By Bernard Hickey
The Reserve Bank believes the New Zealand dollar is unsustainably and extremely high, but it is not currently considering intervening to pull it down because the market is too liquid and a lower currency would clash with its aim of tightening monetary policy to contain inflation.
Reserve Bank Deputy Governor Grant Spencer said in an interview currency market intervention remained an option and he explained the bank's 'traffic light' system for considering intervention. The system requires the bank to be sure the currency is extreme, unsustainable and that any intervention was consistent with current monetary policy. Any intervention would also have to have an impact by catching the market 'off guard' at times of volatile and illiquid trading.
Spencer said the bank did see the New Zealand dollar as extremely and unsustainably high, but that the foreign exchange market was currently very liquid and monetary policy was being tightened so a sharply lower currency would clash with the bank's aim of lowering inflationary pressure. He was speaking on Thursday afternoon as the New Zealand dollar was rising to a record post-float high of 80 on the Trade Weighted Index.
"Intervention is of course an option for us and we keep that policy open. We have a traffic light system and we have to have some view that we would have some impact," Spencer said.
"You can't move against the tide, but in some situations it may be more opportune to do so," he said.
"The strength of the currency right now, as Graeme was saying, is pretty widespread. It's not particularly volatile. There's more opportunity to intervene effectively in spike situations."
The Reserve Bank of Australia's 'jawboned' the Australian dollar down from over 95 USc to 87 USc in November and December last year when Governor Glenn Stevens said he wanted the currency closer to 85 USc than 95 USc and had not ruled out intervention. It has since bounced somewhat to 90 USc.
Earlier on Thursday in a news conference after releasing the bank's March Quarter Monetary Policy Statement, Governor Graeme Wheeler was asked about the prospects for New Zealand dollar intervention. He downplayed the effectiveness of such intervention given the large volumes of trade in the New Zealand dollar on offshore markets. The Reserve Bank of New Zealand intervened to sell down NZ$4 billion of the New Zealand dollar in mid 2007 and early 2008, making profits of over NZ$400 million in the following three years, this RBNZ paper published in 2012 shows (pg 15)
Spencer said in the interview the New Zealand dollar had met two of the four 'traffic lights' for intervention. It was unsustainably high and extreme, and was a headwind for exporters, but the timing for intervention was not currently right.
"Even though we may think it's unsustainable, we may not think it's opportune. Relative to history, it is near record levels so you'd tick that box. It's extreme and unsustainable. Then there's the question of 'Is it consistent with policy?'" he said.
"If you tighten monetary policy, does it make sense to intervene at the same time? Probably not."
The Reserve Bank hiked the Official Cash Rate by 25 basis points to 2.75% and forecast short term rates were likely to rise a further 250 basis points by early 2017 as it moved to dampen inflationary pressures generated by an economy growing faster than potential. That forecast includes an assumption of only a gradual fall in the New Zealand dollar TWI to 75 by 2017. A steep drop in the New Zealand dollar would add to inflationary pressures.
"It's true that a high currency pushes inflation down, but we're well aware of the distortions that can cause as well, making it more difficult for the traded sector to be competitive. We would prefer to see a lower currency, even though that might have some price effects," Spencer said.
"It would be pretty unusual for us to be intervening right on top of a tightening, but the other thing it's linked to is the proposition that it's opportune: which is about market liquidity, the extent to which there's two way flows, the amount of volatility, the nuts and bolts of being in the market. There are certain situations where you're potentially going to have more impact," he said.
'NZ$100 billion a day traded'
Earlier Wheeler was asked whether the rate hike would increase the upward pressure on the New Zealand dollar.
"It's true we're leading the tightening phase among the advanced economies and it's true that our exchange rate is high by historic standards on a TWI basis, and against most of the major bi-lateral crosses," Wheeler said, noting it was within the top 10% of past historical experiences.
He said New Zealand's near record high terms of trade was a major reason for the strength and there was a strong correlation between the two. He also noted that countries producing two thirds of the world's output had interest rates between 0 and 1%, which was likely to continue for some time.
"The exchange rate pressures are a concern for us, but we also feel that we've telegraphed these moves quite carefully," Wheeler said.
"I don't think it's any surprise to the market and most institutional investors are anticipating this sort of tightening, and therefore we're not expecting any significant exchange rate increase as a result."
The New Zealand dollar rose around 1 USc to almost 86 USc later on Thursday. Some economists cited the Reserve Bank's comments about not intervening as a factor in the rise.
Wheeler was then asked if the economy would have to live with the high currency.
"That's the truth. That's exactly what we do have to live with. There are clearly negative effects in terms of headwinds in the tradeable sector for exports and import substitution industries and particularly those exporters exporting to Australia, therefore manufacturing exporters. Commodity exporters have had the benefit of the terms of trade increase," Wheeler said.
"But we live in a world where our currency is between the 7th and 10th most traded currency internationally. Daily turnover in the foreign currency markets is around NZ$100 billion. About 90% of that takes place offshore. Our currency is enormously, intensively traded. To give a benchmark: If you've got daily turnover of NZ$100 billion a day, New Zealand's GDP is about NZ$180 billion to NZ$200 billion."
Asked specifically about the prospect of intervention, Wheeler said: "Daily turnover on the FX markets are around NZ$100 billion. Most in NZ$/US and 85-90% offshore. The opportunities for intervention, given those sorts of flows, are extremely limited."
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106 Comments
Demand-pull-inflation is when too much money is chasing too few goods i.e. demand is growing faster than supply. We see this in NZ housing and this demand-pull-inflation has been created by Government and bureaucrats. Monopolies like Councils are also contributing heavily to the Demand-pull-inflation.
Cost-push-inflation is when prices must go up to increase profit margins. Again Government and bureaucrats keep increasing costs which ultimately gets passed on down the chain with consumers bearing the brunt.
It seeems pretty obvious that when domestic inflation is greater than other countries inflation, domestic products become less competitive. This is not good for the NZ economy.
The role of all members of Government and all Bureaucracies should be to keep themselves well out of the way from interferring in the economy by ensuring they do not create price distortions. Why do so many highly paid people lack discipline?
In looking forward if these inflation targeted OCR hikes continue, then NZ could well run he risk of have a similar type 1970's style economy? While back in the 1970's oil was the issue this time it would be Government and bureaucracy that is the cause.
You are wrong and you are confused as always, busy trying to make economics fit your libertarian view point.
You should be able to understand that what you call "Cost-push-inflation" is simply push infaltion where input costs to a business making a good rise, this either detroys the margin or forces up the price. If ppl cant pay the price cant rise, hence we see inflation in the 1.6% range.
It is presently being caused caused by expensive fossil fuel energy costs flowing through the "system" so oil is the cause today and for the next 30 years as its used up.
and hence when bank economists etc see a much higher OCR they ignore the ability of ppl to pay, and the effetcs of enrgy on our economy, classic mistakesand utter ignorance.
regards
Steven - I did not expect that you would understand. Where do you think the majority of input cost increases come from? When GST increases from 12.5% to 15% what adjustments do you think business makes? When minimum wages increase what adjustments do you think business makes? Take simple thing like scaffolding around buildings being erected - what adjustments do you think business makes?
Have you factored in costs that are attributed to Government Policy? Obviously not......
Socialist idealogy is a destructive force that is full of pretentiousness. Philanthropy via theft should be a communicable disease.
When people struggle to pay they push for higher wages, they push for more Government hand-outs, they try to trim their expenses an/or increase their income etc. It becomes a cycle of destruction.
Yes you are right I am very confused....it is on the issue of how some people are so damn ignorant.
Ivan - I think ZZ has a pretty good understanding of the implications but perhaps has not differentiated the hard cash in the market like your deposit and the interest rate that should be applied to that deposit for the market risk involved and the leveraged side of money when at the click of a computer mouse money is created out of thin air.
