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Top 10 at 10: NZ household debt leverage near worst in world; Tobin tax possible?; Dilbert

Posted in News

Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments below or please send suggestions for Monday's Top 10 at 10 to bernard.hickey@interest.co.nz Dilbert.com 1. So we're OK then? - Reuven Glick and Kevin J. Lansin from the Federal Reserve Bank of San Francisco have written a paper on global household leverage, house prices and consumption that compares the effects of various bubbles bursting globally. They produced some great charts, one of which we've tweaked here to include New Zealand. It shows New Zealand households are much more indebted as a percentage of disposable incomes than the United States, the United Kingdom and Spain where housing prices have plunged. Here's what the Fed's experts say.

Going forward, the efforts of households in many countries to reduce their elevated debt loads via increased saving could result in sluggish recoveries of consumer spending. Higher saving rates and correspondingly lower rates of domestic consumption growth would mean that a larger share of GDP growth would need to come from business investment, net exports, or government spending. Debt reduction might also be accomplished via various forms of default, such as real estate short sales, foreclosures, and bankruptcies. But such deleveraging involves significant costs for consumers, including tax liabilities on forgiven debt, legal fees, and lower credit scores. As countries begin to emerge from the recession, it is important to consider what lessons might be learned for the conduct of policy. History suggests that asset price bubbles can be extraordinarily costly when accompanied by significant increases in borrowing. During the recent housing bubble, underwriting standards were weakened and credit extension rose at abnormally high rates, creating a self-reinforcing feedback loop that drove house prices upward. In the aftermath of a global boom-and-bust cycle in credit and housing, financial regulators should take the necessary steps to prevent a replay of this damaging episode.

This chart shows that the growth in our leverage was faster than in any other market that has since had a housing bust, yet we haven't had one....yet. We are extraordinarily lucky...

2. Chinese inflation - This is one global metric to keep an eye on. Figures out overnight show Chinese producer prices rose 4.3% in January from a year earlier, which is no doubt why the Chinese government is trying to cool some of the heat generated by a lending spree last year. They may have been quick enough on the brake, but it's a risk for the global economy and Australia in particular. Here's the NY Times' take on the jump.

The sudden acceleration partly reflected the very low level of commodity prices a year ago, during the depths of the global financial crisis, said Ben Simpfendorfer, an economist in the Hong Kong office of the Royal Bank of Scotland. But the rise in prices at the factory gate, together with a separate government announcement that bank lending had surged in January, indicated that China might be forced to continue tightening controls on bank lending, economists said. The Chinese government typically does this through some combination of administrative controls on the volume of bank loans and higher interest rates for bills issued by the central bank. Producer prices were up 4.3 percent in January from a year earlier, China's National Bureau of Statistics announced Thursday morning. In December, the increase from a year earlier was just 1.9 percent. As recently as last October, China was still suffering from gradual deflation at the producer level.

3. Value destruction rewarded - This is a fun piece of research by London thinktank NEF which showed investment bankers destroy 7 times as much value as they create, while hospital cleaners create 10 times as much value as they are paid. But the prize for the least value goes to tax accountants. They destroy 47 times as much value as they create. HT Arlyn Moleno via email.

A Bit Rich? demolishes a host of myths about pay and value. In particular, it challenges the claim that high pay does not matter so long as poverty is eradicated. High pay comes on the back of extraordinary profits, made possible because companies do not have to pay the full costs of their activities. Some of the costs of production may be hard to see, such as greenhouse gas emissions or the impacts of sweated labour, but someone is bearing them now - or in the future. A Bit Rich suggests that until the prices of goods and services reflects the true costs of their production, incentives will be misaligned. This means damaging activities will be relatively cheap and profitable, whilst positive activities will be discouraged.

4. Drain baby drain - The US Federal Reserve is preparing to withdraw the stimulus it pumped into financial markets through 2008 and 2009, including dumping a bunch of assets (toxic bonds and Treasuries) it has built up. The trouble is there is so much stuff clogging up its cupboards it is having to find a different class of buyer. Bloomberg has an exclusive that the Fed wants money market funds to buy its stuff. Essentially it is asking US savers to fund the US government deficit. Somewhere the parcel has to stop being passed along. The end result is rising interest rates globally.

The Federal Reserve is in talks with money-market mutual funds on agreements to help drain as much as $1 trillion from the financial system as policy makers prepare for the first interest-rate increase since June 2006, according to a person familiar with the discussions. The central bank is looking to the $3.2 trillion money- market mutual-fund industry because the 18 so-called primary dealers that trade directly with the Fed have a capacity limited to about $100 billion, estimates Joseph Abate, a money-market strategist at Barclays Capital in New York. The central bank has created more than $1 trillion in excess reserves in the banking system through its purchases of $300 billion of Treasury debt and $1.25 trillion of mortgage- backed securities. To put upward pressure on the federal funds rate, the Fed may need to drain as much as $800 billion, Abate estimates. One potential tightening tool is the interest rate on reserves that commercial banks keep on deposit at the Fed. By raising that rate, the central bank "will be able to put significant upward pressure on all short-term interest rates," Bernanke said.

5. Tobin Tax nearer - Gordon Brown reckons the G20 is close to agreeing on a global tax on banks, possibly similar to a Tobin Tax, the FT reports here. A lot of water has to go under the bridge, but something is brewing. I won't be holding my breath though. So many politically-well-connected vested interests are against this.

Mr Brown believes that opinion has shifted decisively in favour of a globally co-ordinated tax after President Barack Obama's move last month to raise $90bn (£57.7bn) from a US bank levy. The tax could cost the financial services sector tens of billions of pounds a year. The prime minister has strongly advocated some kind of charge on banks. "I'm interested in the way support is building up for international action," he said in an interview with the Financial Times. Last year, Mr Brown mooted a tax on bank transactions "“ a so-called Tobin tax "“ as one of a number of options to make sure the "contribution banks make to society is properly captured". The US immediately shot down that option, but the International Monetary Fund has been looking at other ideas. Mr Brown believes that the IMF will endorse a global bank levy before its April meeting in Washington.

6. What a US budget mess - Now it's hitting the states. The governor of New Jersey has declared a state of fiscal emergency that will allow him to freeze state government spending, Reuters reports. 7. What a Commercial Real Estate mess - The Congressional Oversight Panel have issued a report saying "The most serious wave of commercial real estate difficulties is just now beginning", FTAlphaville reports. Here's a few extracts from this report, which is a doozy and worth a read for those that way inclined.

Over the next few years, a wave of commercial real estate loan failures could threaten America"˜s already-weakened financial system. The Congressional Oversight Panel is deeply concerned that commercial loan losses could jeopardize the stability of many banks, particularly the nation"˜s mid-size and smaller banks, and that as the damage spreads beyond individual banks that it will contribute to prolonged weakness throughout the economy. Between 2010 and 2014, about US$1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at present "•underwater"– "“ that is, the borrower owes more than the underlying property is currently worth. Commercial property values have fallen more than 40 percent since the beginning of 2007. Increased vacancy rates, which now range from eight percent for multifamily housing to 18 percent for office buildings, and falling rents, which have declined 40 percent for office space and 33 percent for retail space, have exerted a powerful downward pressure on the value of commercial properties. The largest commercial real estate loan losses are projected for 2011 and beyond; losses at banks alone could range as high as US$200-US$300 billion. The stress tests conducted last year for 19 major financial institutions examined their capital reserves only through the end of 2010. Even more significantly, small and mid-sized banks were never subjected to any exercise comparable to the stress tests, despite the fact that small and mid-sized banks are proportionately even more exposed than their larger counterparts to commercial real estate loan losses. A significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American. Empty office complexes, hotels, and retail stores could lead directly to lost jobs. Foreclosures on apartment complexes could push families out of their residences, even if they had never missed a rent payment. Banks that suffer, or are afraid of suffering, commercial mortgage losses could grow even more reluctant to lend, which could in turn further reduce access to credit for more businesses and families and accelerate a negative economic cycle.

Double dip anyone? 8. The Greek mess - This piece in BusinessWeek (HT Troy Barsten) explains the Greek problem nicely. There isn't an easy way out.

At this point, Greece and the European Union have no good choices left. It's hard to see how Greece can muddle through on its own. On Feb. 10, striking labor unions shut down schools, hospitals, and air travel in a challenge to Prime Minister George Papandreou's austerity plan, which is intended to win back investors' confidence. Yiannis Kelekis, 68, a retired construction worker who joined a demonstration in rainy Athens, complained: "The people that caused the crisis are now asking for others to make sacrifices." Noting the range of opposition, investors have concluded that Greece needs outside assistance to avoid default. If the European Union refuses aid, the government could find itself unable to issue $26 billion worth of debt as scheduled this spring. A Greek default"”still considered highly unlikely"”might trigger a run on the debt of Portugal and Spain. Like Greece, they belong to the PIGS"”a name coined to describe Portugal, Ireland (and sometimes Italy), Greece, and Spain as the financial weaklings of Europe. "If Greece were alone in this, then possibly they would have been kicked out of the euro zone," says Diego Iscaro, economist at IHS Global Insight in London. "But they can't do that, because Greece is not alone." Stephen L. Jen, portfolio manager of BlueGold Capital Management, a London-based hedge fund manager, says German banks' exposure to debt of the five PIGS equals 19% of German GDP.

9. Totally irrelevant story - This one's all about scuba divers chasing a Google street view van down the street. There's more pictures with the link.

10. Totally irrelevant video - My favourite muppet is Beaker. Now he has his own Youtube video...enjoy...I think...HT Simon Young via Twitter

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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142 Comments

Beaker , huh ! Yes

Beaker , huh ! Yes , ......... well they do say that people's personalities match up with their favourite Muppet character ............Isn't that right , Animal ......... ah , sorry , Wally ? ...........[ Must go and find the Boom Boom , need to turn a cabbage into some brussel sprouts . ]

re #1. Finally we can

re #1. Finally we can be first at something all we need is another short spike in the housing market or a drop in disposable incomes and we will be FIRST. Take that Australia.

re #1. Finally we can

re #1. Finally we can be first at something all we need is another short spike in the housing market or a drop in disposable incomes and we will be FIRST. Take that Australia.
Thats 'Kiwi can do' in action

Hey RT...have you seen any

Hey RT...have you seen any info yet on this site..re getting deposits into aussie accounts and getting the rates on offer over there???? Looks like Bollard is set to run with the cheaper for even longer. Hasn't worked so far. Maybe he should reduce the ocr to minus 5%.

Who gets the money from

Who gets the money from a Tobin tax? Have the socialists found another potential source of other peoples money for more welfare schemes??

Wally,you must be making a

Wally,you must be making a killing on currency we are dropping like a rock against the Aussie, looks like we are going below .78 oil at close to 76 a barrel,the rest of us are going to have to toughen up.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7216363...

<b>Wally </b> : Some time

Wally : Some time ago either Alex or Beaker replied to your original question . If mammary serves , they didn't have a complete answer for you . ........ . And now they're too distracted with GQ magizines & the new cute little hottie in the office , Gareth .............Haaaaaaaaaa !

re#1 We are not "lucky".

re#1 We are not "lucky". Most mortgage debtors are hanging by their fingernails. If the capital values don't increase by the end of this year and allow them to realise a capital gain to top up their loan deficit, most will go belly up.

