"The US spends tomorrow's money today"

NZ has borrowed its GDP for the last 20 years.

Everything we earn today pays for the consumption of yesteryear.

Currency needs to be 15-20% lower for a sustained period to correct current account imbalance. No wonder Bollard is at his wits end. Overseas punters have no clue about our real position but just look at the carry trade squeeze. The more pain the better.

RBNZ has one simple tool. Sell NZ$.........

I agree with andrew j and wally. The kiwi is currently one of few alternatives in view of the quantitative easing policies of certain countries.

If we are all so concerned with the 'high' value of the kiwi, perhaps the govt. should consider reducing benefits and encourage NZ employers to implement a series of pay cuts so those currently employed can enjoy a depreciating standard of living.
I mean, this is NZ we're talking about, isn't it; its not like kiwis know how to live like a first world nation, does it ?

C'mon lets get going with cutting all salaries, benefits and everything will be back in equilibrium, lets crawl back into our third world status before we begin to think we are worthy of something. (sarcasm)

As always the kiwi will just dip down, and within a day or two be back at the same level and keep climbing.

When it comes to 'spending tomorrows money today' the boy's in Fonterra are masters. In a few years they have borrowed 11 billion,they have been overpaying to the tune of 2 billion a year. Take this away and holy cr*p, whats it do to the 50 billion of farm debt that cannot be serviced. This is behind the urgency to recapitalise Fonterra, of course it wont work, unless we live in some kind of fantasy ?
The reality is that payout will be down by $ a kg while this mess gets sorted plus a bit of interest. Its the sorrowing thats about to begin. The only answer the boys at the top have is to try and collapse the $, only to find the big boys are better at it than we are.

Trev
Bulls back 5c in the North Island, with the calve kill dropping off it wouldn't surprise me if the works closed for a bit. The cow kill in the USA is frightening at lot of beef farmers at present, Id expect a fairly weak market. Sheep Im nervous about hopefully price will stay up till X-mas
Andrew

Has anyone considered the consequences of a lower nzd ?

Does anyone wonder why foreigners with their foreign currencies can afford to speculate in NZ's property market and deprive our young people of the opportunity of owning their own homes ?

Does anyone wonder why young families find buying their first home next to impossible ?

And inspite of this, we continue to impoverish the working people who are struggling to pay our day to day expenses.

Where's the handout for working people without children and earning less than the 'average' wage ?

Oh, I forgot we are part of the filthy rich.

Lets have more pay cuts and a lower nzd, those of us who can't afford groceries can always eat cat food.
Nope, can't afford that either.
But Possum pie would go down a treat.

And what's the solution to our problems, encourage our young people to migrate and earn a decent wage they can't get in the country of their birth.

Ah, but we have "world-class" corporations which can and are all too willing to pay "world class" salaries and benefits because without importing such "world class" senior management, we couldn't possibly manage these world class corporations.

But lets have pay cuts for the working stiffs.

Yes, that sounds about right.

Who knows, with luck, we might end up as a "remittance" state, with our young people selling their skills abroad and sending remittance cheques back to their families living in a third world subsistence economy.

Of course Roger is joking if he gave us a dose of reality the whole place would collapse.
Like we have more debt than we can service and our export sector can no longer compete.
Bill Bonners take on the chances of our Govt being able to get us out of this;

Smart people were also to blame for the biggest single error of the last century: central planning. The central planners thought they could fix the supposed evils of the natural economy with logic and reason. The idea was so alluring half the world fell for it. If the Nobel Committee had been on the ball they would have given Karl Marx a prize.

But by the last decades of the 20th century it was obvious even to central planners themselves that it wouldn't work; in both Russia and China, the planners simply gave up.

Central planning didn't work because people had plans of their own. They resisted. Then, the planners brought down their hammers. "If you're going to make an omelet, you have to break some eggs," said chef Vladimir Lenin. The "Black Book of Communism" puts the death toll as high as 100 million.

Then too, central planning didn't work for less obvious reasons. Planning requires information. The planners had plenty of it. But private individuals had far more "“ local, current, more accurate information from first-hand observation and experience. With better information, they could make better plans. Most important, individuals didn't limit themselves to only the fresh fruit of their rational brains. They put their hearts in it"¦and drew on instinct and tradition "“ the distilled spirits of previous generations "“ giving them a huge advantage over the apparatchiks.