As this created money doesn't physically exist until portions are paid down then I think it should be treated differently. The fact is a large chunk of this money goes into housing and then the RBNZ can manipulate by lowering interest or raising interest. Few people talk about the Governments role when the increase prices and cause inflation by policy. Any Government can manipulate prices and then the RBNZ has to take action at the pre-agreed level.
How often do we hear a discussion on margin of error in inflation statistics. If the margin of error was perhaps 4% then the OCR is definately not the correct tool to be using.
I'm more inclined to think that a new two tiered interest rate should be developed. One for the actual physical money in the market and the other for the book entry created money.
This should allow depositors to be paid a fair market value for their side of the deal which currently they do not get paid well for and would allow factoring in any risks associated. Depositors would be in a stronger position and could chase normal market premiums etc.
The created money is a more complicated to deal with but I'm inclined to think it should be set very low as the risk side should be factored into the depositors interest rate.
There could be a lot of volatility with a two tiered system. So some strict rules would need to be made in regards to off-shore money. I'm thinking that the tax system would be the best solution in that off-shore funds should be taxed at the same rate as internal depositors.
The banks would not like this concept and that would be a big problem as a two tiered system would dramatically affect their bottom line.
However I think the benefits provided to all NZ'ers is greater than the banks needs.
All the Political interference and target policy agreements etc do not provide wealth to the majority of NZ'ers and that should be their aim. I intensely dislike how Governments focus on poverty levels rather than wealth levels. If the focus was on raising real wealth for all NZ'ers then Kiwi's would not need so much social assistance.
Our current system is far to convoluted for many people and it is my belief that is why we are seeing more and more people end up near the bottom and children living in poverty.
Now Steven....I find him extremely difficult to follow.........he appears to read alot but seems to lack experience in the fundamentals of the business world.
I would welcome some discussion on the concept of a two tiered interest rate as I'm very aware there will be many issues.
One for the actual physical money in the market and the other for the book entry created money.
Nano... Trouble is that inside money( private bank created ) and outside money (Central Bank created) are somewhat homogeneous...
They smell the same....spend the same...look the same.
Impossible to distinguish one from the other...????
If you pay staff $20/hr to do a job like papershuffling in Wellington or other non-vale-add-to-customer, instead of $10. That money has to come from somewhere.
It either reduces the sustainability of the business if the business/owner wears it. deflation. demand drops.
Or it increases costs, which is cost based inflation - but that only counts if the prices can go up (price setter or cartel)
The higher the wage paid, the less people can afford to buy. the less overall people in work.
simply maths, you can't get something for nothing.
...or how about businesses actually invest in their staff, systems, machinery etc. and become more efficient? If you think it's ok to pay someone $10hr you obviously haven't got a very efficient process. Ask yourself this, is it better to pay two people for 80hrs @ $10hr or one person for 40hrs @ $20hr to do the same job?
In a global economy we are never going to be able to compete on the basis of lower wages. Business owners need to realize they need to adapt or die.
As for your comment that higher wages leads to lower spending power, that is completely nonsensical and demonstrably untrue. A higher minimum wage would not only increase productivity but would likely have no effect on employment (pdf).
No, I just live in Oz. Minimum wage ~25% higher than NZ (and double time at the weekend), productivity ~50% higher (pdf).
Population 5 times NZ's.
Population much denser in places.
Initial colonisation well before NZ, and had access to government funds and cheap labour and oppression rather than treaty with locals.
Larger mineral deposits, that have been traded and thus active in the economy.
Larger overall export income.
Warmer climate.
Much higher tourism income.
Lower tax and interest rates.
Lower costs of most expenses.
If there is money about then the higher wage can be paid. In New Zealand the market is so much smaller, so the money isn't there to pay those bills. Unfortunately in NZ things have got to the point that it's better to invest in Auckland property than in manufacturing or other business.
On that basis India should have higher productivity than Australia!
I think New Zealanders anti-development stance and No.8 wire attitude to improving productivity is half the problem. Too many nimbys, no long term planning, always trying to cut corners and do it on the cheap. Also too many vested interests paying lip service to the idea of competition.
Lets face it, most industries in NZ are incredibly inefficient not because of the points you raised but because they're run as a cartel. Even New Zealand's supermaket chains have margins 3x that of the Australian duoply.
Maybe if the government grew a pair and did something to stop this property obsession things would improve, but my guess is they'll need a property crash to change their thinking and in the meantime NZ will continue to fall behind.
SB_13 you are so right.
I think New Zealanders anti-development stance and No.8 wire attitude to improving productivity is half the problem. Too many nimbys, no long term planning, always trying to cut corners and do it on the cheap. Also too many vested interests paying lip service to the idea of competition.
I would also add constantly trying to reinvent the wheel. There are plenty of small countries in Europe and states/cities in North America with diverse successful companies paying good wages that we could model off. Most of this stuff isn't complicated it just requires hard work, investment in planning and the courage to confront the vested interests that are holding us back.
No, India followed a third world model that favoured a ruling class into rights of ownership rather than allowing private ownership and inter-class mobility. This resulted in huge peasant class which is completely focused on consumption.
They reached a population point where they are over consumptive on real goods, and the majority of the population is under capitalised to produce anything worthwhile. Which is what happens if a country follows third world and thus socialist goals (ie the State will dictate and see to provenance).
NZ and the rest of the world is set to follow their example as fuel and energy resource cost rise.
Compare Australia's export to population ratio to India's.
See how much trickle down (which sucks as policy, but good to meter) those export earnings get?
See the capital returns from the service industries? What kind of velocity of money are they getting?
Now look at quality of infrastructure and cultural policy.
In Australia, how many people involved in building an office block or mall, are on the take? How many in NZ?.... How many in India?
We've seen what happens with Thinking Big. We've seen what happens to big factories and massive "water-empire" type organisations. How much coal comes from Blackpool? How much steel from Chicago? Those big systems (when installed) fire up the economy briefly, but frequently their cost of production leaves them stuck, unable to keep up with their customers demands. We're finally starting to see it in the PC market, bigger faster, is getting rarer. Market saturation is occuring, because most people don't use the power of top end system. Someone has to pay for all that steel and machinery, and that has to be the customer...and they keep saying no...cost is an obstacle.
How about you run a business and find these answers out, as I have then you won't put such foolish remarks up.
Higher wages results in higher price tag. The higher wage attracts a higher PAYE and higher GST. If the margin on the sale remains the same, the cost is higher, and sales tax higher than before - that means the purchase will be less. Also , if the business operates at cost+percentage, which is normal enough; then when employee pay goes up, the business owners & net profit reasonably expect the same level of increase.
So we might see a $100. increase in pay...for a $120 increase in prices. That's a reduction in buying power.
As an employer who has had to put off staff because of rises in minimum wage I can _guarantee_ you that it does have detrimental effect on employment.
NOW YOU DEMONSTRATE HOW THAT IS WRONG (it isnt).
My system is extremely efficient. Feel free to prove otherwise. That's why it can work on people paid $10 hour. Definately better to pay two people for 80 hours. That's two people with incomes, and when there is need in the business (eg one person ill, or taking holidays) then two people is far better. Another example is if someone gets headhunted, if you have two people, then if one leaves the system isn't crippled. If one person leaves out of one people, then you've got a massive problem of needing urgent recruitment, and for a much tighter skillset.
In a global economy the greatest opposition, and advantage of those who have for many years been already competing in a global economy, is one of low overheads and low wages. Whether its Glaxo not having to ship overseas and having cheap foreign support (started in a single factory in Bunnythorpe, NZ) or Carrots from Gisbourne, keeping overheads (costs) low is the most critical process of success in a business - The only exception to this is when the business is a monopoly or cartel or other type of price-setter (eg that government can just put pen to paper and TAKE whatever it feels like taking regardless of damage).
One of the most telling failures, is companies that specialise to niche markets. Frequently in order to demand a premium price for their value-add, they must get specialist people and specialist machinery, that means tight skillsets, high costs, and extreme level of risk, and complete loss of AGILE ability. If their market moves, or falls out of fashion, they must recoup their investment in a very short time frame - this means that they are a target for any _lower_price_ competitor that wants to full that market with a lower cost "almost perfect" product.