Wait till interest rates goes even higher....and it will because there is no escape from higher rates from now on.

Bernard, <blockquote> From #1: This

Bernard,

From #1:
This chart shows that the growth in our leverage was faster than in any other market that has since had a housing bust, yet we haven't had one"¦.yet. We are extraordinarily lucky"¦

Of course we are not lucky, and I think you understand that. The countries that are the most deluded about their 'unique' circumstances and last to adapt to the new economic reality will be those who suffer the worst and recover last.

RC I would be not

RC I would be not too concerned about socialists, I would be more concernced about free wheeling capitalists who with the attitude of who cares about how much debt we inccur have caused this crisis. And who will benefit from this but the same free wheeling capitalists who set this giant Ponzi scheme up in the first place. Communisim and extreme unfettered capitalism are the same thing! CONTROL BY A FEW

PeterR - I think the key word is YET

#1 interesting stats but in

#1 interesting stats but in order to get a real measure of what's happening in an economy you need to look at more than one measure.
Note that we are very close to Oz in percent terms - both just above 150% and Italy is well under 50% yet I would much rather be in the down under shoes than theirs. Also Japan - renowned for their savings habits over many years - yet their economy is still deflating despite zero interest rates.
And Spain now one of the PIIGS reputedly in significant bother - unemployment about double ours and where house prices have really gone bust.
Yet Denmark isnt in as much bother as far as I am aware but its ratio is awful ie worse than ours.

Oh true enough AJ but

Oh true enough AJ but fx gains are to be treated as cream on a cake and you know what too much cream does to you!

Sean. <blockquote> PeterR – I

Sean.

PeterR "“ I think the key word is YET

Indeed. And in the meantime we keep digging - borrowing, stimulating the economy and, to quote Bill English, 'preserving entitlements'.

Agreed, TrevorS, and this from

Agreed, TrevorS, and this from my post on another thread today. Note Italy is FAR HIGHER than what the official figure is quoted as.

"Last night the( French Bank) Societe Generale "¦put out a frightening estimate of the real liabilities of western governments. Greece is by far the worst "¦Its total net liabilities are about 800 per cent of GDP "“ eight times the official position"¦.Soc Gen's figures for the others (per cent of GDP): US 550, UK 400, Germany 400, France 550, Italy 350 and Spain 250. In other words, the entire western world is insolvent and each country is facing its own day of reckoning.."

Well, you can for instance

Well, you can for instance justify higher household debt to disposible income through lower interest rates....

....except we have higher ones.

Honestly its such a scary statistic.

Can someone can help me

Can someone can help me understand this...

The Aussie economy is doing relatively well, they are our closest neighbour - surely we export a bit of stuff to them, that combined with the NZD being so weak relative to the AUD so surely this has to be good for NZ?

Why are we not hearing about this? Or have we just "missed the boat" and missed that opportunity to open up bigger markets in Australia?

@ rc and sean It

@ rc and sean

It doesn't matter whether it's dirty pinko socialists or filthy capitalist pigs, the fact is that when wealth inequality grows (currently the highest it's ever been) we get a growth in social problems. Crime, suicide, violence, obesity, social alienation, poor health, poor education are all linked to poverty and it's naive to think that if you are rich you can escape this. Poor people rob rich people. Show me a 30 foot wall and i'll show you a 31 foot ladder.

Sadly I think this week it was confirmed that our Govt are not looking for change, they are looking to perpetuate this mess.

#1 - insightful chart. In

#1 - insightful chart.

In addition to NZ having the greatest % increase a few other things jump out.

a - Why is Denmark top and Norway up there as well? These countries normally set records for social equality, happiness and all round goody tooshooness. What's the story with Denmark?

b - Italy is bottom by a long way. Kinda makes me wonder why its always chucked in with other supposed basket cases aka the "Piigs". I think just looking at the headline national govt indebtedness levels can be misleading. In my travels in Europe Italy was the most civilized place by a long way.

<i>It shows New Zealand households

It shows New Zealand households are much more indebted as a percentage of disposable incomes than the United States

And raise the GST we'll be even more indebted again. And worse, come July this year household energy costs will all rise by a 'step' on the back of NZ's idiotic ETS. It's stunning after the Warmists argument is melting more quickly than the polar ice cap (which is not melting at all) that our moronic and irresponsible leaders still plan to heap this load of BS upon household disposable incomes.

There are some in the world who are starting to open their eyes to the economy crippling effects of cap and trade:

Citing financial worries, the State of Arizona has backed out of a broad regional effort to limit greenhouse gas emissions in the West through a cap-and-trade system.

In an executive order issued last week, Gov. Jan Brewer, a Republican, said a cap-and-trade system "” which would impose mandatory caps on emissions and allow pollution credits to be traded among companies "” would cripple Arizona's economy.

http://www.nytimes.com/2010/02/12/science/earth/12climate.html?src=twt&t...

Our leaders, however, are not amongst the wise, and again, we taxpayers shall pay for their stupidity.

#1 - You dropped Portugal

#1 - You dropped Portugal from the chart - eyeballing it and they seemed to have at least as great a increase as NZ (~ 150%).

Shame you didn't add NZ to the other charts. I'm not sure I'm convince by their regression in figure 3. It seems to imply a correlation between leverage vs house price increases. If you drop Japan and Germany from the data, then that correlation becomes less clear. Dropping G/J from Figure 4 does not look to have the same effect.

Big conclusions should require more detailed data analysis.

FYI. Hunting out some detail and here is the info for NZ: Medium household after tax income of 62.5k [1] in 2007, and the household debt ratio [2].

[1] http://en.wikipedia.org/wiki/Median_household_income_in_Australia_and_Ne...
[2] http://www.rbnz.govt.nz/keygraphs/fig5.html

The curious thing about NZ

The curious thing about NZ credit figures is the 2000 - 2008 period is that lending against housing increased sharply while home ownership rates among housing markets declined. The logical explanation is that landlords were winning the auctions - well, you can hardly blame them since the NZ tax system excessively penalises lenders and excessively subsidises those who borrow to buy assets. As a result, the link between housing credit and consumption may be a bit different in NZ than elsewhere.

Housing credit figures are very difficult to interpret. A one-off increase in house prices should lead to a 25 year increase in mortgage credit, because each new first-time buyer has a bigger mortgage than the mortgage of the previous cohort of new first-time buyers is paying off. This means the change in credit that occurs in any particular year can reflect a very long history. If credit falls after a big increase in house prices, it normally means volumes are contracting very rapidly.

The “steps” the government has

The "steps" the government has initiated clearly show the leaders underestimate the worldwide economic, political, environmental and social problems and correlations and therefore don't consider enough the negative consequences for New Zealand(er's).

By the way listening to "debates" in the parliament = Kindergarten - in stead of working as a unity on contingency plans for NZ.

Please read/ understand this article in context with my many others.

Walter

Mobile network provider <b>2 Degrees</b>

Mobile network provider 2 Degrees has signed up 206 000 users over the last 6 months . By comparison , Vodafone has added 9000 to it's network . And Telecom with XT has added 60 000 [ - Don't you feel like silly gooses , now ! ]

Are you implying, AndrewC -

Are you implying, AndrewC - 3.22pm, that increased lending against housing 2000-08 could have also been used in non-house purchasing? ie: equity withdrawal to fund other life needs/asset purchases? And if so, could your stated 'credit fall after a house price rise = lower volumes' mean that the housing market has just about exhasted its capacilty to further fund living cost, or otherwise? In which case have we now entered the time when it's the house itself that has to be sold to sustain living costs, not just 'another trip to the bank for top-up'?

Or people's appetite to take

Or people's appetite to take on debt for that reason has stopped (slightly different than the banks not lending).

#1. Graph pretty much says

#1. Graph pretty much says it all. Add to that rising household costs, prospect of future rate increases, and the screws are slowly tightening.

Also interesting (as noted above) the NZD/AUD drifting lower. IMO the NZD is on a long term decline against the AUD, will be interesting to see if it can bounce off support at 0.77 this time, or maybe as the gap is getting wider this level make breakdown for further lows.

At least (on this articles

I can't believe all these

I can't believe all these idiots who want GST raised.

It should left as is or lowered to 10% and all other taxes reduced. Working for other people's families scrapped and having a balanced government budget should be a constitutional requirement.

Key is an idiot.

@NevilleWC ,you are correct our

@NevilleWC ,you are correct our sovereign debt isn't too bad. Im glad that Key and co are onto that as we speak,I assure you they will rectify it pronto.

<b>Nick</b> : That's a bit

Nick : That's a bit rude to say that " Key is an idiot " .............. Be fair , he is only one of many . We have a proud history of politicians past & present who were/are idiots . Credit where it's due , dude .

They are not so much

They are not so much Idiots as just plain old stupid.

http://www.cantrip.org/stupidity.html?seenIEPage=1

@Nicholas Arrand, "another trip to

@Nicholas Arrand,

"another trip to the bank for top-up?".
Could this being exacerbated by the regular need to 'renegotiate' mortgages
e.g 'should I fix, or go variable this time'.

No insult intended to the advertisers - I need mortgage too.

Germany balks on Greece, Angela

Germany balks on Greece,

Angela Merkel, the German chancellor, mounted stiff resistance tonight to any swift bailout of Greece, as a rift opened up between European capitals over how best to tackle the risks posed to the euro. Despite a show of Franco-German unity on the crisis and the first statement from EU leaders pledging to safeguard the currency's stability, hopes on the markets of a German-led rescue plan to shore up Greece's critical public finances were dashed by Merkel, who repeatedly emphasised that Athens would need to put its own house in order and brushed aside all questions of financial support.

http://market-ticker.denninger.net/archives/1961-Angela-Merkel-Clanks-Wh...

Our our debt figures just

Our our debt figures just for those with mortgages or in total ie all households ?

On Greece Stiglitz says that

On Greece

Stiglitz says that betting on a default is absurd. Hendry is betting on exactly that happening in Greece.

From Hendry's opening line you can tell this is going to be a good fight:

http://www.businessinsider.com/watch-hedge-funder-hugh-hendry-say-he-wan...

ho gets hurt if Greece

On youth unemployment David Lowe

On youth unemployment David Lowe ( EMA ) says : " Youth rates prove value after all . The abolition of youth rates was a fair weather idea ( Labour government ) . Youth unemployment has rocketed in the last 12 months from 17.9 % to 26.5 % . Now it's pretty obvious why we had youth rates in the first place ! "

www.ema.co.nz/News_02_12_2010.htm

And Australia is just 2-3 hours away . Ticket , anyone ?

The Club of Rome pointed

The Club of Rome pointed out that indebted societies would be in trouble, and approximately when.

Back in 1970, they did that - not much time for the lassez faire mob to get their heads around it, I know.

What is unfolding now would be funny if it were not so tragic, and so provably inevitable.

They continue to duck and weave though. Think Key is being populist? Read David Cunliffes 'opinion piece' in the ODT yesterday. I've never seen so many words all together in the one place, saying so little.

