By Roger J Kerr
The stars are well and truly aligned for the New Zealand economy right now.
We have never had it so good in terms of record high business/consumer confidence, rising house prices, construction activity ramping up big-time, massive boosts to rural incomes from the dairy payout, major investments in infrastructure like irrigation schemes happening and innovative Kiwi manufacturing/software/biotech companies making a splash on the world stage.
New Zealanders are never too forward in giving credit to those who have helped create this buoyant economic environment and outlook.
However, Finance Minister Bill English must be recognised for charting a very tricky Government policy/spending course in the difficult post GFC period.
Fonterra have been under the hammer somewhat over recent times, however they have played the global milkpowder supply/demand game pretty well to generate higher returns for their cow-cocky suppliers/shareholders.
Likewise, RBNZ Governor Graeme Wheeler is proving he is his own man and is communicating risk and reward well with the LVR restriction on overly aggressive bank mortgage lending.
It still amazes me that so many groups in New Zealand still think that there is always just one single monetary or fiscal policy cure for a particular problem.
The economy is more complex than that and the RBNZ should be applauded for packing some additional tools into their toolkit, such as the bank core funding ratios and the LVR speed limits so that inflation control is not solely reliant on jacking interest rates and the currency upwards every time we get some decent GDP growth.
Understanding the combination of several monetary hammers and skill-saws, together with how the interact with Government fiscal policy and global economic events/trends is what makes the RBNZ Governor a particularly good carpenter.
The only aspect of ensuring we have a steady and low inflation economy that preserves savings values and spending power that we may still have some work to do on is market competition.
Fierce and healthy competition for goods and services is the prime method of keeping inflation low.
Unfortunately due to the small size of our economy we do still suffer from a lack of competition in some sectors e.g. health services, building materials, provincial air travel and ports.
The current sweet spot the economy is in almost makes you ask the question as to what can go wrong from here.
The risks to our excellent position continue to be the hardy perennials:-
· Wholemilk powder prices head south as global supply increases in response to the high prices.
· Another summer drought wipes out price advantages in the agriculture sector.
· Against all expectations the USD currency value weakens offshore, sending the NZD/USD rate permanently above 0.8500.
· Alternatively, the US dollar sky rockets and the NZD/USD plummets to 0.7000, which in turn sends local interest rates up sooner in larger steps.
· Elements of the general public forget which side their bread is buttered (economically speaking) and vote in an extreme left Greens/Labour collation government next November, resulting in fundamental changes to monetary and fiscal policy in this fair land.
At the end of the day, record low mortgage rates and high milk powder prices are what are behind our economic resurgence and changes to these two key variables are the most significant risks going forward.
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Roger J Kerr is a partner at PwC. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com
61 Comments
Is this guy the live one or the right wing zealot from the defunct Business Roundtable, who died and has risen from the grave.
Much of what is occurring has to be considered to be luck. Bill English has little or no understanding of how to run his portfolio.Without an earthquake i Christchurch giving an artificial boost to business activity (at last!) I would venture to suggest that the on pillar of the dairy price/volume would not have us thinking things are coming right.
2014 will be a very interesting year if we lose a leg from the stool we a sitting on.
Maybe we need that Moodys downgrade to introduce some reality.
yeah this is a fanatical rave, can I get some of those happy pills Rog?
Totally over-the-top hyping of the NZ economy, is there anything to gain from this?
I'm far from arguing a doom and gloom story for NZ Inc, but this is just ridiculous.
Is construction activity really "ramping up big time"? I thought it has turned somewhat flat the past few months.
Roger ...I say Roger, could you just pop down to Bunnings or Mega Mitre Ten and tell all those post grad University types just how good they've got it on $15.90 an hour.
They can't seem to find employment elsewhere in this brilliant economy.
Oh and while your there see if you can pick up a plunger or something similar to aid in extracting your head from your posterior.
How dare the carbuncle otherwise known as Chorus block out the sweet spots?