I have put hundreds of thousands of my money researching this SB. Make sure you follow through several iterations of trade cycle when you test your theory.
Not only do you write absolute tripe Cowboy you are now admitting you are willing to pay people $10 an hour. People cannot live on such a wage. Why can you not get that into your head. The minimum wage is more than $10. People struggle to live on that let alone $10.why are you so mean spirited? Everyone is entitled to be paid fairly. How could a family live on $10 an hour. You tell us that. Do a budget . You will not be able to.
I live on less than that quite effectively. Which -amazingly- enough ties in how I'm still around when I made only 1k last year, ps...that's 25cents an hour, btw.
So knock of the accusations of mean spiritedness, it's becoming more than tedious. And it's going to get you reported to the administators.
NO-ONE is "ENTITLED" to payment when there ISN'T the REVENUE to provide it.
Why would you put all the people out of a job by collapsing the business (which I have seen done several times), than keep those people with at least some income. Surely getting more than the unemployment benefit is worthwhile...as is the service the business provided in the community.
But I'd really like to shut up please gordon.
If you actually disagree with any of the points, or can find a fault anywhere in my calculations, point it out.
Simply reaffirming your "entitlement" speech each time doesn't change the facts. Doesn't change the maths. Or is that _why_ you won't address my points, because there is no fault and you have NO PROOF your assertion is valid.
What you are failing to see is that if you are wrong, or if my calculations are correct...your $20/hr is going to cause very large problems for NZers. That's a lot of needless harm gordon.
So before you put all those people out of work gordon, where is that extra money to pay the wages going to come from. Or do you think all NZ businesses are dreadfully inefficient...
Cowboy you are totally dillusional. You have just confirmed again you only made a profit of $1k last year. No bank will lend you a million on that income. As a professional I dealt with banks nearly every day over thirty years. I know how they think. They do not take risks with people like you who cannot make a business successful. They want to take minimal risks when they lend. They only lend to people who they think will not give them problems. Problems mean people have to spend time chasing down bad loans which costs banks time and money. My private companies have bank borrowings and therefore I know how banks currently approach any loan applications.
If you lived on $1k over 12 months you obviously did not eat well, did not drive anywhere, did not use any toiletries,did not drive a car,had no alcohol, did not go to the movies,did not play any sport. I could go on but there is no need. You do not add up. No one would live with you as you cannot and will not support them.
Cowboy how much do pay for your hobby of proclaiming your words of wisdom on interest.co.nz? $300 or 30% of your income? Or more if you need to replace hardware? I suggest you do not do this and instead invest on giving youself a proper feed or if you free access to food then maybe save for future medical problems, it would only take a few visits to the doctor and pharmacy and you would be in trouble. I am really concerned about your health, please take my advice.
Just upgraded to Intel 4930k chip, watercooled, on a Sabretooth TUF board, 32 Mb RAM, EVGA GTXi 780 "superclocked" video card (saving for a second card), Have 512Gb SSD primary drive, 64Gb SSD swap drive, 2Tb of spinning rust for the video processing work I do. 4Tb NAIS. 24" prmary video, 55" secondary video (helps with the FX stuff), 24" tertiary video screen.
Solar powered most of the time.
Just what am I upgrading to?
As for food. The garden and lawn and paddock provide good fodder (amazing how healthy plantain and stickyweed is). Plenty of beef, chicken, mutton on the hoof, although we don't have the wastage to raise pigs in the last 5 years. Milk, not so much of a problem... Water falls from the heavens occasionally. Blackberrys are wild. Walnuts and plums, feral. feijoa, lemon, lime and fig in garden.
Often get V, Coke, chocloate, icecream, and 2min curry from town but they're a treat. although I've been lazy and buying a lot more currys and savs lately.
Most of the health stuff, if it's an emergency, I have to get put on ACC like all other NZers. we don't get a choice at my GP.
Don't need glasses since the laser surgery 20yrs ago.
Clothing is either gifts from family or secondhand (usually giveaways to poor for sale in secondhand shops but good enough) as dress code on farm is quite relaxed.
Gumboots and wetweather gear is all legitimate safety wear and business expense (2 sets each per annum).
Have life insurance, but other insurances are all covered under farm policy (otherwise there's jurisdiction issues).
Am shareholder-employee, with full donation of vehicle to company, which is 90% company usage.
Cellphone and landline are compulsory and job related, Skype for most long distance calls.
Internet is rquired for business usage, my little usage doesn't even make 1% of traffic.
In business if you minimise costs you can run on a sniff of an oily rag.
Pile on the overheads and you'll follow the same path as the Titanic.
Well Cowboy you seem to have a good lifestyle organised there. Stay well. Also bear in mind you cannot necessarily generalise your experiences to others because they might not have your advantages you have, access to free food, businesses that will pay for some or all necessities, cheap rural accomadation etc.
Oh I very much understand that. And it's taken years to develop much of it (eg putting insulation in the roof of this farm house/office/workshop).
Most people don't even realise the nature of the problem though, and keep thinking that if we pay more wages then they can buy more.
But, an example: If the ad agency pays more to its people and on charges their cost. Then the costs of all those who use their services get a bigger bill. ...... Those business using the advertising services decide they too will pay a high wage, so that means they must either lift prices (defeats point of paying higher wages!) or become more efficient....BUT Oh No! their advertising costs are -rising-, so not only must they cut, but they must cut harder! to gain "Efficiency". But cutting advertising, if your advertising was already well run (like the rest of your business) is going to have a *detrimental* effect on the business. If not then you should have already made that cut for good management purposes!!
So why are "the experts" so sold on minimum wage issues?
The Socialist interests don't understand and don't want to care about the business mechanics.
The Government Socialists know that the Socialists don't know the real effect so can use promises of tomorrow to buy votes...with the added advantage they can blame other "rich people" and play another next time
The Government and Banking Conservatives.... Ok, if we have two people making $10/hr they pay (eg)19% tax (2*10*19% = $3.8), and have little debt servicing power (eg. 2k @ 10% = $200/yr int) and little "spend up big" economic contribution. Their family will do well, they will socialise and do other free social stuff. Put in one $20/hr specialist (who will be more stressed by job demands), they're more slaved to their income, they can service higher debt which slaves them to dependency on their job and any conditions set on them, they can bid higher and pay more for everything from food* through to fancy cars and houses often having the spare money to pay premium prices for "add-values" which allow promoters to "add-value" (read margin) on goods which really could be provided at half the cost. But whats more this "rich" person on $20/hr pays (eg)30% tax, (1*20*30% = $6) and is probably leveraged (200k @ 7% = $14,000 pa guaranteed for 10+yrs!!!). Now add to that, that prices don't matter that much when you have passive income streams, as you can add more streams - the labourers don't have the option, they need tasks and employers, and they only have so many hours to sell, and those they do sell cut into quality of life... unlike passive income streams which need less maintenance once established).
So the best thing I can do is warn people of the treadmill they stand on. So then they can look to the real problem...why the cost of living is exponentially rising - and then when they understand the need to know, then we can all prosper.
Because thats one of the differences between me and "the poor" who need $20/hr
Give them 20/hr, they'll buy big flatscreen TV's...I'll buy solar panels.
They'll get nice cars, or EV's. I'll get LED lightbulbs.
They'll buy good grades of meat/vege/toppings/coffee or takeaways. I'll go with the current fashion in Scandinavia for wild foods, and learn soil management and herbcraft.
They'll bitch about the price of power and fuel and the cost of living. I make half what they do and I'll put disposable income into servicing debt for business/investments.
I am tempted to go as far as trading beef for pork/bacon. But people like gordon think that such situations I would then have to give 30% of the pork and the other person 30% of the beef to people in Wellington. Enough to feed the meat needs of one persons family who helps provide the plastic flower maintenance for government house, for two weeks. Something which produces..... ... .... ......??? for the country. Yet nothing in Wellington (let alone NZ) contributed to the trade.
power on to reading email in outlook, under 40 seconds (hate the Win8.1 though :p ).