…and as long as politicians

"¦and as long as politicians example David Cunliffes don't debate with others in this blog he shouldn't be allowed to write Labour Party propaganda articles here.

Mr John Key - Radio

Mr John Key - Radio NZ 'Focus On Politics'. @6.30

Why GST works, and other insights

Can't quite scrape the link together properly yet. I'll keep trying.

Better than all this aimless blogging
quite liked his style actually.

http://www.radionz.co.nz/national/programmes/focusonpolitics

David Cunliffe : " Labour

David Cunliffe : " Labour believes tax change must meet three tests . It must be fair to all , grow the real economy , and be politically sustainable . "

Now , DC , only the first two of your " tests " mean anything to the public . And you utterly failed on them , for 9 years . The government that you were in bollixed a reasonable taxation system . And that was 'cos the power 3 ( Helen , Heather , & Michael ) were obsessed with test # 3 , political sustainability .

No offence DC , but we don't give a rat's poo about your political sustainability . We have paid a high price , as a country , for you lot to stay in power . We care about the citizenry as a whole , the people in the street , not you overblown egotistical snouts-in-the-trough manipulating smart-arse know-it-alls .

Peace !

Alan Kohler over at the

Alan Kohler over at the Business Spectator (Oz) : " The Great Reckoning Begins ", has a lash at western governments and their stimulus packages . Have a stiff whisky before reading the sovereign debt / GDP % of many countries , particularly once unfunded pensions are factored in .

[ sorry , had to delete link , as it's not opening page ]

Here we go - a

Here we go - a podcast.

http://www.radionz.co.nz/podcasts/focusonpolitics.rss

Focus On Politics for Friday 12 February 2010

'In his statement to Parliament this week, the Prime Minister signalled the Government would raise the tax on goods and services but cut personal tax rates. The proposal has prompted strong political debate, with the Government's ally the Maori Party saying it has serious reservations about the intention to raise GST to 15 percent'

I have no political affiliations.

'I don't care to belong to a club that accepts people like me as members.'
---Marx (Groucho)

Ian C: The banks are

Ian C: The banks are lending, and recklessly still. Here's a bit of anecdotal evidence. A couple of weeks ago I went to my big friendly Aussie and asked for a reckless 500-buck increase in my credit limit to 2000. " Are you sure?" asked the nice young man. "I don't think it's that big an ask," I said defensively. " Oh no, I mean is that all you want." " How much would you give me?" "Definitely $10,000. Maybe more." The banks have learned their lessons well: we got away with it last time and the starter's gun has gone again.
.

The figures are just out

The figures are just out for Germany - no growth at all for Q4.

The NZ household debt may

The NZ household debt may be higher than most but the assets owned may be higher ie has NZ a higher ratio of property owners than many European countries? Would this explain why NZ is not in the dire situation as much as some others?

NZ is better off because.

NZ is better off because.

1/ Most of the household debt is in Mortgages, with a much lower amount in Consumer debt - CC, HP, Car loans (mortgages $166b consumer $12b, consumer debt is 7% of personal debt in NZ, 15% in USA ).
Mortgages are easier to service because they are repayable over 20-30yrs and have lower interest.

2/ NZ banks didn't securitize the debts (fancy name for pass the parcel) so they generally lent to people who they thought could repay and didn't do fancy loans like 'liar loans' (unverified income) Alt-a (low repayments for the first 3 yrs as the accrued interest is added to the loan) and ninja (no income,no job, no assets -deposit)

3/ Didn't do non recourse loans - ie you are personally liable to the bank for any money after the house is sold at a mortgagee sale.

4/ I think a portion of mortgages are financing small businesses, so household debt is overstated because in other countries it would show up as business debt

What might of been the

re 1. I am pretty

re 1. I am pretty sure those figures are gross debt, nett for financial assets and it will look much worse for NZ.
For example the number one in that graph, Denmark, has private pension savings of over NZD 125,000 per man, woman and child. The figure in NZ is under NZD15,000.

Correct Expat, trouble is most

Correct Expat, trouble is most of those pension funds "assets" are ownership of unpayable debt, thats the simple reality of our ponzi financial system.
If you go to the reserve banks website you can see it all in gory detail, decades of debt expansion at double digit annual rates. And it's global. The pension funds and their boomer clients are in just as big a mess as the debtors they've backed.

We're so screwed.

http://www.rbnz.govt.nz/statistics/monfin/RegBanksNBLIs/3822930.html

Download C5 sector credit historic series

It seems it's been a

It seems it's been a week for stupidity in all sorts of 'places' not just parliament,

http://www.stuff.co.nz/the-press/entertainment/3323077/Sandra-Bullock-bu...

Iain Parker Hi Iain Im

Iain Parker

Hi Iain Im trying to get my head around this

Fractional Reserve Banking means that loans are never greater than deposits. Even with this mechanism you can achieve Money Multiplier of any arbitrary high figure, 100, 1000, 10000 and so on which would be reckless.

Depleting Reserve Banking means that there is no upper limit on Money Multiplier and it keeps on increasing at exponential pace to infinity.

http://gregpytel.blogspot.com/2009/09/narrow-banking-barking-up-wrong-tr...

Key is an idiot Not

Key is an idiot
Not so. He is simply doing what politicians do. Keep their powder dry in case they get the chance to make the really needed changes. But it is a political decision meaning that it depends on voters. So the real issue is that voters are mostly idiots or rather ignorant of the issues. They would rather watch rugby or other sport, go see friends or family, etc,etc [who can blame them] and see all this as too complicated and not very interesting.
How do you educate the voters on economic reality?

Mr Market knows how Miles!

Mr Market knows how Miles!

Designed for Australian and New

Designed for Australian and New Zealand small businesses, affordable, easy to use and secure. Real Estate

Wally - no, mr market

Wally - no, mr market is the dumbest non-thinker of the lot. Totally reactive, never learning, always assuming. The man asked how we educate, not how we dumb-down.

Real Estate - until someone comes along with a gun and a supply of Zyclon B, muttering about living space for the common people! :)

Andrew J - when it crashes, the residual debt (it'll only be numbers on a spreadsheet) will in a strangely poetic way, equate to the cumulative pollution, extraction and degradation thus far.

Whether anyone has the spare intellectual time to investigate the connection at that point, is moot.

No university in the Thunderdome.......

The fictional reserve system -

The fictional reserve system - I love it!

:-)

"This chart shows that the

"This chart shows that the growth in our leverage was faster than in any other market that has since had a housing bust, yet we haven't had one"¦.yet. We are extraordinarily lucky"¦"

"yet" being the right word. We will, when those aussie banks have to start paying their investment bonds back

Roger Thompson Says: February 12th,

Roger Thompson Says:
February 12th, 2010 at 7:19 pm

David Cunliffe : " Labour believes tax change must meet three tests . It must be fair to all , grow the real economy , and be politically sustainable . "

Now , DC , only the first two of your " tests " mean anything to the public . And you utterly failed on them , for 9 years

Yes! Finally someone yells "hypocite"

They would rather watch rugby

They would rather watch rugby or other sport, go see friends or family, etc,etc [who can blame them] and see all this as too complicated and not very interesting.
How do you educate the voters on economic reality?

You tell them in 'plain english' Miles. You tell them "we are f...ed" and THEN watch the heads turn.

Why is Iceland not on

Why is Iceland not on the above graph?

Les , What was Westpacs

Les , What was Westpacs loan ratio before they were forced to lower it?

as example to have 10% fractional-reserve banking i.e.loan to deposit ratio must be 90%; to have 25% fractional-reserve banking i.e. £1 cash has to "serve" £4 on the balance sheets liabilities, loan to deposit ratio must be 75%; to have 50% fractional-reserve banking i.e. £1 cash has to "serve" £2 on the balance sheets liabilities, loan to deposit ratio must be 50%; and incidentally to have 100% fractional-reserve banking i.e. £1 cash has to "serve" £1 on the balance sheets liabilities, loan to deposit ratio must be 0%.

depleting reserves banking, i.e. banks lend with loan to deposit ratio above 100%, not do they not accumulate any cash reserves, but they deplete the existing reserves, a liquidity risk is 100% in a finite time (the growth of balance sheets to underlying liquidity is exponential, therefore it is a very short time indeed). Depleting reserves banking amount to a classic and rudimentary example of a pyramid scheme.

northern rock was %337 fractional reserve banking

Interest rates on government debt

Interest rates on government debt set to double in this decade:

http://www.telegraph.co.uk/finance/economics/interestrates/7215330/Inter...

No prizes for where mortate rates etc are going then. Must rush out and get me some more debt............

Check out the citibank offer

Check out the citibank offer on credit card debt!!!!!
That's a fearful headline AH. Borrow all you can...don't want to miss the sinking ship.

''According to Tim Bond, of

''According to Tim Bond, of Barclays Capital, the increase in yields will be a direct result of the sharp increases in government deficits likely as the populations of Western economies age, and older workers retire, dampening broader growth.

"We are moving from a world of capital abundance to a world of capital scarcity and scarcity of savings. From here on yields should probably double over the next decade," he said. "This will happen as pensions liabilities come due, and as there is decreasing savings to support the economy.

You can't really fault the logic can you?

Still in Pommyland - while

Still in Pommyland - while we debate GST moving to 15% over there both main parties are cogitating on a move on their version of GST (VAT) from 17.5 to 20% in order to tackle their massive budget deficit crisis:

http://www.timesonline.co.uk/tol/news/politics/article7025833.ece

Marvellous - to try and pay some of the debt down accrued as part of the various bank rescues/stimulus packages the poor old UK taxpayer will now have to pay up extra. This is what is meant by the 'socializing the debt' part of the well known phrase: 'privatizing the profits and socializing the debt'.

Pump the crude, mine the

Pump the crude, mine the coal (selling to China), scrap MMP. No GST on food, power or rates. Flat single rate of tax 25%

Minimum income level before any form of tax taken set at $ 20,000 and indexed each year to RIP.

Freeze WFF (which is generous as the logic of it would be if they go up when GST goes up then surely the reverse applies)

My new political party start 1 March any takers?

.................. [ ............. sound of

.................. [ ............. sound of wind rustling leaves............. a tumbleweed rolls down an empty street ................. then an eerie silence ............... an owl hoots ! ......... a wildcat growls ............. silence .............. ] ..................

"re #1. Finally we can

"re #1. Finally we can be first at something all we need is another short spike in the housing market or a drop in disposable incomes and we will be FIRST. Take that Australia."

Yeah... suffer in your jocks!

Property investors 'go east young

Property investors 'go east young man'

Bloomberg: "China, the world's second-largest energy consumer, set a January record for crude oil imports as a recovering economy bolstered demand for fuels. Shipments reached 17.1 million metric tons last month"¦33% more than the year- earlier month."

China's bank loans expanded $202bn "“ in January. This must be the greatest month of loan growth for a national banking system in the history of mankind. On the back of about $1.3 TN of loan expansion, Chinese home prices were up 9.5% y-o-y. January crude imports were up 33% y-o-y, while copper imports were up 25% y-o-y. January power consumption was up 40% from a year earlier (against a weak comparison). With GDP and real estate prices expanding at around double-digit rates, one would typically expect policymakers to be preparing to slam on the brakes. These are atypical times.