A dose of Henry_Tull's realism is always a good counter to unbridled and so far unrecorded economic enthusiasm.
And brings the chestnut question: If things have never been better (free tradeeement, payout, export receipts...), where is the loot? i.e. retained profits, savings, tax receipts and pools of investment capital here.?
You really need to do some objective supply side analysis steven. In 1975 the estimates of recoverable crude from Ghawar was 60 billion barrels. Since then over 60b barrels have been pumped out of it, it is still producing as strongly as ever and the estimate of remaining recoverable crude has increased. When Ghawar's production finally could be called "faltering" most of us will have kissed this mortal coil goodbye.
So you dont care about the children and grandchildren then? Yes that isnt a surprise.
ie "most of us" is then the 7billion today? no mention of the expected 9billion in 2050 with no oil, no lifestyle, not much food and AGW to cope with?
Dont you think thats a little morally corrupt of you?
Objective analysis has been done actually, oil drum etc. If this is yours its a fail. In terms of producing as strong as ever, note how much support is being done to achieve this, ie escalating costs v not much sign of increased return. In addition the easy and highly productive parts of Ghawar are all but over, they are progressively moving into the harder areas which will cost more and give less per day.
"faltering" well if you are 80 odd, yes that is possible...
Estimate on total in ground 170billion. Not likely much more than 70% is recoverable, 120billion give or take a bit can be pumped out.
"In April 2010, Saad al-Treiki, Vice-President for Operations at Aramco, stated in a news conference reported in Saudi media that over 65 billion barrels (10.3 km3) have been produced from the field since 1951. Treiki further stated that the total reserves of the field had originally exceeded 100 billion barrels"
So 120billion would seem to be a fairly decent expectation.
At this point though 60billion or 66billion (depending on whos numbers and what year its from) is roughly over 1/2 that, at which point a natural peaking in output occurs. Unless you force extra recovery, however at some point it will revert to the curve tehy always do.
Now if you want to take a simple number 120billion with 66 used ='s 54billion left. 5mpbd per day, that gives 30 years. Of course we wont have 29 years of 5mbpd and then 0. The output will start to decline and so its decline isnt far off, and hence oil dependant lifestyle.
http://www.energyandcapital.com/articles/ghawar-oil-field/3101
"Some experts believe the Ghawar has reached its peak and is in decline. Saudi Arabia will dispute that position every step of the way and assure the public that the Ghawar will continue to produce at current levels for years to come. The nation claims the field most likely has 50 billion barrels left to extract."
Now even if you argue Ghawar is say a decade off (doubt it), so many countries like the UK (50% down from peak) are already in decline...
Or look at Saudi's output,
http://www.theoildrum.com/node/10238#more
New fields comng on line correct the decline....ho hum.
Even then to mov eoff it we need 10 ~ 20 years....
regards
Steven - don't you think it is morally corrupt to use emotional fear-based blackmail in a response????? Interest.co.nz should have a resident pyschologist on board.
http://www.autoblog.com/2012/09/11/2012-tesla-model-s-first-drive-revie…
No Im questioning the moral position someone who says who cares about future generations.
Fear? yes I guess when you see something you dont like that will change your life profoundly, you are fearful.
Start here,
Then seek further help if you need it.
regards
Don't know what the link was for. Electricity in the USA is 42% coal-fired, and that's before the battery issue. They;'re beautiful engineering, clever tech, but those who start from the pov that middle-class existence is no negotiable, start from the wrong end of the stick.
Neither link is the whole of it, both are spin in their way, but it might make you think.
KH - I seem to remember finding your threshold a while back. Tough. In your case, you seemed not to want to know that your lifestyle was supported by slave-labour, repression, and offshoring of environmental costs to 'someone else'.
What Steven is pointing out, is the common inability to weight the long-term against the short, even though in the long term, the course of action stands to be fatal. The only difference between you producing some exhaust from your car, and the opening of the biggest coalmine in Australia, is scale.
From our grandkids pov, both can be seen as criminal. Just accept it.