Previous machine was XP, 1.5Tb Winfast 2000 board that still had parallel IDE capability, it was the most budget machine I could get and still run Adobe Premiere 3 for video work. Boot up was around 8minutes, outlook was over 40seconds minimum. Even Chrome was 10-20 seconds. Anytime I wanted an Excel file it was 30 second pause in workflow minimum. Fallout 3 worked just, Skyrim no (full of pauses every few seconds). Business software coming out was no longer XP compatible so I figure time to jump, and the delays were really cutting into operations. Check my email over lunch, 3 min start up. Hmmm check the bank figures, wait a minute. Fire up the FXCM Trading Station, 30 seconds, check the news...another 30s.
The anti-virus slowed everthing down, but the real killer was the 4Gb RAM limitation under XP32bit. I'm sure it spend most of it's time page swapping.
new machine Compiles code in a heartbeat, transcode video on the fly.
Only downer is Win8.1, doesn't handle disk access easily or properly, seems to be tablet orientated :(
You didnt mention waht PSU you got...hopefully its a good one, the cheap nasty ones last maybe 2 years....then give wierd problems.
4GB, yes 3.2gb for 32bit I think though I still run an XP virtual machine as it has a tiny footprint.
Win8.1 Yep, I am not impressed with.
Im going for a Ubuntu powered Dell laptop in the next few months I suspect as the keyboard on this one is dying on me and its starting to run excessively hot as well.
regards
Consair 800 PSU. It was a bit of a balancing issue, because the whole system is solar powered, the bigger PSU means more panels and batteries!
As it is I suspect the NAIS is pushing my 800W inverter over the top. Originally the NAIS was on another set of panels at other end of house but I suspect mice have sacrificed my cat5e cable to the data gods...
The extra heat in the laptop will cause the membrane in the keyboard to die/separate faster.
Cowboy do you really think someone can live on $10 an hour. We are not a third world country although it seems you want some of your fellow citizens to live as if they are in a third world country. You might be able to but obviously your two former partners were not willing to join you. Why are you so envious of those who are paid well or paid fairly. You should get a job where someone pays you $20 or more. You obviously will be better off compared with your current self employed status where you are a failure.
It is not envy gordon. It is knowing tht their overcharging is causing massive overheads which make the cost of living very difficult to everyone else. An accountant working parttime getting 80k, is 30% of that into tax to pay someone to shuffle paper. But worse that 80k + overheads, which rule of thumb is 2.5 to 3 times, so that's 200k which must be recovered from her clients!
Why do you think it's become so hard to survive on $7/hr. It's not because the materials or goods have changed - it because to pay that one person, several others can't be hired, so only one person has high (extreme) buying power...the kind of buying power which result in their ability to put in large bids for overpriced houses/farms/shares...and thus demand over-priced rents etc.
All those overpriced houses passed on accounting costs, means that other business owners using that service (and other services that are "pacing" their prices off their sales and wage levels) must all charge more to pay for the basic service. It's only it critical places that it concerns me, government, legally enforced services eg accounting, vet, lawyers, or places like doctors preying on the sick and ill who have no where else to turn. If a dental hygienist or manicure person etc wants to charge $1000/hr all the more power to them, because their customers can walk away if their income doesn't support and then the market adjusts. Another place of such problems is levies and compulsory fees and "improving" service levels which really don't need improving.
By having critical services overcharge (including interest and tax) then the customer can't walk away and must eventually pass-on the cost or fail. And several friends businesses have failed by them trying to absorb overheads. Passing-on the cost create the problem that you have found that you need, 13, 15, 18 ... now $20 a hour to "live" (40 hr week?)
Yet those in favour of the rising rate don't seem to be aware that it is their pushing up the wage rate is whats making it so expesive to live, and each time they get less buying power.
The real question that needs to be asked...is if people lived on $5/hr previously, and we have made efficiencies in the system, then _why_on_earth_ are we now talking $20/hr for that standard of living (or less)!!! even though we have been increasing the wage rate.
Those roads and school and hospitals you mention....much of the heavy lifting was done decades ago. Why with computer information providing things in a eyeblink, and technology provide easy update (eg digital xrays taking moments and a fraction of the energy of the old machines, databases which a single person can locate and update a file in moments rather than having several staff take hours to chase and update files properly, or computers that can be updated with the copy and paste of a file as opposed to the old Gestetner or school books which were easy to damage and hard to replace and very expensive to buy a whole class set.).
If the materials and information is so much lighter resource wise, cheaper, faster, less people...WHY are we needing $20 hour??
And I do this job to find out...(a) why NZ backbone industry dairy farming has no money and huge debts, (b) whether it can be done with little or no fossil energy inputs, (c) whether a sustainable output is possible with minimum fertiliser and good soil management.
Also I have medical issues which make driving etc difficult, and don't relate in the slightest to the rat-eat-rat of the "mindless ones*" in the corporate world.
* reference is to Huginn and Muninn.
Cowboy your above comments are absolute tripe like most of what you usually say. They are illogical and all over the place. Fact. People cannot live in NZ on $10 an hour. Fact. You and I have to live with that. Fact. People need at least $20 an hour to have a reasonable living wage and they are entitled to that dignity. Fact. We cannot go backwards. Time moves on. Fact. At some stage in the future people will need $25 an hour to live on. Get used to it and stop talking all the crap about paying people $10 an hour. Fact. If you pay someone $10 an hour you are breaking the law and you are not treating people fairly. You are taking away their human dignity.
yes it would be against the law, if they weren't self-employed. So they just don't get hired, and that job doesn't get done. And the other important jobs that couldn't be dropped, we put in automation and machinery to replace them.
The clinch is there isn't the revenue to justify that level of inefficient spending, the tasks do not return any revenue so go directly to costs, and the customers are unwilling to pay a higher rate for those tasks to be continued. So they and their dignity join the dole queue.
On the other hand, with a swipe of a pen the $7 minimum could be allowed, and current hires don't even have to take the pay drop, just for new hires keen enough to actually get employment.
After all, most of our competing countries have much lower minimum wage, and/or also allow for internships where the intern isn't paid at all!!
Non-logic, so you are right, I dont understand you.
When you talk about adjustments, what adjustments prey do businessesand ppl have to make when oil goes from a long run price or $10~$25US a barrel to $100? a 4 to 6 times price adjustment?
And you comment on a 2.5%?
LOL
regards
Have to agree with Zanyzane. Wheeler and co have lost the plot. On one hand Wheeler is raising the OCR which raises interest rates and the dollar and on the other hand telling us a high dollar is bad. That is like a fat kid stuffing his face with lollies and whinging that he isn't losing weight. Wheeler and co are killing NZ with their stupidity. They have to go.
Richardo - unfortuantely there are far too many in the public who do not understand one basic fact, let inflation get out of hand and you have a very hard economic impact/landing at some point in the future e.g. 1970's & 1980's.. Far too many, including on here, only see higher interest rates as slowing an economy, therefore bad, and revert to repeatedly, pathethic name calling of people with far more understanding than them (e.g. just about any central banker for a start) ...when people revert to calling people idiots or worse, it says a whole lot about themselves, so my suggestion is to have a damn good look at such people with a little less admiring agreement..
your "inflation out of hand example" is the cart beforer the horse. Had the NZ markets not been so insular (allowing a situation of effective monopolies and peasantry) then the velocity of money would have provided growth. As there were little funds and risk ws high, any leverage was expensive to buy, those [interest/financie] expenses get passed on as inflation - the alternative which was common at the time due to borrowing often being Not Available At All, was entering into equity arrangements. Such third party equity is more expensive the debt, as the person providing the capital invariably wants some kind of return, often sooner rather than later. Again, that cost must be passed on, which creates inflation.