AH: the UK VAT system

AH: the UK VAT system is 3 tiered: There are currently three rates of VAT; standard rate (17.5% - which is charged on the provision of most goods and services), zero rate (0% - which is charged on food, books and children's clothing) and reduced rate charged on fuel (5%).

If GST was removed from food everyone would benefit. Likewise with reduced gst for fuel - many families would be better off too. However can't see anyone being brave enuf to do it here.

Yup - this is the

Yup - this is the end of the road. Used to be up Takaka way - AA sign said "End of Road" and under that said "No Exit'. (what else?)

You've only got to look at the rapid recovery of scrap prices to see the problem.

Those of us who came at it from a physics angle, expected a mighty crash after peak supply of an irreplaceable essential - and had our money (figuratively speaking) on oil.

What we understand now, is that the economists don't understand ultimate, irreplaceable and exponential demand. They just look to very recent history, and project more of the same. Quite a reassuring approach, really - on that basis I will live forever........

So we thought about it: There has to be a series of 'efforts' from here on in, and each time the ceiling will be lower. How many rev-ups can be attempted before the plebs catch on is moot, as is the question of where/how the social angst will erupt when they find hope missing from Pandora's box.

There is historical precedend for societies following trumped-up creeds/religions/cults, every era has had it's high priests and it's witch doctors, ours just had a blind faith in economists. Heck, we listened to them on science, rather than to the scientists...then Sainsbury polled the idiot population, who voted with their back pockets - impact thereon.

Economists, of course, don't have the tools, training or thoughs to see where this is going. Reminds me of the fellow defending White Star Line property, on a slanting deck.

No-more-than-replacement population is the first start, then proper accounting of Natural Capital - not just the extractive cost. Needs a step-shift - now where have I heard that before :)

Almostcertainly too late, but. Your lifejacket is under your seat.

And off we go..... @casual

And off we go.....

@casual observer

"zero rate (0% "“ which is charged on food, books and children's clothing)"

Clever eh!

The food is a real sod to get right when calculating 'ingredient' costs (for 'value added food items')

Maybe best, if someone wanted to attempt it, (as has been suggested before), to only 'zero rate' those food items that we could reasonably classify as 'raw ingredients' e.g, milk, meat, fruit, veg. Let the others increase. Keep it simpler.

Quite useful that we have a lot of 'unprocessed' items on our supermarket shelves, and produce them here!

I'd love to know what the GST take is from 'food' at the moment.
It may be too major an item of tax revenue to be able to remove easily.

Books..... well now.

@Casual observer - I'm not

@Casual observer - I'm not so sure we want to remove GST from food... higher GST encourages people to start growing their own, where they can.... that could be helpful.

Upping GST has to soak

Upping GST has to soak up consumption - bloody good start.

What would the cost of

What would the cost of petrol be , if we took all the excise duties off it , and just charged the GST ? Could be a knock-on effect of reducing cost of production/ transport , which will benefit consumers and producers alike .

Mouse I am self sufficient

Mouse I am self sufficient in meat and most vege but I still have to buy food. I am aware of increased numbers growing their own vege (especially among the younger families) but if the average family spends $180 a week on food (a guestimate) and no gst was charged on it then there would be a saving to the family of $20 pw. For some families that will make a significant difference to their budget.

here's a link to Otago Uni's 2009 Food Cost Summary for a healthyl diet. Now I am sure we both know that not every family eats a nutritional diet, but in utopia they all would :-)
http://nutrition.otago.ac.nz/consultancy/foodcostsurvey

rt --excise is 56c a

rt --excise is 56c a litre---so it would pull it back to about a buck before gst
http://www.med.govt.nz/templates/Page____12961.aspx

Our local Palmers Garden Centre

Our local Palmers Garden Centre is making space available for allotments. Not sure what the criteria is for getting a plot, but they will be providing seed/plants at low or no cost. Will be interesting to see how it goes.

----------------------------------------------------------------

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Today's Stock Market Report

Helium was up, feathers were down. Paper was stationary.

Fluorescent tubing was dimmed in light trading. Knives were up sharply.

Cows steered into a bull market. Pencils lost a few points.

Hiking equipment was trailing.

Elevators rose, while escalators continued their slow decline.

Weights were up in heavy trading.

Light switches were off.

Mining equipment hit rock bottom. Diapers remain unchanged.

Shipping lines stayed at an even keel.

The market for raisins dried up.

Coca Cola fizzled.

Caterpillar stock inched up a bit.

Sun peaked at midday.

Balloon prices were inflated.

And Scott Tissue touched a new bottom.

And batteries exploded in an attempt to recharge the market...

and one of my favourites:

Last night I played a blank tape at full blast. The mime next door went nuts.
__________________

I wondered who that was.

I wondered who that was.

are you onto the name?

are you onto the name?

Man walks into a bar

Man walks into a bar looking for his mate Mike Hunt - he asks barman to page him ie "Has anyone seen Mike Hunt" LOL!

Sound's like Bart Simpson giving

Sound's like Bart Simpson giving Mo a crank call at Mo's Tavern :. " Hey you guys , shut up , I'm looking for Amanda ........last name Kissinghug . Hey I want Amanda Kissinghug .............."

Stephanie Flaunders at the BBC

Stephanie Flaunders at the BBC beautifully nutshells the Greek issue in relation to Europe and the UK as a whole.
http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/

...extrapolating from above, a couple of important points I would like to ask
1) what is the average maturity of NZ's sovereign debt?
2) what is the servicing cost of said debt expressed as a percentage of GDP?

I'm sure this would have been explored somewhere on this site. Can anyone provide me with a link?
On household debt ... is NZ extraordinarily lucky or extraordinarily vulnerable? It's a matter of perspective I guess.

as polite society appears to

as polite society appears to have evaporated in the wee hours of NZ's non mediated blogisphere.
...if German Banks are referring to their exposure as 'PIIGS'. I imagine that Oz banks must terrifyingly recognise their Achillies heel as 'Can't Underestimate Nz Tax System'

Well if the team can't

Well if the team can't go a little off the rails at 12 / 1 /or 2 a.m. , just when can they ?

Polite society , Mary Poppins !

Can't Understand Nerds Talking S**t

I guess things get lost

I guess things get lost on people if they are sleep deprived. Or pehaps the sugar and colouring hit is wearing off?

I've heard that studying for

I've heard that studying for a real estate license can be quite tough...

..tough and/or brain numbing :-)

..tough and/or brain numbing :-)

Meanwhile , beavering away at

Meanwhile , beavering away at 4 a.m. one B.Hickey has produced this : Key sidesteps tough tax reform decision. for the NZ Harold . Yet again , this raving loonie ( is that right , Aaron ? ) is attacking the gumnut for not truely rebalancing the NZ economy away from real estate , and toward production . This mad crazy extremist weirdo concludes : " Little will have changed . We will continue to leak our best and brightest , leaving in their wake a hollowed out economy filled with retiree landlords , beneficiaries and immigrants . "

Back to more serious matters

Back to more serious matters , Moe's Tavern : " Hi is Mike there ? Last name , Rotch . "

" Hold on ............. Mike Rotch ! Mike Rotch ! Hey has anybody seen Mike Rotch lately ? "

Les and Iain Ive been

Les and Iain
Ive been trying harder to get my head around the banking fraud,this from Greg Pytel helped;
Sunday morning brain fodder

Example/exercise - how does it work?

For those who cannot visualise how lending with loan to deposit ratio above 100% pumps out cash of bank reserves and creates a financial pyramid below is a simplified example based on two banks financial system. Please go with pen and paper line by line and follow the growth of bogus balance sheets.

1. Two Banks A and B are set up. Both have zero on deposit and loan books. Bank A has $104.91 and Bank B has 166.38 cash reserves. They have no non-cash reserves. Both decide to lend with loan to deposit ratio (L/D) 130%. i.e.

Bank A:
- Capital reserves: $104.91 cash and $0 non-cash
- Deposits: $0
- Loans: $0

Bank B:
- Capital reserves: $166.38 cash and $0 non-cash
- Deposits: $0
- Loans: $0

2. Bank A takes $100 as deposit and decides to lend $130 (i.e. at L/D 130%). This loan (as all other loans in this example/exercise) are mortgages secured on residential properties. Bank A decides not to deplete its own cash reserves but borrow additional $30 from Bank B. Bank B considers this loan from its reserves with risk 50% and Bank A also considers the $130 loan with the risk 50%. (In fact both loans can be deemed as secured on properties, so 50% is in compliance with Basel.)

Therefore the both banks' books look as follows:

Bank A:
- Capital reserves: $104.91 cash and $65 (i.e. $130 x 50%) non-cash
- Deposits: $100
- Loans: $130

Bank B:
- Capital reserves: $136.38 (i.e. $166.38 - $30) cash and $15 (i.e. $30 x 50%) non-cash
- Deposits: $0
- Loans: $0

3. Someone who took $130 loan from Bank A paid it to Bank B. The Bank B decided to lend $169 (i.e. at L/D 130%) not depleting its own cash reserves. It borrows additional $39 from Bank A. Bank A considers this loan from its reserves with risk 50% and Bank B also considers the loan of $169 with the risk 50%.

Therefore the both banks' books look as follows:

Bank A:
- Capital reserves: $65.91 (i.e. $104.91 - $39) cash and $84.5 (i.e. $65 + $39*50%) non-cash
- Deposits: $100
- Loans: $130

Bank B:
- Capital reserves: $136.38 cash and $99.50 (i.e. $15 + $169*50%) non-cash
- Deposits: $130
- Loans: $169

4. Bank A takes $169 (lent by Bank B) as deposit and decides to lend $219.70 (i.e. at L/D 130%). Bank A decides not to deplete its own cash reserves but borrow additional $50.70 from Bank B. Bank B considers this loan from its reserves with risk 50% and Bank A also considers the $219.70 loan with the risk 50%.

Therefore the both banks' books look as follows:

Bank A:
- Capital reserves: $65.91 cash and $194.35 (i.e. $84.5 + $219.70*50%) non-cash
- Deposits: $269 (i.e. $100 + $169)
- Loans: $349.70 (i.e. $130 + $219.70)

Bank B:
- Capital reserves: $85.68 (i.e. $136.38 - $50.70) cash and $124.85 (i.e. $99.50 +$50.70*50%) non-cash
- Deposits: $130
- Loans: $169

5. Bank B takes $219.70 (lent by Bank A) as deposit and decides to lend $285.61 (i.e. at L/D 130%) not depleting its own cash reserves. It borrows additional $65.91 from Bank A. Bank A considers this loan from its reserves with risk 50% and Bank B also considers the loan of $285.61 with the risk 50%.