And maybe do something about it. You'll find that an interesting track to go down - much of what you will attempt won't make any difference unless you, and unless you, and unless...... You end up wondering why folk would curtail their grandkids chances, and you study a bit, and you find out why. They're wired to value escape from the lion NOW, over having a years supply of firewood, because if they don't escape the lion, the firewoods worthless to them.
Doesn't excuse denial, though. Just explains it.
You should try communism PDK, it has a rich history of burning the present for a promise of the future.
Stevens issue rarely has anything to do with what he is trying to point out. It is his cruel irony that the more strident he becomes the more ignored his point.
It is the curse of incivility and common to bulies.
Actually there is much more commonality here that I first thought.
Socialists made extensive models of the future.
Socialists had a detailed view of how the future would unfold.
Socialists were extremely sure of the truth of their views and predictions.
Socialists vilified those with opposing views.
Socialism had a quasi religious intensity and used words like "denier" to stifle debate.
The roots of socialism were deep in good intentions.
Now I see why the North Korean connection is so obvious.
You are (clearly) old, Father William....sorry, Ralph.
What was called 'communism' was in almost all cases dictatorship, and in almost all of those, repressive. But your comment - given that today like every current day we burned 85,000,000 barrels of oil and maybe 25 million boe of coal, gas is on te way too (I'll do the math after I've fed the chooks) is more than a tad disingenuous.
That burning of the present, is led by capitalism. Nothing else. You should try logic, Ralph
:)
And in reply to you last (above) we have mentioned North Korea - and the reasons behind why it it where it is - recently here on another thread. It was energy-curtailment via the collapse of the USSR, not 'communism'. Try starting from an un-preordained-baseline.
When you use the word 'logic' (or logical) might I suggest you choose 'rational' (or common sense) instead. It is extremely rare that we see any formal logic on this blog and my suggestions would more accurately describe the statements you attempt - I believe.
I wouldn't try rational with you anymore than I would try it with a lunatic for the simple reason that neither of you can be wrong - so what exactly would be the point?
There has really never been a real comunism IMHO, just an illegal state wrapped up in a red flag.
Ignored by some yes sure I am sure there are some such as yourself and others of a libertarian and right wing disposition who will do so. Those who will ignore the sides of the argument I present are the ones that are really gambling that what will happen wont.
Now you accuse of bullying, yet really what I present is data, maths, science, engineering up against nothing more than "wishes" on the part of ppl such as yourself. Whose being cruel here? those hiding and dis'ing such facts so they can take advantage of others or stop those trying to point out the information so ones in the middle have a chance to make a balanced decision?
really.
regards
You do a lot more than present data, maths, science and engineering. Many of your posts are like the one above, bereft of data, maths, science or engineering. They are at best reasoning, like most other peoples.
Reponses from you and PDK are too often shallow and too often consist of character attacks to shut down any alternative line of enquiry or explanation. It is in no way scientific to claim a matter is settled and no further enquiry will be tolerated.
..but they get settled for us if we allow it.
That's a viewpoint for sure but it does not describe the scientific process.
Even something as settled as Newtonian physics was to a degree over thrown as incomplete and insufficient. But only because science accepted the premise that things are only as settled as a better explanation.
No - you said I "was getting obnoxious".
It wasn't me, that I was getting obnoxious to, now, was it?
So it was your threshold, not mine.
And it's not 'manipulative' whether you wish it were so or not. If we continue in this manner - and it may already be 'too late' - our grandkids are in the shyte. Stopping the talk doesn't stop the fact, and ignoring the fact just ensures the happening. I seem to remember Jeanette Fitzsimmons - a graceful, honest and smart lady - on her valedictory tour, sayng "I think the planet's stuffed". She based that on the fact that if we were going to have done something about it, the Green vote would have been higher, earlier.
I reckon it's always worth trying to avoid the 'long emergency', but to ask people to don lifejackets without explaining the sinking, makes it discretionary/inconvenient, and thus it doesn't happen. There we appear to differ.