But the brains kept at it. When the forensic experts sifted through the debris from the 2007-2008 financial blow-up they found fingerprints from a whole list of Nobel winners. It was they who had developed the formulae and the theories that deceived investors, and themselves. They believed they could tame risk"¦by calculation! They figured out the odds and worked out prices "“ to as many decimals as needed to put investors to sleep. And then along came a risk they had not foreseen "“ the risk that their own formulae were claptrap and that they were idiots.

Meanwhile, the brains were at work in the public sector too. There, they were still pushing central planning"¦albeit on a much less ambitious scale than in the last century. In Western countries, government economists fixed lending rates and credit policies in order to encourage over-consumption. In the East, they fixed exchange rates and recycled credit back to their customers in the West in order to encourage over-production. And what ho! Wouldn't you know it; now the world has too much debt and too much capacity.

And so the brains are back on the job. In China, the government boosts production. In America, the central planners are trying to boost consumption. In short, the fixers are still fixing. And soon, the world will be in an even worse fix than it is now.

Enjoy your weekend,

Bill Bonner

http://dailyreckoning.com/fixers-aim-to-fix-fixes-with-another-phony-fix/

Just got home to see NZD/USD finally broken 0.69, gold looks like it also might break $1k overnight .. the AUD is now on a clear run to 0.90 against the USD.. interesting times ahead !!

# raf Says:
September 7th, 2009 at 7:49 pm

edenz"¦.

a lower nzd would see us increase our exports"¦.reduce our imports"¦.reduce our indebtedness. All good things I would argue.

Increasing exports would help develop new businesses which would add jobs.

i think your argument is upside down.

In response to your observation, permit me to make another.
a lower nzd would increase exports ONLY as long as another country (perhaps China, India etc) does not produce similar things that we do, especially if they have a relatively low wage structure.
reduce our imports - you mean make it unaffordable for the working person, eg 2nd hand cars, clothing, affordable housing (is not an import) but very affordable to foreign speculators who will enjoy an additional advantage in buying even more housing stock because of our depreciated currency.
reduce our indebtedness - how will it do that, if the debt is denominated in USD, AUD, Euro, Yen etc ? Does NZ have any foreign debt ? Wouldn't a depreciated currency mean we hamsters have to run a lot faster on the wheel to pay off the foreign debt ?

I do agree with increasing our exports and the development of ANY new businesses which CREATE JOBS, but I don't subscribe to what passes for the generally accepted economic theory of 'continual currency depreciation' to achieve a 'competitive edge'. If continually depreciating one's currency is a good thing, then we are miles behind Zimbabwe and I don't think we are going to be able to catch up with them unless we can depreciate the nzd in record time.

I believe it would be better if NZ could emulate Switzerland, Germany, France etc.
I mean in the sense of producing Rolex watches, BMWs, Louis Vuitton luggage, premium-priced wines etc.

We are a nation with a small population. There is no reason why we can't be a high wage nation. Perhaps, it won't materialize in my lifetime but I sincerely wish that those coming after us, would have the opportunity to enjoy a better standard of living.

raf, I trust you can understand where I stand. I don't believe impoverishing our labour is a long term solution.

Bollard will hold at 2.5 and jawbone fear of no recovery to allow him to hold. Listening to the jabber on cnbc this morning..no certainty what's to happen other than that there is money to be made on the fx.... so throw your dart. If Bollard cuts, he is saying the recovery is a myth, a pack of spin and BS, he can't afford to do this even though it's true. The govt is relying on convincing the peasants that greenshoots are here, even though they are not. The madness in the property sector is all on again and the Cabinet deserves the wooden spoon for its idiotic move to raise loan limits on 'welcome to greater debt' sub prime loans. English is back from his credit begging trip. Key has pulled a side issue from the rubbish bin and now the media will blather on about mmp or fpp, which means more weeks of nothing but humbug and BS, evidence the insane call that rising unemployment is no longer likely! see what BS can achieve. Truth here, the credit crisis is not over. More bombs to come.