Therefore the both banks' books look as follows:

Bank A:
- Capital reserves: $0.00 (i.e. $65.91 - $65.91) - cash and $227.30 (i.e. $194.35 + $65.91*50%) "“ non-cash
- Deposits: $269
- Loans: $349.70

Bank B:
- Capital reserves: $85.68 cash and $267.65 (i.e. $124.85 + $285.61*50%) "“ non-cash
- Deposits: $349.70 (i.e. $219.70 + $130)
- Loans: $454.61 (i.e. $285.61 + $169)

6. Bank A takes $285.61 as deposit and decides to lend $371.29 (i.e. at L/D 130%). Bank A decides not to deplete its own cash reserves but borrow additional $85.68 from Bank B. Bank B considers this loan from its reserves with risk 50% and Bank A also considers the $371.29 loan with the risk 50%.

Therefore the both banks' books look as follows:

Bank A:
- Capital reserves: $0.00 - cash and $412.94 (i.e. $227.30 + $371.29*50%) "“ non-cash
- Deposits: $554.61 (i.e. $285.61 + $269)
- Loans: $720.99 (i.e. $349.70 + $371.29)

Bank B:
- Capital reserves: $0.00 (i.e. $85.68 - $85.68) cash and $310.49 (i.e. $267.65 + $85.68*50%) - non-cash
- Deposits: $349.70
- Loans: $454.61

7. After these operations the system looks like:

- cash taken from the banks is the last loan: $371.29

- cash reserves held by both banks is $0.00 (i.e. no cash reserves - cash is gone from the banks)
- non-cash reserves: $723.43
- combined reserves: $723.43

- deposits: $904.31
- loans: $1,175.60 borrowed to pay for assets (which were booked with 50% risk discount as banks capital).

Having started with $271.29 reserves (Bank A $104.91 plus Bank B $166.38) and $100 initial deposit, the Banks A and B have no cash any more. If someone who is paid with the last loan of $371.29 keeps it as cash, he can start cherry picking the assets. They all cost $1,175.60 to buy. As, apart from his $371.29, there is no liquidity on the market, he can drive the price of the assets down (making them crash) and drive banks into bankruptcy (unless a government bails them out :-)

The loan to deposit ratio above 100% destroys banks' cash reserves pushing liquidity on the market, inflating the assets price and ballooning the balance sheets, whilst below 100% cash reserves are guaranteed. However, on the books in this example, the banks' $723.43 non-cash booked reserves to $904.31 deposits look extremely healthy. Unfortunately the assets booked at $723.43 have very little value. As there is no more liquidity their price goes to the floor: they become toxic assets.

Fractional Reserve Banking means that loans are never greater than deposits. Even with this mechanism you can achieve Money Multiplier of any arbitrary high figure, 100, 1000, 10000 and so on which would be reckless.

Depleting Reserve Banking means that there is no upper limit on Money Multiplier and it keeps on increasing at exponential pace to infinity.

Please read: http://gregpytel.blogspot.com/2009/09/narrow-banking-barking-up-wrong-tr... very

Dear oh dear , that

Dear oh dear , that Hickey fellow is now on RadioSlave , having a crack at wee Jonny Key . Tch tch . That guy , Bernie , is a maniac ! He really wants a land tax . .............. Hope for you property spruikers that BH never runs for P.M. !

Andrewj - I know, it's

Andrewj - I know, it's a shocker when the penny drops. (Perhaps not a great turn of phrase!)

Roger - I worked at a place once that had a tanoy system. Telephonists put calls out for folk and we'd scurry to a phone and get connected if called. Someone wanting to speak with Roger Thompson (hard to believe, but possible I suppose), would get announced as "Calling Mr R Thompson, calling Mr R Thompson." You can imagine the fun. When one heard a new [uninitiated] telephonist's voice, the race was on - "Hi, it's [some made up name] can you call Paul Ness please." etc, etc, etc, etc - until new telephonist was initiated.

The world was a much simpler place back then. [In another workplace I once sent a new guy to the stores to get two spare fallopian tubes - he was gone hours, as he was referred around the various stores. He got familar with his new workplace (the objective) and in the end learned a little more about the female anatomy.)

Sorry Andrewj, but the fact is, we are doomed, no one cares. You can tell, because of all the tinkering, rather than grapsing the nettles. We found this out last week - we still can't even govern ourselves adequately to deal with the 'economic canabilism' wrought (rort?) via our tax system, so getting anyone switched on this issue is like, err, 'kin impossible IMO. (Think about it, the same people enjoy the benefits of both problems - bent tax system, bent money supply system - lots of lovely inflation/deflation cycles!) We were having a fair old yarn about this just after Xmas, enjoy, it's long:

http://www.interest.co.nz/ratesblog/index.php/2009/12/29/summer-chart-se...

Cheers, Les.

Andrewj - apologies, that thread

Andrewj - apologies, that thread will take yonks to read. Essentially I came to understand there are not three, but four ways we create money:- printing and minting, reserve bank credit, bank credit (the money multiplier process of relending deposits, again and again) and wot Keen, Mish and Pytel describe, err, lending - based on 'fictional reserves' - thin air at interest. Instability, wot instabiity.

Cheers, Les.

Les , I found this

Les , I found this piece in the SST ( only $ 2:80 at all good petrol stations today ) by a quiet achiever journalist , Tim Hunter ( unlike our dear Bernard who , latterly , has morphed into an attention seeking alarmist . Sorry , big guy ! ) " A shift in the right direction ". : " Key did little more than indicate the direction of government thinking . As far as it goes , the direction appears to be a good one . "

" .......for practical reasons Key is right to dismiss a land tax . Irregardless of its theoretical efficiency , land tax suffers from the fundamental flaw that it imposes a liability irrespective of ability to pay . The land tax we already have - local authority rates - has this very problem . "

" Some countries do have a land tax , but the only one cited by the TWG was tiny , teeming Hong Kong , hardly a helpful model for big empty New Zealand . "

" Sure what we've heard from Key so far doesn't sound like the earth-shaking revolution some have called for ( ahem ..........Bernard ! ) , but in the current economic climate fiscal gambling is not smart . For my money we're still in for a more radical Budget than we've seen for many years . I'm looking forward to it . "

And across at Fairfax's splendid

And across at Fairfax's splendid website , stuff.co.nz , this little gem : Sales ' bang ' predicted after tax cuts . TWG member Gareth Morgan said the policy changes outlined this week would be shifting tax revenue from " easy to avoid " income taxes to harder to avoid GST , which would be fairer and more efficient .

Dr Morgan welcomed the Government ruling out a land tax which he said was a " dumb idea " . The tax depreciation loopholes had to be dealt with .......... " that will and should hit the rental property tax rort . "

" we are doomed ,

" we are doomed , no one cares . You can tell , because of all the tinkering , rather than grasping the nettles " : LES RUDD : Shame on you ! You sound like a dying duck in a thunderstorm .

That's hardly fighting talk . Stop buying into the Hickey school of defeatism . Grasp some nettles / Gird your loins / Or whatever it is you do to gee up the spirit , and buck up your ideas , man .

'Tis a splendid wee country , NZ . No one said it had to be all shiny and perfect . Jonny & Bill will make some improvements . But unlike Rogernomics or Cullen Socailism , they won't scare the poo out of everyone .

Les has it nailed, Bernard

Les has it nailed, Bernard has it nailed and Wally has it nailed - we know what the problems are but, and it is a frustration, nothing will be done.

Skippered by the TINAs, we and they seem content to tinker and fiddle while the ship sinks - with all hands.

" TINAS " , John

" TINAS " , John ? Tch tch . One of the lessons I've learnt from being around since the cretaceous era , is that you gotta push on in spite of the bumbling incoherencies and lunacy of the current crop of politicians .

Wanna go back to Merry Olde England ? The postcards give a false impression of the life there . By comparison , we do OK here in GodZone . The powers-that-be just gotta make baby-step changes , so as to not freak out the inhabitants .

Nothing but tinkering and fiddling.

Nothing but tinkering and fiddling. What else is possible until the whole stinking ediface collapses in on itself. The name of the game is to stay at the pig trough for as long as the stupid peasants think they are getting somewhere. This is Key's game. So it was with Queen Helen. Goff would be no different. All you can ever expect is a wall of lies spin and BS dressed up to look like truth honesty and prime beef. What is taking place here is no different to the discovery in China that the contaminated milk powder was repackaged and offloaded onto a different regional market. Fiddle and Tinker are simply repackaging the same crap and flogging it as a step change for the better.

Andrew, Only have a sec,

Andrew,
Only have a sec, be back in afternoon for deeper conversation, analysis.
Quick observation, have seen this in several of your posts from source Greg Pytel:
"Fractional Reserve Banking means that loans are never greater than deposits."
I dont know how such a confusing statement even made it into any article written by someone of the financial knowledge of Greg Pytel, the term Fractional Reserve Banking came about as the apt discription of a banking system in which loans were by government decree allowed to exceed deposits. I include below a recent reply from Bill Englishs office, written by whom they wont say, in which many of your questions and fears are officially confirmed, including the process of fractional reserve.
Any banking system that allows credit money in excess of the boundaries of sustainable resources to ever create the means of repayment, then is allowed with the advantage of their ill gotten gains of the banking pyramid system to design, underwrite and cross-own market systems that see even more of the excess credit money concentrate back in their own hands, that repeatedly leaves the "outsiders" copping the losses, left unaddressed will ultimately see them own by nafarious means the entire means of production and hold the citizens of the nation, other than those that assisted them, in a position without choices or dignity in a constant real struggle to obtain the necessities of life, I put it to you, that when reduced to such conditions we might not be physically in chains but we wont be far from slaves. Who do you think is writing the social and economic policy of Greece, they, just as we are, were already operating under conditions of receivership at the hands of the privately owned central bankers after their last repayment crisis;

Office of Hon Bill English
Deputy Prime Minister Minister of Finance
Minister for Infrastructure
1 8 JAN 2010
lain Parker
372 Brookes RD Stratford
TARANAKI 4700
Dear lain Parker
Thank you for your Official Information Act request, received on 27 November 2009. You asked a"number of questions about the nature of government bonds; as well as about the nature of money and the banking system.
1. Could you please tell me what a Government Bond is and what role it plays in our economy?

As you point out on page 7 of your submission, New Zealand government bonds are wholesale, New Zealand dollar denominated, fixed-term debt securities. They are secured by a charge upon and are payable out of the revenues of the Crown.
Cash received by government bond issuance is used to fund goods and services provided by the government, e.g. roading, hospitals and welfare payments. Government bond yields provide an indication of the "risk free" rate of return in an economy and provide companies and households a benchmark with which to compare returns against those of alternative investments.

2. Could you please tell me who in the world of high finance, as Primary Bond Dealers, has the right to buy or monetise government debt bonds before they decide if they do or don't on sell them on the secondary bond market?

New Zealand does not have "Primary Bond Dealers." The term "Primary Bond Dealers" refers to institutions that, for example, trade directly with the United States Federal Reserve, where they are required to participate when the Federal Reserve holds securities auctions. In New Zealand, the nearest equivalent institutions are called registered tender counterparties. The main difference between the US and New Zealand is that registered counterparties are eligible but not required to participate in government securities tenders.
To qualify for registration as a tender counterparty, an institution must have a minimum credit rating of A-/A3, or have their obligations guaranteed by a parent entity with a minimum credit rating of A-/A3, or be a Crown financial institution.
Tender counterparties are primarily either New Zealand or Australian incorporated banks.