Now Steven you are just making up our viewpoints in your own head. Just like PDK does.
Imagine what my viewpoint is. Demolish it brilliantly in your own mind. Congratulate yourself. I suggest you do that somewhere off of interest.co. Don't send us selfies of that.
Yes Mr notaneconomist , and Mr KH .... that was a clumsy and emotively charged attack by the blogger above , upon our Mr Snodgrass Throgmorton ..... a fellow blogster who has always been a gentleman of good humour and font of infinite wisdom ....
.... tch tch steven .... poor form , old chap ...
It is a curious leap of logic to transpose my arguing that perhaps you are badly informed on oil supply to me not caring about my children or grandchildren. Creepy to. Really creepy.
The rest of your post is the usual incoherent, disjointed rambling of the supeme Chicken Little. You seem incapable of looking at global energy flows holistically and prefer to stay stuck in the same groove you've been in on here for the past 6 years. 6 years ago you were saying we had 5-6 years tops before it all turns to custard. Now you're saying the same thing, and I dare say in 5 years you will probably have moved it out till 10 years.
It is a waste of good pixels to try to enlighten you on the developments that have delayed the demise you so fervently prophesised. It would be easier to teach my cat the finer points of calculus and Quantum Theory.
Interesting, so youve been watccing for 6 years? A returner or is this a second account from someone banned?
Yet in fact what you accuse of shows just where you are...not. Global energy flows matters little really. Beyond who will find they have the least the fastest. What matters is the maximum production rate and the EROEI to get it, the rest is a bunfight over a share of the shrinking pie.
Developments, yeah right Im all ears...sounds more like an empty position, un-supported...un-fullfilled.
Delayed, yes sure but its a delay not a cure. The oil industry has moved heaven and earth and not a small amount of money to drill. baby drill. Some countries like Saudi have for now succeeded, butthe marginal cost is $90~95. UK, nope despite the best in engineering its 50% down and trying to import hand over fist.
Neither calculus or quantum theory have any direct bearing on transport fuel...not when you consider scale and time left.
regards
Why the need to spin, Snoddy?
http://www.theoildrum.com/node/9263
http://www.theoildrum.com/node/2494
Truth is good. You should try it sometime.
Hmmm, "why" interesting Q....
I wonder sometimes how many second accounts there are....but really his um... style doesnt immediately remind me of anyone current. But then he's been watching and reading what I have posted for 6 years Then he says Im creepy.....wow.
Why is probably because political agendas are being compromised. Yet they can only be comprrmised when they cant stand up to questioning, hence the attacks on the messengers.
Go hard.
regards
I'm really flattered that you think I'm a paid tout PDK.
And happy to have tickled your paranoia gland.
But sad that it appears your glue is melting.
Yet excited that maybe I could monetize message board commenting. Where does one apply?
Do you think they would supply me with a dark suit and sunglasses?
Maybe a kickass revolver and shoulder holster.
Do you feel lucky PDK? .........
Well?......do ya
It is a big mistake to suppose that because the arrogant think they can't be wrong it makes everything they say "truth" (or true). In fact, I would go so far as to say the *more* arrogant the person the less ability they possess to accurately or objectively qualify the truth.
It's nothing to do with arrogance.
It's to do with logic.
And facts.
Try it sometime.
All finite resources, if used at any rate whatsoever, will 'run out' Fact.
If you ramp into them exponentially, the time variable shortens exponentially too. Fact.
If you keep doing it, someones grandchild, sooner rather than later, will miss out. Fact.
No arrogance involved - thats you trying to avoid, by lessening the weighting of the message via denigration of the messenger. I suspect you're quite old, but that's an immature approach, regardless. Go well.
Listen to yourself;
No possibility that you don't have every relevant fact.
No possibility your modeling of the future has any mistake of any kind.
No possibility the reasoning you use can have any flaw.
No possibility you have missed any factor at all.
