90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: Athens erupts, EU desperation palpable; growth in the US; China rail problems; TSB cuts 2yr fixed mortgage below 6%

20th Oct 11, 8:15am by David Chaston

David Chaston details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news that violent clashes grip the streets of Athens as Greeks recoil at the depth of the austerity measures they are having to take. Inside the Greek Parliament however, the government has the votes and is less threatened.

Meanwhile, the promised end-of-month plan to fix the EU fiscal and banking woes have hit a snag, and French President Sarkozy is making a quick dash to Berlin to try and recover the situation. Desperation among EU leaders is palpable.

Spain has had its credit rating cut - again - and in England, the Governor of the Bank of England has warned that time is running out to sort all this mess.

Across the Atlantic things are less worrying. The latest data on the US economy shows modest growth. Their underlying inflation pressures have eased, and home building jumped 15% in September.

In China, concerns about growth and the stability of their banking system continue. Interestingly, they have run out of money to finish more than 10,000 kms of their vast rail project.

The worries about the Australian housing situation are growing - some people think things could get quite ugly there.

And back in New Zealand, TSB has reduced its two year fixed mortgage rate to 5.95% which is now the lowest in the market for that term. Latest RBNZ home loan approval data shows that the mortgage market is neither shrinking nor growing, just bumping along at levels significantly below where they were in 2003 in volume terms, and about the same in value terms.

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43 Comments

by skudiv | 20th Oct 11, 8:31am 1319052681

More worthless austerity in Greece. Democracy is out on the streets. Stock market down 80%, bonds worthless, athenssaver retirement funds gone. Government wants more debt and will punish the people to get it.

by David B | 20th Oct 11, 10:34am 1319060058

I hope it does punish the Greek people; from all accounts they deserve it. Tax avoidance and corruption of officials to avoid paying tax is rife in Greece, in fact I understand it’s almost considered a moral obligation by the Greeks. Not only that, but if you work in a hazardous industry there e.g., hairdressing, you may retire at 50 and on a generous State pension to boot. Disgraceful. No wonder the rest of Europe has been dragging its chain over helping them out.

by Patricia | 20th Oct 11, 11:49am 1319064564

It always intrigues me as to why seemingly rational people go off the deep end and always blame the people. No mention of why the lenders didn't do due diligence, why Goldman Sachs isn't punished for cooking the Greek government's books, why the Government didn't govern or what social policies exist in other EU countries. Oh no it is the people's fault. Oh well I guess it stops you having to think.

by steven | 20th Oct 11, 1:29pm 1319070540

GS were complacent in fraud and frankly they should go to jail... but you seem to miss that the greek Govn cooked its own books with GS help and "inovation" that would be closer to the mark On top od that though the Greek ppl seem to have made it a way of life to dodge taxes, have a very large and in-efficient public / govn service and pay very good pensions, sometimes higher than that they earned while working.

Think, rot, Ive never seen you think beyond justification of your blinkered views.....its really simple when you come down to it, you cannot live beyond your means.....the Greek ppl have been doing so and deserve a good kick in the pants....of course many other countries ar enot taht far behind.......some differ in teh issue, for instance Ireland was palin stupid but the Irish ppl borrowed like fools and bought and speculated in property.....just like uh.....oh dear NZ.

regards

by Patricia | 20th Oct 11, 3:26pm 1319077597

Steven, these comments were most unbecoming of you. It is not necessary.

by neco | 20th Oct 11, 12:24pm 1319066680

Actually those who are wealthy enough to avoid paying tax by corrupting officials won't be punished at all when Greece finally defaults and has to return to the drachma. Having long since moved their riches into Swiss bank accounts they will be ideally placed to convert their hard euros back into a devalued currency and live an even more privileged life than they currently do.

http://www.dailymail.co.uk/news/article-2050895/Greek-fat-cats-secretly-shifted-200bn-euros-Swiss-bank-accounts.html?ito=feeds-newsxml

by Wolly | 20th Oct 11, 8:35am 1319052904

I am surprised the mortgage market is bumping anywhere in this climate...I guess the cheap drugs still have buyers...do the users know about the withdrawl problems and how the rising cost of financing the debts will be their worry when property prices are falling?....bet the banks never told them about that.