3. Are the Primary Bond Dealers private or publically owned institutions? That is not those that buy bonds on the secondary bond market, but the Primary Bond Dealers?

Tender counterparties are primarily private sector banks.

4. Could you please tell me what they use to buy our government bonds and if that medium of exchange existed before we pledged to pay it back with attached interest out of the future taxes of the nation or was it an electronic debt book entry, not anyone's existing savings, but an electronic book entry that brings into circulation new money?

People purchasing government bonds must do so with New Zealand dollars. Settlement of the transaction between the purchaser and the Crown is by electronic cash transfer rather than physical cash. All else being equal, bond purchases result in a reduction in settlement cash balances of the banking system (either at commercial banks, the Reserve Bank or both) as cash is transferred to the Crown.
An explanation for how this cash may originally be created is included in the answer to question 5 below.

5. Is it true that in excess of 90% of the money supply in circulation in New Zealand entered circulation as interest bearing debt owed to the banking network?

It is correct that most of the money supply in New Zealand has been created by the banking sector. This is done through the process of financial intermediation. Commercial banks, and other financial institutions, take deposits from members of the public and firms who wish to hold cash in the form of bank deposits. They then lend to individuals and firms who want to borrow "” in the form of mortgages or business loans. This process serves to channel funds between savers and borrowers. It also shifts the risk of lending from individual savers to the banks, thereby reducing the risk of lending.
This process of intermediation involves the commercial banks lending a greater value of funds than the cash they reserve to meet expected deposit withdrawals. This is done because at any one time only a fraction of depositors will want to withdraw their funds. Banks therefore need to keep only a fraction of their deposits in reserve in order to meet those demands. Because the banks lend more than the total amount of cash held in reserve in the system, credit is created - thus increasing the money supply.
The exact proportion depends on the definition of the money supply. Using the most common definition of the money supply as M2 (i.e. currency held by the public + balances in cheque accounts + all other business or personal deposits that are available on demand), the October 2009 data show that the part not accounted for by currency held by the public is 95%.
Data on money aggregates can be found on the RBNZ website at: http://www.rbnz.govt. nzlstatistics/monfin/cl /data.html.

6. Prime Minister Key, could you please describe your activities as a member of the Advisory Board of the Foreign Exchange Committee of the US Federal Reserve between 1999-2001?

I refer you to the reply from the Office of the Prime Minister.

7. Could all please advise me if the US Federal Reserve and the Bank of England are privately owned institutions that sit within their respective governments or publicly owned institutions within their governments?

I refer you to the following pages on the websites of the Board of Governors of the Federal Reserve and the Bank of England respectively for this information:
http://www.federalreserve.gov/Qf/pf. htm http://www.bankofengland.co.uk/about/leciisIation/leciis.htm

8. Could you please explain to me the role and relationship of the American Financial institution "” Northern Trust "” in regard to it being appointed custodian of our own NZ Debt Management Office?

The New Zealand Debt Management Office (NZDMO) has appointed Northern Trust as global custodian for NZDMO fixed income assets The appointment foflowed a competitive tender exercise which was completed in 2008. Custodian duties provided by Northern Trust for the NZDMO are standard for financial institutions and include: the provision of trade settlement services; safekeeping of assets; and other administrative functions.

9. Could you please tell me if in New Zealand, a "new" mortgage at issuance, before it becomes tradable, is loaned to a borrower by a registered bank, is that mortgage created as a debt book entry account, not anyone's existing savings, but an electronic debt book entry creating "new money"?

The creation of a new residential mortgage will generally result in new money (bank deposits) being created. The bank grants a new loan to a purchaser, who uses the cash to buy property from a vendor. The vendor then may spend or save the proceeds boosting deposits in the financial system.

You also ask for a list of the names of the officials who contributed to this reply. I am withholding these names in full under s.9(2)(g)(i) of the Official Information Act "” to maintain the effective conduct of public affairs through the free and frank expression of opinions.
You have the right to ask the Ombudsman to review my decision.
This fully covers the information you requested. I hope you find this information useful
Yours sincerely
Bill English
Minister of Finance

then consider the banker mantra from the RBNZ reply to the same questions, especially funny is the statement that only the RBNZ can create new money!:

RESERVE BANK
OF NEW ZEALAND
21 December 2009
Mr lain Parker
372 Brookes Road RD21
STRATFORD 4391
Dear Mr Parker
Your Official Information Act request of 25 November, sent to a number of addressees by email, has fallen to the Reserve Bank to answer. Below we have quoted ealan of your questions, with our answer following.
In general, the questions are not clearly stated making it difficult to answer them However, we have attempted to provide information that we think addresses the subject matter of the queries.

I - Could you please tell me what a Government Bond is and what role it plays in our economy?

A government bond is a government issued debt security, ie a form of borrowing money by the government. Issuing government bonds enables the Government to borrow money for fiscal purposes.

2- Could you please tell me who in the world of high finance, as Primary Bond Dealers, has the right to buy or monetise governments debt bonds before they decide if they do or dont on sell them on the secondary bond market?

This question is not clear and is unable to be answered. In particular it is not known what you mean by Primary Bond Dealers. However, the issuance of government debt is governed by the Public Finance Act 1989 and in almost all cases is the ultimate responsibility of the Minister of Finance.

3-Are the Primary Bond Dealers private or public owned institutions? That is not those that buy bonds on the secondary bond market, but the Primary Bond Dealers.

This question is not understood and therefore not able to be answered. However, both privately owned and government owned entities buy government bonds on the primary market.

4- Could you please tell me what they use to buy our government bonds and if that medium of exchange existed before we pledged to pay it back with attached interest out of the future taxes of the nation or was it an electronic debt book entry, not anyones existing savings, but an electronic debt book entry that brings into circulation new money?

This question is not understood and therefore not able to be answered. However, as a bond is a borrowing transaction by the Government it would only issue a bond to someone who advanced to it the price of the bond.

5- Is it true that in excess of 90% of the money supply in circulation in New Zealand entered circulation as interest bearing debt owed to the banking network?

As the meaning of the question is not understood, we are unable to confirm that statement.

6- Prime Minister Key, could you please describe your activities as a member of the Advisory Board of the Foreign Exchange Committee of the US Federal Reserve between 1999-2001 ?

The-Reserve Bank-Is unable-to artswer this question

7- Could all please advise me if the US Federal Reserve and the Bank of England are privately owned institutions that sit within their respective governments or publicly owned institutions within their governments?

The Bank of England was nationalised by the UK government in 1946, meaning it is publicly owned.
The Federal Reserve banks in the US are essentially public organisations but private banks also own stock in them.

8- Could you please explain for me the role and relationship of the American financial institution - Northern Trust - in regard to it being appointed custodian of our own NZ Debt Management Office?

Northern Trust is responsible for the provision of core custody and related services to NZDMO's book of Fixed Income assets. This means Northern Trust is holding the securities on the NZDMO's behalf.

9- Could you please tell me if, in New Zealand, a "new" mortgage at issuance, before it becomes tradable, is loaned to a borrower by a registered bank, is that mortgage created as a debt book entry account, not anyones existing savings, but an electronic debt book entry creating "new" money?

We are not entirely sure of the meaning of this question. However, it is worth noting that only the Reserve Bank has the ability to create "new money".

This question is unclear and needs to be rephrased if it is to be answered.
Yours sincerely

pp Mike Hannah
Head of Communications
Ref #3855680 v1.0
2 The Terrace, Wellington 6011
PO Box 2498 Wellington 6140, New Zealand Telephone +64 4 472 2029 Fax +64 4 473 8554

The RBNZ have since refused to disclose who wrote the reply and John Key has refused to give insight into his role as advisor to the New York branch of US Fed 1999-2001.

Some of the best plain language info I've seen re the current private banking pyramid scam:
http://www.bendyson.com/

cant wait to see how thier latest initiative goes March 2010
http://www.call4reform.org/coming-soon.html

it is time that those in this country with a knowledge of the private banking pyramid scam united to give weight to a growing international protest and push for a return to public credit monetary base without interest attached and public banking in its simplest form.
How about the FREE Party - For the Return to Equal-opportunity Economics
http://freeeeeeeeee.blog.com/

as NZ has always been veiwed as the worlds social experiment, I suggest we change the current lab criteria, I suggest we replace those of the failed Chicago economics line of thought that currently control us from behind the diplomatic curtain with advisors who have proven themselves to have both integrity and knowledge, such as Joseph Stiglitz, Simon Johnson, Michael Hudson, Thomas Greco etc

Apoligise to bumper sticker boys, most good things don't come easy, now back to the vege garden, bumper crop.

Is it time for Bernard

Is it time for Bernard to write and Obama-esque opinion on John Key? ie:
"John Key is a liar and a fool"
His apparent contradiction on the GST rise should satisfies the former, and the later is encompassed in Key's foolishness in not taking the obvious opportuinity to 'use his political capital' to change the direction of this county's future.

Actually , St Nick ,

Actually , St Nick , as much as I enjoy Bernard's views , I thought that calling Obama a liar and a fool was over the top . And quite unprofessional .

And as Aaron / Pete / Andrew / ChrisJ & co. have demonstrated , if yer gonna chuck the smelly stuff , prepare for some to come back atcha . Only gotcha self to blame , there , BH !

Thx, Rog. Bernie' s a

Thx, Rog. Bernie' s a big boy, though. Having said that, he has gone a tad quiet with his posting of late.......

Crikey Dick &amp; Jane ,

Crikey Dick & Jane , IAIN , this bumper-sticker-boy did read your posting . And given the questions you asked , I can only pray that one day the government provides you with a rubber-padded vegie patch !

Given that English and Bollard

Given that English and Bollard probably have time costs running into the thousands per hour....I think it would be a good social thing for Iain to do, to fork out the approximate $5000 it would have cost to have his questions answered.

Iain, "All else being equal,

Iain,

"All else being equal, bond purchases result in a reduction in settlement cash balances of the banking system (either at commercial banks, the Reserve Bank or both) as cash is transferred to the Crown."

Do you know where the money received from the sale of a bond is held?, is it held as a deposit at the Westpac Bank or given to the NZDMO for investment till it was needed, either way the answer to this question is at the core of the con.

Secondly the idea that ("Government bond yields provide an indication of the "risk free" rate of return in an economy and provide companies and households a benchmark with which to compare returns against those of alternative investments.") anyone should recieve interest on a "risk free" investment is wrong and proves that the system provides an automatic subsidy to the banking system.

A great set of questions and thanks for posting the answers.

......... can you imagine the

......... can you imagine the Parker vege patch . The carrots would be quaking in their roots .........

..."...sssssshhhhhhhhhhhh , here he comes , hope to hell he doesn't start on again about that social credit nonsense .............. ooooohhhhhhh goody , he's off into the tomatoes , they're wa*kers anyway .....".............

Yet again this is what

Yet again this is what you taxpayer dollar buys:
http://www.stuff.co.nz/national/3326271/Winz-assistance-for-fraud-accused

Iain, had a read of

Iain, had a read of your Ben Dyson link. Is that your proposal for reform? I see that it's still the fractional reserve system that's seen as the bogey, when the actual culprit is interest rates above the level of growth in the economy.