No possibility the variables of the future might change.
Not only can you not be wrong, but you can predict my age, my level of maturity and how often I use facts. It's so extraodinary as to be sad.
Did you notice the irony when you accused me of denigrating the messenger whilst you were in the midst of denigrating the messenger?
From a physics point of view, you can consider the solar system as a closed system as the influence of everything outside the solar system is many orders of magnitude smaller. For example, the gravitational pull on a 75kg person by the earth is 736N, the pull from the sun is 0.44N and the pull from the nearest galaxy (estimated mass of 1 trillion suns) is 0.000000000017N. Radiated energy follows the same R-squared distribution (and note that due to dark matter/black holes there is significantly more mass than radiated energy).
For the record, the facts stated by pdk above are all true. Continous growth in any closed system will always hit a limit. Incidentally, the universe is not necessarily infinite - it is only outside of our ability to measure its size due to the extremities receeding from us so fast that we will never see the information.
The question is not whether the theory is true. The question is whether the theory can be accurately applied in the loose and cavalier way they often do.
Theire implication was the earth is a finite system - the further but unwritten conclusion being it is therefore a closed system and therefore the theory *does* apply.
I stated two ways in which earth is not a closed system with the reverse implication - if the system is not closed then the finite claim is not true in an absolute sense and therefore absolute claims *cannot apply*.
This could clearly lead to a debate as to what extent the theory may or may not apply in any given situation.
And I suggested the universe was practically and measureably infinite for the same reasons you state so as to not make absolute statements about things we do not in fact know about. When one deals with extremism it is important to maintain some understanding of what we do not know.
Steven, what you saying is true only within a context, which you neglect to state. What is at stake here is not theoretical maths but applied maths.
I will tacke your first claim, that we live on a finite planet.
Suggesting the planet is finite can only be true in a limited sense. Our planet exists as part of a universe which taken as a whole it is, for all practical and measurable purposes, infinite. So we see our planet is part of the infinite.
So we reduce the claim to a very small part of the infinite is finite (our planet).
But the uiniverse can and does react with our planet. Sunlight is an obvious and clear way that a resource (energy) arrives into our planet from outside. Earth is not a case of perfect isolation of the finite within the infinite.
So we reduce the claim to say some resources within the planet are finite.
This is problematic in as least two ways. First, we don't have the technology or means to accuractely measure all the resources within the planet. So statements of a categorical and unqualified nature are speculations. Second, if we take food as an example, because Mathus did, we see that some resources are not finite, in that we can create more of them (they are renewable).
So we reduce the claim to say some non-renewable resources are finite within certain parameters
If there isn't more, but we can't know for sure because we can't see the whole.
If we don't invent a cheap way of extracting required limited resources, but maybe we will.
If we keep using them at the same rates and all things remain equal, which they may not.
Can we please have qualified hysteria from here on in.
Finite in a practical sense. Effectively we have a closed model ie somethign that has a defined boundary that for all effective purposes we can never go out of. So the incoming to that system is radiation and the outgoing, radiation.
Lets stay with maths, and the expotential function this then has a doubling time. So increasing our energy consumption by 2% gives a doubling time of 35 years.
That can be covered off here,
http://physics.ucsd.edu/do-the-math/2011/07/galactic-scale-energy/
In 400 years, we hit the solar wall at the Earth’s surface. But why confine ourselves to the Earth, once in space? Let’s think big: surround the sun with solar panels. And while we’re at it, let’s again make them 100% efficient. Never-mind the fact that a 4 mm-thick structure surrounding the sun at the distance of Earth’s orbit would require one Earth’s worth of materials—and specialized materials at that. Doing so allows us to continue 2.3% annual energy growth for 1350 years from the present time. How absurd is your denial of the maths?and this is maths as well,
http://physics.ucsd.edu/do-the-math/2012/04/economist-meets-physicist/
Qualified, yes Ralph it is.
Tell me why the above isnt so or will be.