Packets of fags now come with health warnings...warnings of early death from cancer...shouldn't all mortgages also come with warnings....of serious risk of loss of all equity in property!...if not,why not?

by skudiv | 20th Oct 11, 8:40am 1319053247

30 years later the Japanese have been unable to reinflate their housing bubble, or their stock market bubble. I thinks its about 400 years and the dutch have been unable to reinflate the tulip bubble.

by Roger Witherspoon | 20th Oct 11, 9:26am 1319055997

"Dutch unable to reflate tulip bubble after 400 years" - makes a great headline. Thank you for that one, i love it.

by scarfie | 20th Oct 11, 8:50am 1319053800

From Stratfor.com comes this overnight:

"Whichever actions Germany takes, three things are all but inevitable: an Italian bailout, a European banking crisis, and a Greek default. Any one outcome will likely trigger the other two.

This may look like a "damned if I do, damned if I don't" type of situation, but how Berlin handles the crisis could be the difference between a weakened euro and nonexistent euro. "

Trouble is you have to pay for the rest:)

by Wolly | 20th Oct 11, 9:10am 1319055000

Got your savings in any of the piigs banks scarfie?....how about in a bank in the UK like the RBS....or are you risking it all in a bank down here where you have NO guarantee at all...the banks debts are backed up by the govt..the bailouts would be rapid...your deposits will be toast.

Across the ditch deposits have some protection.

In NZ they have NO protection...just the promise of maybe freezing your savings to save the bank and bail out the bosses....like AMI

by scarfie | 20th Oct 11, 9:23am 1319055780

Well as I have posted in the not too distant past, everyone should get out of the banking system.

It is perfectly clear to anyone that cares to look, that it is a fraudulent ponzi scheme. To continue to participate once you know this means you then become culpable. No excuses. Even worse is the criminal behaviour exhibited by property investors that know the fraud, but actively continue to leverage themselve. There is no point in beating around the bush, it is criminal thinking.

Actus Reus and Mens Rea

It is actually a double fraud. First non-backed, except for the claim against future tax collection, which can't be made because of finite resource. Even Gold is past the Hubbert Peak. Second part is fractional reserve banking.

by Elley | 20th Oct 11, 11:52am 1319064728

"everyone should get out of the banking system" OK, and what should savers do then? Somehow I'm not sure taking everything out and hiding it under the mattress would be such a great idea (and probably too bulky to sleep comfortably too!).

I can just about imagine making a large-ish payment, say for a house or a boat, and handing over bags of $20 notes from the boot of the car. They'd probably think something isn't quite right and call the cops :)

by steven | 20th Oct 11, 1:31pm 1319070662

If it was me and the $ looked legit I'd take it and bank it.

by Wolly | 20th Oct 11, 8:56am 1319054217

And for all the 'kids' out there....if you want to learn how our economy really works...just study Dilbert....all the main players are there somewhere...So the lesson on economics NZ today is to sort out which idiot in Dilbert is which fool in wgtn.

by scarfie | 20th Oct 11, 9:16am 1319055360

That is a bit deep for economics 101 Wolly, I would have thought starting along the lines of "don't believe anything you hear or read" would be a better start. Everybody has an agenda, you can only work out the truth once you know the agenda.

I was fifteen when I worked out something was seriously flawed, but it has taken considerably longer than that to work it out. Early I was just operating on instinct, now I know the reality.

