national basis lasting a decade or more seems likely...."The long emergency" indeed....the Pollies would love it jobs for life.....
The Libertarians will be getting heart attacks en-mass (well all 1000 of them) once they read what I just said....lol......
If they bother reading my stuff of course.....probably dont....
regards
You should be very careful taking anything you read about Cuba too seriously anyway. They were under terrorist attack from factions in the US for decades. There was a US invasion at Playa Giron in 1961. Mostly the condition of the country is down to trade sanctions.
I don't think you can trust anything that Castro says in interviews particularly, but I doubt that he could keep his influence without doing right by his citizens. Anything you read about Cuban history from the US is probably slanted by propaganda.
International swap market.....essentialyl the answer is probably yes.
Lets look at the future...
Globalisation is toast frankly....it uses too much energy for transport...so trade will be targetted and of more direct benefit....ie yes essentailly more of a barter arrangement.
Saudi has oil.....right now it sells it for USD which is essentially worthless, what does it do with it? Its buying land, farming land in canada (and Africa?) etc to feed its growing population.
What does the US have it wants? grain maybe...except if the Americans are turning it all into ethanol....so no spare there...probably no spar ein canada either.
What does NZ have it wants, lots of good quality lamb....lots of milk products....a surplus of food...what do we need? oil products.
So in the future Saudi indeed the world has less oil....it also has less water and less food...(ie less fertilizer which is oil based).........
So yes I suspect it will sell us a tanker of oil in exchange for our farm produce....
Cuba is an excellent example of what life will probably look like at 5 maybe 10 years after peak oil....circa 2020....
So yes we wil be Cuba with snow....
There wont be any commercial airlines in existance by the way at least on the scale we have today....They cant survive $120USD a barrel of crude == ($170USD jetfuel) and thats our / thier future........so forget selling scenery....air travel will be as it was in the 40s and 50s.....senior Govn officials and the super rich......
regards
Best article for ages Bernard.
Why else are we seeing a constant massive flow of capital out of the country?
Because we completely deregulated and allowed everything to be sold off, now almost any profit of any big business goes offshore.
It's already at the point where we are having to export way more than we import just to have a neutral trade balance, because of the massive capital flows going out due to the lack of NZ owning much of it's big buisness.
This is a riduculous situation, one we should be trying to fix, not make even worse, like some out there with a screw loose want to do.
Why invest in NZ business Philthy when you can make munny buying and selling property and pay no tax as well. Only stoopid people invested in the NZ share market..(look at what Cullen did to aia)...The smart people and this includes most of the National Party members, gambled on property and won big time...huge fat profits...bugger investing in NZ business. Has it changed....hell no....the game goes on with the full support of the govt the RBNZ and all the bloody banks.
Invest in NZ export business....you must be friggin joking!
You miss the point entirely there Wolly. You educate yourself to get a job with the government in a nice unionised sector. Then you get to grumble as much as you like about how unfair everything is and as long as you turn up each day and keep grumbling you will do well.
I stand corrected...what a mistake....I must educate myself in the ways of the Noddy economy. Reminds me of my days in Foreign Affairs that does....oh the munny did flow like water and most of it flowed to the 'diplomatic' mob...all those perks and benefits and refunds and allowances...oh shite the allowances...I could write a book on those.
Sorry Roger...I was thinking of the cream of the unionised sector there wasn't I...sort of secret stuff..wink wink nod nod.
After today the govt has reduced the amount of munny it steals from income earners...but increased the amount it steals from spenders!...now this is going to encourage less spending and more saving...right?.....probably....but...yes there is a but....the oh so friendly providers of the mountain of credit created on the back of the cheap foreign dosh during the bubble era...you know who they are....guess what they will start to do from tomorrow?.....aha you're onto it...they are going to regard the extra cash in Joe Kiwis wallet as fair game...up go the rates on mortgages...stands to reason don't it!
Oh and your local council is going to want some too...and the power company....and the insurance mob....