Really sounds like you are starting to get into the real denial "oh my god it cant be true" stage. Thats good, shows you are thinking.
regards
First, back to my point, if things come into a system and go out of system then to go around claiming "finite" isn't strictly true. So you should at the very least qualify what you mean when you use the phrase "earth is finite". Anything less is hyperbole.
Your energy link somewhat misses the point - but it does support the claim the system called earth is not closed and is therefore not finite in an important way.
And ignoring the inaccuracy of your first point and jumpings to your second point - exponential growth - does not lessen the inaccuracy of the first.
Ralph - wrong on both counts, so to speak.
You need to study energy and entropy and EROEI.
Earth is indeed finite, and indeed some things can be recycled. Two caveats: One - it always takes energy to do the recycling, the more the dispersal the more energy required. Two - there is always a loss percentage. You can expect more care to be taken with scarce resources, but loss there is. Some 'resources' - mining phosphate underwater off the Chathams being a prime example - are never going to be gotten together again in any useful terms. All are cherry-picked, diminishing returns/quality applies.
The linchpin one, though, is stored fossil energy. Stored over a time-scale that we can't really grasp in comparison to our existence-experience. Burned in a blink of an eye, never to be recycled/reused, all used with none set aside to mitigate the altering of our global habitat chemistry (so those who need to 'continue' need to deny). That is a finite resource. Without energy, you don't get any other resources, dont do anything, don't process, dont mitigate, don't recycle/reuse.
You fail to grast the enormity of the difference between EROEI for oil/coal, vs renewables. It's taked 200 years to cumulatively build up an ff-based infrastructure. We have to build a new one in less than 20, from a source already down to fracking/deepwater/kerogen, while keeping all the current balls in the air, while depleting every resource in the book, and attempting to grow as well?
Only a fool - or an economist - would suggest that's possible (apologies to Boulding!).
And he is right about exponential growth, sorry. When you arrive at the collective Gaussian peak, globally (actually, oil probably drives that, the rest are 'for noting') then there is one 'equalling-time left to 'all-gone', and it takes a whole 'nuther planet' to support one more doubling. Takes quite a bit of energy to get it here, though, and the lead-times are a bit daunting.
There are people who understand Energy Return On Energy Invested, exponential growth, and the relevance of these on our lives at present and in the future, but there are also people who either do not see the connection or deny its significance. I think you're wasting your time trying to educate the latter.
Those who deny the issue typically see any problems being delayed perhaps indefinitely by the development of some new technology, even if it's nothing more than grasping at straws, or even if all attempts thus far have been failures. Some people need to feel there is hope. Even as those who are working on developing the new technologies increasing start discussing resource peaks, over-population, sustainability and generally planning for a future of 'less'.
Go well. PS, we're installing a modified Trombe wall in with our latest house rennovations!
The key here is that the economic bubble in housing will continue as long as the Fed continues to buy treasuries/ print money. It is possible that tapering could happen in the March of next year but is also possible this could be put back again. The longer that the Tapering is put back then the creation of bigger bubbles emerge around the world. The quicker tapering happens then the bubbles can be held under control and thus the impact to New Zealand will be less. If the tapering is delayed until 2015 or even the back end of 2014 then house prices and bubbles will be even greater. At the moment the United States monetary policy is dictating our interest rates and borrowing costs, so the longer they are lower the bigger our bubble in housing can be. At the moment we are looking pretty stable and happy.
I do hope that sweet spot is going to recover from the kicking it took Roger, some kind of ointment in order I'd say.,...proctosedyl maybe.....?
Geesus...!... the best response to a thread you've put up in years, but I'd bet the very one you'd say , what the hell was I thinking when I took on writing copy for John Boy n Billy Bob's infomercials.
Don't you worry none though , I've done plenty of things I'm embarrassed about, ...just not in public is all.
Still, good on you Roger, there has been some real ding dong debate spawned from your current outlook of how brilliant everything is in the economy....in fact they've covered the universe chatting about it.
Get well soon..!
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