Having cheap interest has allow the economy to slowly inflate as the costs don't have to be recovered, and risk levels can be lower and still be worthwhile.
As for the increase...I'm betting its a political move in the end. After all that sabre rattling if he didn't move people would think he's a wallflower. By moving even though it wasn't required, he is trying to prove that he's a force, not a doormat.
Daily turnover in the foreign currency markets is around NZ$100 billion.
Exports are roughly $50 billion per annum, or $135 million per day. Or just over 0.1% of daily currency turnover. Not even a rounding error in the total $ traded.
So you have to assume virtually all the $100 billion is foreigners playing financial games; mostly as far as I can tell, at our expense, and certainly to no advantage to NZ.
I can imagine young forex traders working for huge hedge funds with say $1 million to invest, and playing with a spread of say 0.2% when auto sell orders kick in. So the $1 million divided by 0.2% allows them to "purchase" $500 million of NZD in the morning. Forex trader goes to lunch. Comes back from lunch, currency up by 0.2%, trader pockets $1 million, and "sells" the $500 million. 200 such traders in the world. Turnover $100 billion. But it's all a fiction. In this scenario, the real turnover in play is $200 million, and most of that would quickly dissipate if it weren't a guaranteed bet.
In a one way bet guaranteed by our Reserve Bank's passive policy, these forex traders are taking no risk at all over a reasonable period. They will be leapfrogging each other to guaranteed wins over time. At huge expense to our traders and import substituters.
It would take only relatively small real transactions, and a modest amount of determination, mixed with jawboning, to mess with this guarantee. The RBNZ strike me as intellectually sound, but frankly lacking the kahunas to make a mark, that wouldn't be difficult at all to make.
as the USA prints 2.65 billion a day we think our economy is dong well. whats going to happen when they stop we will be in the worst position. assets will plummet watch out me thinks wheeler will still have a job and blame it on out side events. real interest rates world wide are zero and we put them up. you got to wonder
I agree The reserve bank is reacting to high house prices in Auckland and Christchurch and completely ignoring the world outside NZ The EU is a basket case. The American dollar is completely unpredictable with "money printing" and threats from the unstable situation regarding Russia, and China has its own set of problems. Increasing interest rates will bring a flood of money here and make our exporters uncompetitive. The colonization of NZ by wealthy overseas interests will accelerate. This may be a good thing for bankers and other parasites but not for the majority of New Zealanders
Apple - did you actually read what Wheeler said ? without housing issues he would have still be raising rates. Good to see you know more than him as to how those things are going to play out over the next few years ...I know his, but your experience, resources and background would be good to know since you know more than him, apparently.
I don't claim to be anything more than an observer of economic and political events which does not mean I am not able to have an opinion on such things. There is no Inflation in wages at present, as Ganesh Nana stated on a television interview today. In my experience a lot of the recent inflation is down to the government; eg GST increase ,local govt rates. Are you saying an increase in interest rates will not bring an increse in overseas investment and thus an increse in the value of the NZ dollar. I have been around long enough to remember Muldoon who for all his faults knew that the way to real prosperity for all of NZ was to have a strong export sector and that the banking and finance sector was to service the economy.If all you have are sarcastic jibes then save them and time will tell how international events evolve and whether it was appropriate to raise interest rates at this time.
Apologies if it can over that way Apple, I guess rereading it, it did. The foreign investment is already here because whats been going on has been obvious to forwarding thinking offshore investors for sometime, hence the higher assets prices every where you look - markets and investors anticipate. But youre right in assuming that all other things being equal it will manintain a stronger NZD, but with NZ's terms of trade at 40 yrs high (i.e. on average exporters are doing ok), and the strong NZD makes us all richer and interest rates lower than they woud be otherwise because of the low tradables inflation we're importing, its not a bad or unexpected thing, even although a slightly lower one would probably keep everyone perfectly happy.
Yes, alot of inflation is Govt related, but thats what the RBNZ has to content with. And yes, international events could blow things up, but then people here for instance have been calling that for the past two tears and been wrong. What if its another 2-3yrs until theyre right (what the saying, a broken clocks right twice a day), is 5yrs years really really wrong ? You just have to be light on your feet and not fixated that you know what will happen.
I can't disagree with you Apple - business is tough and exporting is even tougher because of the additional variables that you have to deal with in terms of currency and offshore credit risk etc. I don't see that ever being much different as there's no easy answers to making it less of a challenge despite the simpliistic solutions often touted. In my experience it takes very dedicated and determined people to be successful at it, and most specifically, adaptable people. The fact that NZ currently sits with 40yr record terms of trade not only suggests that we have a unique environment here at the moment, but also that we alot of those people in this country at the moment doing good things. If your'e one of them, all the best with your business
Zz ..... I detect a very distasteful dislike for Mr Wheeler et al from the Reserve Bank of New Zealand ....and for one reason being ...it was his move to increase interest rates, both now with 25 basis points and further rises in the near future ..... I am picturing you at home pouring over your Excel spread sheet plugging in those interest rates rises and looking at your property portfolio, as to who will get the next rent rise to cover your interest costs ...not forgetting that the rate of property inflation is more subdued now, which will also bite into your cash flow and gross/net worth projections.
I realise that many of your comments are just to "troll" for a bite from the posters on this site ...but it reveals more to me than that and it tells me you are concerned about this matter, as it actually affects you..... I am both a tenant and an investor, so I keep an eye on both sides of the market ...and regarding your rental increases, good luck with those, as this year we didn't see those queues of would be tenants, waiting for the property manager to turn up for some delapidated, 100 year old villa in Grey Lynn... in fact i am seeing more and more "for rent" signs around .........
What makes me laugh with all you "dyed in the wool" PI's out there is simply the fact that you think everything is working and will always work in your favour ie accomm supplements, WFF, tax breaks etc etc which the taxpayer is subsidising... and in reality this has been the case .... up to now that is.... and when something like this actually happens, you cry out like a spoilt child ...
Anyway, every cloud has a silver lining, as at least the savers of this world will be a bit happier :)
Have a nice day Zz.
"You can't move against the tide, but in some situations it may be more opportune to do so," he said.
Ha Ha Ha Ha Ha Ha HaHa Ha oh I just pissed meeself
"But we live in a world where our currency is between the 7th and 10th most traded currency internationally. Daily turnover in the foreign currency markets is around NZ$100 billion. About 90% of that takes place offshore. Our currency is enormously, intensively traded. To give a benchmark: If you've got daily turnover of NZ$100 billion a day, New Zealand's GDP is about NZ$180 billion to NZ$200 billion."
Asked specifically about the prospect of intervention, Wheeler said: "Daily turnover on the FX markets are around NZ$100 billion. Most in NZ$/US and 85-90% offshore. The opportunities for intervention, given those sorts of flows, are extremely limited."
Wow Claptrap on a whole new level...Hickey......Mr Wheeler is there any just cause for intervention...?
Hmmmm well yes smarmy anecdote , adjusts glasses, roll eyes and postures for next question.
Hickey.....Mr Wheeler do you intend to take any interventionist steps, given the NZD is at as you put it unsustainable highs..?
Hmmm well no ,quote statistics, raise the point ,it's all go offshore, close with we would have the impact of a fart firing back into a hurricane and expecting a pause to the event....... I'm off for an Earl Grey and ladyfinger , the pursuit of benign magnificence does so tire me , mmmm maybe two ladyfingers today.
Hello you darling people, just dropped by to say I'm not dead, though I may have wished I was on occassion these past months....miss you all , some more than others, hope I can get up to visiting more often.
All the best .
Hello Count : you have been sorely missed around here ! ... We've lost Wolly , Sore_loser , and St. Nick .... and now you've abandoned the flock of Hickeystericals ...
... crying in me Gummy Beer I am ... a sad lad , without the buds ( and the suds ) ...
So the Guv'nor finally did summit , huh ... a .25 % rise in the cash rate ... it's all go down at the Reverse Bank isn't it ... excitement city !!!