Sure I get a refund.....however thats a single earner PAYE refund....with a family that has multiple outgoings to get extra GST on
eg,
My kid's train term pass just jumped 50%.....my monthly train pass just jumped 23%....some GST rise that....
Listening DR Bollard?
Petrol up 7%....
and then food....
and I get some tax back....
regards
PS oh yeah Wolly too late.....my rates jumped 15%
Bernard ,
Rethink that whole mumbo jumbo about more government ,more controls ,more intervention,more of someone else being responsible for your life. I can see it has all become too hard for you to cope or even understand so you have quit thinking.
This is a central bank debt creation issue. The debt is created to serve the government of the day in its desire to give the appearance of an ever rising tide of prosperity in order to maintain power. We have not had free markets since the creation of the Central Banks System of Money laundering.
Even our little report writing fudging RBNZ is only a washing facility for the State's desire to morgtage our future so they may look good today.
Less government , less controls,less welfare,less interference,less road cones,less town planners,less less less is what will work but in your desparation to avoid taking personal responsibility,a hallmark of the dependent mentality,you call for more.
This will not end well when the state has finally exhausted all of your savings and mortgaged all of the future and life is still stubbornly no better so the confused ,dazed mob will take to the streets and institutions will not be spared.
Better to take them apart now gently than violently when all hope has gone in your Big Government solution. Dig deeper Bernard,at least you are beginning to ponder,and get out of that shallow pool of thought that deceives you into a comforting answer.
Maybe you too will have produce something of value to exchange in a free market to obtain your wants in life.
Barrzee.
Colin ...I repost a piece I posted earlier...and if you can see what I mean you would see that bigger govt...is not wanted...more govt...is not wanted....but a political will by the Govt to have it's citizens interests as the first charter and not secondary to Banking interests.
the repost..
You elect your Government to Govern in your interests....... however disingenuous that may
sound to us....It is always difficult to believe they are even capable of that, given they are
secondary in the chain of power......and agenda..........or at least they (and I mean both
majors) behave that way.
Colin - I think you make the mistake of not questioning 'wealth', first.
Rates of efficiency can be addressed, as too, presumably, can profit in the private sector.
All things being equal, the profit always makes the private sector more expensive.
Make that 'made'.
Because the paradigms have changed. Energy underwrites wealth (I've written this ad nauseum here, so this is just for you) and if you don't think this is so, try and think of an economic activity which can operate without it. There isn't one, believe me.
Even manual labour needs it's cornflakes, which needed their tractor.
Peak that energy (as we have) and you peak the 'wealth' available. Worse, 'wealth', is a promisory note to buy from the future. Which can no longer unerwrite.
Worse, we went over the top of the graph leveraged - already in debt.
So talk of wealth being destroyed by Govt's at this juncture, is somewhat 'yesterday'. We just saw a few trillion 'destroyed', globally. They hadn't existed in the first place, of course, except in the minds of the wishful thinking.
It takes a bit of geting your head around, at first.
I think people make the wrong assumption when thinking of more government, more control etc. Me as a representative of a “Mixed Economic Model” I’m asking the government to** listen and engage with different industries in private sector in order to find valuable and better solutions., including export conditions.
http://en.wikipedia.org/wiki/Mixed_economy
**I personally find it is remarkable stupid that Steven Joyce still imports most of our infrastructure needs, only because it is cheaper. As I explained in many of my articles - an extremely unwise decision.
Not being an economics expert, I expect to be shot down for my reasoning in agreeing with the notion of: abandoning the economic orthodoxy and embracing capital, trade and exchange rate controls - but here goes:
Paraphrasing what I remember of David Kortens [also of formerly of 'orthodoxy stock' last I knew] from 'When Corporations Rule The World':
Basing economies on largely uncontrollable global market forces might be likened to entrusting one's life totally to auto-piloted flying: without some fail-safe/override mechanism (or better still, controls to avoid/reduce the need for a fail-safe) the ultimate prognosis is not health-enhancing.
Until somebody(ies) can force the issue though, protests like those seen in Europe 'today' might be coming to a neighbourhood near you 'tomorrow'. Gated communities anyone? Oh, that's right, they don't work - refer 'The 'Mongies' for more detail.