The hard part is that some people are simply not instinctive.

by skudiv | 20th Oct 11, 12:09pm 1319065761

The sicentific method right there scarfie. "1 experiment can prove me wrong, 1000 experiments can't prove me right" - Albert Einstein. "It is often useful when testing a theory to put it to the extreme" - Warren Buffet (letter to shareholders 2008, describing black scholes pricing, a really good read explaining derivitivs page 19)

I don't believe anything unless I can take it to the extreme, and see what happens. Purely thought experiments, but useful when thinking about economics. I was thinking about the perfect capatalist company, that produces highly valuble goods, and has reduced all costs to zero. Where does the money to buy these goods come from in a closed system. I consider a spherical planet to be a closed system.

by skudiv | 21st Oct 11, 7:52am 1319136767

Baisically I was saying, that cutting cost, and making record profits is killing the goose that lays the golden egg. ie the consumer. By paying low wages the people that are supposed to be buying the goods can't afford to buy them because they havn't got enough money. Whereas the idea of capitalism is to make as much money as possible, which is why it is flawed, and why earnings will drop, and stocks will crash, unless we fix it.

by skudiv | 21st Oct 11, 9:25am 1319142311

Ok, looking at the current developmets, if what we have is not capitilism, yet many people believe it is capatilism, clearly we are incapable of running a true capatilist society. In the real world people will always try and cut costs, to make a profit. This is highlighted in american coorporate law, where the priority for the coorporation, is to maximise profits for the shareholder. These laws were created via lobbying from the coorporations that should be looking at the bigger picture.

by scarfie | 21st Oct 11, 11:32am 1319149938

Hence folks like Marx saying the ideal is "Intelligent Anarchy" because Civilisation is best achieved by a degree of personal self sacrifice.

I actually think it is dangerious territory to be telling others what is 'best', so generally refrain from political debates. You highlight the answer even better why I refrain with your comment "it has been recognised that to have a fair/good public image and an evil/empire-building private/secret system give the greatest power and gain to an individual entity". That is exactly what is unlying the comment at the top of this thread, you have to work out the agenda:)

The same even applied to Freemansonry, who or what is driving it at the upper levels? I have seen evidence to show that it is satanic, the symbolism and rituals are certainly worth a closer look in that regard.

by andyh | 20th Oct 11, 9:22am 1319055720

Major summation on peak oil by Prof James Hamilton:

http://dss.ucsd.edu/~jhamilto/handbook_climate.pdf

Hamilton is an internationally recognised economist - it seems even the economists are finally 'getting it'.

Warning - the paper is incredibly detailed, with figures at the end (its an academic book chapter) - it almost justifies printing out, but its not something to scan briefly.

by Plutocracy | 20th Oct 11, 9:55am 1319057700

Hamilton is an internationally recognised economist - it seems even the economists are finally 'getting it'.

Woah, there's a sentence I thought we'd never see! ;-)

by steven | 20th Oct 11, 10:04am 1319058242

A very good paper so far (Ive only got to page 15).

Looks like its well woth the read.

regards

by Gertraud T. | 20th Oct 11, 9:21am 1319055714

This is serious:

http://www.zerohedge.com/contributed/federal-reserve-and-bank-america-i…

by Nicholas Arrand | 20th Oct 11, 9:23am 1319055803

"Banks in France, the U.K., Ireland, Germany and Spain have announced plans to shrink by about 775 billion euros ($1.06 trillion) in the next two years to reduce short-term funding needs and comply with tougher regulatory capital requirements.... Morgan Stanley bank analysts predict that amount could reach 2 trillion euros across Europe by the end of next year as banks curb lending and sell loans and entire businesses. "

This could make for a nasty squeeze on our commercial debt funding capacity. Where are our retail lenders going to get theirrollover funds from to back their assets?

by skudiv | 20th Oct 11, 12:28pm 1319066893

Deflation to start with. This is how you rob people of everything they own.

by Andrewj | 20th Oct 11, 9:34am 1319056479

Dr. Tim Morgan - 7/10/11:

"Why has the outlook for the British economy deteriorated so seriously and so quickly? Apologists will, no doubt, try to pin the blame on others, and there is some justification for the view that the global economic headwinds have worsened markedly in recent weeks. The Eurozone is clearly floundering towards a tipping-point and, as we shall explain in a forthcoming report, the outlook for the United States is clearly far worse than generally has been recognised up to now.