The reform would not go down well. The proposal would effectively see "Depositor transaction accounts" receiving no interest (fine) but would attract fees. These deposits are effectively 100% deposited at the reserve bank and the money in the accounts is not available to the bank at all. It's held in trust, exactly what needs to be done though.

The second bit is where the issue occurs, 100% reserve lending and strict monopoly over the issue of money by the central bank, and it being a criminal offence to engage in fractional lending. This would cause the amount of credit to dry up and push up interest rates, and who does that benefit? The banks and only the banks. Sure they no longer get to create money but when in the course of a 30 year loand it's still being paid back 3, 4, or 5 times over, who gains?

The Ben Dyson proposal is silent on the question of interest rates and what would happen under his proposal. It's clear that interest rates would need to go up, so how would this be addressed?

Roger, Public Credit, Social Credit

Roger,
Public Credit, Social Credit is only a denomination of Public Credit, like Catholic and Protestant are denominations of Christianity, Shiiite and Sunni are denominations of Islam. If you study the origins of most all those denominations they were spin-offs wanting to change corruption that had caused massive disparities in wealth and income or those that wished to maintain the status quo, normally those that had prospered from being part of that corruption.
I agree with Public Credit in its plainest and simplest form, I agree with that part of public credit that Social Credit retain, dont agree with some ideas they have added since.
I say we cheery pick the best of past public credit attempts and use it to come up with an improved denomination to combat the current banking system that has been infiltrated and turned into a pyramid scam transferring wealth to a slaveminded hierachy of a few.

Now back to those Tomatoes

@Sam Smith "They're just doing

@Sam Smith

"They're just doing what the system allows them to do."

sorry Iain/fred.... should have reloaded the page....

Fred, just noticed your post,

Fred,
just noticed your post, remember that our reserve bank would be retored to full control issuing the monetary base without interest attached to build social infrastructure and give loans to local govt at only cost of admin for worthy local projects to be repaid via rates. Business would become far more funded by reinvested profits than dependent upon credit.
Public Credit would not cause a shortage of money, would reduce the need for credit and would infact reduce the cost charged for credit due to the reduction of the cost of credit as is currently included in prices, would stop the debt loop of doom, the wage-price spiral.

You watch Q&amp;A this morning

You watch Q&A this morning Bernard? JK is still lining up residential property investors. Proof will be in the pooding come budget time I guess. Possibly threw the toys a little early aye ;)
http://tvnz.co.nz/q-and-a/video

Interesting what he had to say on income tax, especially comparing to OZ. If I read his response right I'd say the top rate will be moved at lot higher than the current $70k.

Fred, sorry mate, I mean

Fred,
sorry mate, I mean local govt loans for worthy projects will be principal repaid with only cost of loan admin attached, as opposed to current principal + compound interest, greatly reducing the cost of social infrastructure and maintanence of, greatly reducing rates, as much of rates is currently going to service compound debt factored into pricing.
Loans can be provided for first home buyers on the same basis.

- Monetary base spent into circulation without interest attached for building of national social infrastructure, sustainable energy projects etc, as a grant backed by perpetual energy they create.

- Low cost loans issued to local govt social infrastructure projects and first home buyers at only principal + loan admin cost repayment.

- Deposit taking institutions banned from creating credit.

- Banks banned from underwriting stockmarket with created credit

These measures alone would go a long way to addressing the current imbalances in the system.

Iain – Thanks for posting

Iain "“ Thanks for posting English's reply, it's gold.

Iain We agree on many

Iain

We agree on many things. An OCR just doesn't make sense, the idea that a risk free deposit should pay interest is wrong. Governments issuing bonds so that they can pay interest to private banks for the priviledge of spending in their own fiat, and the fact that interest rates 8 to 12 (current rates for business loans) to 15% to X for credit cards is also wrong.

But printing zero percent money to build housing (or invest in worthy businesses or whatever) is exactly what the yanks did to get themselves into the bother they in now (it might not have been zero precent but near enough). What would the practical implementation of your system look like? The Government wouldn't sell these loans directly (they could but the effect would be the same) so whatever bank or agency is engaged to sell the loan would present the security to the reserve bank to be paid the "printed" cash for the loan created. This is precisely Fannie Mae and the Freddie Mac scenario. The whole thing smacks of moral hazard, for both the politicians and their barrels of pork and the agencies selling the loans for their commissions (administration costs).

I can see a system, though, where banks, etc bid for this type of funding on a contestible basis.

Don't be fooled that these

Don't be fooled that these "Registered Tender Parties" are not one in the same the "Primary Bond Dealers", they operate with an exemption from the Securities Commission that allows them to operate in NZ without disclosing who they are.

As for Northern Trust holding our assets in their custody for our protection, do they think we are that thick, when this global pyramid scam reached the point of implosion ( http://hf-implode.com/ ) and nations like nz once again trapped in debt repayment crisis, the private central bankers insisted that in order to not be put into receivership straight away, you could continue to receive their created credit for a little while longer provided you placed eligable liquid assets such as mortgages, national super funds in the custody of Custody Holding Banks in order that if, I say when, your assets are readily available to the receivers. I would be very interested to know if the so called open tendering process had only incorporated investment banks or their subsidiaries participate?
http://www.northerntrust.com/pws/jsp/display2.jsp?TYPE=interior&XML=page...

http://www.nzsuper.co.nz/news.asp?pageID=2145831983&RefID=2141733530

Fred,
I believe I have it not far wrong to say that NZDMO does outside dealings with Primary Bond Dealers as per its inception 1988 as part of conditions of receivership imposed after 1984 debt repayment crisis by central bankers liquidators and receivers the IMF, after the exchange of Govt Bond for electronic debt book credit, a portion is typed into Reserve Bank settlement account, the rest into Westpac binary vault, who then pays govt departments, this is my understanding of how our monetary base currently enters circulation as interest bearing, debt book entry, created credit of the privately owned central bankers or their majority stakeholder owned subsidiaries.
A majority of this "powered base credit money" then finds its way into the domestic deposit taking institutions and is then expanded further by the credit multiplyer ratio, which from what I can ascertain amounts to banks using their own prudence not to issue more created credit than will destroy public confidence in the pyramid scam.

Consumer credit via the underwriting of store credit is also another entry point for incorporated investment bank debt book entry created credit with all those enticing 4 year, supposedly interest free deals, although in most cases the interest charged to the store for the service is already factored into the pricing.

Take Greece for example, having had, like most nations now, already suffered debt repayment crisis, they already followed the structural adjustment programs of the receivers(IMF), adjustments imposed on the basis they were not proficient enough to handle their own financial affairs. Those adjustments have in most every case delivered the subservant nations into debt repayment crisis in faster time on a larger scale.

Why was it possible, because before the inception of the greater means of uncensored information via the internet, most of the worlds common elements had not a clue they were facing mathematically based debt loop of doom, a commercial pyramid scam with mass counterfeiters of virtual money at its core and an army of cohorts creating as many pointless transactions for money as possible in order to receive commission or cut a margin.

John Key knows exactly what he is doing in biding time, just holding it all together until the debt repayment trap is sprung and his banking frat buddies will once again gut and hollow us further. He has passed every character test required of them to reach further into the inner sanctum than any Kiwi before him. He is the first fully initiated central banker they have managed to manoeuvre into the drivers seat, before this they have operated through deceived or wilfully co-operating treasonous finance ministers. He's got a nice smile and relaxed manner, par for the course for most of the worlds great conmen.

Iain if %95 of the

Iain if %95 of the money in circulation is created as debt,whats the fractional ratio? I think its about 12 x deposits.

- fractional-reserve banking, i.e. a certain level of risk as banks keep only a fraction of deposits; this model has worked for centuries based on trust in banks and a statistical principle that not all depositors need to withdraw money at the same time; therefore a "bank run" was possible if depositors lost trust, or there was no sufficient reserve accumulated; to counter the former governments routinely guarantee deposits to counter the latter loan to deposit ratio must be comfortably below 100% and banks were lending money to one another (including a central bank, the lender of last resort); as example to have 10% fractional-reserve banking i.e. £1 cash has to "serve" £10 on the balance sheets liabilities, loan to deposit ratio must be 90%; to have 25% fractional-reserve banking i.e. £1 cash has to "serve" £4 on the balance sheets liabilities, loan to deposit ratio must be 75%; to have 50% fractional-reserve banking i.e. £1 cash has to "serve" £2 on the balance sheets liabilities, loan to deposit ratio must be 50%; and incidentally to have 100% fractional-reserve banking i.e. £1 cash has to "serve" £1 on the balance sheets liabilities, loan to deposit ratio must be 0%.

Fred, you have entered the

Fred,
you have entered the realm of decent prudent productive issuance of credit money and non-prudent unproductive issuance with ulterior motives behind it. You can join the camp of Wally that the human species is destined by nature to beat itself to death, not a lesson learned or take a chance that common decency will oneday prevail. I remain firmly planted in the diplomatic revival of common decency, that we are surely intelligent enough, in a world made tiny by modern communication, to oneday learn from the failings of the past.

Right now my fellow commoners, and others, I have to get some shuteye so I can keep that truck straight on the hampster wheel early in the morning.

Andrew, sorry mate, have to be another day, heres how I reckon it goes, reserves are as virtual as credit money, excess created credit issued with interest attached mathematically leads to imminent debt repayment crisis, more reserves required to curb falling confidence, pay for more actual notes incase run on bank occurs, government guarantees put in place, more govt bonds exchanged to supposedly allow credit to continue to flow, but actually is held to make up missing reserves, lending of credit constrianed, recession or depression occurs anyway at both national and private level driving real assets into the hands of private central bankers and their corporate subsidiaries, we are being scammed.

Goodnight and goodluck

Thanks Iain, as this unwinds

Thanks Iain, as this unwinds I can see how one with cash becomes super-man.

have kleptomania, but when it

have kleptomania,
but when it gets bad,
I take something for it.
-------------------------------

Sometimes too much to drink isn't enough.

---------------------------------

Heaven is Where:
The Police are British,
The Chefs are Italian,
The Mechanics are German,
The Lovers are French and
It's all organized by the Swiss.

Hell is Where:
The Police are German,
The Chefs are British,
The Mechanics are French,
The Lovers are Swiss and
It's all organized by the Italians.

-------------------------------

Suicidal twin kills sister by mistake!

-------------------------------

My short-term memory is not as sharp as it used to be.
Also, my short-term memory's not as sharp as it used to be.

----------------------------

The statement below is true.
The statement above is false.

--------------------------

I may be schizophrenic,
but at least I have each other.

----------------------------
Adelaide:
Five million people,
Fifteen last names.
-------------------------

In Memoriam

With all the sadness and trauma going on in the world at the moment, it is worth reflecting on the death of a very important person, which almost went unnoticed last week. Larry LaPrise, the man who wrote "The Hokey Pokey", died peacefully at age 93. The most traumatic part for his family was getting him into the coffin. They put his left leg in. And then the trouble started.

--------------------------------------

I LOVE COOKING WITH WINE
Sometimes I even put it in the food.