It's not impossible to see why 'restructuring/reduced welfare spending' is being pushed. Likewise, I can also see why 'Rational Utility Maximising' (RUM) 'commoners' might rebel against a situation they see as being brought about by fat-cat RUM Money Barons who still get their millions in bonuses/handshakes.
Rather than wait-&-maybe-debate-&-maybe... 'oh look, The Mongies have moved in next-door'; give me a system where 'an honest merchant' can still make a profit, balanced with a 'commoner' populace whom aren't reaching for pitchforks. Good on ya Bernard
Here's another little bit of evidence to take on board, Bernard:
The failure of German bankingOliver Marc Hartwich | Business Spectator | 30 September 2010
"In which country would you expect to find that 15 of the largest 20 banks are state-owned or part-nationalised? If this reminds you of socialist economies like Venezuela or Cuba, have another guess. In fact, the country in question is Germany.
The involvement of German state and federal governments in banking precedes the financial crisis. It has long been one of the defining features of the country’s financial sector. It is a characteristic that bewilders international observers, who aren't used to such a degree of state intervention. And now it has also become one of the main vulnerabilities of European banking.
The financial crisis has hit the state-owned banks hard, and new banking rules under the Basel III agreement could be the final nail in the coffin of Germany’s antiquated financial system. But the damage has already been done.
The weakest links in German banking are the Landesbanken – regional, state-owned banks. In post-war West Germany, all federal states (Länder) had established their own government banks such as BayernLB for Bavaria or WestLB for North Rhine-Westphalia.
The Landesbanken busiess model, if you could call it that, was built on providing capital to state governments, funding politically desired projects and supporting local businesses. Being profitable was never a primary goal. Nor were public bankers particularly concerned about ensuring a proper capital base.
Until 2005, the public bankers benefited from guarantees for their activities by their state owners. This allowed them to act under the protection of their respective governments' triple-A ratings – irrespective of the banks’ dubious balance sheets. The result was as predictable as it was scandalous: the public bankers used their guarantees to refinance themselves cheaply on international markets, then used those funds for purposes outside their directives.
For the Landesbanken, no risk was too high, no investment to murky, and no market too remote. It was just too tempting to use the leverage between cheap capital and supposedly highly-profitable investments. Unsurprisingly, the risk appetite of the Landesbanken led to spectacular mistakes.............."
Read the whole thing here:
http://www.cis.org.au/media-information/opinion-pieces/article/2194-the-failure-of-german-banking
My comment: Germany's redeeming feature is that they did not have a housing bubble and a whole lot of household equity wiped out. Oddly enough, "supply" of housing, and housing development, is one thing they DO get right. This will be their salvation compared to economies that do NOT get housing "supply" - and indeed, ALL "land use", right.
This is an amazing reversal of direction Bernard. In case this is not obvious already to you I should point out why laissez-faire thinking never worked. There are two huge holes in neo-classical macro-economics thinking. First the Sonnenschein-Mantel-Devreu theorem, http://en.wikipedia.org/wiki/Sonnenschein%E2%80%93Mantel%E2%80%93Debreu_theorem
Which shows that macro economics is not even remotely similar to micro economics. That includes all that stuff about downward facing demand curves, efficient markets, government intervention being bad and so on and so on.
Second most economics models don't include debt, they are not models of reality. If they were then a 300% of gdp debt level might have been considered worth looking into, rather than 'why did nobody see that coming?'.
The whole Adam Smith idea that laissez-faire markets are a good policy is completely un-proven, and unlikely if it were possible in my opinion. The historic record has shown that the free-flow of capital is a highly destructive force for any economy.
It is my personal opinion that it is backwards to dictate the shape of an economy in a top-down manner anyway, certainly in a democracy. What you should do is allow the economy to determine it's own shape in the most democratic way possible. This can include top down policy, but only when the participants mandate it. Since this will lead (or probably mandate) great equality of means and income then you have incentivised the greatest number of people to work towards the goals of the economy (what ever they are, they may not be consumption growth) and so have a very great economic momentum in that direction.