But any attempt to pin the blame on foreigners simply won't wash (and it hasn't fooled the forex markets either, for that matter). Britain's growth rate is amongst the lowest in the OECD, and her fiscal deficit is one of the worst. The coalition government's resolve over deficit reduction has alone shielded Britain from rate rises which, for such a heavily-indebted country, would be an unmitigated disaster.

So let's get the facts straight. Between 2003 and 2010, Britain by which in this context we mean both the government and individuals borrowed an average of 11.2% of GDP each year. This isn't sustainable, and never was. Borrowing at this scale did deliver apparent .growth., but at an appalling cost, with each £1 addition to national output coming at a cost of £2.18. Meanwhile, between 1999-2000 and 2009-10, government spending increased by 53% in real terms. The two drivers of the economy, then, were public spending and private borrowing. The denouement of this recklessness coincided with a global banking crisis, but no amount of "neo-endogenous growth theory" could disguise the fact that basing national prosperity on borrowing always contained the seeds of its own destruction.

The first problem faced by the UK, then, is that both of the economic drivers of the last decade private borrowing and public spending are dead in the water. The second (and bigger) problem lies in the way in which the era of recklessness skewed the economy against organic growth.

The biggest beneficiaries of private borrowing were real estate, construction and financial services. With the era of ever-increasing private debt well and truly over, these sectors cannot grow, which is a bit of a snag, because they account for almost 40% of economic output.

Meanwhile, the ending of public spending largesse has also put a stop to growth in healthcare, education and public administration, collectively a further 18.8% of the economy. With falling real incomes impacting retailing as well, the total proportion of the British economy which is now ex-growth rises to almost 70%."

http://www.tullettprebon.com/Documents/strategyinsights/Tim_Morgan_Repo…

http://www.telegraph.co.uk/finance/economics/8368557/Panic-stations-Banks-unanimous-vote-on-QE-bodes-ill.html#disqus_thread

by skudiv | 20th Oct 11, 12:36pm 1319067363

Wait a minute, there are too many similarities with NZ, or any other developed nation in that article. Maybe NZ is different? Fastforward 5 years, what could happen? Global Revolution.

by Matt in Auck | 20th Oct 11, 3:02pm 1319076172

Yes nz is very similar. Like uk there will be minimal or negative job growth in coming years. With boomers seeking to stay in work, youth unemployment will rise. I could easily see an unemployment rate of 8%+ within 2 years.
This will mean that the looming housing shortages the spruikers talk up will fail to be realised. More and more young people lacking employment will simply stay with their parents - occupancies will rise. Something will give in terms of house prices

by Matt in Auck | 20th Oct 11, 3:12pm 1319076738

And with growth and Therefore revenue increases minimal, and costs increasing with more beneficiaries, govt accounts will be further strained.
Another reason i see rising unemployment is that the job opportunities in aus are drying up

by Nic the NZer | 20th Oct 11, 8:26pm 1319095606

It should be obvious that the de-leveraging of the UK housing bubble is the primary cause of the problems in the UK. This was started by the GFC, but if that had not kicked it off it would have happened eventually for some other reason.

People in New Zealand should realise that the UK's post crisis austerity program was foretold to risk a double dip recession. Yes, that means that austerity is bad for the economy, as well as being incredibly bad for existing social systems. Unfortunately in the UK the government decided their books were in bad shape and they could not afford much more government debt.

New Zealand on the other hand has a lower level of government debt. Eventually some form of government spending increase is the only way out of the recession.

Unfortunately mist42nz comments leave out a third party in his reconing. Anybody who doesn't participate in a housing bubble or debt spree doesn't reap any benefits from it. They just get to see their savings inflated away, real wage rates fall and any asperations of home ownership go out the window.

Support the campaign for monetary reform, http://positivemoney.org.nz/ 

by steven | 20th Oct 11, 8:36pm 1319096212

Not just housing....even in good times Gordon Brown was borrowing to pay for his "no more busts" mantra.......