--------------------------

money isn't everything, but it sure keeps the kids in touch.

---------------------------

I want to die while asleep like my grandfather,
not screaming in terror like the passengers in his car.

THE END........................

Have you employed a new

Have you employed a new feature writer?

mike got sprung

mike got sprung

Iain Parker wrote: "'Fractional Reserve

Iain Parker wrote:

"'Fractional Reserve Banking means that loans are never greater than deposits.'
I dont know how such a confusing statement even made it into any article written by someone of the financial knowledge of Greg Pytel, the term Fractional Reserve Banking came about as the apt discription of a banking system in which loans were by government decree allowed to exceed deposits."

With all respect and no insult intended, you seem to be somewhat confused, Iain. And do not worry as you appear to be a part of a pretty distinguished crowd.

'Fractional Reserve Banking means that loans are never greater than deposits.' This is technically correct by definition of what Fractional Reserve Banking is (i.e. it is withholding a fraction of a deposit as a reserve whilst lending the reminder in mulitple deposit creation cycles) and basic arithmetics.

For more explanation may I suggest reading the typology of lending from reserves perspective: "Narrow banking: barking up the wrong tree"

http://gregpytel.blogspot.com/2009/09/narrow-banking-barking-up-wrong-tr...

You may also read: "Loan to deposit ratio and banks liquidity"

http://gregpytel.blogspot.com/2009/09/loan-to-deposit-ratio-and-banks_02...

Indeed Hugh Hendry stated in an interview with Jeff Randall thereby confirming correctness of the basis of the analysis on this blog:

"Loans should never be greater than deposits"

(http://www.youtube.com/watch?v=Dl5ebMGgtOk - at 7:20 of the interview, almost the end)

PS. I did not read the rest of comments in detail so someone possibly explained this anyway before this comment.

Greg Pytel, Sorry Greg, with

Greg Pytel,
Sorry Greg, with all due respect the links you provide more confirm my prognosis than repell it, we will have to agree to disagree.

""˜Fractional Reserve Banking means that loans are never greater than deposits.'
I dont know how such a confusing statement even made it into any article written by someone of the financial knowledge of Greg Pytel, the term Fractional Reserve Banking came about as the apt discription of a banking system in which loans were by government decree allowed to exceed deposits."

The old goldsmith banking scam became the basis for modern banking.

Greg welcome to this blog.

Greg welcome to this blog.

Methinks you guys are disagreeing over the word between "loans __ never". Either are or should. Use 'are' for the generally accepted text book definition, and what many continue to believe happens. Use 'should' to oppose what has actually happened (initiated by changes toward the 'capital inadequacy' approach) and contributed significantly to the GFC.

I am sorry Iain, it

I am sorry Iain, it is not a matter to agree to disagree. You either use a definition of "fractional reserve banking" which is not a fractional reserve banking. For definition have a look, e.g. http://en.wikipedia.org/wiki/Fractional-reserve_banking: incidentally the table there shows you by example that loans cannot be greater than deposits under fractional reserve banking. Or you fail to understand basic arithmetic: a sum of converging geometric series. Or both.

So to get clarity: could you please state your definition of fractional reserve banking and its source (i.e. to justify why you think it is universally agreed).

My blog does not reinvent the wheel: by and large it applies the knowledge already in existence to the current financial crisis.

Jacko, the proper word is

Jacko, the proper word is "are". What actually happened was that "fractional reserve banking", lending with LTD less than 100%, (which, BTW, is risky but it may be considered as manageable risk) was not practiced anymore. Instead new method, lending with LTD greater than 100% was introduced, i.e. "depleting reserve banking (which presents unmanageable risk as it brings certainty of liquidity shortage, and in fact - by definition of a pyramid scheme - is a pyramid scheme).

People should not confuse "fractional reserve banking" which may be criticised and may also be a cause of problems, but is legal (whether you like it or not), with "depleting reserve banking" which is a crime.

Greg Pytel I have just

Greg Pytel
I have just read this written by your goodself:
"The total "created" from the original £1 deposited in a bank is a finite, not more than £6.41 at the 86.5% loan-deposit ratio, backed by nearly £1 reserve. It is an inverted pyramid scheme starting from a fixed initial deposit base and quickly reducing through deposit creation cycle to zero."
http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/144/...

I have no doubt your intentions are honourable to making a stand against the very same people I am but, with respect, you appear to be a little cross-wired and a little behind the play of the evolution of the multiple cross-owned layers of international incorporated investment banks(Primary Bond Dealers) and and their majority stakeholder owned, at least when its capital gain positive, public listed commercial banking banking network, especially since the advent of the electronic transfer system reducing the need and ammount of real cash in circulation, and the deregulation of reserve requirements, fractional reserve is actually a term I have not used for a longtime because the reserves are now as virtual as the credit money they mimick. It is now more accurately described as credit multiplyer or expansion ratio and the loan-deposit ratio would appear to me to far more aptly describe how much created credit they have expanded to anything of real reserve they hold such as liens over property or portions of their own corporate capitalisation, very close to what is now referred to as Tangible Common Equity Ratio:
"The quote below from June 1993's Federal Reserve Bulletin should help make clear why the fed allowed backs to avoid any reserve requirements through financial engineering.
Laws requiring banks and other depository institutions to hold a certain fraction of their deposits in reserve, in very safe, secure assets, have been a part of our nation's banking history for many years. The rationale for these requirements has changed over time, however, as the country's financial system has evolved and as knowledge about how reserve requirements affect this system has grown. Before the establishment of the Federal Reserve System, reserve requirements were thought to help ensure the liquidity of bank notes and deposits, particularly during times of financial strains. As bank runs and financial panics continued periodically to plague the banking system despite the presence of reserve requirements, it became apparent that these requirements really had limited usefulness as a guarantor of liquidity. Since the creation of the Federal Reserve System as a lender of last resort, capable of meeting the liquidity needs of the entire banking system, the notion of and need for reserve requirements as a source of liquidity has all but vanished. Instead, reserve requirements have evolved into a supplemental tool of monetary policy, a tool that reinforces the effects of open market operations and discount policy on overall monetary and credit conditions and thereby helps the Federal Reserve to achieve its objectives."
http://www.marketskeptics.com/2009/03/us-banks-operate-without-reserve.html

"Tangible common equity (TCE) looks at how much common equity is supporting a company, and ignores intangible assets such as goodwill, on the theory that in bad times, intangible assets are less likely to have value."
http://www.reuters.com/article/idUSN2335724020090223

Andrew Haldane at the Bank of England admits that the taxpayer has now beome the lender of last resort for a corrupted banking system:
"If protection of depositors is felt to be a public good, these losses instead risk being borne by the state, either in the form of equity injections from the government (capital insurance), payouts to retail depositors (deposit insurance) or liquidity support to wholesale funders (liquidity insurance). The gains risk being privatised and the losses socialised. Evidence suggests this is a repeated historical pattern.
Socialised losses are doubly bad for society. Taxes may not only be higher on average. They may also need to rise when they are likely to be most painful to
taxpayers, namely in the aftermath of crisis. So taxes profiles will be spiky rather than smooth and will spike when the chips are down. This is the opposite to what tax
theory would tells us was optimal.
So far, so bad. But it is about to get worse, for this tells only half the story. This is a repeated game. State support stokes future risk-taking incentives, as owners of banks
adapt their strategies to maximise expected profits. So it was in the run-up to the present crisis. In particular, five such strategies were clearly in evidence.............

"Introducing leverage limits: One simple means of altering the rules of the asymmetric game between banks and the state is to place heavier restrictions on leverage. European banks were not subject to a regulatory leverage ratio in the run-up to crisis. They exploited that loophole. Closing it would bring about a clockwise rotation in banks' payoff schedule, lowering the beta of banks' equity returns and reducing risk-taking incentives."

Greg, I wish you well, now back to trying to inform those in positions of influence that have the time and resources to attempt to make a difference.

Sorry, forgot to include the

Sorry, forgot to include the link for BOE Haldane speech re State being lender of last resort for private banking
http://www.bankofengland.co.uk/publications/speeches/2009/speech409.pdf

Greg, completely disagree that the intent of the fractional reserve system was implemented by anyone to do anything other than to defraud by lending more virtual means of exchange with interest attached than you actually had on hand to cover.
Because it is a mathematical fact that if most of your money supply enters circulation as a loan owed to the banking system with compounding interest attached, as only the principal enters circulation there is no physical way that all that are reliant upon the system can succeed in getting what they desire for their family without impoverishing someone elses, because they have to gain someone else portion of the principal pool to pay their interest, thus putting another party in repayment crisis, same principal as a casino really, and all the games within the casino, stockmarket etc are all rigged in favour of the banking house also.

Gentlemen, I do not want

Gentlemen, I do not want to defend "fractional reserve banking" as it is mathematically defined, or the intent of people that used it in the past. I simply wish that confusing "fractional reserve banking" with "depleting reserve banking" (which was practiced by the bank) helps the financial criminals to escape justice. This is because, like it or not, the former is legal so you cannot make your case in law. The latter is not: it is a pyramid scheme, therefore there is a bona fide evidence to prosecute those who caused the current crisis.

Therefore those who now go out with the such a broad brush criticism of "fractional reserve banking" do a great disservice to their good intentions. (That is not to say that "fractional reserve banking" is good.)

Greg, I stand by my

Greg,
I stand by my prognosis that this statement;

"Fractional Reserve Banking means that loans are never greater than deposits."

is misleading, the money created as credit(IOU) is entered by the bank into both the asset and liability columns to make it appear the books balance, double book entry, but considering the banks collectively have the creative means to issue created credit(loans) beyond the sustainable resources ever needed to be unlocked to produce enough commerce for repayment, the inferral that assets match liabilities is a creative accountancy deception that the above statement appears to try and condone.

Iain, you can stand by

Iain, you can stand by any statement you wish. It is just incorrect and misleading unless you explain what you mean by "fractional reserve banking" in this statement.

I am not criticising you or your views. I am simply trying to ensure that there is a clarity and if we use a word or a phrase, we all understand the same. At the end not all of us are cunning linguists:-)

Iain - prognosis is not

Iain - prognosis is not the word you want there.

# a prediction about how something (as the weather) will develop
# a prediction of the course of a disease
wordnetweb.princeton.edu/perl/webwn

jeez Trev, you'll be into

jeez Trev, you'll be into me spelling next, lucky most of my common mates seem to cotton on to what I'm trying to get across because although often mispelt, ain't got time for spell check anymore, often misplaced word or two............ I back them with creditable facts, or is that creditible, no credit????, oh what the hell Im going to bed, goodnight and goodluck.

Greg, they know your veiw, or is that view, they know mine, I'll leave with the people to decide, no time for costly little side battles that don't need to be had.

Iain, I tell you were

Iain, I tell you were we disagree: you believe that when you discuss matters you do not have to use strict definitions of the terms you use. It does not matter for you that different people may use the same term to describe different phenomenon. I sense that I most likely share a lot of your views but it is impossible to establish that.

I was led to that conclusion since you failed to provide your definition of "fractional reserve banking" - the term that our discussion was concentrated around.