... pour me a heaping helping of that good thing you're imbibing ... stay well , mon ami : Gummy
I am so glad to see you albeit in print GBH.... it's been a tough few months on which I may elaborate at some future point........... still tough now but your thoughts are appreciated Mon Ami and I'll be dropping by as my strength returns along with it's humor .
Stay Well.......as always.
..... focus on September 20 , Count ..... use that date as an incentive to get yourself strong enough to kick Jolly Kid & the Gnats into the dust-bin of political life ...
Because .... ummm .... ahhhhhhhh .... remind me again , who is that's a worthy PM & government of this fine land , girt-by-sea ?
.... still reckon HughPavletich/BernardHickey/Wolly should be the dream team leaders of Godzone ..
Umbrella day down here in Canterbury .... hope you're warm & dry ... Ciao !
The Count of Monte Christov, should not stay away too long.
If you ever need anything, just holler.
No sane man could argue otherwise, in this insane world we inhabit,so I will not, argue that point, I might just revert to type.
You have been surely missed, as have Wolly, etc. as per Gummies sentiments and observations.
What a team...on paper.
Bears thinking about.
Good to hear from you Count. In the grand scheme of things I generally put my health and well being above all else. Economics, in my view, is only a means to achieve these things. Wellness comes by design you might say, so I wish you well there.
As my father says, outlive your enemies. So far he is doing quite well.
Am I the only one here who cannot understand one word that Cowboy is rambling on about. I think I could be described as someone who is pretty fluent in the area of business,economics and commercial law as a result of my professional practice over thirty years and my business interests. I cannot follow anything he says.
Gordon - there is a vast difference in business when you are a price setter vs farming which is a price taker.
A business that has the priviledge of being a price setter (within the obvious bounds of competition) with low Capital inputs, able to on-charge any extra costs from compliance etc into your final product is very easy business to run.
A business that doesn't have to concern itself on issues of exchange rates for exporting, weather, and a never ending amount of compliance etc is also easy to run.
Sometimes I have to read Cowboys posts a couple of times to get his drift but he does make some very good points and I suspect some of it goes way over the top of some heads.
There is nothing more sole destroying than being treated like a slave of the State. If you're a Farmer you will most likely do the GST in your own time, at our own cost, providing the service for free along with every other compliance job imposed and there is an exhaustive list of them. Farmers can't charge these costs on into their hourly rate!
Farmers have always been asset rich and cash poor.
I have made my mistakes O believe you me. I read as much as I can every day especially about share markets and business news in general. You learn something every day. As hard as I try I cannot follow the ramblings of Cowboy. He is all over the place. As soon as you say you have an income of $1k and have just borrowed one million dollars you lose all credibility.
Zz he gave that IT stuff up if I recall correctly as it was stressful. I can sympathise with that. I gave up my profession at 58 . 100 plus emails a day was the last straw. I would rather ride my mountain bike now than sit in front of a busy computer. The way he talks sounds as if he is a small time dairy farmer who is struggling. How you do that with the current payout does surprise me though. I do not have any rentals. I much prefer shares in public and private companies. One of the companies operates from a commercial property owned by the three owners of the company. I find property expensive to maintain and harder to move .
rentals, shares, fx, video processing company, odd jobs, and the dairy farming.
The part with the dairy farm is that I lease the property - which put it on a similar footing to other small businesses. Many dairy farms, especially multi-generational ones, rely on owning the property (land, plant, equipment) and using family for cheap on-demand casual labour
(including but not limited to : doing books, running errands and pickups, cleaning "uniforms", tea/dinner/breakfast lady, mentor and psych support, doing calves, paying bills and coordinating with suppliers, acting as peer sounding board, payrool and it's book and legal requirements including kiwislaver PAYE and holiday/sick pay, handling ACC paperwork and filing, often all filing in general, social-side networking, being there as safety net, and often relief or milking assist, and occasionally helping out with on farm activities.)
That allows them to operate at below normal costings. Sadly the worst of these are the "landlord farmers". What other kind of farmer has the time to travel and hang about in boardrooms, client meetings or speak to the media all day? Those are usually the worst farmers, have the least idea about on-farm and commercial-debt (20-40%) style farms. In many cases their sharemilkers and farm staff are just happy to have them off the land where they can't mess things up!
I speak Enochian (look it up). ;)
You also don't seem to be able to separate my personal net income, from the different streams of income. The labour inputs of employees, eg those in value chain, from those in support and management. The person providing labour in the value chain is currently getting (indicative value because of privacy, $25/hr. They willingly took a paycut for more hours, vs the $35/hr they got before.
But they are in the value chain, A second milking provides: $400 gross (edit: was $1200,seemed too high, 1200 = two milkings total) and reduces the chance of cows drying off. Later I am going to compare models for once daily milking.
They also asked if I'm going to mow the grass in the tanker race, I asked them if they wanted to do it for free. They said, "ummm no thanks"...I said "me too". Why ask someone to do something for free if you're not willing to do it yourself.
Yet my son gets $18/hr (equiv) to mow the house lawns, when he shows up.
I would describe more details gordon, but some of it is commercial sensitive, some of it is of strategic commercial value, and some of it is just oversharing which most people are already sick of hearing. Mine is a single outlier case, it can give hints, but everyones' own business is more important to them, listening to intimate details of my problems is tedious to those on the forum.
Do they really want to hear that I'm understocked (120 av head, vs 160) or that I'm on target for 55,000 kgMS = av 458kgMS/cow on all grass. No. Because that's not relevant to much.
No-one (except perhaps IRD) wants to hear that 4 years ago I owed BNZ 750k, now I only owe them, 300k. plus 2 plain credit cards. Nor do they care that I no longer have to spend spring sanding tenant damage from floors and repairing windows after milking during Calving.
Farming folk want to hear useful things, like how our biological farming has resulted in organic matter which on this recent spot of rain, has operately like a sponge. Sucking up and holding that water. And how the little bit of standing hay is going to protect it from evaporation when the rain stops. Yes, there will be rotting. So we make allowance. Yes the nitrogen demand will create a sudden burst of growth for two weeks - they NEED to know that stops! so don't ease off the supplimentary feed. We used to have a slowly growing facial exema risk over last 20 yrs, hasn't surfaced at all after 2 yrs into the biological farming. I don't it, still use zinc, but the reduction is nice to see.
And financially, the farm does ok. It's not the only source of income, and it must stand alone. So people, especially poor people, need to knwo the difference between leverage, where I can pay 100k in rent, and change that rent to interest, and use it to offset asset buying. And consumer debt, where paying for things like repainting the house, and mowing lawns is an expense which will cost you, and increase your cost-of-living FOREVER, if you're not careful. The bank, and lines of credit knwo I know the difference. I think it's important that we teach that to all of NZ. And not sell our heritage and country in the meantime.
In the case of the 1k income. As I mentioned, I had 2 casuals initially on 10/hr. There wages went up, the wage bill was fixed sum, so mine went down eventually to 3/hr. And there were a bunch of losses, meaning there was only enough to pay me 1k that year, any shortfall had to be borrowed, which is perfectly normal for any small business owning family, and will stay part of the overall debt probably for next 2 - 3 years.
As we have discussed...in a more casual fashion... that yes, my poor writing skills do not help clarify things. That I apologise for. Also, like most engineer types my brain is already distracted by two or more other permutations and ideas, so I tend to drop words and tenses. Again, sorry for that I do re-read everything at least twice but often the corrections disrupt the conceptual flow more than the editing improves.
If you said what field you were in, then I can use modes of thought and terms more familiar to you. But keep in mind I did everything from finance and bookkeeping to fieldwork, in several businesses, and have attended several universities and courses on that material, an open forum like this does not lend itself well to conciseness, brevity or technical terms as there are many layfolk or explorers, neither does this medium and audience lend itself to "everything for Dummies" leave of discourse.
Consider this.
The business has an externally fixed revenue.