Energy costs is also going to and has paid a part.....The UK is about the start importing natural gas, but the only available gas has already been locked up in long term contracts leaving them no where to buy....and the pipe is long and the UK is on the end of it....have a EU gas shortage and the UK gets no gas......much of the UK uses gas to heat, coal is long gone......they are looking at a severe problem of costs.....glad Im not there.

"Eventually some form of government spending increase is the only way out of the recession." For conventional keynesian economics, yes, however that assumes there is,

a) the energy and

b) other countries are in a state to absorb our exports....

This isnt the case on both counts. So Im afraid I consider the Austrians right (on pro-austerity) but for the wrong reason ie it will make our economy shrink and increase un-employment....but I see no other options. Well one, trowing money at expanding it is a complete waste unless its a move to Green Tech and that simply wont happen.....so Im wondering how long it will be before I walk past JK's coffee place and see him dangling from a lamp post......because user price signals will hurt the poor dis-proportioninately....and there will be a lot of them, his 2 or 3 minders wont stop an angry mob....

regards

by Nic the NZer | 21st Oct 11, 1:58am 1319115524

"Eventually some form of government spending increase is the only way out of the recession." For conventional keynesian economics, yes, however that assumes there is.

Fundamentally the NZ economy is not functioning, due to a lack of liquidity. Private debt in NZ is approx $97,000 per adult, of that government debt is only $12,500. If there are no monetary reforms then do you seriously expect that the larger $84,500 figure will be the easiest to increase of the two? No, that would lead to even more un-sustainable leverage. Appart from this de-leveraging there is nothing disfunctional about the NZ economy. No economy has ever left recession without a significant government stimulus, that is a historical fact. The government also pays less interest on it's debt making it the lesser of the two burdens on the individuals pocket.

I would prefer that a monetary reform, similar to that on the positive money site be implemented. Once this has occured then government spending will be the only way for new money to enter NZ's economy, though this could be through tax cuts. It could also be on building a new sector (even a private run one) in renewable energy. This could be by say providing grants for people to install solar heating technology. It could be for basically anything which the government decided would be beneficial. I would advocate increasing salaries in the education sector and increasing this sector to improve teacher-pupil ratios myself. There are many good, non-consumption increasing, ways for new money to be used.

If monetary reforms are not politically possible, then the government debt must be increased so that more liquidity can enter the NZ economy, so that the private debt burden can be decreased (basically inflating away the aggregate debt) once this debt burden (currently 200% of income) returns to lower levels, then the economy can begin leveraging again.

The idealised concept of the Austrian formula was suppost to avoid this mess, but can't get anybody out of it any faster than they will get themselves out. It is simply not able to deal with it. There are also very few self proclaimed 'Austrians' who acknowledge the private debt problem which as I stated is the larger problem by a very significant factor (about 7.75x).

As I keep repeating the problem is that debt was taken on, by the NZ economy, in the unreasonable belief that the level of income at the time could be sustained to repay this debt. This was true for both the individuals and any macro level policy regarding the housing bubble. Now this debt must be repaid (and is being repaid) with lower levels of income. The solution then is to some how increase income for the same jobs, with the same energy consumption. Say it way politically possible to double everybodies salaries, double all prices, double everybodies bank balances, but not to adjust everybodies debts, this would end the recession tomorrow, without increasing NZs energy footprint even one joule about its current fully functional energy consumption level.

You seem to be very concerned about global warming, peak oil and the environment. It is widely acknowledged that a fractional reserve financial system needs to grow to function and this makes certain political goals (such as environmental/energy reforms) problematic. I suggest that having a full reserve financial system would allow the economy to function normally while contracting, making these kinds of reforms politically more possible.

by Matt in Auck | 20th Oct 11, 9:10pm 1319098209

Anybody who doesn't participate in a housing bubble or debt spree doesn't reap any benefits from it.