Well Bernard is going to remain rather rudderless until he realises that the main school of economic thinking is completely de-coupled from reality.
It's actually ridiculus to have schools of thinking in economics. It should not be considered a science any more, it does not use empirical evidence to test it's theorems, so it's not a science. This is probably why it is not fully recognised by the Nobel foundation.
If you are really interested in ideas, the positive money reforms supported by myself, Lain and many others, will allow New Zealand to set it's monetary policy independently and I believe will make a huge difference to lending in NZ, basically by making investment more democratic (e.g every lender has more control over what their money is loaned for). I also see reason to believe it will be able to almost fully regulate inflation/deflation. I also think that things like derivatives will not be possible, basically because of the large leverage necessary to make them function.
Appart from this I think it can be less disruptive than a debt moratoria, or complete change in tax structure. Any large change in policy is, I think, still likely to have the impact of Shock therapy in Russia. This will happen regardless of if the economy is better structured after this or not.
Nic,
If you had been reading here for some years I think you would see a change in BH. IMHO He's gone from quite right wing to questioning the results of that, which any thinking person without political/economic blinkers can see from the mess around us. My worry is that things need to change/be fixed but there maybe a huge backlash swing to the left which would be just as damaging....IMHO.
Economics isnt science, Ive never classed it as such....just from looking on it.....at least with science its fact and thermodynamic law based and has a lot of maths to back it up.....Economics doesnt have that.....probably never will, so its an ART with some simplified maths models to help.
Regulate inflation/deflation, this is nonsense.....the not so "new" Keynesians of the 70s thought they could regulate, they failed. Then the moneterists thought they could [de-]regulate we can see that has failed....
regards
Certainly a healthy change. I still think it's somewhat healthy to understand some of the flaws in economic thinking. You can't really understand some ideas unless you discard them for a good reason.
I bet most of the free-marketeers posting here could not explain the meaning of 'rational expectations' or any of the other requirements to apply an IS-LM model, or a DSGE model, or have any idea what Keynes was actually writing about. Basically don't understand what they are talking about.
I don't believe there is such a thing as too far to the left, as long as it's highly democratic. Now would be a good time for the government to start functioning in a more democratic and open way, e.g before a lynch mob takes control.
"free-marketeers........not............have any idea what Keynes was actually writing about"
That about sums them up, but actually its worse....
For the last 30 years Keynesian has been a dirty word....so much so that Keynes has had no "official" input into our economic "enlightenment, yet I notice that like the rabid dogs they are, the free marketeers blame anything going wrong on keynesian policies or actions....
"Basically don't understand what they are talking about." No they dont, hence why I call them voodoo economics (though I think I might have pinched that from PK).
However that doesnt mean that Keynes is the answer....Im old enough to remember the disaster the UK Labour Govn(s) foistered on us....
I suspect it comes down to taking only one stream of economic thought and then taking that off the edge into an area or extreme it isnt suited to or doesnt attempt to model. It looks to me that taking several of the economic theories and picking the best one depending on the criteria may work the best, so Keyne son zero bound and depressions looks the best model by far....if it doenst fit be prepared to throw it out and look for a better model / school of economics....
regards
You pinched voodoo economics from George Bush I actually. This was his description of supply-side economics when he was running in the primaries.
I still think that 100% money (which was a more extreme version of the regulation actually setup after the great depression) solves most of the short comings of Keynesianism (e.g government debt having to expand in response to an economic crisis).
"solves most of the short comings of Keynesianism" at this point I tend to conclude that its better to look for a better model...everything i can read (and understand) suggests that once you start pushing the (any) models outside of their intention they start to fall apart.....and the consquences are also not nice....
regards
I'll go with seeing reality rather than your blinkered world, thanks.
This doesnt mean I want a lurch to the left btw (and by the I mean left of centre and not left of libertarianism) from what I can see neither extreme works. We had the abject failure of the "neo-keynesians" before eand now the monitarists/laissaez faire, both have clearly failed....going more extreme is just not rational.
regards
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