Debt levels run from nil to 120% of capitalisation in the industry.
Net yield (before interest and retainings) but after tax is about 5%. (retainings is reinvestment or drawings)
If labour is available at $14/hr, and we pay $20/hr, how does that affect our expenses in the Profit and Loss Statement? What effect does that have on the Retained Earnings?
Now lets throw in a couple of things you should have spotted but didn't ask.
(a) One of the properties used as security is vandalised by the tenant, who also refuses to pay 3 months worth of rent. The proeprty manager chooses to cover their butt in Tribunal rather than ours. We repair $30k worth of damages and deferred repairs, before having to make a quick sale @ $10k loss because of cashflow reasons.
(b) A staff member makes 2 critical errors on barely escaping the loss of all winter feed, and almost killing passing motorists (stock on road at midnight, on straight country road). Packs a fit and refuses to come to work. Replace/repair feed (5k loss) immediately. Pay out all remaining cash holdings including personal savings as severence, holdiay day, and wages.
(c) Bank of Japan goes on printing spree. No reserves to cover leaping NZD, tired and refuse to Buy hedging positions over 0.85USD. Margin called for loss of $30k, 9k lost of original investment.
(d) Tractor still not working after mechanics repair it. Send it back for $7k more repairs and problem still not repaired.
Now you want me to pay $20/hr ? with what?
One of my businesses is a large retail shop. It made large losses until last year. My wife and I lent it monies to survive . Staff are paid up to $30 an hour as they are worth it. Do you think I should have instead dropped them to $10 an hour. How would they survive.
How they survive is their choice.
Do you think you can get comparable labour for $10/hr?
What has been successful for social entrepreneurs in your position is to bring in volunteer budget advisors to teach and help staff do long term budgets and money plans. That allows them to make more efficient life choices if they wish to do so.
If it was the staff who made the difference, and it is a sustainable difference that turned your loss into a gain, then I would certainly say pay them $30. Not because they need it, or because of any entitlement, but simply on the solid fact that they are financial and business-wise worth it.
I know one retail chain, where the staff just tossed old lines of clothing and shelf-overflow in the back room and lunchroom, in random heaps. If they were paid $20/hr, then what is the worth of my friend who joined the staff and cleaned up and racked (or dumped) the stock/mess. The old methodology for stock update/ordering was just search through all the piles (or enough of them until staff had enough) and just order the gaps in the shop floor if they didn't spot what they needed. Now incoming storeroom stock is rack & stacked by type and size.
If I sent my girlfriend to work for your business, and she can breakdown boxes, and usually get the items from suppliers (eg mitre 10) and she gets them right on the second go, or third at least... would you pay her $30/hr? She was working in hospitality for minimum wage 2 ys ago.
She likes to pat the other girls bums and so forth but most places treat it as a bit of a joke...
As for the losses, what would you have done if you and your wife did not have extra funds/line of credit? What would have happened then?
It is a shame you have got this far in life and don't understand people, because if you did you would know exactly what the problem is. Your question says more about your inadequacies than Cowboy's.
Sure he has his down days, but at his best he shows a depth that is rare around here. It is worth having him around for those moments. Therein lies a clue for you.
GW may not be able to do anything about the 100 billion a day trade in the NZD but BE and JK could. Bring in a 1% tax on all fx transactions and most of this will go away. The resulting tax will mean only long term investment flows will remain (which is what we want). This tax revenue will mean income taxes could be abolished and with them the need for middleclass welfare programs and the beauracracy to support them. In a no income tax environment business and emploment would boom.
Also property investors would not be able to claim a subsidy from the tax payer for negative gearing and would have to compete with home buyers on a level playing field.... the resulting joy from many interest.co.nz commentators will result in less things for them to complain about and they would have to do something else...
Alas, all the work that treasury did on a transaction tax (and they found a finacial transaction tax of between 1-2% would replace all taxes in NZ) was buried in the basement... too many vested interests I suppose...
Economist - implement a FTT and we'll have two things for sure, FX spreads that you could drive a truck through, and imported inflation in hand with that which will impact everyones costs and interest rates, and alot less foreign investment, something this country still badly needs. Theres a good reason why its debated globally and then dropped. Unfortunately it is near impossible to indentify what is a speculative flow as compared with a trade or investments one such that you could only target want you wanted to - and if its hard now, guess what it will be made like if it was implemented...impossible ? Is a $100m foreign purchase of NZ bonds (which depress our interest rates) speculative or investment ...do we want to encourage or discourage it ?
Vested interests may be there as well but unwanted consequences are the turn off to me.
Hi Factboy - Economist used 1%, but youre right its the likes of 0.1% that is often talked about. The problem is undestanding what it will do to market liquidity because as you know the more you tax something the less of it you get. A 0.1% example adds nearly 2 bps to a speculators spreads, which is not inconsiderable to a speculator/investor to get in an out of the market, so I've no doubt we'll see less liquidity. With less liquidity that central bank/Hedge fund/insurance company/funds manager who wanted to invest here by buying that $100m Govt bond I talked about will have a further disincentive to do so. In the mature really liquid markets in say europe and the US a fund could exit a $500m foreign investment with a click of the mouse, here with our lesser size and liquidity they can't without moving the market against them - accordingly they expect a decent premium (higher rate) for that investment (its one of a number of factors).
And speculation works two ways, and its not speculation that holding the NZ higher. Speculators are on both sides of the market and what they buy they have to sell into the market at some point - its a growth story, a rate premium story, a currency diversificiation/risk story, plus others ....no doubt its 10-15% over valued but at the moment that overvaluation is keeping the RBNZ's future OCR track lower than it would be otherwise, and the RBNZ was opening stating that last Thursday i.e. for the moment its not all bad but we would like to see it retrace and rebalance the productive sector, even although all other things being equal, it will add to interest rates if we get that.
you've got to have balance of savers (providing capital) and borrowers (desiring capital for utilisation). It's a transaction which doesn't work with only one side.
That's why third-world and socialist system tend to fail, there's lack of incentive to improve ones lot in life - which means no cooperation through trade which is humanitys' greatest advantage.
Foreign borrowing (debt) considering how much return those guys are getting overseas... shouldn't need to be higher than we're already paying.
And the _last_ thing we need is profits going offshore. especially price-setter profits going overseas. How our _our_ business people supposed to own busniess if they have to compete with deep pocket, cheap foreign interest, owners?
Cowboy - sound good doesn't it but how's the saying go "he who has the gold makes the rules" ? We don't determine what a foreign investor expects to get from lending his/her to NZ households who on average can not self fund themselves, the investor decide that. Profits will go offshore until we have have decent sizable capital markets, and even we attempt to widen those, we have Greens out using taxpayers money trying to get petitions signed for referendum to hinder that...we just want to have our cake and eat it to right ?
We can't grow decent size capital markets by selling the ownership rights offshore without limit.
So to have NZ capital markets with participating NZers we need to make sure that mid->lower end of NZ population has disposable income. But there's something in current policy and philosophy which is preventing that occuring, and IMO and IMobservation, it gets worse with each forced wage rise.
But can we increase disposable investment for investment and capital markets, and avoid inflation? Increasing capital markets, means increasing businesses, means increasing demand == inflationary effects? (as startups and developers buy supplies).
Personally IMO there needs to be a way to have a slow moving limit borrowing on the gradual increase of disposable income, otherwise the interest works to kill the money velocity which should result in spending/investing cycle. IMO private and commercial credit (credit cards, GE Money etc) have been supplying the extra funds for economic growth, their inputs clouding the signals which say money supply is below what is required for healthy capital markets (and thus creating more inflation than production side of GDP is allowing, yet because of the interest, reducing the flow-on of money velocity.) Basically our economy is a crack whore....
