Bernard - if I am not mistaken the banks have just gone back to their bad old ways and have just been on a lending binge to the residential housing market - how else can we explain the surge in housing volume in the past 2 months? Why would they then have much cash left over for business? Neither Bollard or Key should be surprised (I am sure Bollard is more than happy with this outcome).

Certain things in NZ life are immutable such as a) lower interest rates and kiwis will rush to buy property (regardless of whatever else is going on economically) and b) in such situations the banks will be happy to lend.

I might add that your much quoted 'housing affordability' index contributes in no small part to phenomena a). I appreciate you love getting this index out as it gets you a ton of attention, but it is a highly misleading metric as published - it is home loan affordability index MOST assuredly NOT a housing affordability index.

True Bernard - but the kiwi psyche is not like that - waft a 5-6% interest rate under their noses (over whatever period you care to name) and they will immerse themselves in property like so many porkers in you know what, without a second thought of whether interest rates will be in double figures 2 years hence.

Interesting to see that the Deutsche Bank economists yesterday also came out and said that Bollard was hyper-stimulating the housing sector:

http://www.nzx.com/news/economy/4901619

Not looking too good for Mr Key;

"Mr Key announced the Prime Ministerial summit on employment in February would be a "do-fest" not a "talk-fest".

http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10...

From my count, we've decided not to do 2 of the 3 top 10 ideas. And the one we did "do" was the 9-day fortnight - which seems not to have morphed into anything particularly worthwhile anyway.

Kate I was at the summit and a LOT of great ideas where discussed and had a great of support.

As one example: at my table as Gerry Brownlee walked passed we had a vote on who supported Capital Gains Tax on secondary properties. At that table a show of hands saw 80% support and I asked Gerry to take that back to Cabinet. There were some seriously heavy hitters at this table and yet they knew our warped investment / tax policy distortions had taken us into dangerously unproductive waters.

Going into the summit I asked the question "what would make me as an employer take on what amounts to counter cyclical investment risk".

To do that I would need access to long term money at attractive rates as the first obstacle. Assuming that was solved (and it isn't hence the above bloggs) then I would need a reward that justified the increased risk to investors and the board. To this end I mused"¦.what would happen if IRD pinned corporate tax at a maximum of 2007 levels for the next 5 years?

Now I would have a reason I could take to the board and shareholders on why we should take on greater risk in a down economy.

We would expand knowing we could manage the holding costs and deliver ground breaking intellectual property for the moment the recession was over and come out of the gates with all guns blazing. The hope from the board and shareholders is of course that we could double our revenues and profits at some stage during the 5 year period and still only pay 2007 capped tax rate.

Most companies are unlikely to hit 2007 tax take anytime soon so thats zero cost short term but its encourages businesses to invest now in growing your core capability. That might be manufacturing capacity, IP, productivity tools, training etc but who knows what might happen in 2011, 2012 and 2013 while jobs where saved now.

Remember the cost of unemployment to society, that has holding cost during the recession and on the positive side the benefits of increased productivity, PAYE and exports.

I thought this idea would appeal to free market guys but the idea was filtered out before the words had left my mouth via an agenda management process. Such is life but trust me Kate there are many great ideas buried in the stuff that took place at the summit that the public have never seen.

Now re the funding issues: As we see banks nationalized (one way or the other) around the world isn't it time we had at least one bank in New Zealand working for the productive economy. The sucking sound you can hear is money leaving New Zealand business lending (including farmers) and it's not getting any better. To get business moving and save jobs something has to be done and it probably needs to be more radical than Bill English has an appetite for at the moment.

Let's remember Bill English inherited government debt at around 18% of GDP and an OCR at 9.5%. At a governmental level we had more options than most but our private debt was actually the issue. Our tax policies created unproductive investments and the government needs to address that issue to restore confidence in people like me that we are not going to have another asset bubble and see FX traders take our dollar back to 80 cents to the USD. It's not a problem now but it's a structural issue that has to be addressed while in recession along with monetary policy. It is only in recession that these issues can be restructured. Let's not waste the opportunity.

Kate..not looking good...the pin has been pulled, so has the plug so JK pull your finger and get capable staff into the basement and plan for survival (I stated this months ago)! Forget the banks they are organisms that only have concern for themselves. Get printing bundles of Tasman dollars along with a new look Civil Defence..... radical contingency plans are needed.

As Bernard concludes the global recession has just begun.
I still maintain we have entered a state of regression rather than simply a recession or depression.

Face up to it your hot air balloon wont fly and worldwide the banks virtual reality finance that kept the brightly coloured balloons aloft has vanished. It is not simply a bad dream.

It is pointless to spin optimism,speculation and hype in a vain effort to recreate the artificialism and fal$e state of mind we have ignorantly lived in. It may have driven the economics of the past two decades but not the decade we face.

You do need a brave face to even comprehend the new austere reality and regression we face. The world has had a dramatic change,with implications few yet fully comprehended, other symptoms have not surfaced or yet been created (it is an axiom of any disaster).

To date there seems to be inadequate response or contingency planning for the worst case economic scenario.

Selwyn - I am very interested in hearing of the barriers your ideas faced at the summit. This comment in particular that "agenda management process" is a classic form of power initially described by Stephen Lukes (1974) classic work on the subject.

I fully agree and understand the tenor of the ideas you put forth - and I suspect you are a young entrepreneur not from the generation of thinkers that now forms NZ's "corporate and political elite". Take Stephen Tindle and Micheal Hill, as examples of that "corporate elite" - neither of them ever created/developed anything of intellectual benefit to society or social productivity advancement in my opinion. Both merely were opportunistic individuals in the right place at the right time to exploit the opportunity afforded by duty free importation of goods manufactureed in third-world economies. And these are the businessmen heralded as heros by not only this but the last Government as well.

It's a very sad state of affairs.

I always thought that it make more sense for the government to partner with fund managers - you know, the ones who are actually in the business of investing in equity - rather than banks.

Selwyn, fair enough - bit hard on Steve and Mike but I just wish we could break free from this 'nation of shopkeepers' type model of business adoration.

My cynicism aside however - I really am interested, why, in your opinion, have all these good ideas been buried then?

You sort of offered a possibility that Bill English hasn't got the "appetite" for radical reform - but I think that's too simplistic. Certain interests are being protected - others (considered less important) are being thrown to the wolves.

Winston Peters had been going on about monetary policy reform for years - and was ridiculed by 'the establishment'. Bill English played down the SC review of the RBA - the classic "do nothing" approach. You see the threat to your business - as does every other exporter - I just don't understand why successive governments have ignored this structural issue, as you say.

Andy Hamilton, Wally, I fear you are right. I sincerely hope that Hugh Pavletich's efforts with the government bear fruit asap. We desperately need some public pronouncements from them to the effect that we are about to get a big dose of a free market in land supply, and that house price rises are right off the cards as from now.

Otherwise, we risk tracking the USA, and our bubble will blow up just as soon as our Reserve Bank no longer has any room to move, our households are maxxed out on debt (as if they aren't already), and our productive sector has died from lack of capital. When this happens, expect NZ to be the world's worst economic disaster area.

In tandem with putting a supply-side brake on house prices, our government should make business investment and lending as attractive a proposition as possible from the point of view of taxation and regulation. Banks might start lending to businesses again if they know that there are not going to be any more RMA delays, no more workforce shakedowns of employers, and minimal taxation burden for the next few years at least, to name but 3 obvious points.