A housing bubble by its very definition crashes. So those who don't participate in it will often be better off for not having participated in it, when property values go south (it won't seem that way when the bubble is inflating). Of course how badly hit bubble participants are depends on when they entered the market. In NZ, many owners who bought in the last 5 years with limited equity would be in big trouble if prices dropped 15-20%. People who bought 20 years ago would obviously be less affected.

by Nic the NZer | 21st Oct 11, 1:18am 1319113123

I agree, I didn't word that very well. Any significant purchase which will incur a long standing credit loan, drives inflation. This is true if the house is purchased in a bubble or is not. The point is that you can hardly expect everybody not to participate and go without especially for purely alturistic reasons. It would also be pretty unrealistic to expect people to price the risk correctly, especially as most of the financial and economics profession didn't do so.

People still remember and price risk according to the share market crash in the 1980s and now they are expected to price macro risk in the housing sector as well. The problem is the common credit mechanism which contributed to bubbles in both cases, not the reasonably sensible idea of owning your own home.

Would NZ really be better off if everybody had lost their savings due to a share market crash, rather than losing their home equity? Where should people invest? It's not like any investment is risk free.

by Christov | 20th Oct 11, 9:32am 1319056351

I would urge those who care to to use the link and read one of the most definitive articles on currency debasement I have read in a long long time....

Is it relevant here ...? absolutely..here there everywhere now...right now.

David or Bernard please give some consideration to runnig the link as a piece as I'm sure any number of people here would give it a miss in light of the poster.....it would be their loss.

Have a read...some eye popping carry on even in li'l ol Utah.

http://www.theundergroundinvestor.com/2011/10/the-utah-monetary-declaration-of-freedom-from-the-tyranny-of-central-bankers/

by ngakonui gold | 20th Oct 11, 9:41am 1319056889

the workers of greece who pay little or no taxes want the government to keep paying for pensions ,hospitals etc but won't take pay cuts or pay more taxes.what a bunch of parasites they are.did i mention the government is corrupt.all this could happen in good old nz if we elect a pinko like andrew little.

by steven | 20th Oct 11, 10:08am 1319058495

Uh no.....Andrew Little is only 1 MP, plus he's fairly right wing for a union rep....

Its quite teling that a right wing Union rep is getting to be a MP (maybe) in labour v like likes of matt Mccarten (say) who really is a loony lefty.

Then trhow in that the Previous Greek Govn was right wing and not left wing and that doesnt leave much in fact anything IMHO in your argument.

regards

by skudiv | 20th Oct 11, 12:45pm 1319067900

You blame the people not the system, wont float. Greece managed to accelrate their timeline to default, their are pleanty of tax avoiders in good ol NZ right now. It is considered a virtue by the big business types, and PI alike. Are they cheats, or are they just following the rules, and playing the game. Their PM kept promising surplus and growth, took on IMF loans which are guaranteed to ruin any country. Peacful rebellion is the best way, but sometimes you need some Frontier Justice.

by Andrewj | 20th Oct 11, 9:46am 1319057160

http://hat4uk.wordpress.com/2011/10/19/crash-2-eurobanks-gear-up-for-zero-lending-as-schauble-tries-to-sell-balsa-wood-bazookas-to-the-germans/

The sirens are calling EU leaders towards the rocks

Have you ever wondered what happens when the mad get into bed with the depraved? Well now’s your chance to find out….if the news seeping out of the eurozone is anything to go by.

by Wolly | 20th Oct 11, 10:25am 1319059538

Hey... more worries for Spain...the Spanish Catholic Church has been selling a special commodity for decades... http://www.bbc.co.uk/news/magazine-15335899 how filthy is that?

by Wolly | 20th Oct 11, 11:57am 1319065079

Quiet disgraceful..shocking..worse than using the B word...people behaving as though they have democratic rights...and in NYC too....don't they know any better...don't they have jobs to go to...! http://www.marketoracle.co.uk/Article31045.html

by Wolly | 20th Oct 11, 12:02pm 1319065368

"Governor General Sir Jerry Mateparae read a proclamation dissolving this 49th Parliament as of 11am today."......now if only somebody could take Sir Jerry on a very very long fishing trip...say a couple of decades at least....we would be rid of the rubbish that fills Parliament...think of the savings to be had!