They been told to stop with the pessimism PH. The warning went out that the spin is now a shout. We are all expected to wipe from our memories the stupidity of past govt policies, of the property binge and the finance company rorts, the thieving and gross mismanagement, all is now on an even keel, normality is here, go out and borrow and spend. Forget the MP perks and the state splurging waste. Listen to the experts who got it so wrong because they have now got it right. If the Treasury overpaid economists say pink pigs in alien spaceships have arrived to buy our wool and eat lamb, then pink pigs it is.

I take it you are not waiting outside for the pink pigs in alien spaceships Trev?

What's this guff on the news about S&P warning the govt that the Kiwi rating would be dropped if the housing debt mountain began to grow again! What pigswill. The Cabinet just carted a few hundred million ton of credit to the top of the mountain to pork the welcome home to yet more debt sub prime loan scheme. It was dumped there in front of S&Ps nose and what did they say, NOTHING.

Rural rates

http://www.stuff.co.nz/national/farming/2842275/Rural-rates-rise-far-mor...

edenz...i appreciate your point of view.

i have been advocating for some time now that the RB sell down our overseas debt i.e. sell NZ$ and buy the overseas debt back thus converting it to NZ$ where it is more manageable in terms of credit risk and interest costs.

In terms of the exchange rate there is a fair value where our trade situation will be at least in balance..i have always thought around 0.55-60 to be that level. that's not far from the post float long term average. This impacts our terms of trade hugely as well as tourism and general industry.

in terms of imports, our problem has been that we buy stuff we can't pay for or afford which is why we owe $140bln overseas.....that is really the millstone around our necks.

Affordable housing will come when the LAQC system is removed. Because the LAQC encourages a negative cash flow situation.......compare the median rent with the median house price for Christchurch as an exmaple..it's crazy....median yields are around 4% still way below the cost of borrowing. I figure rental yields should be at least 1% above the rate of borrowing so let's say 7%.

Median rent is $15,600pa.....for a yield of 7% that would give you a property price of $223,000...........current median rate is $344,000. that just demonstrates the power of the LAQC to distort the market. Not many properties around at $222,000.

Real wages have risen very slowly in NZ when compared to house prices. That's because house prices have been supported by easy credit policies.

So taking away the LAQC and imposing tighter credit restrictions will give you more affordable housing and make those wages go a lot further.

As Wally notes, the rating agencies can see this and NZ policymakers still have not dealt with it........and hey it won't be popular but the medicine never is :-)

waymad

great piece by spengler. i've just been in china on business and concur fully. i've heard many times here in NZ people being down on asian kids who are phenomenal in their music skills only because they practice so hard.......excuse me for not laughing out loud.

where did we get the idea that we learn by osmosis?

reminds me of when the indians came to the uk 50 years ago and started working all hours in cornershops and cleaning etc....now their kids are all doctors, lawyers, engineers and the rest.

sounds like we need to knuckle down and stop playing games with paper money.

@ Raf - "Median rent is $15,600pa"¦..for a yield of 7% that would give you a property price of $223,000"¦"¦"¦..current median rate is $344,000. that just demonstrates the power of the LAQC to distort the market. Not many properties around at $222,000."

BINGO!!!!

@ Waymad : "We're 50 points down, it's the last half of the last half of the game, our team is about out of legs, and we have used all our bench."

Didn't we know this at half time? Sure; We battled on with the encumbent staff until the 3/4 time orange break; But then we saw the light, and changed the coach and coaching staff.
When the rest of the league was preoccupied with it's own turmoil, and we could have changed our tactics, we looked, expectantly to the new coach for the shining light of hope, he turned to us and said, with a leering smirk,

"Hang on you'se guys! I'll just whip up into the grandstand and ask the crowd what I should be doing with the team"

The season is over for us. Time to prepare for relegation.

Edenz;

"Who knows, with luck, we might end up as a "remittance" state, with our young people selling their skills abroad and sending remittance cheques back to their families living in a third world subsistence economy."

Well we are already halfway there, you know a million kiwis currently live overseas, right?
The Philippines of the south Pacific. Don't laugh. NZ is a nice place for a holiday....but that is about all at the moment.