Aye, unfortunately fot a tiny population 120b is a lot, especially when it's very subject to influence since the float to overseas speculation effects. Although having said that, it's not all that volatile (c.f. EUR/USD). However for a decently deep capital market, I woudl hazard a guess at that being about 5% of needed capital - but if we have that much capital store, are we running the risk of being a Qatar or HongKong. With everyone to wealthy to work, or massive unbridgeable gulf between the ultra rich investors and the labourers (who make ok income but costs for everything are very high)
What does $120bln of savings got to do with the savings rate, and who said $120bln wasn't correct or a surprise mate? Been telling you for ages, and since given up, that NZ doesn't existing purely from a borrowers perspective on interest rates. Do you think that all savings is NZ was accumulated this year, and do you think that all savings held in NZ came from here ? Engaged it ocassional might help.
I think the point that ZZ is making is that if 0.5% is the real savings rate in NZ it is laughable. I think this is a case of 'lies, more lies, then there are statistics'...
Auckland property increased $50-$60k last year. If saving is defined as a net increase in wealth (rather than a portion of income put aside in the bank), I bet the average savings rate would be many, many, multiples of just 0.5%....
Who wants to put long term savings in cash, when you can save in equity at a much better return?
Grant A
As you probably know already, a move of 1% in a day is not unusual for the NZD. Big deal. People are already paying this often depending on if they buy/sell in the morning or in the afternoon. The only ones it would really effect would be those who are short term traders (which we dont want or need).
The effect on inflation would be minimal if indeed anything at all. Importers would pay a bit more and exporters would get a bit less (but neither would pay any income tax).
There would be a lot less foreign speculation. Something we dont need anyway. As to foreign investment being a lot less, I disagree. A lot of high value added businesses would just love to set up in a zero income tax, good infrastructure, english speaking, educated work force environment. Arguments about needing the liquidity $100 billion a day provides is just silly. We dont need anything like those kind of figures to supply more than enough.
The thing is you wouldnt need to distinguish between speculation and investment flows Grant. Its just a tax accross all fx transactions. Those that are true investment flows which build jobs, companies, factories, etc and are here for the long term will not care about 1% as over a number of years their investment (with no income tax) will be just fine. Its not impossible to implement, infact quite simple (easier than any other tax in fact), banks already do it by charging a fx commission themselves.
As sure as Lucy brought the rain to NZ vested interests are at work. A whole non-productive industry has been built up of tax lawyers and accountants whose sole purpose is to minimise tax for their clients and in the process make millions for themselves. Not to mention all the property investors who invest in property as a way to structure their tax affairs instead of actual companies doing real things.... With no income tax, no one would have to file a tax return of course...
With respect economist, written like a layman. You are clearly not an economist sitting in a dealing room and therefore don't seem to have an understanding of the FX markets as one that did would. Can I suggest that you talk to some experienced FX people and see what they think the consequence to NZ would be of a 1% tax on FX transactions.
He is right that margin fees are already charged per transaction, so the mechanics of transaction monitoring wouldn't be too hard.
Although the NZD (to USD) doesn't normally jump 1% in a day. The AUD/NZD sometimes does but that's partly the cross currency effect.
Would it be cost effective for trading house in NZ, perhaps one that traded other than 9-5 local time. We do seem to have the traffic (in NZD).
Yes easy to implement just charge it on every transaction, and there would be a hell of alot less of them, in fact you'd hardly have a FX market - if you think thats a good thing cowboy read my advice to economist and what I tried to explain earlier about liquidity.
Glad you see it is easy to implement Grant.
Put it on and at 1% I say.
Without all of that speculative flow and fixzzing about, things might turn out quite stable, which is the opposite of what you see.
If the neccessary international money flows actually related to actual production, then the exchange rates changes in time and the deals to do will be quite predictable. Based as they would be on real need.
I know you don't see it Grant, being close to the business and all. But think about it.
KH - no liquidity in a market would result the exact opposition if you understand markets - in fact the NZ FX market is quite stable in terms of volatity because we have some liquidity. Look KH I can come up with all the solutions in the world about say the NZ property market, but the problem is I know bugger all about it. If I said something in a similar vein to Hugh and a few others I could name on here who clearly do, you know quite rightly what they'd think of me. For those directly involved in sometime they've heard all the expert and laymen arguments for solutions many times, and telling the likes of Hugh and others that he's too close to it would be very niave
When theres a crisis going on like the asian crisis in our backyard in the late 1990's do you expect that the NZD would handle if as well as a mature highly liquid market such as the US or europe. No, when crisis hits, every little related economy and its currency will be hit, and if China had a major shock tomorrow we'd take a hiding again. But on average in normal market conditions the NZD is hugely less volatile than when I was first around it in the earlier days. How will killing market liquidity assist that ?
It would have to be 1% of net gains, with a floor (opposite of cap) write off at 0%. (ie a net loss would be written off, not credited - making it a speculator risk).
1% in and of, itself is a huge amount in currency trade. Less than what retail banks charge, but that's why specialised firms operate such markets not retail banks. Probably most effective is put volume (of NZD) limit, make movers of that kind of volume register and declare daily.
I'm curious what the effect would have on our NZD, should trade demand fall? Would all those printed moneies, suddenly create flush at home, causing banks to rush to recover costs to meet budget.
Or would natural market forces grab the excess as the value (demand) dropped?
Grant A - I think its nuts to assume that NZ needs 2-3 trillion a month to produce sufficient liquidity in our currency. We do not. Enven so if 1% would be too much then 0.5% or whatever - the point being to drive away most of the volume so the RBNZ can then do something sensible about the exchange rate. That being the original point.
Ecomomist - reducing market liquidity does nothing to assist the FX market or the NZ economy
http://www.dummies.com/how-to/content/liquidity-and-the-foreign-exchang…
Please Google more and find some thing that says poor market liquidity is good for a currency market and economy. Change it to 0.5% then ? you're talking a market that almost trades with no spread these days, even 0.1% is a cavern
Its not market liquidity that drives a market in one direction but please explain if you think it does in itself. NZ is actually one of the more stable currencies around these days since its liquidity has improved so I'm not sure what your issue with the NZD is - is it just an attempted tax grab "don't tax me, don't tax you, tax the man behind the tree" type sentiment?
If its the level, tell me how reduced liquidity impacts that ? Look for other solutions because a FTT will dramatically reduce liquidity (i.e. kill the tranaction volume and attempted tax take accordingly), increase the volatility of the NZD, hurt importer and exporter market spreads, and impact inflation and interest rates. It would be a poor priece of policy making that, like most of the Greens policies, might sound creditable unless you actually understood the issues involved.
"Grant A
As you probably know already, a move of 1% in a day is not unusual for the NZD." - economist
Trading range for NZD on my screen looks like under 75-85c most days. Or around that number of less. Trading range marks a lot of transactions though. I think I follow what you're saying. The range of 1%, does of course change when the dollars at >80c USD, compared with when NZD < 50c USD
Never worked for a bank Grant A. But dealt with the dealers on the floor for 20+ years though as an actual customer (a real business needing fx).
I can tell you what the result of a fx tax would be of course - most of the fx transactions just would disappear, giving the RBNZ much greater say in the exchange rate, and the ability of GW to actually do something about it - which was my original point read in context.
We just disagree on the point - you think we need 100 billion turnover a day to provide enough liquidity to the market - I dont think we need anything like those figures, and if those figures were more like 20 billion a day the RBNZ would have a chance to move the market. At present GW is right - we just have to live with it.
IMO (very little experience) I think we need that in market capitalisation. That way there's width and depth to allow people to see greener grass on other parts of the market. the NZX and Debt grow so slowly with few reasons for medium traders to enter ino bidding wars. With more depth, there's more reason to build portfolios and trade things.
That's why I'm not keen on foreign *ownership*. Why would a foreign owner list on a NZ capital market? There's little free wealth in NZ, the costs and hurdles are high, the payoff "electric company low". Far better to let foreigners enter in at the market instrument level, and have NZ businesses run by NZers. Then profits and dividends have market value, not just back to owners. That includes interest, tickets, and discounts. Where the value of return is fixed, there is no tradability, and thus no market depth.
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